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' l .- ._ : 5 5 ’5: 5:5,: :':V‘5:5‘ : 1:55": a“ 5: = .I :: 5.1: 5 I| :, 5 55 5.555l5l5‘5 55. 5 I5 5. 111 111111111111 00682 1064 1111 11111191111 harms This is to certify that the thesis entitled THE LOCUS OF DECISION MAKING IN MULTINATIONAL CORPORATIONS AND ITS RELATIONSHIP TO SUBSIDIARY PERFORMANCE presented by Donna G. Goehle has been accepted towards fulfillment of the requirements for Ph.D. degree m Marketing and Transportation Admin. Major professor Date August 21, 1978 0-7 639 4| a11|lllllll 14 I. 1315.. l © 1978 DONNA GENE GOEHLE ALL RIGHTS RESERVED THE LOCUS OF DECISION MAKING IN MULTINATIONAL CORPORATIONS AND ITS RELATIONSHIP TO SUBSIDIARY PERFORMANCE By Donna G. Goehle A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Marketing and Transportation Administration 1978 ABSTRACT THE LOCUS OF DECISION MAKING IN MULTINATIONAL CORPORATIONS AND ITS RELATIONSHIP TO SUBSIDIARY PERFORMANCE By Donna G. Goehle This dissertation focuses on the locus of decision making characterizing multinational firms and their subsidiaries and its relationship to subsidiary performance. A conceptual model was developed which drew from the existing research in organization theory, comparative management, and international business which assisted in the delineation of the relevant variables and suggested the nature of their relationship to the locus of decision making. The conceptual model incorporated certain corporate and subsidiary factors considered an influence on the determination of the locus of decision making. Corporate factors included product line or industry, size and complexity of international operations, organization struc- ture, availability of managerial talent, and corporate phil050phy. Subsidiary characteristics included subsidiary age and size, availa- bility of local managerial talent, geographic distance from headquar- ters and other affiliated units, and subsidiary environmental characteristics. Donna G. Goehle The locus of decision making was measured by the level of participation the headquarters and subsidiary management had in decision making for twenty-nine decisions, representing six functional areas. Levels of participation for headquarters and subsidiary managers were measured for each decision based on responses to a five-point scale of decision process categories which indicated vary- ing levels of headquarters and subsidiary participation. The sample included ten U.S. multinational corporations representing five industries: pharmaceuticals, tire and rubber, automobiles, capital equipment, and food processing. Each firm maintained a wholly owned subsidiary in France, Brazil, and the United Kingdom. Data for each corporation were obtained through in-depth interviews with thirty- two headquarters executives. Two measures of the locus of decision making were reported. Decision process values were used to develop a centralization index for companies, industries, functions, and national environments. Substantial differences in the level of centralization for firms, industries, functions, and environments were present, indicating the expected differences in the locus of decision making. Also, the level of headquarters participation was reported as high, medium, or low. Substantial differences within and across functions, industries, and national environments were again visible. The terms "integration" and "differentiation" were determined to be better descriptors of the locus of decision making than the overall centralization index. Finance and research and development were high in integration and low in differentiation for all industries Donna G. Goehle and countries. Marketing was relatively high in both integration and differentiation. Personnel, purchasing, and production exhibited lower levels of integration and relatively high levels of differen- tiation. Differences between environments were also apparent. Based on the centralization index, France was somewhat higher than the United Kingdom; however, the two countries were almost identical in overall participation patterns across functions. Brazil had the lowest centralization index and analysis revealed that subsidiaries in Brazil had fewer headquarters-imposed decisions in all functional areas. Centralization indices for each subsidiary were combined with performance data classifying each as high, medium, or low in performance. The findings indicate there was no relationship between the overall level of centralization for the subsidiary and its per- formance. Consequently, it appears that high-performing subsidiaries will be characterized as having the appropriate levels of differen- tiation and integration within and across functions rather than an absolute level of centralization or decentralization. The findings suggest corporations have uniform corporate policies for all subsidiary units. The major influence in determin- ing these policies appears to be the nature of the product line or industry. For optimization of corporate and subsidiary performance, these policies should reflect levels of integration and differentia- tion apprOpriate for the firm, the subsidiary environments, and the Donna G. Goehle functions themselves. Differences in implementation of these poli- cies on a subsidiary-to-subsidiary basis appear to be relatively minor and reflect the influence of one or more of the variables examined and reported in this study. ACKNOWLEDGMENTS This study would not have been possible without the assistance of many individuals. While many professional colleagues and practi- tioners gave the author invaluable assistance in the long and arduous task of conceptualizing and implementing this study, I am particularly indebted to Professor Donald Taylor for his invaluable assistance and encouragement throughout all phases of the endeavor. I am also appre- ciative of the many helpful comments and suggestions offered by Professors Donald Henley and Henry Tosi. I also wish to acknowledge the members of the international business community who were extremely generous in sharing their time and experiences. Without their interest and cooperation, the study would not have been possible. I am particularly grateful to Gerrard Powell, Sherman Bailey, and Larry Owen for their assistance in the development and refinement of the methodology used to collect the headquarters and subsidiary data. To Kristy and Keith, who were always helpful and very under- standing throughout the project, I am also grateful. My greatest appreciation is for the support and encouragement offered by my husband, Andrew, who never dreamed he'd have to live through another dissertation. His professional insight and comments ii often served as a catalyst in helping me to move forward from a temporary impasse. I greatly appreciate the infinite patience and understanding he manifested throughout the project. TABLE OF CONTENTS Page LIST OF TABLES ........................ vi LIST OF FIGURES ........................ x Chapter I. INTRODUCTION: SIGNIFICANCE AND BACKGROUND OF THE PROBLEM ..................... 1 Public Policy Implications ............. 2 Managerial Implications ............... 7 Major Research Question ............... l4 Major Research Question .............. l6 Major Research Areas ............... 16 Limitations ..................... 16 Organization .................... l9 II. LITERATURE REVIEW ................... 22 Locus of Decision Making in Multinational Companies . 23 Corporate Characteristics ............. 4O Subsidiary Characteristics ............ 57 III. CONCEPTUAL FRAMEWORK, METHODOLOGY, AND SAMPLE COMPOSITION ..................... lO4 Conceptual Framework ................ lO4 Methodology ..................... III Data Needs .................... ll2 Research Design .................. llS Sample Selection ................. l16 Interviewing Procedure .............. ll9 Sample Composition: Corporate Characteristics . . . . 120 Size and International Experience ......... l2l Product Line ................... l27 Organization Structure .............. l30 Availability of Managerial Talent ......... 138 Corporate Philosophy ............... l45 iv Chapter Page Sample Composition: Subsidiary Characteristics . . . 150 Subsidiary Age and Size .............. 150 Availability of Local Managerial Talent ...... 159 Geographic Location ................ 164 Subsidiary Environment .............. 165 Environmental Certainty/Uncertainty ........ 166 IV. LOCUS OF DECISION MAKING FINDINGS ........... 177 Locus of Decision Making: Subsidiary Findings . . . . 181 Locus of Decision Making: Headquarters Findings . . . 188 Overall Centralization Levels for Sample Firms . . 189 Levels of Centralization by Industry and Function . 197 Levels of Centralization by Country and Function . 215 Levels of Centralization by Country and Industry . 227 Subsidiary Performance Findings: Measures of Performance and the Locus of Decision Making . . . 234 V. SUMMARY AND CONCLUSIONS ................ 250 Scope and Objectives of the Study .......... 250 Major Findings and Conclusions ........... 254 Limitations ..................... 264 Implications of the Findings ............ 265 APPENDICES 269 A. LETTER OF SOLICITATION ................ 270 B. HEADQUARTERS INTERVIEW GUIDE ............. 273 C. SUBSIDIARY QUESTIONNAIRE ............... 298 WORKING BIBLIOGRAPHY ..................... 312 Table 01th Osooowm 11. 12. 13. 14. 15. 16. 17. LIST OF TABLES Sample Firms: Size Characteristics ........... International Operations of Sample Firms (1977) International Operations by Number of Countries Years of International Experience for Sample Firms . Sample Subsidiary Age--France, Brazil, and United Kingdom ....................... Sales Concentration (1977) ............... Production Technology ................. Organization Structure of Sample Firms ......... International Staff by Functional Area in Headquarters . Role of Headquarters Staff--Frequency Table ...... Policy Guidelines by Functional Area for Subsidiaries International Line Executives Located at Headquarters in Sample Firms ................... Availability of Managerial Talent for International Line Responsibility in Headquarters ......... Importance of Prior International Experience for International Headquarters Personnel and Subsidiary Managers ................. Availability of Personnel for International Assignment by Functional Area ............ Corporate PhiloSOphy With Respect to Controlling Subsidiary Operations ................ Control of Foreign Operations Compared to Domestic in Sample Firms ................... vi Page 122 123 125 126 127 128 130 132 133 134 137 139 141 142 144 145 147 Table 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. Age of Sample Subsidiaries ............... Sample Subsidiary Size ................. Sample Subsidiaries Accounting for at Least 5 Percent of Total Corporate Sales ............... Subsidiary Size and Formal Authority .......... Subsidiary Managers' Characteristics as an Influence on the Locus of Decision Making ........... Availability of Managerial Talent for Subsidiary Management Positions by Country ........... Perceived Environmental Uncertainty in Sample Countries ...................... Perceived Level of Environmental Uncertainty, by Country and Sector .................. Perceived Influence of Environmental Uncertainty on the Locus of Decision Making in Subsidiary Environments Characterized by High Uncertainty . . . . Perceived Influence of Environmental Uncertainty on the Locus of Decision Making for Sample Member Subsidiaries, by Country ............... Differences Between Headquarters and Subsidiary Managers' Perception of the Locus of Decision Making ........................ Subsidiary Managers' Perception of the Headquarters and Subsidiary Levels of Participation in 108 Decisions ...................... Level of Centralization Perceived by Headquarters and Subsidiary Managers ............... Headquarters Perception of the Locus of Decision Making for All Corporate Subsidiaries by Functional Area Expressed as Centralization Indices ....... Headquarters Perception of Decision-Making Process for All Corporate Subsidiaries by Functional Area Level of Headquarters Participation by Functional Area for All Corporate Subsidiaries ......... vii Page 152 153 154 155 161 164 170 171 173 174 182 184 186 190 193 196 Table Page 34. Headquarters Perception of the Locus of Decision Making for All Corporate Subsidiaries by Industry Type .................... 198 35. Level of Headquarters Participation for All Functions by Industry ..................... 200 36. Locus of Decision Making by Function and Industry: Summary Table .................... 203 37. Level of Headquarters Participation for Marketing Decisions by Industry ................ 204 38. Level of Headquarters Participation for Finance Decisions by Industry ................ 206 39. Level of Headquarters Participation for Purchasing Decisions by Industry ................ 209 40. Level of Headquarters Participation for Production Decisions by Industry ................ 210 41. Level of Headquarters Participation for Personnel Decisions by Industry ................ 212 42. Level of Headquarters Participation in Research and Development Decisions by Industry .......... 214 43. Locus of Decision Making for All Corporate Subsidiaries and Subsidiaries Operating in France, Brazil, and the United Kingdom ............ 216 44. Locus of Decision Making by Function and Country: Summary Table .................... 217 45. Level of Headquarters Participation by Country and Functional Area--United Kingdom ........... 221 46. Level of Headquarters Participation by Country and Functional Area--France ............... 222 47. Level of Headquarters Participation by Country and Functiona1 Area--Brazil ............... 223 48. Level of Headquarters Participation by Industry and Country--France ................... 228 49. Level of Headquarters Participation by Industry and Country--United Kingdom ............... 229 Table Page 50. Level of Headquarters Participation by Industry and Countr --Brazil ................... 230 51. Measures Used by Sample Firms for Evaluating Subsidiary Performance ................ 235 52. Substandard Performance of the Subsidiary Unit as an Influence on the Locus of Decision Making ...... 238 53. Subsidiary Performance and Level of Subsidiary Participation in Decision Making ........... 242 54. Headquarters Perception of the Influence of the Locus of Decision Making on Subsidiary Performance ..... 245 55. Functional Areas Requiring Most Headquarters Participation and Most Subsidiary Participation . . . 247 ix LIST OF FIGURES Figure Page 1. Conceptual model .................... 109 CHAPTER I INTRODUCTION: SIGNIFICANCE AND BACKGROUND OF THE PROBLEM The emergence and rapid growth of international business activities during the past twenty years has brought with it chal- lenges to governmental and business leaders as well as academicians and individuals interested in understanding the current scope of multinational enterprises and activities. Until the 19505, there were few firms which considered themselves active participants in markets outside their own national boundaries; however, today, rather than treating international business as an afterthought, many companies are beginning to consider themselves truly transnational or multi- national in philosophy and practice. Although some European and American firms have been engaged in multinational operations for more than half a century, the wide-scale evolution of multinational firms is essentially a contemporary phenomenon.1 The multinational firm has been distinguished from its prede- cessors primarily by its attempts to integrate and control its inter- national operations through applying a global perspective to strategic marketing, manufacturing, and research activities. Perlmutter des- cribed this evolutionary process as one in which a firm moves from primarily an ethnocentric view of international business operations to a polycentric approach and eventually to a geocentric or global basis for planning, coordinating, and controlling the activities of the international enterprise.2 As the corporation moves toward the geo- centric stage, the company adopts a corporate philosophy of operating as though there were a world market which can be serviced with products obtained from one of several locations and by one of several tech- niques: exporting, licensing, and investments in local manufacturing. Thus, the corporation becomes truly multinational when it considers single national markets as less significant than the world market in influencing the strategic decisions of the enterprise.3 Therefore, the multinational corporation attempts to gain its own objectives with little regard to separate national interests.4 Public Policy Implications Given the magnitude of foreign direct investments by companies headquartered in numerous countries and their increased attempts to coordinate corporate activities on a global basis, there has been a corresponding increase in public and private attempts to evaluate the economic, political, and social power these organizations have and the ways in which they may exercise this influence over individual countries and in the international economic and political sphere. Host country concerns regarding the activities of multinational com- panies operating within their boundaries include such things as: exploitation of natural resources, local labor, and consumers; failure to share technology with local affiliates; negative impacts on balance of payments position; influence over national political issues and processes, use of bribery and questionable payments; introduction of foreign cultural values and habits; and other corporate activities which may run counter to national interests. Some criticisms of multinationals are salient; however, there has been a tencency toward blanket indictments of all multinationals which have not been verified by empirical studies. Until very recently, most of the criticisms of multinational corporations have been directed at their nondomestic activities. Nevertheless, there are numerous concerns being raised by residents and organizations within the countries in which the multinationals are incorporated. Some of the major criticisms directed at U.S.-based multinationals include the following: International investments represent investments that should remain at home to provide jobs for U.S. workers; sales of high-technology equipment and processes reduce the competitive position of the U.S. internationally; corporate inter- national monetary activities have worked counter to the best interests of the country; sales of certain products to the Soviet Union and China do not coincide with our defense interests; and subsidiaries frequently engage in activities which are illegal under U.S. statutes. Some of these concerns have been refuted by recent studies, particu- larly in the area of the effect of foreign investment on U.S. employ- ment; however, it is highly likely that these will be continuing concerns and additional issues will be raised as public and private groups and individuals pursue studies of multinational corporations and their activities. Many of the concerns of the host governments, particularly of the less developed countries, regarding the multinational firm have been channeled through the United Nations and various other regional organizations. In 1974, the United Nations established the United Nations Centre on Transnational Corporations. The Centre has been charged with authorizing and conducting studies which will shed light on the dimensions of multinational business activities as well as their effects on economic development, technology transfer, cultural values, and political developments.5 A related purpose of the Centre is to assist in drafting a code of conduct which would apply to multi- national corporations.6 Although some initial efforts have been made in each of the previously mentioned areas, the scope of the Centre's mandate is so wide and the availability of existing data and research so meager that it appears it will be some time before descriptive information will be available to international and national public policy makers. While many countries--particularly the developing nations--are actively supporting the United Nations' efforts to shed light on the operations of multinationals, they have, for a number of years, imple- mented regulations aimed at controlling the activities of the foreign- based companies doing business within their boundaries. Some of the regulations which affect foreign direct investors include such things as: required local participation in ownership and/or control of the local firm, financial restrictions on remittance of profits to the parent company, provisions ensuring timely transfer of technology to the local operation and/or location of research and development facilities locally, and other special provisions relating to foreign- controlled companies. Some countries feel that these restrictions and regulations are not adequate in ensuring acceptable corporate behavior by foreign- domiciled corporations and have either implemented stronger controls or are contemplating major changes in statutes relating to foreign direct investment. A recent example of this trend is the passage of the Canadian Foreign Investment Review Act of 1973 and the subsequent establishment of the Foreign Investment Review Agency. "This Agency has the power to examine proposed takeovers of Canadian businesses by non-residents or by non-resident controlled corporations and to advise the Cabinet as to whether the acquisitions would be of significant 7 If the firm is unable to demonstrate that the benefit to Canada." acquisition would provide such "significant benefits," the Cabinet would disallow the transaction. It is important to note that provi- sions of the Foreign Investment Review Act apply gnly_to "transactions involving the shifting of effective 'control' of a business carried on in Canada (either by a Canadian or a foreigner) to a foreign-controlled firm or person."8 The underlying rationale for these regulations involves the assumption that Canadian-controlled or owned enterprises will be more responsive to Canadian national industrial and economic interests and policies. Although it seems logical to assume that an owner or manager of a company who is a citizen of the country in which the enterprise is located will respond more frequently and favorably to national interests, it is important to recognize that this assertion has not been empirically verified. The interests of multinational firms and national governments frequently coincide; therefore, very few indus- trialized countries have blocked the entry of foreign investments. On the other hand, it is also apparent that substantial differences in the interests of firms and host governments are also likely to occur. These differences can be partially attributed to the different con- stituencies through which a multinational firm and a national govern- ment attempt to realize their objectives. Given the internal and external constraints affecting both governments and corporations, they are often forced to compromise in attaining a relationship which is somewhat less than either of them would prefer.9 When corporate interests and those of the host country con- flict, they are usually manifested through the local subsidiary. It might be very likely that the local subsidiary management finds itself in agreement with national policies and in conflict with those of the parent company. For example, the subsidiary manager may be supporting the expansion of domestic activity through research and exporting when the parent company is less than enthusiastic about such activities. On the other hand, it is possible that the subsidiary management may find itself in conflict with the interests of both headquarters and the host government. Furthermore, it seems reasonable to assume that the managers of any firm--whether they are local nationals or foreigners--will consider the merit of business decision through the applying of similar evaluative criteria. In reviewing the current relationship between national gov- ernments and multinational corporations and their subsidiary organizations, it appears that governments have become increasingly concerned with ownership agg_control of those subsidiary operations and their potential for generating benefits as well as negative influ- ences. Since there is not international agreement on the means of dealing with this dilemma, governments will have to continue for some time at adapting national restrictions and/or regulations designed at balancing their needs for greater domestic control over their economies as well as their desire to obtain the benefits accrued through allowing foreign direct investment in those economies. In the process of developing appropriate legislation to deal with these issues, governments will need to obtain information on the way in which multinational organizations control their subsidiary operations, including the degree of centralization of decision-making authority in formulating multinational corporate policy as well as in operating decisions. At the present time, there is very little empirical data on which these countries can draw in the framing of public policy designed to effect a balance between corporate and national interests. Therefore, one of the central contributions of this study is the information regarding the role of the subsidiary manager vis-a-vis corporate headquarters in those decisions which affect the subsidiary operations and performance. Managerial Implications The pattern of development characterizing the international business activities of most multinational corporations has been des- cribed as a process of "creeping incrementalism" rather than strategic 10 Several authors have described the internationalization choice. process of the firm's business interests as beginning with a primary emphasis on exporting and a movement through a series of stages to the establishment of foreign subsidiary operations. As corporations have increased their involvement in world markets through substantial commitments of personnel, materials, and capital, they have encoun- tered new challenges to effective enterprise management. The elements characterizing the domestic market environment are now multiplied by as many markets in which the firm conducts its business as well as by the types of activities undertaken. In many of these national envi- ronments, multinational corporations are facing increased governmen- tal pressures to respond to local economic and social issues. Increased competition for global market share and a growing apprecia- tion of the potential for synergistic benefits of multinational opera- tions have caused multinational managers to adopt global strategies and global planning as a substitute for the former treatment of international activities as a sort of "portfolio of diverse and separate country companies tied together by a network of ad hoc rela- tionships."11 The adoption of global approaches to strategic planning and Operating activities adds a new dimension to the managerial tasks associated with those activities as well as to the organization struc- ture in which those tasks must be accomplished. In contrast to the firm which operates in one national market, the multinational enter- prise operates in a number of countries, each of which is character- ized by a unique set of environmental characteristics which pose opportunities and challenges to management. In addition, the manage- ment task is made more difficult due to the fact that subsidiary operations are frequently separated by large distances not only from headquarters but from each other. Consequently, the integrative task faced by multinational managers interested in realizing the syner- gistic effects of their global operations and investments is extremely complex. As the firm develops a greater commitment to developing a unified global perspective for all phases of the corporation, there is usually a need to develop an integrated global organizational structure to accommodate exporting, licensing, manufacturing, market- ing, research, and human resource activities being undertaken in large numbers of countries.12 Since the previous organizational structure is often no longer adequate in providing the means by which coordi- nation and control can be achieved, companies tend to restructure the organization as their foreign involvement deepens and the importance of international operations becomes more critical to the successful operation of the firm.‘3 The typical pattern of organizational development character- izing the American multinational firm was described by Stopford and Wells in Managing the Multinational Enterprise, which represents some of the findings of the Harvard Multinational Enterprise Project in which they participated. Their findings indicated that the general pattern of evolution for the multinational corporation (at least in the American-based multinationals) is characterized by successive movements through the autonomous subsidiary stage to an international lO division structure, and then to a global structure based on product, geography, or a matrix of product and geography.14 According to the authors, international divisions were the typical structural form for most multinationals in the early 19605; however, by the mid-19605 a large number of multinationals had either abandoned or were in the process of moving toward one of the global structures.15 While the information on multinational organization structure 16 18 in publications by Stopford and Fouraker, Lombard,]7, Dance, 19 and Behrman20 is perhaps useful to multinational top Schoolhammer, management in their attempts to design organizational structures compatible with complex activities and environments, they provide rela- tively little information on the centralization/decentralization of authority between subsidiary units and headquarters which are present regardless of the type of organizational structure selected. A 1968 Conference Board Report indicated that senior-level executives felt that one of the most pressing problems being faced by their corpora- tions was the need for top management to pay more attention to the integration of international and domestic sides of their business into a unified organization.2] Organizational issues of particular concern to these executives included such things as: (l) organizing for international operations, (2) communication with foreign affiliates, (3) control of foreign affiliates, and (4) integrating foreign opera- 22 While many of these firms may have since tions with domestic. adopted global organizational structures which would likely have some impact on the issues raised in this study, it is apparent that the question of how much authority corporate headquarters personnel should 11 retain and how much they should assign to subsidiaries and affiliates has not been completely resolved by multinational enterprises.23 Some companies, such as Massey Ferguson, have opted for a decentralized management structure while other companies have adopted a more centralized approach to assigning authority and responsibility at headquarters.24 Among the factors which play a role in determin- ing the degree of centralization characterizing a particular firm are such things as: size of firm, constraints on top-level management abilities and time, profitability and age of Specific subsidiaries, local national environments, diversity of the product line nationally and internationally, and the degree of diversity and integration of international operations.25 It is likely that the degree of centrali- zation of decision making within any corporation will vary with respect to functional areas as well as within the overall corporation at dif- ferent times. Particular subsidiaries may, by virtue of their age, size, and local managerial talent available, exercise greater power in the decision-making process than other subsidiary organizations. An implicit assumption of the decentralized decision-making structure is that the subsidiary organization can respond more quickly and effec- 26 In addition to the supposed tively to local environmental demands. greater flexibility of the decentralized structure, other advantages may include such things as higher motivation for subsidiary managers, improved local management talent in planning and operations, the encouragement of greater initiative and creativity, creation of a 12 local image, and a more favorable attitude by local government leaders.27 More centralized organizations also have some advantages over the decentralized forms. The ability to obtain economies of scale in marketing, production, research, and other activities as well as the ability to avoid duplication of functional and operating activities are two of the most frequently cited advantages of the centralized structure. Shortages of capable local managerial personnel may also make such structures necessary. In their attempts to integrate inter- national operations, many of the well-known multinationals are moving toward greater centralization of authority and responsibility.28 "The centralization of authority is prompted by the desire to maximize the benefits of multinational operations for the company as a whole, rather than to maximize the profit performance of individual sub- sidiaries."29 Since the type of overall organization structure selected by the multinational company-~international, product, geographic, or matrix-~will have a direct bearing on the patterns of allocating authority, responsibility, decision-making participation, and channels and content of communications activities, management must consider the degree to which the tradeoffs between centralization and decentrali- zation will affect subsidiary performance as well as overall corporate performance. In addition, given the increased concern of national governments to obtain greater control over their industrial and economic sectors, it appears that the corporate moves toward greater 13 centralization may be on a direct collision course with the policy initiatives of various national groups. In view of these opposing moves by business and governments, there is a need to provide information on the nature of the relation- ship between headquarters and the subsidiary as well as on the effects of that association for the performance of the subsidiary and the way in which that performance affects the local environment positively or negatively. More specifically, managers must decide how much centrali- zation is necessary and/or desirable and what the effects of that deci- sion will be on the performance of the subsidiary as well as for the corporation as a whole. By the same token, governmental moves to regulate multinational corporations through requiring greater ”local control" may or may not lead to improvements in the performance of the local subsidiary. In reviewing the discussion thus far, it is apparent that nations are faced with a variety of public policy alternatives which can be utilized in protecting their national interests vis-a-vis those of the multinational corporation. Senior-level managers are interested in developing organizational forms and policies which provide for optimal corporate effectiveness and economic efficiencies on a global basis. Both groups require certain types of information regarding the range of options available to them and the positive and negative effects that the choice of any of the alternatives may generate. Although a number of researchers have examined various aspects of multinational organizations and the way in which they are organized in conducting their operations, there is almost no information 14 available on the effect of these policies and practices on subsidiary performance. Therefore, one of the central objectives of this dis- sertation is to describe and evaluate the effects on subsidiary per- formance of differing degrees of latitude allowed subsidiaries in setting policy and in operations. Major Research Question While increasing numbers of academicians have selected various aspects of multinational business organizations as areas of study, relatively few have focused their efforts on studying the nature of the relationship between headquarters and the wholly owned subsidiary. Those studies which have been published tend to focus on subsidiary xoperations within a single country or geographic area or within one industry. Many of these studies do not differentiate between the .wholly owned subsidiary and other affiliate organizations such as joint ventures and branch sales offices in their descriptions of the participation of the local affiliates in the decision-making process. Furthermore, evaluations of the effect of the degree of subsidiary or affiliate decision-making participation on sub-unit performance are almost nonexistent. Given the fact that the first major descriptive study of U.S. multinational organizational structures by Stopford and Wells was not published until 1972 and Lawrence Franko's detailed study of European multinationals appeared only in 1976, one can easily see why there have been so few integrative studies concerned with the tasks of managing global structures and their effects on the perfor- mance of sub-units as well as the organization as-a whole.30 While 15 there have been substantial numbers of articles and books published which deal with managing international business operations, there is little empirical support for many of the findings. Because many corporations have now reached a level of inter- national activity and investment which poses new challenges to manage- ment in planning and operating global organizations, there is a need to find information which can be useful in designing organizational structures and in anticipating the likely effects of operating under any particular set of policies and procedures. The desirability of and potential for synergistic benefits in planning and operating multinational organizations is well publicized in the international business literature; however, the pull toward decentralization gen- erated by heterogeneous environments and their unique contingencies is equally well documented. Thus, as Henry Bodinet so aptly stated it, "The optimal balance between centralization and decentralization is difficult to achieve because the two forces are driving the multi- national simultaneously in both directions."31 Moreover, this balance is also very unstable since there will be continual changes in inter- national environments, technologies, competitive situations within 32 industries, and within firms themselves as they grow. "Consequently, the optimal trade-off and the best solutions for implementing them are "33 Therefore, most multinational firms will find likely to change. themselves in positions of having to work out the means of dealing with these conflicting pressures on a recurring basis; and at present, there is little information available by which they can guide their efforts. 16 In light of this problem, the central research question addressed by this dissertation was: Major Research Question What is the nature of the relationship between sub- sidiaryjperformance and the centralization/decentrali- zation of decision making? The issue of centralization or decentralization was viewed primarily as an authority question which can be expressed in terms of the decision- making authority the subsidiary has in the following areas: finance, manufacturing, marketing, personnel, purchasing, and research and development. In order to provide information by which the major research question can be answered, the focus of the dissertation cen- tered on three major research areas: Major Research Areas 1. To describe by function, industry, and country area the degree of centralization or decentralization of decision- making authority. 2. To explain how the characteristics of the firm, the subsidiary, and the subsidiary environment affect the degree of centralization or decentralization of decision- making authority. 3. To explain the nature of the relationship between the degree of centralization or decentralization and sub- sidiary performance. Limitations As with any research undertaking, there are several limitations to this particular study which should be noted at this time. First of all, the study was limited to ten companies representing five indus- tries. Obviously, it would be desirable to include more companies 17 and industries; however, financial considerations as well as the need to obtain cooperation from top-level executives for detailed inter- views effectively constrained the researcher to a smaller number of companies. A second limitation was the fact that the data which were collected reflected the situation as it existed within companies at one point in time. Although a longitudinal study of the centraliza- tion/decentralization policies and practices for corporations would be of value, this research effort was concerned with describing cur- rent relationships and their effects on subsidiary performance in the short term. Third, it is possible that subsidiary managers and head- quarters personnel differ in their perceptions of the degree of decision-making authority that rests with each individual or level of the organization. However, this research is primarily concerned with the identification and description of established policies and proce- dures currently in operation which indicate the parameters managers in designing their international planning and control system. Figure 1 illustrates the conceptual model underlying this research effort. It was hypothesized that corporate and subsidiary factors interact tO determine the locus Of decision making within a 109 CORPORATE CHARACTERISTICS: . Product line/industry . Size, complexity, and international experience . Organization structure Availability Of managerial talent U1 #0») N-fl —l SUBSIDIARY CHARACTERISTICS: . Age and size . Availability Of local managerial talent . Geographic distance from headquarters or affiliated units . Corporate philosophy 4. Characteristics Of the subsidiary environment: economic, political, socio- cultural, competitive, technological, legal 5. Environmental certainty/ certainty LOCUS OF DECISION MAKING: affects --Production 1 --Market1ng affects f --Personnel 4% Pa_fects_> --Research and development I --Finance I --Purchasing I I I I PERFORMANCE: l I --Profitability --Sales growth --Market share --Return on investment Figure 1.--Conceptual model. 110 subsidiary Operation. The locus of decision making, in turn, may influence the performance Of the subsidiary unit. Above average or below average performance may further alter the locus Of decision making. Differences in the locus Of decision making may also be present when the locus Of decision making for each functional area is determined. The locus Of decision making is a measure Of the authority the subsidiary manager has in making decisions regarding his subsidiary organization. Some authors have focused on where, headquarters or at the subsidiary, certain decisions are made. In order to gain addi- tional insight into the actual decision-making process, and hence, more accurately determine the locus Of decision making and its rela- tionship to subsidiary management authority, a set Of decision prO- cess categories was established to accommodate those Objectives. The following categories serve as descriptors and measures of the locus of decision making: DECISION-MAKING PROCESS Decision Process 1 The subsidiary manager generates alternative solutions and makes the decision himself. Decision Process 2 The subsidiary manager generates alternative solutions, makes the decision, and submits the decision to his superior for approval. Decision Process 3 Headquarters and subsidiary managers share the problem and col- lectively generate alternatives. Together you generate and evaluate alternatives and attempt to reach consensus on a solu- tion. The solution that has the support Of both the subsidiary manager agg_the headquarters manager will be implemented. 111 Decision Process 4 Headquarters personnel generate alternative solutions and submit these tO the subsidiary manager for his ideas and suggestions. Headquarters personnel then make the decision. Decision Process 5 Headquarters personnel generate alternative solutions, make the decision, and inform subsidiary management Of the decision. The development Of these decision process categories was the product Of interviews with a number Of international executives prior tO the actual field research. In their view, the use of descriptive statements describing the process by which subsidiary and headquarters managers interacted in decisions regarding a specific subsidiary were more complete, and hence more accurate, depictions of the locus Of decision making than the three categories (headquarters, joint, or subsidiary) used in previous studies. Consequently, the decision process categories served as the basis for measurement of the locus Of decision making in this study. Methodology In order to meet the research objectives of this study, illustrated in the preceding conceptual model, certain data needs emerged. First of all, it was necessary to Obtain information regard- ing each Of the corporate characteristics which had been shown to exert an influence on the locus of decision making. Information regarding the subsidiary and its environment was also required. In addition, some measure Of the degree and type of participation by the subsidiary in decision making within each functional area was assessed. Finally, information regarding subsidiary performance was 112 Obtained so that its relationship to subsidiary participation in the decision-making process could be ascertained. Based on the stated research objectives of this study and the framework presented in the conceptual model, certain specific data needs were identified: Data Needs Corporate Characteristics: Data Needs 1. Product Line and Industry Classification a. Major domestic and international product lines expressed by two-digit SIC code classification Degree Of product diversity expressed as the percen- tage of domestic and foreign sales accounted for by each two-digit SIC category. Characteristics of the production technology employed in the U.S. and abroad Size, Complexity, and International Experience Total corporate assets, sales, and profits Foreign assets, sales, and profits as a percentage Of corporate aggregates in each Number and types Of foreign affiliate units. Number of countries in which foreign affiliates are located Corporate Organization Structure a. Type of structure in use at the time Of the study: export division, international division, product, geographic, matrix, functional, or market Identification of individuals having line authority relationships over subsidiary and foreign Operations and location within the corporate structure, includ- ing headquarters and regional personnel. Availability Of Managerial Talent a. Number Of individual senior-level executives with primary international responsibility 113 Scope Of responsibility for individual international managers expressed in terms Of geographic areas, number Of subordinates, and/or numbers and sizes Of affiliate units with direct reporting relationships with the individual Individual assessments by senior-level international headquarters personnel of their corporate character- istics in this area. Corporate Philosophy Individual assessments by senior-level international headquarters personnel Of their corporate international philosophy as being polycentric, geocentric, or ethno- centric. Subsidiary Characteristics: Data Needs 1. Subsidiary Age and Size a. Date Of establishment Of sample member subsidiaries compared to other corporate subsidiaries and to each other. Size Of sample member subsidiaries expressed in sales and assets compared to other subsidiary units, to each other, and in relation to total foreign sales and assets and total corporate sales and assets. Availability and Qualifications Of Local Management a. Information from subsidiary managers on the following dimensions: length Of international, company, country, and subsidiary management experience; nationality; and assessment Of the availability of managerial talent locally. Information from headquarters representatives on: perceived ease of Obtaining local management in sample member countries; availability of personnel for over- seas subsidiary management positions; and the degree to which decision-making authority varies, if at all, across subsidiaries based on subsidiary management characteristics. Geographic Distance From Headquarters or Other Affiliated Units a. Determination of geographic distance of sample member subsidiaries from headquarters and regional units. b. 114 Information from headquarters representatives regard- ing the influence Of geographic location on subsidiary participation in decision making. 4. Subsidiary Environmental Characteristics a. Information from headquarters and subsidiary personnel on certain aspects of the economic, social-cultural, political, legal, technological, and competitive ele- ments Of the environments in which the sample member subsidiaries operate. Information from headquarters and subsidiary personnel on the perceived importance Of and influence Of envi- ronmental characteristics in determining the locus Of decision making for subsidiary units in general and among sample member subsidiaries in particular. 5. Environmental Certainty and Uncertainty a. Information from headquarters and sample member sub- sidiary personnel on their perception of the degree of certainty or uncertainty characterizing the particular national environments in which the sample subsidiaries Operate and more specifically, whether certain elements Of the environment seem to be characterized by greater uncertainty than others In addition to Obtaining measures Of the degree of uncertainty exhibited by each national environment from headquarters and subsidiary personnel, their assessment of the possible influences of environmental uncertainty on the location Of decision-making author- ity was ascertained. Subsidiary Performance: Data Needs 1. Measures of Performance a. Information from headquarters personnel describing the means by which the corporation measured the per- formance Of subsidiary units. Information from headquarters personnel regarding sample member subsidiary performance expressed as an overall performance index and contrasted to the performance of other subsidiaries not included in the sample. 115 2. Locus of Decision Making and Performance a. Assessments Of headquarters and subsidiary personnel Of the decision-making process characterizing sub- sidiaries in general and these firms' subsidiaries in particular. b. Information from headquarters personnel and sample member subsidiary managers on their assessment Of whether there is a relationship between subsidiary performance and the locus Of decision making gen- erally, or within functional areas. c. Information from subsidiary managers on their percep- tion of whether or not the performance Of their sub- sidiary unit had been favorably or adversely affected by the level of centralization with respect to their subsidiary operations in general, or within specific functional areas. Research Desigp_ This study's research Objectives required information which would illustrate the policies and procedures being utilized by cor- porations in determining the location Of decision-making authority between headquarters and their subsidiary units. The nature Of the relationship between the location Of decision-making authority and subsidiary performance required that information regarding perfor- mance measures and outcomes was also available. The previous sec- tion of the methodology identified the specific data needs that were generated by these Objectives and indicated some Of the sources of information that were utilized in fulfilling these needs. The research effort outlined here involved primarily survey research techniques which utilized personal interviews with corporate headquarters representatives and a self-administered mail question- naire completed by selected subsidiary managers. Since this study 116 was designed to explore the nature of the relationships between the variables presented in the conceptual model, it was imperative that the research design allow for functional, industry, and country comparisons. The following discussion presents the major elements Of the research methodology employed in the study. Sample Selection The sampling techniques which were utilized in this study were nonprobability or researcher controlled. There were a number Of factors which necessitated this choice. First, given the nature Of the research design, it was necessary to generate information which would allow for comparisons within companies, industries, functions, and national environments. Consequently, each sample firm was required to have a subsidiary operation in eagh_of the three national environments that were selected apg_the subsidiary must have been wholly owned. This effectively reduced the number Of companies that could be considered as potential members Of the sample. In addition, because Of the time that was required on the part Of headquarters personnel in the interview process, it was necessary to locate companies which were willing to commit top-level executive time to participating in the project. Given the budgetary con- straints within which this research was conducted, it was necessary to limit the sample Of companies to those that were primarily Michigan or Midwest based. Selection Of industry groups, while designed to generate considerable variability in production and marketing char- acteristics, were also selected on the basis of geographic proximity 117 and earlier indications from some companies that they would be willing to participate. Based on these considerations, the actual selection Of sample member firms was Obtained in the following manner. Annual reports and Moody's Industrial Manual provided information regarding the num- ber and location Of subsidiary operations for companies in each Of five selected industries: pharmaceuticals, tire and rubber, food processing, automobiles, and heavy equipment. Information was also Obtained on the percentage of equity held in each subsidiary. Mem- bers Of the sample were required to maintain wholly owned subsidiary operations in the following three countries: France, United Kingdom, and Brazil. As a result Of this selection process, fifteen firms and forty-five of their subsidiaries were identified as potential members Of the research sample. A letter explaining the study and soliciting the cooperation of the firms was mailed to the chief international executive officer Of each of the fifteen companies identified as potential members of the sample. (See Appendix for letter soliciting corporate partici- pation.) Within the following two-week period, each executive was contacted by telephone so that interview times could be scheduled. The actual selection process resulted in securing the cooperation of twelve of the original fifteen companies. Of the three companies that were not included in the final sample, one chose not to partici- pate and two were disqualified because they no longer met the quali— fying criteria of the study. 118 The ten firms comprising the final sample represented all five of the original industries selected for analysis. Two firms per industry were included so that industry comparisons could be made. Because the participating firms were assured anonymity in any reporting of the results Of the study, the names of the partici- pating multinationals are not reported here. However, for purposes Of sample verification and comparisons within and across industries, the following classification method for members of the sample was developed. Industry Pharmaceuticals Firm 1. Firm 1. Industry Automobiles Firm 2. l l 2 2 l Firm 2.2 Industry 3 Tire and Rubber Firm 3.1 Firm 3.2 4 l 2 5 1 2 Industry Capital Equipment Firm 4. Firm 4. Industry Food Processing Firm 5. Firm 5. In addition to the interviews with the headquarters personnel, each of the subsidiary managers in the French, Brazilian, and British subsidiaries was requested to complete a self-administered question- naire sent to them by the individual interviewed at headquarters. Only eight Of the corporations were willing to have their subsidiary managers participate and forwarded the questionnaires to them. Of the twenty-four subsidiary questionnaires, ten were returned. 119 Completed questionnaires from all three subsidiaries were only received from firms 2.1 and 3.2. Follow-up letters and telephone calls were made to the participating corporations, asking for the return Of the other subsidiary questionnaires; however, no additional questionnaires were received. Consequently, given the small return and the quality of the data obtained in the headquarters interviews, the subsidiary results were not considered a major part Of the findings nor Of the analysis. InterviewingyProcedure Arrangements for the interviews were established in tele- phone calls tothe chief international executive Officers following their receipt Of the letter of solicitation. As indicated earlier, in all cases it was requested that the interviews be conducted with the individual or individuals most knowledgeable about the decision- 'making process characterizing the headquarters/subsidiary relationship for the subsidiaries located in France, Brazil, and the United Kingdom. Many individuals said that they and their companies normally did not participate in studies; however, they were very interested in this particular study and indicated that they were very interested in par- ticipating. Their level Of interest and COOperation was evidenced by the fact that although approximately one-and-a-half—hour interviews were requested, the actual interviews lasted much longer. The shortest interview lasted three and one-half hours and the longest eight hours. The average length Of the interviews was four hours. A total 120 of thirty-two interviews were conducted in corporate Offices between March and June, 1978. The data collection was facilitated by use Of an interview guide. (See Appendix for headquarters data-collection instrument.) Because of the length Of the interviews and the willingness of the participants to share information, it was not only possible to Obtain their responses to the questions contained in the interview guide but also to probe for additional information which gave added insight to the researcher in studying headquarters/ subsidiary relations. Some of these Observations were particularly helpful in viewing the relationship of subsidiary performance to the locus of decision making and are presented later in this chapter. Due to the fact that a number Of people from each company usually were available for interviews and were willing to spend con- siderable time in discussing and clarifying their perceptions of the headquarters/subsidiary relationship, it is likely that the data and information generated in these interviews accurately reflects the nature of the decision-making processes characterizing the sample firms and their subsidiaries. Therefore, the headquarters responses figure most predominantly in the findings and analysis. Sample Composition: Corporate Characteristics Since the literature review indicated that certain corporate characteristics may be Of some influence in determining the locus of decision making between headquarters and subsidiary organizations, it was necessary to consider the characteristics of the firms com- prising the sample On the dimensions of size, international business 121 volume, major product line, length of international experience, head- quarters philosophy, and availability Of headquarters' managerial talent. The following tables and discussion highlight the major characteristics of the sample firms on each of these dimensions. Size and International Erperience Because it was desired to obtain a mixture Of firms of dif- ferent sizes and industry groups, the sample composition reflects these Objectives. Five industries are represented and the annual sales volumes ranged from $500 million to $37 billion. While all have had considerable experience in international activities for a period of years, the number Of subsidiaries they have and their worldwide employment levels varied substantially. Table 1 illustrates the com- position of the sample with respect to sales volume, total assets, and worldwide employment. In addition to the absolute size of the sample corporations, some measures Of the size Of international business activity relative to domestic Operations were obtained. Since the level of international activity was suggested in the literature review as possibly influencing the locus of decision making, respondents were asked to provide infor- mation on the percentage Of total corporate sales, assets, and profits accounted for by international activities. Table 2 depicts the level Of international involvement Of sample firms. All of the firms in the sample had substantial international business Operations and Obtained at least 25 percent Of their total 122 m.m ooo.o¢ o.e mum fiuw“ o a mop . cw ooo om ocpmmmoogo took no xgumaoc~ m._ ooonme mum mu“ Hum“ No ooo mm unmanwzou pouwamo "e acammccm ¢.m ooo.mm e.¢ mum mum“ . . o.o . u e ooo mop Leanna use mswh ”m asumzucn o.~ ooo.om~ ~.o~ mum sewn N.o_ ooo.m~e o.um _ N Eco; mmpmnosou=< "N agamzuco wuum one .mmpmm .mgmmme mumconcoo ppm mu:_ocw mcowpmsmao cowmcom "muoz oN mw mm mm mm mp mm mm <2 N m—INP oN mmo_ mm vN om mmo_ Ne 500.” x_suez upssesoomo uozuoss :88 83:8 pesowaessmesm msspuzsum sowuerseoso Eva Dam aspmsusH .meswm opssem to msauusspm sowueNPseosouu.m mpne» 133 .AuFFFnFmsoomos FesoFFessousF xseEFso squ mseusesoueos sF o>ose so Fo>oF soooosFu Fe Fmepm Fo sonsoze m.mm F m o Fesosoo OFFFooom aso> FesoFuosom moFFoo ouesossoo mo moxF .moFseFuFmeam soF eose Fesonos3F xe mmsFFouFoo onFos11.FF oFseF 138 respondents indicated that corporate financial and accounting manuals were standardized for all Operations and were very specific in detail- ing the procedures and authority levels characterizing each management level and unit of organization. However, this was not the case in marketing, where only certain policies were codified and considerable participation by subsidiary management was possible in many firms. The latitude in decision making allowed subsidiary managers was greatest in the areas of production, purchasing, and personnel. The findings with respect to observed differences in the locus of deci- sion making across functional areas parallel these differences in policy guidelines and are reported in the next chapter. Availability of Managerial Talent The review of the literature indicated that the locus of decision making in multinational corporations was influenced by the availability of headquarters personnel. In other words, the ability of headquarters personnel to participate actively in decisions affect- ing subsidiary operations was constrained by the limited number of personnel available in headquarters and by the demands on their time. Several questions were raised in the interviews with headquarters personnel which addressed this issue. In each firm an attempt was made to ascertain the number of senior-level line executives in headquarters with primary international responsibility. Table 12 illustrates the number of international line executives located in the headquarters of the sample firms. 139 Table 12.--International line executives located at headquarters in sample firms. Number Senior-Level Industry and Firm International Line Personnel in Headquarters Industry : Pharmaceuticals Firm l. Firm l. hV Industry : Automobiles Firm 2. Firm 2. WM Industry : Tire and Rubber 1 l 2 2 l 2 3 Firm 3.l 2 4 l 2 5 l 2 0&0 Firm 3. Industry Firm 4. Firm 4. : Capital Equipment #01 Industry : Food Processing Firm 5. Firm 5. ><| n 01 In general, those firms which maintained regional managers in several geographic locations around the globe had fewer line execu- tives in headquarters than did those firms which had a direct report- ing link between the subsidiary manager and headquarters. This was one of the reasons why firms 2.1 and 2.2 had fewer headquarters executives than the other firms in the sample. This was also true for firm 5.2. Some of the firms with larger numbers of headquarters line personnel had three or four regional international vice- presidents and usually an Executive Vice-President for International 140 Operations and a President of the International Division located in corporate headquarters. The average number of senior-level line executives in headquarters was five. Respondents were also asked the number of foreign affiliates that had direct line reporting relationships with the person being inter- viewed in headquarters. 0f the respondents who had direct reporting relationships with subsidiary managers, the number of subsidiaries reporting to an individual manager in headquarters ranged from a low of six to a high of eleven. The average number was seven to eight. In order to determine if these individuals thought that their level of participation in subsidiary operations was constrained by the number of line personnel at the headquarters level, respondents were asked if they perceived their involvement was limited by the number of people available in headquarters for international responsi- bility. In four cases the respondents indicated they thought they would become more involved in subsidiary operations with additional personnel in headquarters. However, in six of the firms, the respon- dents indicated that their international line personnel level was appropriate for their desired degree of participation in subsidiary activities and that the number of headquarters line personnel was intentionally kept at its current level. In one company, the inter- national division had just undergone a major reduction in inter- national personnel because they felt that they were too "top-heavy" and needed to move more of the management of the subsidiaries to the subsidiary manager level. l4l In none of the cases did the respondents indicate they felt they were experiencing an acute "shortage" of headquarters personnel that impeded them from increasing the headquarters role in subsidiary activities. The majority felt that their level of involvement and staffing was appropriate for their desired level of participation. Yet, many of the headquarters respondents indicated that they did see a shortage of managerial talent in their industries and/or companies who were capable of assuming international responsibility for line management positions both at headquarters and in subsidiaries. Tablel3 summarizes the answers respondents gave when asked their perception of the availability of international line personnel in their industry for headquarters assignments. Table l3.--Availability of managerial talent for international line responsibility in headquarters. Yes, Perceive go, D? NOt Don't Know/ Number of erceive a . . . a Shortage Shortage No Opinion Firms Availability in your 8 2 0 l0 industry Only two of the firms indicated that they did not perceive a shortage of qualified managerial talent who could assume international line responsibilities in headquarters. Since this question asked them to indicate their assessment of the availability of international managerial talent in their industry rather than just within their own 142 company, most of the companies perceived difficulties in interna- tional staffing. Several individuals mentioned that they were trying to expand their pool of potential managers, but it was a very slow process, particularly when the requirement of previous international experience was imposed. Since previous international management experience is a pre- requisite for international line positions in some companies, and therefore has an effect on the availability of personnel, respon— dents were asked to indicate how important they considered previous international experience was for a person in their position or an equivalent one in headquarters. They were also asked to indicate how important previous international experience was for a subsidiary manager being appointed to a position outside his or her own country. Their responses are contained in Table l4. Table l4.--Importance of prior international experience for inter- national headquarters personnel and subsidiary managers. Headquarters Line Manager Subsidiary Manager Perceived Importance Extremely important 7(70%) 4(40%) Very important 3(30%) 3(30%) Don't know/no opinion Somewhat important Not at all important Total lO(lOO%) l0(l00%) 143 As the preceding table indicates, the headquarters repre- sentatives indicated that previous international experience was either very important or extremely important for potential inter- national line managers. Three respondents indicated it was either indispensable or essential. They also responded that previous inter- national experience for subsidiary managers was also very desirable; however, three companies indicated that it was only somewhat impor- tant. Since previous international experience was very desirable from the point of view of the managers interviewed in this study, one of the issues that needs to be addressed is the availability of quali- fied personnel to assume subsidiary management positions abroad. The discussion of the findings related to subsidiary characteris- tics covers this issue in more detail later in the chapter. Since the literature review indicated that the availability of managerial talent may influence the locus of decision making generally and within functional areas, some attempt was made to ascertain the availability of qualified personnel for filling inter- national assignments in different functional areas. Interviewees were asked to indicate their perception of the availability of per- sonnel for international assignment in each functional area. (See Table l5.) The sample corporations perceived the most difficulty in obtaining qualified international personnel in research and develop- ment. Some representatives indicated that finance was the easiest and others stated marketing had the largest pool. In many cases l44 Afioopvoo Asmmvm_ Awmmvmm ANN_VOF _moop o_ _ m P mcwmaguzsa o_ o m _ “mammmwwmwm op N N _ Pmccomgma o, N N F eowuuauoca o— P o m wocmcwu op m e m acmumxgoz su_=uwtcwe Luz: »o_=a_ccwo meow »o_=u?aavn oz amz< Punch .Fooa Ppmsm .Poom ouwgmuoz .Foom magma pmcowuucam .mmgm pmcowuuczw xa “smacmmmmm chowumcgmucp com chcomgma yo zuwppnnpwm><11.m_ apnoh l45 the respondents mentioned that it was always difficult to find good pe0ple or there was always a shortage of good people; however, their perception of the availability of personnel was not the same across functional areas. Corporate Phil050phy Another variable suggested in the literature review as having an influence on the locus of decision making was the philosophy of the corporation with respect to control in general and also with respect to control of subsidiary operations. To obtain some measures of the corporate philosophy characterizing the sample firms, respon- dents were asked to select the philosophy statement that most closely matched their perception of their company's philOSOphy toward con- trolling international and domestic operations. (See Table l6.) Table l6.--Corporate phil050phy with respect to controlling subsidiary operations. Number of Firms Corporate Ph1l050phy Statement Selecting Statement l. Headquarters maintains very "tight" control over subsidiaries and their operations 6(60%) through procedures and policies established by headquarters. 2. Headquarters maintains very "loose" control over subsidiaries and their operations. 3(307) Subsidiaries operate primarily as autono- ° mous business units. 3. Headquarters coordinates subsidiary operations on a regional or international basis while sub- l(l0%) sidiaries share in basic decision making. 4. Can't determine. 0 Total l0(lOO%) 146 The majority of the sample firms, or 60 percent, considered their corporations as having very "tight" control over international operations. Another group of companies, or 30 percent of the sample, considered their companies as maintaining very loose control over foreign Operations. Only one firm in the sample was perceived by its executives as having a predominantly shared or regiocentric approach to controlling international operations. Taken alone, it is possible to conclude that most of the sample firms exercised very tight control over their subsidiaries and that three exercised very loose control. However, these measures cannot really indicate whether these companies tended to control their inter- national operations more tightly or loosely than they did their domes- tic activities. Most previous studies of the locus of decision making in multinational corporations have focused on the control issue only in an international setting and have not considered the possible influence of general corporate philOSOphy acting on the corporation and its units regardless of whether they are foreign affiliates or domestic operations. Consequently, the headquarters instrument was designed to elicit information from respondents on their perception of the level of international control exercised by the company in comparison to that characterizing domestic operations. Table 17 pre- sents respondents' perceptions of their corporate policies and prac- tices in controlling international and domestic activities generally and across functional areas. 147 AROOPVOm Axe VN ARva¢_ Axomvmp Afiwmvmp o o _aHOP cwsao m>m op ANONVN ANOPV_ ARONVN Axomvm o o “a guzwamam o_ ... Agomvm Axoeve Aflomvm o o =a_ou=uoza o_ ... “Reeve ARONVN ANONVN o o Faccomzaa op ... o Axoeve Axoovm o o august; o, ... Axosve Axomvm Aaomvm o o mewoaxzaz ”mmg< Pacowuaesa Nd .HH cowumgomgou mg» o_ o Awomvm Afiomvm Aeoeve o o to; _Faea>o .H mzweprmo mmmo mmmo msmm may Focucou mcoz Pogucou z u.cmu nus: umzzmsom uaon< umgzweom mgoz nos: uwpmwsoa op umgmaeou —ocpcou PmcowpwcgmucH mo Fm>m4 .msgwm mpasmm cm u_ummsou o» umcmqsou mcopumcmqo cmwmgom mo Fogpcou11.mp «Pam» 148 Sixty percent of the sample firms were characterized by their headquarters representatives as exercising either somewhat less or much less control over their international operations when compared to their domestic operations. In none of the firms did the execu- tives perceive that their companies exercised more control over inter- national affiliates or operations than they did over their domestic operations. In 30 percent of the firms, international and domestic controls were viewed as being essentially the same. These findings, in conjunction with the corporate phil050phy statements cited earlier, suggest that control over international operations should not neces- sarily be viewed nor studied in isolation from the corporate philosophy that firm has in regard to control in general, irrespective of whether the business unit is located within the U.S. or other countries. Although six firms indicated their firms maintained very tight con- trol over their subsidiary operations, they did not indicate that they maintained more control over foreign than domestic operations. It is probable that they perceived their company as having a corporate philosophy of tight control and that international controls merely reflect that philosophy. The fact that international controls are somewhat less than domestic controls may not be the product of a different desired level of control internationally, but rather a function of the difficulty encountered in implementing controls internationally. If this is the case, certain functions would be expected to be more easily sub- ject to uniform controls than others and these functions would be most 149 similarly controlled when domestic and international practices are compared. The findings in Table 17 tend to support this view. For example, finance is the functional area in which the most firms, 60 percent, perceived international and domestic controls as being about the same. Given the standardized accounting, treasury, and auditing manuals and procedures used by many of the sample firms in all of their subsidiary operations, the ability to implement equivalent controls internationally is enhanced. Unique market, personnel, and production scharacteristics across environments would tend to reduce opportunities for equivalent standardization of controls in those functional areas. As the table indicates, 60 percent of the firms had much less control over personnel activities internationally and 40 percent had much less control over their international marketing activities. In addi- tion, 30 percent of the firms indicated they had much less control over production activities internationally. Several authors cited in the literature review suggested that multinational firms are moving toward increased centralization with respect to controlling their international activities. There are at least two interpretations of this movement. First, companies may be moving toward increased centralization domestically and these moves are being reflected in their international activities. Or, the inter- national movement toward increased centralization may reflect the desire of-many companies to bring domestic and international controls into equilibrium. Current research does not shed much light on these possible explanations and they represent interesting topics for future research. 150 Thus far, the data on the corporate characteristics of the sample firms have been presented in such a way that each element of the conceptual model underlying the research effort on the headquar- ters or corporate side has been considered. Since subsidiary char- acteristics were also indicated to have an influence in determining the locus of decision making in multinational corporations, this sec- tion of the chapter is primarily concerned with reporting the findings associated with these variables. The subsidiary characteristics of the conceptual model included: subsidiary age and size, availability of local managerial talent, geographic distance from headquarters or affiliated units, characteristics of the subsidiary environment, and the level of certainty or uncertainty in the subsidiary environment. The findings with reSpect to these variables are presented in the fol- lowing section. Sample Composition: Subsidiary Characteristics Subsidiary Age and Size Three subsidiary units of each of the participating corpora- tions were isolated for analysis so that similarities and differences in the decision-making process characterizing individual subsidiaries could be determined. The three countries in which each corporation maintained wholly owned subsidiaries selected as subunits of the sample were France, Brazil, and the United Kingdom. Since the age and size of the subsidiary was indicated to have an influence on deter- mining the locus of decision making, headquarters personnel were asked to provide information on these aspects of their three l5] subsidiaries. Table l8 illustrates the number of years the sample subsidiaries had been in operation through 1978. As Table l8 indicates, the British subsidiaries were the oldest and among the earliest established by the sample firms. Five of the French subsidiaries were under twenty years old, whereas only three of the Brazilian were less than twenty and only one of the British was in that same category. For six of the firms the order of estab- lishment was the United Kingdom followed by Brazil and then France. In only one case, firm 4.l, was the French firm the oldest of the three. The most recently established subsidiary was the French sub- sidiary of firm 4.2, which had only been in operation four years. In order to determine the size of the sample member subsidi- aries in comparison to other corporate subsidiaries, headquarters personnel were asked to rank each of the three as being average, larger, or smaller than their firm's other subsidiaries. As Table l9 indicates, 73 percent of the sample subsidiaries were among the larger subsidiaries of the sample corporations. Thirteen percent were about average and another l3 percent were among the smaller subsidiaries. The subsidiaries located in the United Kingdom were among the largest subsidiaries for most of the companies in the sample. Eighty percent of the Brazilian and the French subsidiaries were at least average or among the largest. Based on the information obtained on the age of the sample subsidiaries, it might be expected that the order of size would parallel the years elapsed since the date of establish- ment. This was true in the case of the United Kingdom, which had the highest mean age for sample subsidiaries and the largest number of 152 .xozum mg» or suNz ooccoocoo men as mowcpcooo moon» on» :N oouooop acowowmozm umLNN mow on; accosoo coguo oz .soomcmx oouch o2» mo: acowowmoom awe?» cwogp .N.m coo N.N mowcoosoo :H "opoz mom mm .38 mom 2% M NO ON NN pm N.m ngm me .mopgowowmoom oposom No mm<11.ON opooN 153 Table l9.--Sample subsidiary size. 01fizlpézfiso$31e 2::3i2’shfiiisl-2212: “gleggrgize S"bs‘d‘ar‘es France Brazil United Kingdom Larger 7(70%) 6(60%) 9(90%) 22(73%) Average 1(10%) 2(20%) 1(10%) 4(l3%) Smaller 2(20%) 2(20%) 0 4(13%) Total 10(100%) 10(100%) 10(100%) 30(100%) sample subsidiaries falling within the average to larger categories of size. By the same token, the Brazilian subsidiaries would then be expected to be slightly larger than the French; however, the French and Brazilian subsidiaries were approximately equal in the categories of size. This would suggest that there may be a number of other char- acteristics influencing the size of the subsidiary in addition to the length of time it has been established. However, some association between size and age is illustrated in these findings. Firms were also asked to indicate whether any of their sub- sidiaries accounted for more than 5 percent of total corporate sales. Six firms indicated they had subsidiaries that accounted for at least 5 percent of total corporate sales. In addition, they were asked to indicate whether any of the three sample subsidiaries accounted for more than 5 percent of total corporate sales. Their responses are summarized in Table 20. 154 Table 20.--Sample subsidiaries accounting for at least 5 percent of total corporate sales. Number of Subsidiaries Sample Country at 5 Percent or More of Subsidiaries Total Total Corporate Sales Under 5Percent France 2(20%) 8(80%) 10 Brazil 3(30%) 7(70%) 10 United Kingdom 4(40%) 6(60%) l0 Total sample subsidiaries 9(30%) 21(70%) 30(100%) Nine, or 30 percent of the subsidiaries in the sample, accounted for at least 5 percent of their corporation's total annual sales in 1977. These figures parallel the findings in Table l9 on subsidiary size, in that the United Kingdom subsidiaries were viewed as being the largest of the corporate subsidiaries. Three of the sub- sidiaries in Brazil and two in France also accounted for at least 5 percent of their parent corporation's annual total sales. Because several authors cited in the literature review 2 and Alymer3) indicated that subsidiary (Robock and Simmonds,] Lovell, age and/or size may have an influence in determining the locus of decision making between headquarters and the subsidiaries, the head- quarters instrument was designed to ask respondents whether the size of the subsidiary affected the level of authority the subsidiary manager had. Size was expressed in terms of subsidiary sales volume and assets. Respondents were asked if the subsidiary manager of a l55 large subsidiary had more formal authority than the manager of a smaller subsidiary, as Aylmer suggested was the case. Table 2l.--Subsidiary size and formal authority. Number of Companies Statement Selecting Statement Yes, formal authority varies 0 across functional areas Yes, but formal authority only 5(507) varies in expenditure authority ° No, all subsidiary managers a have equal authority 5(504) Total firms l0(l00%) Interestingly, in only 50 percent of the sample firms did the subsidiary manager's authority vary based on the size of his operation, and then only in the area Of expenditure authority. In none Of the firms did the formal authority Of the subsidiary manager differ across functional areas when subsidiary size was taken into consideration. And, in five companies, the size of the subsidiary had no influence in the delegation Of authority tO different subsidiary managers. Based on these findings, it appears that corporate policies relating to subsidiary managers are quite uniform in application, regardless Of the size Of the Operation. The only areas Of difference in formal authority were in the expenditure limits authorized for subsidiary managers Of different sized Operations within five firms. l56 Perhaps the major reason these findings tend to disagree with Aylmer's conclusions is that Aylmer did not distinguish between for- mal authority and power or influence. As indicated in the literature review, these two concepts should not be used interchangeably in viewing the subsidiary manager's relationship to headquarters. In order to find out whether the managers Of the larger subsidiaries enjoyed more influence in the decision-making process than the managers Of the smaller subsidiaries, executives were asked if the size of the subsidiary had any influence in the determination of the locus of decision making for decisions within different functional areas. The advantage of in-depth personal interviews with these executives was clear in the discussions on subsidiary size and the locus Of decision making. In the view of most Of the executives, the managers Of the larger subsidiaries had somewhat less autonomy in decision making even though they had the formal authority to make decisions because their Operations were large, visible, and the con- sequences Of their decisions more important to overall corporate per- formance. On the other hand, the managers Of the smaller subsidiaries had equal formal authority, except where expenditure limits varied, but actually had more autonomy in exercising that authority because their Operations were less visible and had a lesser impact on total corporate plans and performance. Consequently, Aylmer's conclusion that small subsidiaries were more tightly controlled in marketing than large subsidiaries does not accurately reflect the overall situation within many companies in this sample. 157 The findings in this study indicate that formal authority levels across functional areas did not differ when subsidiary size was varied except for five Of the firms in the area Of financial expenditures and that once the subsidiary became very large, the manager of that subsidiary shared decision making with headquarters personnel more often than did the managers Of the smaller or medium- sized subsidiaries. Therefore, in the future, researchers need to be more precise in their definition and measurement of authority so that distinctions in formal authority and actual practice can be examined. In the absence of such precision, erroneous conclusions regarding the locus Of decision making are likely. Several respondents indicated that the managers of the larger subsidiaries had more influence than did the managers Of the smaller subsidiaries. In their view, the larger subsidiary managers may have had more influence but not more formal authority in the determination of a particular decision than would the managers of the smaller sub- sidiaries. An example Of this was in new product introductions. According to many Of the respondents, if the manager Of a very large subsidiary wanted to push for product line changes, adaptations in new products to better fit his market, or changes in the introduction schedules, etc. he would likely have much more influence in the decision-making process than would the manager of a small subsidiary selling much less product. The manager Of the smaller subsidiary may have to accept corporate plans and products as is. One could describe the role of the manager Of the larger subsidiary as fitting the decision process three category and the 158 subsidiary manager of the smaller subsidiary facing a decision process four or five on a major product decision. On the other hand, based on discussions with headquarters personnel, the managers Of the smaller subsidiaries have more latitude in making decisions in the other mar- keting areas which do not require extensive product development, tooling costs, etc. Consequently, managers in charge Of the smaller subsidiaries may find that many more of their decisions fall within decision process categories one and two, which are essentially sub- sidiary generated and implemented. In summary, the magnitude of the Operations of a large subsidiary may influence that manager to use a decision process three or two on a regular basis rather than a decision process one. If subsidiary size affects the locus of decision making, which these findings suggest, it is not necessarily reflected in formal authority or policy differences but rather informally and/or through the means by which certain decisions are made. There are at least three major research implications Of these findings. First, many previous researchers did not consider the size Of the subsidiaries represented in their samples. If the samples were predominantly large subsidiaries, their results on the centralization Of authority may be different than if the sample was mixed with respect to size, or comprised Of very small subsidiaries. Second, since Pohlman, Ang, and Ali,4 among others, used a mail survey to query headquarters executives on where, headquarters or the subsidiary, certain decisions were made and did not request any information on subsidiary size, it 159 is assumed that the respondents either thought in terms Of the formal authority'guidelinesissued uniformly tO all managers or came up with some average method which covered all subsidiary experiences and perhaps actually did not fit any one particular subsidiary. A third aspect of these findings, and perhaps most significant for future research, is that careful distinctions must be made in the use Of terms to describe and measure the role Of the headquarters personnel and subsidiary managers in the management of subsidiary operations. Availability of Local Managerial Talent Another variable suggested by several authors as an influence in determining the locus of decision making between headquarters and subsidiary units was the personal experience and qualifications Of the local subsidiary manager. Brooke and Remmers5 and Robock and Simmonds6 both suggested that the more seasoned or experienced local managers would be given more authority to run the subsidiary operation than less experienced managers. The findings in the preceding section indicated that the formal authority Of the subsidiary managers was the same in all sample companies with the exception of five firms which tailored the expenditure authority limits to the size of the Operation. Consequently, the positional or formal authority Of the managers did not vary except in the cases cited. Nevertheless, because the litera- ture review suggested authority varied, the headquarters instrument was designed to Obtain additional measures of the means by which the experience of the individual manager influenced his authority. 160 Respondents were asked if decision-making authority varied for indi- vidual subsidiary managers or if the decision-making authority was the same for all. An open-ended question then asked them to comment on the ways in which the individual's experience may have influenced his authority. With the exception Of the financial differences mentioned earlier, the respondents indicated that the formal authority of the managers was the same. However, there were a number Of ways in which the individual manager influenced the locus of decision making between headquarters and his subsidiary unit. All Of the companies in the sample indicated that the locus Of decision making was in fact valtered by the individual subsidiary manager, but it was expressed informally rather than through alterations of formal policy. Coding of the responses to the question on how the individual manager's experience or personal characteristics influenced his participation in decision making resulted in the following categories. The tabu- lation Of responses on each item is summarized in Table 22. Based on these findings, it appears that the more successful or experienced subsidiary manager's Opinions carry more weight in decision making than the points of view expressed by the less experi- enced managers. One very interesting finding that had not been cited in earlier studies was the degree to which line managers perceived individual subsidiary managers as differing substantially in the way they exercised their authority. Several managers said that even though all subsidiary managers had the authority to make certain 161 Table 22.--Subsidiary managers' characteristics as an influence on the locus of decision making. Statement Frequency l. Successful or experienced managers get a better "ear" or their Opinions carry more "weight" in 9 decision making. 2. More experienced managers get the larger subsidiaries and therefore their Opinions 1 carry more weight. 3. Any "good" manager will discuss major decisions. 4. It depends on the individual; some will exer- cise their authority and others don't exercise 6 initiative. They have broad initiative within policy guidelines. 5. It depends on the working relationship the sub- sidiary manager has with his headquarters 4 superior and the headquarters manager's style. decisions or to take certain actions, many subsidiary managers would not use this authority and would discuss their preferred alterna- tives and/or decisions with headquarters before acting on them. Four area vice-presidents in different firms said, in effect, "The most successful subsidiary managers are the ones who treat the operation as their own business and exercise as much initiative on their own as policy guidelines will allow." On the other hand, as the preceding findings indicate, in at least six firms the comment was made that no "really good" subsidiary manager will take action on an important decision without "checking it out“ with headquarters first. Conse- quently, it appears that the subsidiary manager himself in many cases 162 will move from a decision process one to a two or from a decision process two tO a three, depending on how he personally regards his management style and needs. Another particularly interesting aspect of these findings is the frequency with which individual vice-presidents commented on how their own personal managerial style influenced the locus Of deci- sion making. In two Of the firms, for example, individuals commented that they felt the decision process characterizing the subsidiaries they had responsibility for was different from the decision processes characterizing other corporate subsidiaries. One manager said that he ran a very "tight ship" and wanted to be consulted on many more decisions than other managers within the same firm. He went on to say, "When I leave this position, the responses to these decision process questions may be different since the person who replaces me may have a different idea about how he wants to manage the division." Based on these findings, it appears that not only will the individual subsidiary manager's qualifications and personal managerial style influence the locus Of decision making on many decisions, but so will the personal preferences and characteristics Of the person he reports to in headquarters. However, it should be noted that overall cor- porate policies and practices may limit the degree to which individual managers can alter the locus of decision making for subsidiaries reporting to them. In some companies, headquarters executives had considerable latitude in managing their Operations, and in others their ability to 163 pursue any significantly different policies or practices was much more limited. Consequently, corporate measures Of the locus Of decision making for that company need to take into consideration the variations in the locus of decision making that may exist from division to division within the same company. Previous studies have not addressed this issue and have focused on Obtaining measures Of cen- tralization from one subsidiary manager or from one person in head— quarters responding to a mail survey. If substantial differences across corporate divisions exist, then the results of previous studies may not be accurately interpreted as the degree of centralization char- acterizing the corporation as a whole in its international Operations. Because the qualifications of the local subsidiary managers and those Of their top management group within the subsidiary were suggested as having an influence on the locus of decision making, the headquarters instrument was designed to elicit headquarters executives' perceptions Of the availability Of qualified managerial personnel in each Of the three countries being considered in the analysis. Their perceptions of the available talent pool are summarized in Table 23. When the availability Of managerial talent was assessed, Brazil presented the most difficulty to sample firms in finding managers for subsidiary Operations located there. Eighty percent Of the responses indicated that the United Kingdom has a moderate or large pool available, making it the least difficult subsidiary location to staff. France presented some difficulty but apparently not as much as the subsidiaries located in Brazil. 164 Table 23.--Availability Of managerial talent for subsidiary management positions by country. Large P0011 Moderate Pool, Small P°°1’ Country . . . . Significant Total NO Difficulty Some Difficulty Difficulty France l(lO%) 6(60%) 3(30%) lO(lOO%) Brazil l(lO%) 4(40%) 5(50%) lO(lOO%) 3:333. 212011 «60%) 212111 11110011 Total 4(l3%) 16(53%) lO(33%) 30(lOO%) According to one headquarters executive, his company found it difficult to locate good subsidiary managers for any location. In his words, "We have many who could, but few who will." As he saw it, the problem Of getting U.S. and expatriates tO move to other coun- tries for senior-level subsidiary management positions is becoming increasingly difficult as families and managers become increasingly reluctant to move. Language problems were also cited frequently as a factor that reduced the sample corporations' ability to draw from an international talent pool for staffing various subsidiary positions. Of course, local government requirements for local participation in management and U.S. tax laws also effectively limit the ability of the corporations tO move personnel internationally. Geographic Location Stopford and Wells,7 among others, suggested that the geo- graphic location Of the subsidiary may influence the locus Of decision 165 making in multinational corporations. In their view, the closer subsidiaries may find that they are more closely controlled than those located in the more distant parts Of the globe from headquarters. They also suggested that firms which utilize regional management units, such as a regional headquarters in Europe, will tend to be more involved in the Operations Of the subsidiaries located in those regions than will those firms with line executives located only in headquar- ters. TO Obtain headquarters executives' perceptions of the possible influence of geographic location on the locus Of decision making, respondents were asked if there was any relationship between the geo- graphic distance from headquarters and the amount of authority the subsidiary manager had. All ten firms reported that geographic dis- tance did not have any influence in altering the formal authority Of the subsidiary manager. However, five firms indicated that the sub- sidiaries located farther away may have had less monitoring Of their activities compared to the closer subsidiaries. Two managers said that a distant subsidiary manager may take action and then advise on certain decisions, but for the most part, geographic distance would not change the locus of decision making from one extreme to another. Subsidiary Environment Both the comparative management and the organization behavior researchers cited in the literature review indicated that the envi- ronment in which an organization is located can influence various 166 aspects Of the organization. Countries have been characterized as having unique environments in that certain political, economic, cul- tural, geographic, technological, market, and other characteristics will not be duplicated exactly in another country setting. If the organization is tO survive and perform competitively in its envi- ronment, it must be capable of responding to the unique contingencies posed by that environment. The locus of decision making may have an influence on a subsidiary manager's ability to undertake actions that best fit the constraints and contingencies the local national environ- ment poses for his organization. Because previous studies did not isolate distinct national environments in designing their measures Of centralization or of the locus Of decision making, it was not possible to determine if there were differences between subsidiaries Operating in different coun- tries with respect tO the locus Of decision making characterizing their relationships with headquarters. Consequently, three national environments were selected and measures Of the locus of decision making for subsidiaries Operating in each Of those countries were Obtained. The three national environments selected were France, Brazil, and the United Kingdom. The results Of the findings on country environment and the locus Of decision making are presented in the final section Of this chapter. Environmental Certainty/Uncertainty Just as each national environment possesses unique political, economic, and social characteristics, the degree and rate Of change 167 occurring in each of these environmental dimensions may also vary across environments. The level Of uncertainty posed by any particu- lar environment is primarily determined by the level Of predicta- bility Of certain changes in any Of these sectors of the environment and in the environment as a whole. For example, there may be fre- quent unpredictable, and substantial changes in the political or competitive sectors Of one environment and in another national envi- ronment the changes in that sector may be more gradual or predict- 8 able. According tO several authors (Lawrence and Lorsch, Burns 9 and Halllo), the organization structure of an organiza- and Stalker, tion must be tailored to accommodate the unique characteristics Of its environment in order for it to survive and/or grow. Lawrence and Lorsch's definition Of structure cited in the literature review was "those aspects Of behavior in organizations subject to preexisting programs and controls." They hypothesized that the more certain the environment, the more formalized would be the structure Of the subsystem. Burns and Stalker found that the organizations that were profitably coping with uncertain, changing environments had a low degree Of formalized structure (organic) instead Of formalized structure (mechanistic). Hall found that the departments with routine tasks tended tO have a higher degree of bureaucracy (structure) than departments with less certain tasks. Based on these findings, organizations may be expected tO develop different degrees Of structure in relation to the uncertainty in their environment. 168 Lawrence and Lorsch's concepts Of integration and differen- tiation discussed in the literature review suggested that subsystems (subsidiaries) must respond to the unique configurations Of their local environments (differentiation) at the same time that the cor- poration as a whole must provide a means of controlling and coordi- nating their activities (integration). For overall corporate performance to be maximized, the appropriate levels Of differentia- tion within subsidiary decision making must accommodate the envi- ronment in which the subsidiary is located as well as allow for the appropriate levels Of corporate integration required for the organi- zation as a whole. The types Of integration or integrative devices used by multinationals include regional Offices, formal and informal gatherings Of subsidiary managers, increased policy and procedural guidelines, and individual managers themselves. One of the means by which corporations in this sample of firms achieved integration of subsidiary units was through uniform policies and procedures, particularly through the use Of detailed accounting and treasury manuals. Another means Of integration was the imposition Of headquarters plans and directives on all subsidi- aries within functional areas. For example, in all firms the quality control levels in production were set by the quality control staff in headquarters. Research and development, especially due to the high technology and cost component, was characterized by more headquarters control in the sample firms. In the personnel area, most of the sample firms used compensation policy guidelines which set the range 169 in which all subsidiary managers were allowed to Operate. This was also the case in expenditure authority limitations and levels Of currency exposure. Some functions may require different levels Of corporate integration than others for the corporation as a whole to be success- ful. Other functions may require more differentiation in order for sub-units to be most successful in coping with their environments and hence, for the corporation's total performance to be maximized. In this study, the degree of differentiation and integration character- izing a particular corporation or subsidiary were interpreted through measures Of the locus Of decision making and through an interpreta- tion Of the number, types, and levels Of specificity Of policies in different functional areas. Levels of environmental uncertainty for the three countries were Obtained by asking headquarters personnel to rank each of the three subsidiary environments with respect to their perception Of the level Of uncertainty present in the environ- ment. The following discussion highlights the major findings with respect to these variables. Headquarters personnel were asked to provide a general measure of the level Of uncertainty they perceived in each Of three countries-- France, Brazil, and the United Kingdom--in terms Of its influence on decision making. Table 24 summarizes their responses. As Table 24 indicates, the general uncertainty associated with each Of the three countries selected as units of analysis dif- fered from a low mean score Of 2.2 for the United Kingdom to a score 170 Table 24.--Perceived environmental uncertainty in sample countries. Level of Uncertainty . Country in Environment N Uncertainty Low=l Medium=3 High=5 "ea" 5C°re France 2(20%) 4(40%) 4(40%) 10 3.4 Brazil 0 5(50%) 5(50%) lO 4.0 United Kingdom 5(60%) 2(20%) 2(20%) l0 2.2 Total 8 ll ll 30 Of 4.0 for Brazil. Sixty percent Of the sample firms assessed the United Kingdom as being low in uncertaintyand an additional 20 per- cent ranked it medium. Forty percent ranked France as being moderate in uncertainty and an additional 40 percent ranked it as being high in uncertainty. Based on these responses, Brazil was perceived as being the most uncertain environment, France second, and the United Kingdom third. In order to gain additional measures Of the environmental uncertainty in each environment, respondents were asked to complete a series Of scaling questions for each country as well as for a set of sub-environmental categories within each country. Table 25 pro- vides the results Of these responses for the sample firms. When the measures Of sub-environmental uncertainty were Obtained, the order of ranking Of the three countries remained the same. The United Kingdom with a mean score of 1.98 was the lowest, followed by France with a mean score Of 2.53. Brazil was the highest 171 .chocooc ou moo OON Nouou no: ans moOoucoogoo "opoz No.2 NNQCNOON 0 ANN ON ANONON ANNaONN 2NNNON_ NaoaN ea.2 ON a N N a a NaeNoNNON 1 oa.N ON 0 o a o o gooeeeem 1 ON.N op o o m m N LeN>aeaa omega: 1 om._ ON 0 N o N N NoapeeeuaN 1 eaeoeNx aware: N_.m NNOONOON NNNNOm NNNNONN ANNNOON 2No_ve 2Nm_vo _aoaN om.m OF N N N N o NaeNoNNoa 1 cm. o. N o N _ o UNEaeaeN 1 om.m o, o a m N o eaN>aeaa oaxeaz 1 oo.N ON 0 N N o o Nma_ee;oaN 1 __Naem mm.N 2NooNvoa 2Nm ON NNNNOON NNNNON NNNNON NNNNONF NaoaN ON.N ON 0 m m N _ NaeNNNNON 1 oo.N o. o N m a _ eNsaeeeN 1 om.N o_ N N N a N eoN>aeaa oaxeaz 1 ON.N ON 0 N N o N amaNOeeaaN 1 oococu m V m N _. H mLOUW .M 2 saw: .ooz zoo Nouoom oco NguOOoO 9:92:01.— _.>:m cw zucpmocoocz No No>oo .Nouoom oco xcpcooo an .xucwmugooco Noucoscocv>co No No>oN oo>NoogoO11.mN opooh 172 in uncertainty with a mean score Of 3.l8. Interestingly, the sub- sector environmental scores on uncertainty elicited in this question were not as high as the general scores Obtained earlier and reported in Table 24. In fact, in the case of Brazil and France, the differ- ence in the two uncertainty measures was almost one point. While these are interesting findings and suggest that some caution must be exercised in Obtaining environmental uncertainty measures and in interpreting them, of particular concern to this study is the fact that the overall magnitudes Of uncertainty characterizing each Of the three environments were consistent from measure to measure. Because several authors had suggested that there was a rela- tionship between the level of uncertainty in the environment and the locus of decision making that would characterize organizations Operat- ing in that environment, headquarters executives were asked if they thought the level Of uncertainty in the subsidiary environment influ- enced the authority of the subsidiary manager Operating in that country. In response to this question, all Of the sample firms (ten) indicated that indeed the locus Of decision making was altered by the level of uncertainty in the environment. In most cases, this was expressed informally to the subsidiary manager through a telephone call, personal conference, or letter. These changes were considered deviations from normal Operating policies and temporary until the conditions in the particular environment Stabilized or improved. The responses tO the Open-ended question were coded into categories, and Table 26 summarizes the way in which headquarters executives perceived 173 the influence Of high levels of uncertainty on the decision-making process for any corporate subsidiary. Table 26.--Perceived influence of environmental uncertainty on the locus Of decision making in subsidiary environments characterized by high uncertainty. Influence Statement Frequency l. The authority Of the subsidiary manager is reduced informally through more frequent "checking-in" or more careful reviews or 7 monitoring by headquarters 2. Capital expenditure authorizations cut back 3 and/or require headquarters approval 3. Headquarters may not initiate any action, but the subsidiary manager may choose to 1 check back more frequently and/or ask for headquarters assistance Total ll When subsidiaries are located in countries with high levels of uncertainty, the headquarters executives indicated that there would be more frequent monitoring Of decisions or more consultation with headquarters before decisions would be made. With the excep- tion Of the cases where Specific changes were made in expenditure limits, the influence Of high levels Of environmental uncertainty was to move the locus of decision making from a decision process category one to a two or to a three, on a number Of decisions. One executive said that one Of the subsidiaries reporting to him was located in what he termed a very unstable environment, and he had instructed 174 the subsidiary manager to cut back expenditure levels to almost nothing, hire no one, and make no major changes in Operations or strategy without securing approval. In order to ascertain whether the levels Of uncertainty in any Of the three countries being studied in this analysis had influ- enced the locus of decision making for subsidiaries within those countries, headquarters executives were asked whether the level Of uncertainty in France, Brazil, or the United Kingdom has influenced them to retain more of the authority for decision making in head- quarters, had nO effect, or resulted in giving more decision-making authority tO subsidiary managers. Table 27.--Perceived influence Of environmental uncertainty on the locus of decision making for sample member subsidiaries, by country. Influence on Locus of Decision Making Country More Authority Less Authority NO Effect on Total at Headquarters at Headquarters Authority France 2 l 7 l0 Brazil 3 l 6 10 United Kingdom 2 1 7 10 Total 7(23%) 3(lO%) 20(67%) 30(lOO%) As Table 27 indicates, the uncertainty of the environment had no effect on the allocation Of authority between headquarters and the subsidiary units in twenty Of thirty cases. In one case in each 175 country, the level of uncertainty in the environment was perceived as having the effect Of lessening the authority Of headquarters in the decision process. And, for seven of the subsidiaries, the level of uncertainty in the subsidiary environment was perceived as increasing the corporate role in the decision-making process. Given the relatively large differences among the three countries on the environmental uncer- tainty measures discussed earlier, more variability in these results could reasonably be expected. This was not the case, in that increased corporate authority in decision making was true for two subsidiaries in France, two in Britain, and three in Brazil. Brazil was perceived as having the most uncertain environment of the countries in the sample, and three companies indicated that the locus Of decision making for their Brazilian subsidiaries had shifted toward headquarters because Of the level Of uncertainty characterizing that environment. Thus far, the general characteristics Of the sample with respect to the corporate and subsidiary factors suggested as influenc- ing the locus Of decision making have been presented and discussed. The following chapter reports the findings on the measures Of the locus Of decision making and the relationship between the locus Of decision making and subsidiary performance. 176 Footnotes--Chapter III 1Stephan H. Robock and Kenneth Simmonds, International Busi- ness and Multinational Enterprises (Homewood, Ill.: Richard D. Irwin, 1973). 2Enid Baird Lovell, "Relationships With Foreign Subsidiaries and Affiliates," The Changing Role Of the International Executive (New York. National Industrial Conference Board, l966). 3R. J. Aylmer, ”Who Makes Marketing Decisions in the Multi- national Firm?“ Journal Of Marketing 34 (October l970): 25-30. 4Randolph A. Polhman, James S. Ang, and Syed I. Ali, "Policies Of Multinational Firms: A Survey," Business Horizons 19 (December 1976): l5 5Michael Z. Brooke and H. Lee Remmers, The Strategy Of Multi— national Enterprise: Organization and Finance (Harlow: Longmans, I970). 6Robock and Simmonds, International Business and Multinational Enterprises. 7John M. StOpford and Louis T. Wells, Jr, Managing the Multi- national Enterprise (New York: Basic Books, l972). 8Paul R. Lawrence and J. W. Lorsch, Organization and Environ- ment (Cambridge, Mass.: Harvard University Press, l967). 9Tom Burns and S. M. Stalker, The Management Of Innovation (London: Tavistock, l96l). 10Richard H. Hall, "Interorganizational Structure Variables," Administrative Science Quarterly 9 (l962): 295-308. CHAPTER IV LOCUS OF DECISION MAKING FINDINGS In this chapter the study findings pertaining to the locus Of decision making for sample firms and their subsidiaries are pre- sented and analyzed. First, the findings generated by the completed subsidiary questionnaires are reported and contrasted tO the data Obtained in the headquarters interviews. Second, the major findings regarding the locus of decision making characterizing all subsidiary/ headquarters relationships for the sample firms are considered. Third, because differences in the locus of decision making were anticipated across industries, functions, and countries, the findings regarding each Of these factors are reported and examined. The con- clusion Of the chapter presents the findings associated with the relationship between the locus Of decision making and subsidiary per- formance. Before proceeding to the exposition and analysis of the locus Of decision making findings, a brief review Of the methodology employed in measuring the locus Of decision making is appropriate. First, five decision processes or categories were developed through interviews with international line personnel in five U.S. multi- national corporations. Each category described the level and type Of participation between headquarters personnel and subsidiary managers 177 178 in the generation Of decision alternatives, selection Of the preferred alternative, and implementation Of the decision choice for a decision. In contrast to previous studies which asked respondents if a particular decision was determined by headquarters, the subsidiary, or was shared, the corporate respondents indicated that the decision process categories allowed for a more comprehensive view Of the com- plex decision process as well as the nature Of the participation exercised by headquarters personnel and subsidiary management in resolving a particular decision. In order to facilitate comparison with previous studies, the study findings on the locus of decision making are reported both in terms of the five decision process cate- gories as well as within a three-category breakdown Of headquarters involvement levels. The decision process categories used to measure the locus of decision making in this study indicate varying levels Of headquarters direction and participation in decision making affecting subsidiary Operations. Decision processes five and four represent basically a headquarters-initiated and -determined decision. Decision processes one and two represent decisions primarily determined by subsidiary managers with little or no headquarters participation. Decision pro- cess three represents a shared decision process in that headquarters personnel and subsidiary managers reach a consensus in resolution Of the decision. The level Of centralization, or headquarters direction in decision making, would be the highest in category five and lowest in decisions categorized as decision process one. 179 The decision process categories used to measure the locus of decision making in this study are outlined as follows: Decision Process Categories Process 1 The subsidiary manager generates alternative solutions and makes the decision himself. Process 2 The subsidiary manager generates alternative solutions, makes the decision, and submits the decision to his supervisor for approval. Process 3 Headquarters and subsidiary managers share the problem and collectively generate alternatives. Together you generate and evaluate alternatives and attempt to reach consensus on a solution. The solution that has the support Of both the subsidiary manager apg_the headquarters managers will be implemented. Process 4 Headquarters personnel generate alternative solutions, sub- mit these to the subsidiary manager for his ideas and sug- gestions. Headquarters personnel then make the decision. Process 5 Headquarters personnel generate alternative solutions, make the decision and inform subsidiary management of the decision. One Of the objectives Of the study was to describe the nature Of the locus Of decision making for headquarters and subsidiaries across functional areas. SO that some idea Of the overall level Of subsidiary participation could be established as well as differences in functional areas identified, several decision areas within each functional area were developed. Twenty-nine decisions representing six functional areas were used to measure the locus Of decision making 180 for all corporate subsidiaries and for each Of the three subsidiaries being isolated for analysis. The functional areas examined in the study included: marketing, finance, purchasing, production, personnel, and research and development. The selection of the twenty-nine decisions was based on their representativeness Of the types Of deci- sions made within each area and their inclusion in previous studies Of the locus of decision making cited in the literature review. (For a listing of the decisions used, see the headquarters instrument in the Appendix.) One Of the limitations identified in previous studies was the fact that only headquarters personnel or subsidiary personnel had been queried as tO their perception Of the locus Of decision making for various decisions. The methodology in this study was originally designed to Obtain both headquarters and subsidiary perceptions Of the locus Of decision making characterizing the sample firms and the three subsidiaries isolated for analysis so that any differences in the perception Of the locus Of decision making held by headquarters executives and subsidiary managers could be identified and accounted for in the analysis. Due tO the low response rate Of the subsidiary managers in returning the self-administered questionnaire (ten of twenty-four), it was not possible to incorporate the subsidiary managers' responses for all the participating corporations. Because the personal interviews in headquarters with the line executives responsible for each of the subsidiary Operations in France, Brazil, and the United Kingdom were very long and the respondents were very 181 candid and thorough in their comments, the scores Obtained on the locus Of decision making from the headquarters representatives are a gOOd estimation of the actual decision-making process characterizing the headquarters and subsidiary relationships in that firm. Conse- quently, the findings on the locus Of decision making reported in this study are derived from the headquarters interviews only. Locus Of Decision Making: Subsidiarprindings Before the results Of the field research on the locus of decision making are presented and discussed, some of the findings obtained from the subsidiary managers will be presented and their implications briefly discussed. Of the ten subsidiary managers returning completed questionnaires, six were the managers Of the French, Brazilian, and British subsidiaries Of two corporations in the sample. Since subsidiary and headquarters responses for these two firms were complete, some preliminary conclusions can be made from these findings. Because the companies were assured confiden- tiality in reporting the locus Of decision making scores, the two companies submitting complete headquarters and subsidiary data are referred to as firm 3.] and firm 5.2 in the reporting and discussion related to these findings. When the responses Of the subsidiary managers and the head- quarters executives to the locus Of decision making questions were compared, substantial differences in the perception Of the decision- making process were present. Table 28 illustrates the differences in the headquarters and subsidiary manager perceptions Of the locus 182 of decision making when the decision process category scores were compared for the two firms and their three subsidiaries. Table 28.--Differences between headquarters and subsidiary managers' perception of the locus of decision making. Number Of Categories Separating Headquarters and Subsidiary Manager Perceptions of Firm and Locus Of Decision Making TQtSI Country DeCiSions 4 3 2 l O = (NO Difference) Firm 3.l France 3 3 5 9 8 28 Brazil 0 2 5 5 16 28 United Kingdom 0 2 4 l0 l2 28 Subtotal 3(3%) 7(8%) 14(17%) 24(29%) 36(43%) 84(100%) Firm 5.2 France 0 l 4 18 5 28 Brazil 1 O 8 9 lo 28 United Kingdom 0 2 5 12 9 28 Subtotal 1(1%) 3(4%) 17(20%) 39(46%) 24(29%) 84(100%) T°t31 4(2%) lO(6%) 3l(l8%) 63(38%) 60(36%) l68(lOO%) Decisions Note: The responses given to each decision within each functional area by headquarters representatives were compared to the responses given by the subsidiary managers to the same deci- sion questions. The magnitude of the difference was then com- puted and is reported in the above table. A headquarters score of 3 and a subsidiary manager score Of l would equal a differ- ence Of 2 decision categories and would be reported in that category in the above table. Percentages may not total lOO due to rounding. 183 In only 36 percent Of the responses tO the decision process questions there was no difference in the headquarters managers' per- ceptions and those of the subsidiary managers in these two firms. Twenty-six percent Of the decisions were perceived as being different by at least two categories when the headquarters and subsidiary managers' perceptions were compared. If the difference Of one cate- gory is viewed as being roughly the equivalent category Or decision process, it can be concluded that in 74 percent Of the cases, head- quarters and subsidiary managers perceived the locus Of decision making for a decision in the same way. However, this means that in 26 percent Of the cases, or approximately one-fourth of the Observa- tions, their perceptions Of the locus of decision making differed by at least two categories. In addition to comparing the absolute differences in the per- ceptions Of the decision-making process held by subsidiary managers and their headquarters line executives, the degree to which subsidiary managers perceived themselves as having more or less participation in the decision-making process than their headquarters executives per- ceived them as having was also examined. An analysis of the 108 decisions in which there was disagreement between the headquarters line executives and the subsidiary managers who reported to them indicated that the subsidiary managers in some cases ranked their participation higher and in others lower than the rankings given by headquarters personnel. Table 29 illustrates the decisions in which there was disagreement in the locus of decision making scores and the 184 perceptions of the subsidiary managers as to whether they perceived themselves as participating more or less in a particular decision than the headquarters data indicated. Table 29.--Subsidiary managers' perception Of the headquarters and subsidiary levels Of participation in lOB decisions. Subsidiary Managers' Perception Of Level of Participation Firm Total More Headquarters More Subsidiary Participation Participation Firm 3.l 25 28 53 Firm 5.2 20 35 55 Total 1 o 1 Decisions 45(425) 63(584) lOB(lOOA) Note: The 108 decisions represent 64 percent Of the total decisions (l68) compared for headquarters and subsidiary managers, as illustrated in Table 28. In 36 percent Of the cases, or sixty, there was no difference between the perceptions held by subsidiary managers and the headquarters respondents. In both companies, the subsidiary managers perceived their participation in the decision-making process as being more extensive than the headquarters managers perceived it as being. However, the percentages were not that far apart in that the subsidiary managers perceived headquarters as having a higher level Of participation in 42 percent Of the decisions than the headquarters executives perceived themselves as having. In 58 percent Of the disputed cases the sub- sidiary managers thought they had more participation in the 185 decision-making process for that decision than headquarters repre- sentatives indicated they had. One additional measure of the differences in the perceived locus of decision making was the mean score Obtained for each subsidi- ‘ary for all l68 decisions based on responses to the decision process categories. Table 30 presents the mean scores obtained from the responses Of the subsidiary managers and those of their headquarters superior when decisions across functional areas were measured and combined. As Table 30 indicates, the mean scores Obtained from head- quarters representatives and subsidiary managers within these two companies differ by less than one point when an overall centralization index is computed for each subsidiary. In four of the six cases, the subsidiary managers perceived themselves as having somewhat higher levels Of participation in the overall decision process characteriz- ing their Operation than their headquarters line superiors perceived them as having. In only two cases did the subsidiary managers per- ceive that headquarters had more participation than headquarters per- sonnel thought they had. While there are a number of explanations that could possibly account for these findings, one reason why there are differences in the headquarters and subsidiary responses on the decision variables may be attributed to the fact that the headquarters representatives completed their responses during a personal interview with the researcher and if they had questions, they could be answered. 186 However, in the case Of the subsidiary managers, self—administered questionnaires were used to elicit the data on the decision process categories. Consequently, there may be some differences in interpre- tation Of the questions by the two groups Of managers. Table 30.--Level Of centralization perceived by headquarters and subsidiary managers. Centralization Index: Mean Score Values Firm and Difference Country Headquarters Subsidiary Perception Perception Firm 3.1 France 3.55a 2.65b .90 Brazil 2.68 3.04 .36 United Kingdom 3.50 3.00 .50 Firm 5.2 France 3.29 3.72 .43 Brazil 3.29 2.6l .68 United Kingdom 3.29 2.50 .79 Note: The centralization index is a measure Of the level Of centrali- zation characterizing the corporate/subsidiary relationships in decision making. It is derived by computing the mean score on the values Obtained in response to the 28 questions on the locus of decision making for each subsidiary. Point values associated with responses in each category are as follows: Process 5 = 5 points, Process 4 = 4 points, Process 3 = 3 points, Process 2 = 2 points, Process l = 1 point. 3The centralization index for the headquarters perception of the locus Of decision making was Obtained by scoring the headquarters line executives' perceptions Of the decision process characterizing each subsidiary for 28 decisions. bThe centralization index for the subsidiary managers' per- ception Of the locus of decision making was obtained by scoring each of the subsidiary managers' perceptions for 28 decisions. 187 Another possibility is that there really is a difference in the perception Of the decision process held by subsidiary managers and that held by their line executives. If that is the case, it may be intentional or unintentional. Headquarters representatives, for motivational or incentive purposes, may convey the impression that the subsidiary manager is Operating much more independently than they really feel is the case. In responding tO the decision process questions, they provided a realistic appraisal Of how they actually perceived the control arrangements with respect to an individual sub- sidiary and its manager. The differences could also be attributed to the tendency some subsidiary managers may have Of thinking they are much more autonomous than perhaps headquarters perceives them as being. On the other hand, if the differences in perception are the product of communication problems or breakdown, the implication is that this is an area in which the sample firms may have to exert some effort to bring the two perspectives into alignment. Although certain differences in the perceptions of the sub- sidiary managers and the headquarters representatives emerged when the headquarters and subsidiary data were compared in these two firms, the perceptions were fairly close in most cases. These findings sug- gest that some care must be exercised in interpreting the results Of earlier studies which focused solely on subsidiary managers' percep- tions as the measure of the level of overall corporate centralization. Based on these findings, it would be expected that the results of previous studies would show somewhat higher levels Of subsidiary 188 participation than may actually be the case. Future research in this area will have to recognize and account for the possibility of these differences in perception in the design Of the methodology as well as in the conclusions drawn from the findings. The possibility Of differences in perception between head- quarters and individual subsidiary managers was anticipated and accounted for in the methodology Of this study; however, since it was not possible to Obtain the perceptions of all Of the subsidiary managers in the sample, and the headquarters perceptions were avail- able and were clarified tO the researcher during the interviews, the headquarters perceptions Of the locus Of decision making are probably the better descriptors Of the locus Of decision making within the sample corporations and their subsidiaries. Therefore, the headquar- ters interviews were the primary source of the data used in the fol- lowing analysis and discussion Of the locus of decision making for this study. Locus Of Decision Making: Headquarters Findings This section Of the chapter is comprised Of the following segments. First, the findings on the locus of decision making for sample firms and all Of their subsidiaries by function is presented and discussed. Once the overall findings have been presented and discussed, a further breakdown in analysis considers the findings ' related to the locus of decision making for different industries within the sample as well as for each function within each industry. Because the environment of the subsidiary is considered an influence 189 on the locus of decision making for subsidiaries Operating within that environment, an examination Of the centralization scores for each environment and functional area is also presented. In order to com- pare and contrast the locus Of decision making within different industries Operating in the same environment, the study findings related to these variables are also discussed. Once the various find- ings with respect to the locus of decision making by industry, country, and function have been presented and discussed, the concluding section Of the chapter outlines the relationship of subsidiary performance to the locus Of decision making. Overall Centralization Levels for Sample Firms As the preceding discussion indicated, within the sample cor- porations there was substantial uniformity in the locus of decision making characterizing all corporate subsidiaries regardless of size, age, location, etc. These policies indicated the formal decision- making authority each subsidiary manager within the corporation had in managing his organization. Deviations from uniform policies were primarily thought to be informal and only in the case Of financial expenditures did the formal authority for corporate subsidiary managers vary. Consequently, in order to determine the overall level Of cen- tralization for all subsidiaries Of the corporation, headquarters line managers were asked to indicate their perception Of the locus of decision making for all corporate subsidiaries when the twenty-nine decision questions were presented to them. Based on these responses, 190 an overall centralization index for the sample corporations generally and by functional area was calculated. Table 31 presents the overall centralization findings characterizing the headquarters/subsidiary relationships for sample corporations. Table 3l.--Headquarters perception of the locus of decision making for all corporate subsidiaries by functional area expressed as centralization indices. Centralization Index Functional Area for Sample Firms Marketing 2.39 Finance 3.33 Purchasing 2.43 Production 2.79 Personnel 2.92 Research and development 3.l0 Overall index Of centralization 2.76 Note: The centralization index represents the mean scores that were computed from the values Obtained from headquarters responses (ten firms = ten responses) for each Of the twenty-nine deci- sion process questions characterizing headquarters policy for all corporate subsidiaries. Table 3l summarizes the level of centralization in decision making for all sample firms and their international subsidiaries. As the findings indicate, the functional areas characterized by the high- est level of centralization for the sample firms are finance and research and development. The index of centralization Obtained for each of these functions corresponds with the findings presented earlier, 191 which showed that headquarters representatives perceived the control over international finance and research and development as approxi- mately the same or somewhat less than the control exercised in those functional areas domestically. They also parallel the findings obtained when corporate policies by functional area were compared for level Of specificity in dictating certain procedures and practices. According tO Table 31, and in conjunction with the previously discussed findings, finance and research and development are the two most centralized functions characterizing the sample firms when the locus of decision making for each functional area was measured and expressed as a centralization index. The functional area exhibiting the next highest level of centralization for members Of the sample was personnel, with a centralization index Of 2.92. Production, with a centralization index Of 2.79, closely followed personnel as the fourth most centralized function. Purchasing was next in order Of centralization and marketing was the least centralized Of the func- tions being considered. In interpreting the overall index Of centralization Of 2.76 and the individual indices computed for each functional area, the sample corporations leaned primarily toward subsidiary initiation Of alternatives with headquarters approval or informal feedback from headquarters personnel. The higher centralization index reported for finance and research and development indicates that subsidiary participation in decision making in these two functions was less than it was in the other functional areas and less than the overall measure 192 of centralization (2.76). Table 32 provides an additional illustra- tion of the measures Obtained on the locus Of decision making for each functional area and the percentage Of decision responses that fell in each decision process category. When the 290 decisions across functional areas for sample firms and all Of their subsidiaries were tallied, 34.7 percent or 101 Of them were categorized as being a decision process four or decision process five, indicating primarily a headquarters locus Of decision making with almost no participation on the part of the subsidiary manager. Decision process category three, implying essentially a shared level Of participation by subsidiary managers and headquarters, accounted for 17.9 percent or fifty-two of the total decisions responded to by headquarters personnel. Categories one and two represent decisions made primarily at the subsidiary level with very little or no headquarters participation in the process and accounted for 46.8 percent or 137 of the total decisions across functional areas. The mode for all decision cate- gories was a decision process twO, which represented eighty-eight decision responses or 30.3 percent Of the total decision responses. In only 19.6 percent Of the decisions did headquarters impose a decision without consulting subsidiary management before the decision was made. On the other hand, subsidiary managers apparently were able to make only 16.8 percent of the decisions that were measured without consulting their headquarters superior. Based on these measures, the subsidiary managers are not quite as autonomous as some think they are and, by the same token, 193 .chocoog ou moo OON Nouou po: Nos mmmouomocmo "mpoz 0N.N N 2Noo_vomN 2Nm.o_vma 2NN.ONONN 2Nm.NFONm 2N2.m_vea NNo.m2ONm meawwwmwm mso o_.m N on 2N0 vo ANNNOQN 2NN_Oa NNONON NNNNON 3“ eamwwmwm Nm.N N ca 2NN_Om ANNNVNN ANNNONP 2No_va NNNNVN Faeeameaa aN.N N ON ANONOaN NNNNONN NNNNON 2NN_ONN 2NN_ON_ eaNoaaoaea Na.N _ om NNONONN ANN OF 2NN O2 ANN Oo NNNNOON meomaeueaa NN.N N oe NNO Oo NNNNONN NNNNOON ANONON ANNNON eaeaeNN mm.N N om 2Nm_vN_ NNNNOoN 2Nm_vm_ NNaNONN 2Nmva_ meNoaxeaz N N m o m omg< .M moo: Nouoh Nocopuocom mmwmowowmoom NN<11mmNNoOmpou mmmooco cowmwomO .omgo Nocowuocow 22 mmwcovowmoom muocoocoo Npo Now mmmooco chxms1cowmwomo No cowuomogmo mcmocooooom211.Nm mNooN 194 they are not as tightly controlled as some think they might be. While 19.6 percent of the decisions did not include any input from subsidiary management, they were consulted or participated in some way in the other 80.4 percent Of the decisions. Approximately 47 percent Of the decisions were primarily subsidiary decisions. These findings on the locus Of decision making indicate a higher level Of integra- tion and involvement by subsidiaries in decision making in the sample firms rather than extremes of either centralization or decentrali- zation. Within each functional area there were certain decisions which were centralized as well as decisions which were more decentralized. Using Lawrence and Lorsch's terminology of integration and differen- tiation, categories one and two represent the opportunities for dif- ferentiation primarily and the integrative decision policies would be represented by categories three, four, and five in that headquar- ters participates substantially in determining the decision outcomes in these areas so that uniformity among subsidiary units is assured and corporate needs for integration satisfied. This seems particularly reasonable when viewing the functions of finance and research and development as probably requiring higher levels Of integration for overall corporate performance to be maxi- mized. Consequently, the controls in these areas would tend to be more centralized and imply a greater frequency Of responses falling within the decision process four and five categories. In both cases, the percentage Of decisions falling within categories four and five 195 was higher than that for other functional areas. Fifty-three percent of the research and development decisions were headquarters imposed and 54 percent of the financial decisions were basically headquarters imposed. In contrast tO the higher overall levels Of integration or centralization exhibited by finance and research and development, the other functional areas exhibited varying levels of differentiation and integration. For example, in the area Of marketing, 29 percent of the decisions were basically headquarters imposed or integrated and 53 percent were primarily subsidiary management decisions or differentiated. Purchasing, with 33 percent of the decisions being headquarters imposed, also had the highest frequency Of category one decisions, or 60 percent. Another method used by several authors to illustrate the nature of the headquarters/subsidiary relationship in decision making utilized the categories of high, medium, and low to indicate varying levels of participation by headquarters. Using these three cate- gories, the findings with respect to the overall level Of headquar- ters participation in decision making are presented in Table 33. Based on the findings presented in Table 33, the subsidiary managers had the most autonomy in decision making in purchasing, fol- lowed by marketing and production. Sixty-three percent Of the pur- chasing decisions were basically at the subsidiary manager level. Very few were shared decisions. The 33 percent Of the purchasing decisions that were basically headquarters decisions were those having 196 Table 33.--Level Of headquarters participation by functional area for all corporate subsidiaries. Functional Level of Headquarters Participation Area High Medium Low Marketing 23(29%) 15(19%) 42(53%) Finance l7(43%) lO(25%) 13(33%) Purchasing lO(33%) l( 3%) l9(63%) Production 24(34%) 9(l3%) 37(53%) Personnel ll(28%) l3(33%) l6(4l%) Research & Development l6(53%) 4(13%) lO(33%) Total Decisions 101(35%) 52(18%) l37(47%) = 290 decisions Note: Categories of High, Medium, and Low correspond to decision process categories as follows: High Decision Process Five Decision Process Four Decision Process Three Decision Process Two Decision Process One Percentages may not add to 100 due to rounding. Medium Low to do with quality specifications as well as the requirements for central worldwide purchasing Of raw materials within some sample firms. Research and development, with 53 percent Of the decisions basically headquarters determined, was the most centralized function followed by finance with 43 percent Of the decisions being central- ized in headquarters. Although there are differences in the percentage Of decisions that appear tO be more centralized when functional areas are compared, 197 all Of the firms appear to reserve at least 28 percent Of the decisions within each category at the headquarters level. The range Of the values Obtained for high headquarters participation across functions was 28 tO 53 percent, with most functions falling within the 28 to 34 percent group. This is interpreted as meaning that within each functional area certain decisions seem to be headquarters determined for uniformity, economies Of scale, strategic planning, etc., which accompany integration Of worldwide Operations. On the other hand, each function appears tO require a certain amount of local Option or differentiation in application within the particular subsidiary envi- ronment. The range Of scores across functions for responses in the low headquarters participation category was from 33 to 63 percent. Levels Of Centralization by Industry_and Function The preceding discussion and findings relate to the percep- tions Of the headquarters representatives interviewed as to the locus of decision making within certain functional areas for their company and all Of its international subsidiaries. In summary, among sample firms, the most centralized functions with respect to the locus of decision making were research and develOpment and finance. The least centralized functions were purchasing, production, and marketing when headquarters policies for all corporate subsidiaries were examined. Because the literature review indicated that industry differences in the locus Of decision making should be expected due to the unique market and production characteristics of each industry, the overall 198 corporate policies for decisions affecting subsidiary units were also examined from an industry-by-industry perspective. (See Table 34.) Table 34.-~Headquarters perception Of the locus Of decision making for all corporate subsidiaries by industry type. Centralization Index: a Industry and Firm Mean Score Value Rank Industry 1: Pharmaceuticals 2.77 5 Firm 1.1 2 89 Firm 1.2 2.65 Industry 2: Automobiles 2.91 3 Firm 2.1 2.37 Firm 2.2 3.44 Industry 3: Tire and Rubber 3.21 l Firm 3.1 3.41 Firm 3.2 3.00 Industry 4: Capital Equipment 2.97 2 Firm 4.1 3.03 Firm 4.2 2.90 Industry 5: FOOd Processing 2.74 4 Firm 5.1 2.13 Firm 5.2 3.34 Note: The centralization index represents the level Of centralization in the locus of decision making characterizing the industry and the firm when responses to decision process questions for all functional areas were combined for each industry. 3Rank is in order Of most centralized to most decentralized, based on the centralization index value. As Table 34 indicates, within most industries the sample firms had similar levels Of centralization when the locus Of decision making was compared for sample firms and their international subsidiaries. In two cases, industry five and industry two, the sample firms were 199 quite different in the levels Of centralization characterizing the two firms in that industry group. In both industries, one firm was much more centralized than the other. The industry that had the highest levels Of centralization for both firms within the industry was industry three, the tire and rubber industry. Part Of the reason for these higher levels of centralization in this industry was that both firms utilize worldwide purchasing Of raw materials commodities and control research and development activities very closely in com- parison to some other firms in the sample. The industry group that appeared least centralized was the food industry; however, the sub- stantial differences between the two firms in the sample from that industry indicate that the industry itself may not be that central- ized. The industry that was second highest in terms of the centrali- zation index was the capital equipment industry. Both firms within this industry exhibited similar indices of centralization Of approxi- mately 3.0. Based on these findings, there were some differences across industry groups when the locus of decision making for headquarters and subsidiary units was measured; however, the difference between the most centralized industry and the least centralized was only .56, indicating that these differences were not as Obvious when aggregate measures of centralization were compared. In order to Obtain a more detailed Observation Of possible differences between industry groups, the decision process category responses were organized into the categories of high, medium, and low 200 to indicate the level Of headquarters participation for all functional areas within that industry. responses include not only the headquarters policies for all sub- Table 35 presents those results. sidiaries but also those responses given for the French, Brazilian, and British subsidiaries Of each company. Table 35.--Level Of headquarters participation for all functions by industry. Level Of Industry Headquarters Participation Total K- High Medium Low Industry 1: Pharmaceuticals 65(28%) 28(12%) 139(60%) 232 2.69 Industry 2: Automobiles 90(39%) lS( 7%) 124(54%) 229 2.66 Industry 3: Tire and Rubber 83(36%) 49(21%) lOO(43%) 232 3.03 Industry 4: Capital Equipment 85(37%) 28(12%) ll9(51%) 232 2.94 Industry 5: Food Processing 49(23%) 63(29%) 104(48%) 216 2.7l Total Decisions 372(23%) 183(l6%) 586(51%) l,l4l(lOO%) Note: Percentages may not total 100 due to rounding. The findings in Table 35 indicate that one of the reasons the tire and rubber industry had a higher centralization index was that there were not only a relatively large number of decisions that were centralized (36 percent) but also a large number Of shared decisions 201 (21 percent) compared tO other industries. Three industries had the highest levels of headquarters participation: automobiles, tire and rubber, and capital equipment. In each Of these industries, the locus Of decision making across functional areas was at headquarters in at least 36 percent of the cases. In the pharmaceutical and food pro- cessing industries, headquarters was the primary locus Of decision making for 28 percent and 23 percent Of the decisions, respectively. Subsidiaries seemed to have the greatest autonomy in decision making in the pharmaceutical industry, where subsidiaries were basically responsible for 60 percent Of the decisions being examined. The automobile industry is interesting in that while it dis- played a fairly high number Of decisions in categories four and five, it also had a large number Of decisions falling within categories one and two. Of the industries represented in the study, the automobile industry had the fewest shared decisions. Food processing was the industry characterized by the highest levels Of shared decision making, in that 29 percent Of all the decisions were shared jointly by head- quarters and subsidiaries. Since there was considerable variability in the industry results when the frequency Of decisions was grouped into categories Of high, medium, and low, industries did have some differences in the locus Of decision making characterizing their headquarters/ subsidiary relationships. Consequently, the selection Of companies or industries for studying the locus Of decision making may alter the findings of the researcher and, therefore, caution should be used 202 in interpreting the results Of previous studies and in extrapolating findings from a single industry group to other industries. In order to Obtain additional insight into the differences in the locus Of decision making for the industries in the sample, the industry responses for decisions in each functional area were tabu- lated and examined. The following tables and discussion represent ‘the results Of the composite measures on the locus Of decision making for all corporate subsidiaries and for the three subsidiaries of each firm located in France, Brazil, and Britain. Table 36 presents the centralization indices for each of the industries within the sample by functional area and illustrates some Of the differences that occurred in the level of centralization each industry experienced within the same functional area. When industry measures Of centralization for each functional area were compared, substantial variation within functional areas was apparent. This was evident in purchasing, personnel, marketing, and research and development, which all had industry centralization scores within the function that differed by as much as one point or more. Production showed somewhat less variability across industries than some Of the other functions and exhibited a range in centralization scores Of 2.54 to 2.95. Because Of the differences Observed in the .centralization measures for each industry within the functional areas, a brief analysis Of the findings on the locus of decision making for each functional area follows. 203 com: a_2 .Nuz aNuz aNuz Nan aNuz oeaeaa2a>eo NN.N e_.m oo.N oo.m Nm.m NN.N N edeamaam NNN _Nuz Nmuz Nmnz Nm1z Nmuz Naeeameaa No.N NN.N om.m NN.N NN.N oo.N NNN man: omuz omuz omuz om1z a a: a oo.N NN.N am.N No.N NN.N NN.N e N» o La NNN NNuz «N12 aan aNuz aNuz a NN.N NN._ No.2 NN.N mo._ eo.m eNmaedzaa amp Nmuz Nm1z Nmnz Nmnz Nmuz oN.m NN.N NN.N oo.m NN.N NN.N aeeaeNN NNN mo1z aonz aonz aouz aouz NN.N NN.N NN.N oN.N mm.N NN.N meNoaNeaz mcwmmmooco pomsomsow Nmoozx mmpwooe mNooNuomo ooom Nopwoou oco mNNN 1oua< 1osgoso R z asumoocH Pooch m o m N N cowuocou NN< mmwcpmoocH mmcoom com: Ngumoocm .mpoou NgoEEOm "chmzocm oco cowuocom an mcwxos cowm_omo No maoo211.Om mNomN 204 Table 37 indicates the frequency of headquarters responses to each marketing decision question by the three levels Of headquar- ters participation and by industry group. The industries that were least centralized in marketing decision making were the pharmaceutical and the tire and rubber. Table 37.--Level Of headquarters participation for marketing decisions by industry. Level of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals l3(21%) l4(22%) 37(61%) 64 Industry 2: Automobiles 22(34%) 1( 2%) 41(64%) 64 Industry 3: Tire and Rubber 9(l4%) 15(23%) 40(62%) 64 Industry 4: Capital Equipment 32(50%) l6(25%) l6(25%) 64 Industry 5: Food Processing l7(27%) l6(25%) 30(48%) 63 Total 93(30%) 62(19%) l64(52%) 319(lOO%) Decisions Note: Percentages may not total 100 due to rounding. The capital equipment industry was most centralized in market- ing decision making, with 50 percent Of the decisions being headquar- ters imposed. Subsidiaries in this industry were apparently also the least able to exercise autonomy in decision making in marketing 205 in that only 25 percent of the marketing decisions were primarily subsidiary controlled. A major reason for this level Of centrali- zation was the high value Of the product and the fact that at least one of the two companies coordinated worldwide production and market- ing decisions through the headquarters office. Subsidiary managers in the automobile, tire and rubber, and pharmaceutical industries had the highest levels of participation in the decision-making process in marketing. In each Of these indus- tries, the locus Of marketing decision making was at the subsidiary level in at least 60 percent Of the decisions. In the tire and rubber industry subsidiary managers either were primarily responsible for making the marketing decisions Or shared equally in the decision- making process in 85 percent Of the decisions. The industry that came the closest to that level Of decentralization was the pharma- ceutical, in that subsidiary managers either were responsible for, or shared in, 83 percent Of the marketing decisions. The automobile industry allowed considerable subsidiary par- ticipation in the marketing decision process; however, certain deci- sions were reserved for headquarters determination rather than falling within the shared category. In the automobile industry only 2 percent Of the marketing decisions were shared, which represented the lowest number Of shared decisions in the sample industries in this func- tional area. This pattern can be explained by the fact that basic product decisions are determined worldwide and are the result Of concentrated research and development facilities as well as world 206 sourcing strategies. Once the basic product decisions have been established, there is considerable latitude for local decision making in adapting the marketing mix to the local market conditions. When the industry levels of participation in decision making within the financial area were examined, somewhat less variability »across industries was present than in the marketing decisions. Table 38 indicates the levels of headquarters participation for finan- cial decisions Obtained from the sample firms. Table 38.--Level Of headquarters participation for finance decisions by industry. Level of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals ll(34%) 8(25%) l3(4l%) 32 Industry 2: Automobiles l7(54%) O l5(47%) 32 Industry 3: Tire and Rubber 13(4l%) 4(12%) 15(47%) 32 Industry 4: Capital Equipment 20(63%) 0 12(38%) 32 Industry 5: Food Processing 8(25%) 21(67%) 2( 7%) 31 Total 0 Decisions 69(43%) 33(21%) 57(36%) 159(100%) Note: Percentages may not total 100 due to rounding. 207 As mentioned previously, the levels Of headquarters partici- pation in financial decision making were the highest of the functional areas considered, along with research and development. The capital equipment industry, as in marketing decision making, was the most centralized with 63 percent Of the financial decisions being head- quarters imposed. The automotive industry, with 54 percent Of the financial decisions being primarily headquarters decisions, was the second most centralized industry in this functional area. Both the capital equipment and the automotive industries didnot show any shared or joint decision making within the financial area for the particular decisions posed in the interviews. In contrast, the food processing industry indicated the lowest level of headquarters deci- sion making; however, it had the highest level Of shared decision making of all the industries at 67 percent, while it also had the lowest level Of subsidiary participation at 7 percent. Part Of the reason the capital equipment and the automotive industries tended to be dominated by headquarters decision making in financial decisions was the relatively higher cost per unit of their products. The ranking on the high levels Of participation parallels product costs in that capital equipment was the most cen- tralized, followed by automobiles, tire and rubber, pharmaceuticals, and finally food processing. Product prices in each industry would probably correspond to this ranking. In addition, because of the higher per unit costs, absolute volumes of inventory and capital tied up in inventory Of finished goods may be more easily controlled 208 from central Offices than would be true Of food processing. This is particularly appropriate in the case Of capital equipment, where each unit Of product sells for several thousand dollars. One representa- tive in the capital equipment industry indicated that he monitored worldwide marketing and production centrally or the inventory levels worldwide in his division could jump by several million dollars relatively quickly compared to an industry like fOOd processing, where inventory values may be much less and not as substantial an influence on corporate capital flows in the short run. The industry differences in the purchasing area are primarily attributable to the practice of worldwide sourcing Of raw materials practiced by the tire and rubber companies and the setting Of quality control specifications on raw materials and components. Table 39 illustrates the level Of headquarters participation for sample firms in purchasing decisions. Due to the nature Of the product line, the fOOd processing companies were the most decentralized in purchasing decisions, with none Of the decisions falling within the headquarters-imposed category, only 14 percent within the shared category, and 86 percent at the subsidiary level. Conversely, the tire and rubber companies and the pharmaceutical firms were the most centralized in that both Of them had at least 50 percent Of the purchasing decisions primarily head- quarters decisions. The pharmaceutical firms were more centralized in the purchasing decisions having to do with quality control specifi- cations; however, local decisions were usually the practice in 209 Table 39.--Level Of headquarters participation for purchasing decisions by industry. Level of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals 12(50%) 0 12(50%) 24 Industry 2: Automobile 3(12%) 1( 4%) 20(84%) 24 Industry 3: Tire and Rubber 16(64%) 4(l6%) 4(l6%) 24 Industry 4: Capital Equipment 4(l7%) 0 20(83%) 24 Industry 5: Food Processing 0 3(14%) 18(86%) 2l Total 35(30%) 8( 7%) 74(63%) 117(100%) Decisions Note: Percentages may not total 100 due to rounding. selecting suppliers and in price negotiation so that 50 percent Of the decisions in these firms also fell within the high subsidiary participation category. The other three industries, automotive, capital equipment, and fOOd processing, were overwhelmingly on the subsidiary side in the locus Of decision making for purchasing deci- sions in that all three had at least 80 percent Of the purchasing decisions primarily subsidiary determined. Industry differences were also present in the decisions cate- gorizing the production process; however, the differences between 210 industries were not quite as marked as they were in some other func— tional areas. Table 40 illustrates industry practices Of the sample firms with respect to decision making in production. Table 40.--Level Of headquarters participation for production decisions by industry. Level Of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals l4(25%) 3( 5%) 39(69%) 56 Industry 2: Automobile 29(52%) 1( 2%) 26(46%) 56 Industry 3: Tire and Rubber l4(25%) 15(27%) 27(48%) 56 Industry 4: Capital Equipment l3(23%) 4( 7%) 39(70%) 56 Industry 5: Food Processing 12(24%) 7(l4%) 30(6l%) 49 T°ta' 82(30%) 31(ll%) 161(59%) 273(lOO%) :Decisions Note: Percentages may not total 100 due to rounding. The automobile industry exhibited the highest percentage of production decisions that were made primarily by headquarters per- sonnel. In the automobile industry, 52 percent Of the production decisions within subsidiaries were basically headquarters decisions and 46 percent were basically subsidiary decisions. The automobile 211 industry had the lowest number of shared decisions in production. The range of headquarters decisions characterizing the other indus- tries was 23 to 25 percent. 0n the subsidiary side, the range for all firms was 46 to 70 percent. The tire and rubber industry had somewhat lower rates of subsidiary participation, in that only 48 percent Of the production decisions were made primarily at the sub- sidiary level. However, in the tire and rubber industry, there was a comparatively large number (27 percent) of shared or joint deci- sions compared to other industry groups which exhibited a range of 2 to 14 percent in the shared category. One factor which may account for the higher levels of centralization in the automotive industry may be the fact that the product decisions are determined primarily at headquarters and these companies were engaged in worldwide sourc- ing Of component parts for some automobiles which required higher levels Of coordination and integration Of production and scheduling internationally among subsidiaries than alternative sourcing strate- gies would dictate. When industry responses to personnel decisions were tabu- lated according to the level of headquarters participation, industry differences were again apparent. Table 41 summarizes these findings. The pharmaceutical industry was least centralized in the locus Of decision making for personnel decisions. Subsidiary managers were primarily responsible for 9l percent of the personnel questions within the pharmaceutical industry. Food processing, with 6l percent Of the personnel decisions being made at the subsidiary level, was 212 Table 4l.--Level Of headquarters participation for personnel decisions by industry. Level of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals 1( 3%) 2( 6%) 29(91%) 32 Industry 2: Automobiles 3( 9%) 12(38%) l7(54%) 32 Industry 3: Tire and Rubber 7(22%) ll(34%) l4(43%) 32 Industry 4: Capital Equipment 16(51%) 8(26%) 8(26%) 32 Industry 5: Food Processing 8(26%) 4(l3%) l9(6l%) 31 Total Decisions 35(22%) 37(23%) 87(54%) 159(100%) Note: Percentages may not total 100 due to rounding. next in terms of decentralization in this functional area; however, within the food processing industry, headquarters was basically responsible for 26 percent Of the decisions on personnel issues. The capital goods industry again was the most centralized when the frequency of headquarters decision making in personnel decisions was tabulated. Within the capital equipment industry, headquarters personnel made 51 percent of the decisions and subsidiary management was primarily responsible for 26 percent Of them, which was the lowest subsidiary total of any industry in this functional area. 213 When headquarters representatives were asked to indicate the locus of decision making for decisions in the research and development area, some differences among industries also emerged. Research and development tended to be one Of the most centralized functions within the sample of firms participating in this study. The tire and rubber companies were the most centralized in the research and development area, with 100 percent of the decisions in this function being primarily headquarters decisions. While auto- mobiles and pharmaceuticals also exhibited relatively high rates of centralization, 76 percent and 58 percent, respectively, and the capital equipment industry appeared to be the most decentralized with 100 percent of the research and development decisions falling at the subsidiary level, it should be noted that in most of the companies, the primary research and development activities were in the U.S. and that subsidiaries, with the exception of the United Kingdom, were not involved in extensive research and development activities. Con- sequently, as in the case Of the capital equipment industry, most Of the research and development activities Occurring at the subsidiary level were basically product refinement rather than so-called "pure research." Therefore, some caution should be exercised in inter- preting the levels of centralization characterizing the capital goods industry within this functional area. According to the corporate interviews, the only industry which was involved in substantial product development at the subsidi- ary levels in its subsidiaries worldwide was the food processing 214 industry. As Table 42 indicates, 24 percent of the decisions in this area were determined at the subsidiary level and an additional 57 percent were jointly determined by headquarters and the local sub- sidiary. This seems logical since the nature Of the product line and local markets and cultural influences may dictate the need to respond to local tastes in food products more than would be the case in some of the other product categories. Table 42.--Level Of headquarters participation in research and development decisions by industry. Level Of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals l4(58%) l( 4%) 9(38%) 24 Industry 2: Automobiles l6(76%) 0 5(24%) 21 Industry 3: Tire and Rubber 24(lOO%) 0 O 24 Industry 4: Capital Equipment 0 O 24(lOO%) 24 Industry 5: Food Processing 4(l9%) 12(57%) 5(24%) 21 Total 53(51%) 13(ll%) 43(38%) 114(100%) Decisions Note: Percentages may not total 100 due to rounding. 215 Based on the findings among the industries in this sample, there was substantial variation within functional areas when indus- try measures Of the locus Of decision making were compared across functions. These findings are consistent with the expectations under- lying the industry Or product characteristics outlined in the con- ceptual model. While there are a number of implications of these findings, perhaps the most significant is that considerable care must be used in interpreting and extrapolating the results of previous research on the locus of decision making in multinational corpora- tions because industry distinctions were usually not identified nor measured in the analysis. Also the firms Operating within differ- ent industries may choose to or find it necessary to centralize some functions more than others so that the locus of decision making characterizing headquarters and subsidiary relationships may indeed vary across industries as well as across functional areas as these findings indicate. Since the environment in which the subsidiary is located was suggested as having an influence in the determination of the locus of decision making, an analysis of the study findings on the locus of decision making characterizing sample firms and their subsidiaries operating in France, Brazil, and the United Kingdom follows. Levels Of Centralization by Country and Function In order to determine the locus of decision making character- izing the subsidiary/headquarters relationship forsample firms and their subsidiaries operating in France, Brazil, and the United Kingdom, 216 headquarters representatives were asked tO complete the same series of decision questions within each functional area for these three subsidiaries indicating their perception Of the locus Of decision making for each decision and subsidiary. Based on their responses to the decision questions, the centralization indices for each of the three national environments were calculated. Table 43 provides measures of the level of centralization characterizing the sample firms' subsidiary Operations in those countries compared to their perception Of the locus of decision making for all corporate sub- sidiaries. Table 43.--Locus of decision making for all corporate subsidiaries and subsidiaries Operating in France, Brazil, and the United Kingdom. Centralization Index: Mean Score Value All corporate subsidiaries 2.76 France 2.88 Brazil 2.68 United Kingdom 2.73 Note: The centralization index is a measure of the level Of centrali- zation characterizing the headquarters/subsidiary relationship in decision making. It is derived by computing the mean score from the values Obtained in response to twenty-nine questions on the locus of decision making for all corporate subsidiaries, and for each of the three subsidiaries in the analysis. Point values for responses to the decision process categories are as follows: Process 5 = 5 points, Process 4 = 4 points, Process 3= 3 points, Process 2 = 2 points, and Process 1 = 1 point. 217 As Table 43 indicates, there was very little difference in the overall centralization indices Obtained for the sample members' subsidiary Operations in each of the three environments. Brazil and the United Kingdom were slightly below the levels of centralization characterizing decision making in the other corporate subsidiaries, while France was slightly above the overall corporate index of 2.76. Since there may be differences or similarities in the locus Of decision making that exists across environments when measures Of centralization for each functional area are compared, Table 44 pre- sents the centralization indices for each functional area within the three environments as well as the measures Obtained for all the sub- sidiaries of the sample firms. Table 44.--Locus of decision making by function and country: summary table. Centralization Index: Mean Score Values Function A11 cor ° ' ° - ____ porate . United 3 SubSidiaries Subsidiaries Frame 3'32" kingdom Sampiex Marketing 2.39 2.77 2.68 2.73 2.73 Finance 3.33 3.31 3.13 3.30 3.25 Purchasing 2.43 2.44 2.20 2.33 2.32 Production 2.79 2.73 2.51 2.63 2.62 Personnel 2.92 2.69 2.48 2.60 2.59 Research & Development 3.10 3.54 3.20 3.37 3.36 Mean Score 2.76 2.88 2.68 2.79 2.78 218 The levels Of centralization characterizing the three sample subsidiaries were very similar to the values obtained when the mea- sures Of the overall corporate policies on the locus of decision making for all corporate subsidiaries were computed. Brazil had the lowest centralization index in all functional areas when compared to France and the United Kingdom. France had the highest centraliza- tion index Of the three and the United Kingdom indices were consis— tently in the middle Of the French and Brazilian. Compared to the sheadquarters policies for all subsidiaries, the mean for the three sample subsidiaries was lower in the areas Of finance, purchasing, production, and personnel. The sample subsidiaries' centralization scores in marketing and research and development were somewhat higher than the mean scores characterizing corporate subsidiaries in the aggregate. The differences between the centralization values Obtained for all headquarters subsidiaries and those isolated by environment may be attributed to a number of factors. It is likely that the subsidiaries located in these three countries do differ somewhat in the locus of decision making characterizing their relationships with 'headquarters and that some differences in the implementation Of cor- porate policies do occur from subsidiary to subsidiary or from coun- try tO country. This would correspond to the headquarters findings on the uniformity in formal policy with informal variations for indi- vidual subsidiaries. This is logical in view Of the fact that none Of the differences between the three subsidiary centralization scores 219 and those given for the corporation as a whole differed by more than .44 in any function. These measures give an additional indi- cation Of the consistency with which overall corporate policies may be applied to subsidiary organizations in general as well as some measure Of the deviation from that policy that may characterize a particular subsidiary or group of subsidiaries Operating within the same environment. The differences in the levels of centralization obtained for the three environments were not particularly large. This was espe— cially true in the case of France and the United Kingdom, where the two centralization values were 2.88 and 2.79, respectively. As the literature review and the conceptual model indicated, the more uncer- tain the environment, the greater will be the level Of decentraliza- tion characterizing subsidiary decision making. The more certain the environment, the greater will be the opportunities for centrali- zation and higher levels of structure. The country characterized ~by the highest level of uncertainty for business decision making was Brazil, followed by France and then the United Kingdom. Based on the environmental uncertainty measures, the order of centralization would be the United Kingdom, followed by France and then Brazil. However, the centralization indices indicated that France was slightly more centralized in subsidiary decision making than the subsidiary operations in Britain. There are at least three explanations for this order of occurrence. First, the differences between France and the United 220 Kingdom on the overall measures were very small and when the decision process characterizing decision making in subsidiaries in each coun- try are compared, they are almost identical. Second, because some companies had EurOpean headquarters located in France or Germany for coordination Of production and/or marketing operations on the European continent, France had slightly higher levels Of centralization in the production area as forthcoming tables will indicate. Third, another factor that may suggest why the French cen- tralization score was not appreciably lower than that of the United Kingdom, even though the environmental uncertainty scores differed by .8, is that during the time Of the data collection, France had just undergone a major election in which there was substantial con- cern that the leftist groups would Obtain a majority in the voting. Consequently, the headquarters perceptions of the environmental uncertainty probably reflect this period of time. Because a more conservative government was maintained, there was probably no need to make substantial deviations in the locus Of decision making for subsidiaries operating there. Even though the perceived uncertainty was relatively high, it was primarily due to the political environ- ment and the changes that had recently occurred there. While the national environments displayed some differences when the mean centralization score for each was computed, the magni- tude of the differences was very small. The decision-making processes characterizing the level Of headquarters and subsidiary participation 221 in each functional area provide a further illustration Of these coun- try differences and allow for additional comparison across environ- ments. Using the categories of high, medium, and low to indicate the level of headquarters participation in decision making for each country and functional area, some interesting findings emerged. Table 45.--Level of headquarters participation by country and functional area--United Kingdom. Level of Function Headquarters Participation Total High Medium Low Marketing 25(32%) 13(l6%) 42(53%) 80 Finance l9(48%) 8(20%) l3(33%) 40 Purchasing lO(33%) l( 3%) 19(64%) 30 Production 22(32%) 5( 7%) 43(61%) 70 Personnel 9(23%) 7(18%) 24(60%) 40 Research & Development 15(50%) 4(l3%) ll(37%) 30 Total Decisions 100(35%) 38(13%) 152(52%) 290(lOO%) Note: Percentages may not total 100 due to rounding. When the levels Of headquarters participation in decision making for France and the United Kingdom were compared, the two envi- ronments displayed almost identical frequencies within each functional area. With the exception Of research and development, the largest difference between the two environments in the percentage of responses 222 Table 46.--Level Of headquarters participation by country and functional area--France. Level Of Function Headquarters Participation Total High Medium Low Marketing 25(31%) 14(16%) 40(52%) 79 Finance 18(46%) 7(18%) 14(36%) 39 Purchasing lO(37%) 0 l7(63%) 27 Production 22(35%) 4( 6%) 37(59%) 63 Personnel 9(23%) 6(15%) 24(61%) 39 ggjgfigggefit l5(45%) 2( 6%) l6(48%) 33 Bgfifilions 99(35%) 32(ll%) l49(53%) 280(100%) Note: Percentages may not total 100 due to rounding. falling within each category is only 4 percent. In the research and develOpment area, the United Kingdom was somewhat more centralized than France with 50 percent Of the decisions for the British sub- sidiaries being primarily headquarters imposed or decision process categories four and five. In addition, subsidiaries within France had more autonomy in decision making in research and development, as demonstrated by the fact that 48 percent of the decisions in this area were basically subsidiary decisions in the French subsidiaries com- pared to 37 percent of the research and development decisions being primarily subsidiary decisions in the United Kingdom. 223 Table 47.--Level Of headquarters participation by country and functional area--Brazil. Level Of Function Headquarters Participation Total High Medium Low Marketing 20(25%) 21(26%) 39(49%) 80 Finance 15(38%) 8(20%) l7(43%) 40 Purchasing 5(17%) 6(20%) 19(64%) 30 Production l4(20%) 12(l7%) 44(63%) 70 Personnel 6(16%) 11(28%) 23(58%) 40 ggjgigggefit l3(43%) 3(lO%) l4(47%) 30 122111111 73(25%) 6l(21%) 156(54%) 290(lOO%) Note: Percentages may not total 100 due to rounding. One factor which accounts for the differences in the centrali- zation index values for the Brazilian subsidiaries compared to those in France and the United Kingdom is illustrated by the fact that the levels of headquarters participation in decision making in Brazil in all functional areas fell within the moderate or shared level of decision making more frequently than they did in the other two countries. Thirty-five percent of all the decisions in France and in the United Kingdom were basically headquarters decisions, whereas in Brazil, only 25 percent Of the decisions were headquarters imposed. Brazil, France, and the United Kingdom display very similar fre- quencies for subsidiary-determined decisions in that the percentage 224 of decisions made at the subsidiary level in each country was 54 percent, 53 percent, and 52 percent, respectively. The difference between the locus of decision making char- acterizing Brazil and the other two subsidiary environments appears to result primarily from the smaller number Of headquarters-imposed decisions characterizing the Brazilian subsidiaries as well as the larger number of shared decisions present within the Brazilian sub- sidiary Operations. The percentage of decisions that were basically headquarters imposed in all functional areas was lower for Brazil than was true for the United Kingdom or France. Differences Of 10 percent or more between the Brazilian subsidiaries and those in France and the United Kingdom were present in marketing, finance, purchasing, and production. These substantial variations can be accounted for, at least in part, by the fact that many Of the companies were coordinating their European marketing and production activities which would account for the higher levels of headquarters decision making in production and marketing which characterized the French and British subsidiaries in these areas. Purchasing, with 63 to 64 percent of the decisions being primarily subsidiary decisions in all three subsidiaries, was very similar across the three countries; however, because some of the companies were centralizing purchasing activities within Europe, the French and British subsidiaries had a higher frequency Of headquarters-imposed decisions in this area than did the Brazilian subsidiaries. Personnel is an area which did not demonstrate as 225 much difference between the three environments as some other func- tional areas. Numerous authors have suggested that organizations char- acterized by high levels Of environmental uncertainty will find it more difficult to impose high levels of structure. In the case of Brazil, the larger number Of decisions that are jointly made or shared by headquarters and the subsidiary allows for sufficient levels Of integration as well as differentiation for accommodating the local environmental conditions. As these findings indicate, the higher the environmental uncertainty, the more likely will there be some shifts from a primarily headquarters-imposed decision mode to a more shared or locally determined process. In finance, the Brazilian subsidiaries were primarily responsible for 43 percent of the deci- sions, whereas in France and the United Kingdom, subsidiaries were primarily responsible for only 36 and 33 percent, respectively. Because of the well-documented rates of inflation in Brazil and the generally more unsettled financial and economic picture char- acterizing that environment, there may be higher levels of uncertainty economically which account for the differences between these three countries in this functional area. Consequently, the pressures exerted on the subsidiary organization in coping with high levels of uncertainty may also tend to cause corporations to decentralize some Of the decision making within particular areas so that a larger per- centage of the decisions are made primarily at the local level, which appears to be the case for Brazil when financial decision-making policies are compared to those in France and the United Kingdom. 226 Some Of the Observed differences in the locus Of decision making for France, Brazil, and the United Kingdom may also be due to the unique economic, political, legal, cultural, or market con- ditions Operating within those countries. There may be greater simi- larity in the environments characterizing France and the United Kingdom due to their level of development, European location and integration with other European countries, and their political characteristics. Consequently, the locus of decision making scores may reflect those similarities. The Brazilian environment, on the other hand, may rep- resent a much different set of contingencies and vary considerably from the environments of France and the United Kingdom on many dimen- sions. The unique political and economic environment characterizing »Brazil was mentioned in a number Of interviews as encouraging greater levels of decentralization in decision making. One executive com- mented in detail on the influence of the government in all functional areas and particularly in marketing and finance. Because of price controls, more restrictive import measures, and other governmental activities, their marketing policies and practices in Brazil are very different from what they might be in the absence Of these government policies. A number of other individuals also mentioned the diffi- culties they faced in attempting to implement standardized decisions or decision policies within functional areas for subsidiaries Operat- ing in Brazil. Because Brazil is a develOping country and shares some environmental characteristics that are similar to other countries at 227 equivalent stages of economic development, future research might compare and contrast the locus of decision making for subsidiaries Operating in countries at different stages of development to deter— mine if differences in the locus Of decision making might also be true for subsidiaries in these countries. Levels of Centralization by Country and Industry In addition to the examination of the locus Of decision making data for functional areas from the perspective Of country or environmental influences, it was suggested that there may be some differences in the locus Of decision making characterizing different industries operating within the same environment. Different envi- ‘ronments may be categorized by differences in industry policies with respect to the locus of decision making. The findings in this section Of the analysis report the findings on the locus of decision making .by country and industry and closely parallel the overall findings on the locus of decision making when environments were contrasted. Since there were no major differences among industries that appeared when the locus of decision making characterizing the French and British subsidiary Operations were compared, the analysis focuses primarily on the observed differences between the industry groups Operating in Brazil and those Operating in the two other environments-- France and the United Kingdom. 228 Table 48.--Level Of headquarters participation by industry and country--France. Level Of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals l4(24%) 8(l4%) 36(62%) 58 Industry 2: Automobiles 26(47%) 2( 4%) 27(49%) 55 Industry 3: Tire and Rubber 25(43%) 5( 8%) 28(48%) 58 Industry 4: Capital Equipment 21(36%) 7(12%) 30(52%) 58 Industry 5: Food Processing 12(29%) ll(26%) l9(45%) 42 T°ta' 98(36%) 33(12%) 140(52%) 27l(lOO%) Decisions Note: Percentages may not total 100 due to rounding. When industry practices with respect to the locus of decision making were examined for subsidiary Operations located in France and the United Kingdom, some minor differences across industries were apparent; however, most Of the industry practices were very similar across environments. In both countries, the automobile industry illustrated higher frequencies of headquarters decision making across functional areas than did some Of the other firms in the sample. In France, 47 percent of the decisions were essentially headquarters decisions, as was the case for 48 percent Of the decisions made by 229 Table 49.--Level Of headquarters participation by industry and country--United Kingdom. Level of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals 16(28%) 8(l4%) 34(59%) 58 Industry 2: Automobiles 28(48%) 2( 3%) 28(48%) 58 Industry 3: Tire and Rubber 23(40%) 5( 9%) 30(52%) 58 Industry 4: Capital Equipment 21(36%) 7(12%) 30(52%) 58 Industry 5: Food Processing 12(21%) 16(28%) 30(52%) 58 Total , Decisions lOO(35%) 38(13%) 152(52%) 290(lOO%) automotive industry firms in the United Kingdom. The industry with the least number Of headquarters-imposed decisions as well as the largest number of subsidiary-made decisions in both environments was the pharmaceutical industry. Tire and rubber manufacturers were the second most centralized of the five industries, with 40 to 43 percent Of the decisions being basically headquarters decisions. Part Of the reason why the automotive and tire and rubber industries illustrated the higher levels Of centralization within France and the United Kingdom is that both industries coordinate marketing and production on a regional basis for Europe. Furthermore, since the tire and rubber industry supplies automotive manufacturers with 230 original equipment and serves the replacement markets for these automobiles, it is logical that they would also indicate higher levels of centralization in marketing and production. The tire and rubber industry is currently coordinating worldwide purchasing of some raw materials, particularly in Europe and the U.S., which also accounts for their higher levels of centralization in purchasing and production in these two environments. Table 50.--Level Of headquarters participation by industry and countr --Brazil. Level of Industry Headquarters Participation Total High Medium Low Industry 1: Pharmaceuticals 18(3l%) 5( 9%) 35(60%) 58 Industry 2: Automobiles 11(19%) 4( 7%) 43(74%) 58 Industry 3: Tire and Rubber 11(19%) 28(48%) 19(33%) 58 Industry 4: Capital Equipment 21(36%) 7(12%) 30(52%) 58 Industry 5: Food Processing 12(21%) 16(28%) 30(52%) 58 T°ta' 73(25%) 60(21%) 157(54%) 290(lOO%) Decisions Note: Percentages may not total 100 due to rounding. In contrast to the industry characteristics on the locus Of decision making characterizing subsidiary operations in France and 231 the United Kingdom, the Brazilian industries that show the highest levels of headquarters-imposed decisions are the capital equipment and pharmaceutical industries with 36 and 31 percent, respectively, Of the decisions in those industries being headquarters determined. The majority of the decisions imposed on subsidiaries within the pharmaceutical industry were those that relate tO product quality controls in production, purchasing decisions, and research and development decisions. Aside from these centrally dominated areas, the local subsidiaries appeared to have considerable autonomy in decision making in that the decision-making authority rested at the subsidiary level for 60 percent of the decisions for pharmaceutical industry members. Only one industry had a higher level of subsidiary-determined decisions than the pharmaceutical industry in Brazil; it was the automobile industry, with 74 percent Of the decisions being primarily locally determined. The higher levels of subsidiary determination in decision making within the automobile industry are probably attributable to the fact that the Brazilian market is the primary market being served by their production and the necessity of coordi- nating purchasing, production, and marketing to accommodate several national markets is not nearly as great as it is for their European Operations. The tire and rubber industry in Brazil illustrates some interesting contrasts to the decision process responses of the other industries. Only 33 percent of the decisions across functional areas 232 were primarily subsidiary decisions for firms in this industry. While there may be a number Of factors that account for this compara- tively low frequency of local subsidiary decision making, one possible explanation is the fact that headquarters personnel indicated they were purchasing raw materials worldwide and that the Brazilian sub- sidiary was able to buy its own raw materials in some cases and had the Option Of participating in corporate purchasing, whereas the French and British subsidiaries were required to participate. Con- sequently, the locus of decision making in purchasing and production was more Of a shared or joint decision process for these two Brazilian subsidiaries than it was for the French or British affiliates of these firms. The food processing industry showed almost no variation across countries when the percentages«ifsubsidiary-determined decisions were compared for the three country environments. Subsidiary managers were primarily responsible for 45 to 52 percent of the decisions made by subsidiary managers in this industry. All three countries showed relatively high rates Of joint decision making as exhibited by the fact that 26 tO 28 percent Of the decisions, regardless Of environ- ment, fell within this category. France, with 29 percent Of the decisions being primarily headquarters determined, was somewhat higher than the frequency Of responses falling within that category in Brazil and the United Kingdom. In those two countries, 2l per- cent Of the decisions were primarily determined by headquarters. This can perhaps be explained by the fact that both companies in the 233 industry maintain regional line executives within France so that the Opportunities for corporate involvement in the decision-making process are somewhat higher in France than would be the case in Brazil or the United Kingdom. Before turning to a description and analysis of the findings on the relationship of subsidiary performance to the locus of decision making, a brief summary of the findings and discussion thus far seems apprOpriate. First, when both headquarters and subsidiary data were examined for two firms and six Of their subsidiaries, some differ- ences between the headquarters and subsidiary managers' perceptions of the locus of decision making were Observed in 108 of the 168 deci- sions compared. While these differences in the perceived locus Of decision making were predominantly less than two decision process categories apart, in 26 percent of the cases they differed by two categories or more. Second, when the overall levels Of centralization in decision making for the sample firms and their international subsidiary units were examined, substantial uniformity in corporate decision-making policies for all subsidiaries was evident. Functional analysis revealed that research and development and finance were the most centralized of the functional areas being considered. There was substantial variability within and across functional areas in the number Of decisions that were characterized as being high, medium, or low in the level Of headquarters participation, indicating varying 234 levels of integration and differentiation which were not illustrated in the aggregate centralization measures. Some differences across industry groups were also present when the locus Of decision making for each function was analyzed. Third, when the locus Of decision making was examined for the sample members' subsidiary operations in France, Brazil, and the United Kingdom, differences across national environments were present. The centralization indices indicated Brazil was the least central- ized, followed by the United Kingdom and France. Centralization indices for France and the United Kingdom were almost identical, as were the frequencies Of decisions falling within the high, medium, and low categories. The lower centralization level for the Brazilian subsidiaries was primarily accounted for by the larger frequency of subsidiary-determined decisions as well as by a higher frequency Of shared decisions. The findings on the nature of the relationship of the locus of decision making to subsidiary performance is now examined. Subsidiarngerformance Findings: Measures of Performance and the Locus of Decision Making In order to determine the types of measures used by corpora- tions in evaluating subsidiary performance, the companies within the sample were asked to respond to an Open-ended question during the headquarters interview which asked them to indicate the types Of methods they were using to evaluate subsidiary performance. Table 51 summarizes their responses. As the findings indicate, the most 235 frequently applied measures Of performance were profitability, sales volume, market share, and return on assets. Table 51.--Measures used by sample firms for evaluating subsidiary performance. Measure Of Performance Frequency of Response 1. Profitability lO 2. Return on assets 6 3. Return on equity 1 4. Return on inventory 2 5. Market share 9 6. Sales volume 9 7. Inventory turnover 1 8. Return on sales 1 9. Long-range plans 1 10. Monthly forecasts and changes 1 ll. Receivables ratio 1 12. Cash flow 1 13. Performance against budget 2 While a considerable number of measures of performance were given, it appears that profitability is the key criterion used by most firms in the sample in evaluating the performance of their subsidiaries. When asked which measure or measures they considered provide the best evaluation of subsidiary performance, most mentioned 236 that there was not a single "best" method Of evaluating subsidiary performance; however, nine of the ten firms indicated that they tended to use one measure more than others. Within the firms that used one measure more than others, profits or profitability was mentioned six times, return on assets over time was mentioned three times, and market share twice. In addition to providing some indication of the types of measures corporations are using in evaluating subsidiary performance, one Of the primary Objectives of this study was to determine the relationship between subsidiary performance and the locus of decision making. Several authors cited in the literature review mentioned that there appeared to be some relationship between the locus of decision making and the level of performance of that subsidiary; however, they did not indicate the nature Of that relationship. In the conceptual model, subsidiary performance was viewed as a variable which interacted with the locus Of decision making variables in two ways. First, the locus of decision making within functional areas or across functional areas may influence the ability of the subsidiary organization to Obtain high performance levels, in that certain decisions may be outside the subsidiary manager's authority. On the other hand, subsidiary performance may be enhanced if certain decisions requiring expertise in an area in which the subsidiary management team may not have the same capabilities Of headquarters line or staff personnel are made at the headquarters level or are shared with the subsidiary management. 237 Second, the performance of the subsidiary was thought to interact in another way with the locus of decision making--that is, the use Of performance measures as a means Of monitoring activities and in decision making. As was indicated earlier, nine of the cor- porations in the sample indicated that subsidiary managers with good performance records will get a better "ear" in decision making or their Opinions will carry more weight in a discussion of decision choices. By the same token, when asked if the authority Of a sub- sidiary manager is reduced when the performance Of his unit falls, ten (if the corporations in the sample responded that formally his authority is not reduced, but in practice all ten said it is in fact reduced somewhat. Table 51 summarizes the responses given by headquarters representatives when asked to comment on the way in which the parameters of the subsidiary manager's authority respond to declines in performance of the subsidiary unit. As the findings in Table 52 indicate, the actual formal authority of the subsidiary manager is not usually reduced in most Of the sample corporations; however, within three companies, subsidiary managers with poor performance are verbally informed that they no longer have the authority to make certain decisions. But for the most part, the influence of low performance is to increase headquarters monitoring of the unit's activities and managerial decisions. Based on these responses, the influence of substandard performance in deter- mining the locus of decision making for that subsidiary is primarily in shifting the locus Of decision making from a decision process one 238 to a two or from a two to a three rather than an extreme shift from a process one to a process four. Consequently, there are not extreme variations in the amount Of decision-making authority the manager Of a high-performing unit has in comparison to that characterizing the manager Of an average-performing unit. If the performance falls to a certain point, it is very clear that the individual would likely be replaced. Table 52.--Substandard performance of the subsidiary unit as an influence on the locus of decision making. Statement Frequency 1. NO change in formal authority, but in practice his authority is reduced somewhat lO 2. Verbal instructions that they can not make certain decisions 3 3. We monitor more closely and control 5 4. He's replaced 2 5. There are more frequent consultations, "checking- in" and more frequent attention for that sub- 6 sidiary 6. Approval for certain decisions is needed more frequently 4 7. There's more involvement with decisions in substandard-performing subsidiaries 2 The subsidiary managers who are performing at levels accept- able to their line manager's expectations will have somewhat more latitude in decision-making authority than subsidiary managers who are 239 managing subsidiaries characterized by falling performance. However, the differences in the locus of decision making for individual sub- sidiary managers do not appear to be substantial and represent pri- marily informal shifts in the locus of decision making from a decision process category one to a decision process category two, or from a two to a three in most cases. The findings in this study demon- strated substantial uniformity in corporate policies with respect to the locus Of decision making characterizing all subsidiary organiza- tions and there were only minor differences in the implementation Of those policies for any one particular unit. It is therefore not likely that there would be major differences in these policies for managers of high- and low-performing units. Because Of this unifor- mity in application, it can not be expected that one manager would be primarily operating within a decision process category one and another Operating in a category five for any substantial period of time. As two executives stated, the low-performing manager would be replaced if his performance was substantially below expectations and remained there for a period of time. Based on these findings, there is some difference in the locus Of decision making characterizing the authority in decision making the manager of a high-performing subsidiary has and the authority in decision making the substandard-performing manager will have. However, these differences are relatively small in that the high-performing manager may have some decisions falling within the decision process categories one or two while the lower-performing 240 unit would have more decisions falling within decision process categories two or three. A second aspect Of the relationship Of the locus of decision making and subsidiary performance was raised several times in the literature review and underlies the development Of the conceptual model. Many previous studies of the locus of decision making in multinational corporations implied that the ability of the subsidiary manager to Optimize his unit's performance will be constrained by the imposition of headquarters policies or decisions limiting the decision-making autonomy for the operation. In this view, worldwide corporate movements toward increased standardization within functions and integration Of corporate activities for corporate performance maximization may reduce the ability of the subsidiary manager to opti- mize the performance of the unit. Based on these assumptions, the high-performing subsidiary units would be the units characterized by the highest levels of decentralization or autonomy in decision making. Conversely, the more the decision-making authority is constrained through headquarters-imposed policies and decisions, the lower will be the performance Of that unit. In order tO obtain some performance measures for the thirty subsidiaries within the sample, headquarters executives were asked to rank the performance of each Of the subsidiaries in comparison to the performance Of other corporate subsidiaries as a standard. In addi- tion, each corporation was asked to provide information on the per- formance Of each Of their three subsidiaries located in France, 241 Brazil, and the United Kingdom in the form Of an index describing changes in sales, profitability, and return on investment over a five-year period. Because the study is primarily concerned with subsidiary per- formance associated with current practices in the locus Of decision making for sample subsidiaries, and the other performance measures may be associated with different personnel and policies in effect in previous time periods, the line executive's overall statements on the performance of each subsidiary relative to the corporation's performance and the performance of other corporate subsidiaries at the time of the interviews are the primary data used in this analysis. These assessments likely incorporate the line executive's knowledge of the subsidiary's performance when measured by whatever quantita- tive techniques the corporation employs for performance assessment as well as a knowledge Of any other factors that must be considered in interpreting the quantitative measures for an overall appraisal Of performance. When subsidiaries were grouped by their level of performance and by the level of their participation in decision making across all functional areas, there was no apparent relationship between the overall levels of centralization characterizing the high-performing and the low-performing subsidiaries. When the locus Of decision making is viewed as being cen- tralized or decentralized for subsidiary/headquarters decision making, there is no apparent relationship between the subsidiary's performance 242 .cheLowNmO1zoN mo omwmwm 1moNo mom mmopo> moms» oopmo mmopoON mucoscomcmo gum: mmwcowopmoom .mmwcowowmoom OswecomcmO12ON2 mm ommwwmmmpo mom mmmcmwommoom NNo com mmocm>o m2» m>ooo mmoNo> xmoom mocmscomsmo .mcowumcmoo m.xcowowmoom was» com mNoncoomms mcmasooooom; cw m>Nuoomxm mcwp moo an omoN>oLo mucoscomsmo m.umco asopopmoom comm No mcowumopm>m moo co ommoo moo mmsomoms mucoELoNcmo 2gowommoomo .mmwcomowmoom mposoogoo ppm oco mmwcmwommoom mNoEom com mmopo> :oNpoNNchocmo Nmoom omoomNNmN cowomoNoNuNoo No mNm>mN somomz .mmmsomowmoom muosoocoo Npo OONNNNmuoocmso poop m>oom mm: chxos commwomo :N xgowovmoom m2» com xmocm compoNNchuomo some on» gas» muoomocw m—m>mp common 1Nowucoo cmzoo .ucmEmOocos acowowmoom ms» 23 cowumowowacmo cmgmmz 2o omNNsmpoococo mo: mmwcowovmoom mmogp cm chxos cowmwomo pogo omuoowocw sows: .mmwcmwowmoom ppm com mmon> muogoosoo Npmcm>o mgp 3o_mo mmoNo> xmocw :oNooNNNocucmo om; copuooNowucoo cm zap; mmwcmmowmoom .mmNNoNonoom mumgoogoo N—m so» chxme commwomo Now xmocw :oNumNmNogocmo __ocm>o moo saw: agmmowmoom mNoEmm comm com mmowoow cowuoNNchucmo Ngmvowmnom Nmoom>NoON chcmoeou an omcmssmumo mo: cowuooNoNocmo No Nmomp mnhm .chocooc o» moo OON Nouou no: Owe mmmmpcmosmo "muoz NNOONOON NNNNOo NNNNOm NNNmON. NaoaN OONENoNNmo ANNe Va. m N a zoo OONENoNNmo Awm— vo N N N mOmNm>< OONELoNLmo Nose ON_ o N o ooNo cowomomowocmo zoo cowumoNowocoo sowomz coNNooNoNpsoo saw: Nopoh NomNNchocmOv NomNNNoNucmomOv omocmssomcmo NeaNoNaoom omcwxoz cowmwomO cw copumoPoNuNoo ANmNoFmoom mo Nm>m4 .Ocpxos cowmwomo :N cowuooNoproo acmwowmoom No Nm>m_ ocm mocmsgomsmo zcowowmoom11.mm mpooh 243 and the level Of participation in decision making characterizing that subsidiary. Six Of the subsidiary units that were classed as high in participation were also high in performance; however, nine Of the low-performing subsidiaries were also in the highest participation category when centralization indices were used tO indicate varying overall levels Of subsidiary participation in the decision-making process. These findings indicate that the relationship between the locus Of decision making for subsidiaries and subsidiary performance is not adequately accounted for by viewing decision making for an individual subsidiary as being located on a continuum from central- ized to decentralized across functional areas. Based on these find- ings, the underlying hypothesis of the conceptual model that high- performing units may be characterized by varying levels of integra- tion and differentiation across functional areas and within func- tional areas may be a better description of the complex relationship between subsidiary performance and the locus of decision making than the traditionally applied centralization/decentralization concepts. Using this conceptual approach, the concepts Of centraliza- tion and decentralization are viewed in the context that some func- tions may require or encourage higher levels Of centralization (integration) for maximization of overall corporate performance. The ability of the subsidiaries to respond to the unique configura- tions Of their local environments will require a certain level of decentralization in decision making (differentiation) in order for 244 them to Obtain higher performance levels. Using this approach, some functional areas may require higher levels of headquarters partici- pation in decision making (integration) and other functional areas may require lower levels of headquarters control or differentiation in decision making. Some functions may require relatively high levels of both integration and differentiation for successful enter- prise and subsidiary performance to occur than would be true in other functions. A central problem facing firms in determining the locus of decision making for subsidiary units is in finding the optimal bal- ance between the advantages accrued in integration and standardiza- tion at the corporate level and the necessity and/or advantages associated with higher levels Of differentiation at the subsidiary level. In order to Obtain some indication of both headquarters managers' and subsidiary managers' perceptions Of which functional areas may require higher levels of integration or centralization than others and those which may require more differentiation, respondents were asked whether they thought the locus Of decision- making authority between headquarters and the subsidiary had any effect on the subsidiary's performance. Nine of the corporations were classified as responding affirmatively and only one indicated the locus of decision making as not perceived as an influence on subsidiary performance. When asked to explain the nature Of the relationship between subsidiary performance and the locus of decision making, the respondents made a number Of comments which were coded 245 into eight categories. The frequency with which each statement was mentioned in the interviews is summarized in Table 54. Table 54.--Headquarters perception of the influence of the locus Of decision making on subsidiary performance. Statement Frequency l. The more autonomy the subsidiary has, the more successful it will be. l 2. Autonomy levels will affect incentive and motivation. 2 3. The locus of decision making will influence the flexibility the subsidiary has in reacting to unique environmental conditions within the 5 necessary time period. 4. Headquarters can "foul you up" very quickly, especially in marketing decisions. 2 5. The decisions must be made at the level where the expertise for making the decision is available 2 and where the person has the best understanding of the factors affecting the decisions. 6. The total experience Of the corporation is greater than that within one subsidiary, and corporate 4 experience in other markets can be helpful to improving subsidiary performance. 7. Subsidiaries should have pricing flexibility. l 8. Headquarters financial policies create an improved budget control environment. 2 Total 19 Approximately eleven of the nineteen responses suggest the need for differentiation or decentralization in the locus of decision making so that subsidiary units can respond to their local environ- ments. The other eight suggest the necessity or desirability Of 246 maintaining some level of integration so that corporate expertise can be taken advantage of at the subsidiary level. These responses were given in reply tO a question on how subsidiary performance was affected by the locus Of decision making. In the view Of the head- quarters respondents, subsidiary performance may be enhanced when the appropriate levels Of both integration and differentiation are present rather than the exclusion of one or the other. The conceptual model indicated that varying levels of inte- gration and differentiation may be desirable across functional areas for subsidiary and/or corporate performance to be optimized. Head- quarters representatives were therefore asked if they thought there were certain functional areas which required more headquarters par- ticipation in order for the corporation as a whole to be most suc- cessful and if certain functional areas required more subsidiary participation in order for the subsidiary units to be most success- ful. In all of the companies, headquarters executives responded that there were differences in functional areas which dictated higher levels Of subsidiary and/or headquarters participation. Based on these findings, the headquarters executives in the sample perceived some functional areas as requiring higher levels of integration or corporate direction than others. This was particu- larly true for finance and research and development. Marketing was perceived as a functional area requiring relatively high levels of both integration and differentiation. In their view, the other functional areas required somewhat less integration and somewhat 247 higher levels of differentiation. Subsidiary managers were also asked to complete these questions and interestingly, the responses received from the subsidiary managers closely paralleled the head- quarters perceptions summarized in Table 55. Table 55.--Functional areas requiring most headquarters participation and most subsidiary participation. Require Most Require Most . . Headquarters Subsidiary Function Participation Participation Total (Integration) (Differentiation) Marketing 4 9 13 Finance ll 2 13 Production 3 5 8 Personnel 1 6 7 Research & Development 10 1 1] Purchasing 3 4 7 Total 32(54%) 27(46%) 59(lOO%) These findings indicate that there are differences in func- tional areas which headquarters and subsidiary managers perceive as requiring varying levels Of integration and differentiation for overall corporate performance and for subsidiary performance to be Optimized. But while these perceptions closely match the current practices Of the sample firms in the locus of decision making measures reported earlier, it is possible that these perceptions reflect an 248 endorsement of current practices rather than an indication Of what actually would be most desirable. However, this particular study was not intended to focus on this issue and it provides a rich area for future research endeavors. To summarize the implications Of the performance findings for the study, the relationship between the locus of decision making and subsidiary performance is a very complex one that can not be viewed simply in terms of the level of centralization or decentrali- zation characterizing subsidiary decision-making authority in the aggregate. There was no apparent relationship between subsidiary performance and the aggregate measures Of the level of centraliza- tion for the subsidiary. While there are a number of factors that will influence the performance Of a subsidiary, both the headquar- ters managers and the subsidiary managers responding to the question- naires indicated that they perceived the locus Of decision making for the subsidiary as one influence on the ability of the subsidiary to attain optimal performance. However, in their view, subsidiary performance would be enhanced when the locus Of decision making characterizing each functional area allowed for the apprOpriate level of differentiation and integration for that function. There is considerable agreement between both the subsidiary managers and the headquarters managers in their assessment Of the levels of integration and differentiation that were required for different functional areas. In their view, research and development and finance are functional areas requiring higher levels Of 249 integration and relatively low levels of differentiation. Marketing decision making required relatively high levels of both integration and differentiation. The other functional areas considered required relatively low levels Of integration and higher levels Of differen- tiation. The findings reported earlier on the locus of decision making for the sample corporations in this study reflect these dif- ferences across functions. ' These findings suggest that while there are a number Of influences on the performance Of a subsidiary unit, one Of them is the locus of decision making. The ability of the subsidiary to attain high performance levels will be influenced in some ways by the levels of integration and differentiation characterizing the locus of decision making within each functional area and across func- tional areas. The determination of the precise levels Of differen- tiation and integration within and across functions required for the Opportunities for subsidiary and corporate performance to be maximized are beyond the intent of this study and represent numerous Opportunities for future research. CHAPTER V SUMMARY AND CONCLUSIONS This chapter presents a summary and synthesis of prior chap- ters. Attention is turned initially to the scope and objectives of the study. The findings of the research are then summarized and the conclusions drawn from those are presented. The limitations and caveats associated with the study are then discussed. The final section considers the implications Of the research for various involved groups. Scope and Objectives Of the Study This study represents a description and analysis of the nature of the locus Of decision making characterizing multinational firms and their subsidiaries and its relationship to subsidiary performance. The review of the literature indicated that previous research in this area was sketchy and incomplete in incorporating the many variables associated with this managerial area. The fragmented and seemingly unrelated approaches that characterized the limited research in this area resulted in somewhat conflicting and confusing findings on the locus Of decision making. Opportu- nities for comparability between various authors were impeded by the introduction Of different variables and methods of data col- lection. 250 251 The state of the art in research in this area dictated that one of the major research Objectives in this study would be the unraveling of the complex set of variables thought to influence the locus Of decision making as well as their possible influence in determining the degree of centralization or decentralization that characterizes the headquarters/subsidiary relationship in multi- national firms. In order to fulfill this research Objective, three major research areas were identified: 1. To describe by function, industry and country area the degree of centralization or decentralization Of decision- making authority. 2. To explain how the characteristics of the firm, the sub- sidiary, and the subsidiary environment affect the degree Of centralization or decentralization of decision- making authority. 3. To explain the nature Of the relationship between the degree Of centralization or decentralization and sub- sidiary performance. Based on these Objectives, a conceptual model was developed which drew from the existing research in the areas of organization theory, comparative marketing and management, and international busi- ness which helped to delineate the relevant variables and suggested the nature Of the relationships between corporate and subsidiary characteristics, the locus of decision making generally and within functional areas, and subsidiary performance. The literature review indicated that certain corporate and subsidiary factors were thought to exert an influence in the determination Of the locus of decision making for multinational corporations and their subsidiary units. The corporate characteristics included: product line or industry, 252 size and complexity of international operations, organization struc- ture, availability of managerial talent, and corporate philosophy. Subsidiary characteristics suggested as influencing the locus Of decision making included: subsidiary age and size, availability Of local managerial talent, geographic location, the subsidiary environ- ment and environmental certainty/uncertainty. In addition to these factors, some relationship between the locus of decision making and subsidiary performance was suggested by previous studies and was incorporated into the conceptual model. Because Of the limitations Of previous studies, one of the primary objectives of this study was to describe by industry, function, and country environment the degree Of centralization or decentralization characterizing the locus Of decision making for multinational firms and their subsidiary units. Once this was accomplished, a clearer understanding of the relationship between corporate and subsidiary characteristics and the locus of decision making could be established. The locus of decision making was viewed primarily as a measure of the level Of participation the headquarters and subsidiary management had in decision making which reflects the formal authority of the subsidiary manager. Measures of the locus Of decision making for each Of the sample firms were Obtained through asking headquarters personnel to classify twenty-nine decisions within six functional areas by their perception Of how corporate subsidiary managers and headquarters personnel participated in the decision-making process for each 253 decision. Their response choices were comprised of five decision process categories which indicated varying levels Of headquarters and subsidiary management participation in the generation of deci- sion alternatives, selection Of the preferred alternative, and implementation of the decision choice. A decision process category five indicated there was no subsidiary participation in the decision process and represented an extreme in the level Of centralization characterizing the resolution of that decision issue. Conversely, a decision process category one described decisions that were made by the subsidiary manager without any headquarters involvement, or a decentralized process. Because of the comprehensive data needs generated by the underlying hypotheses Of the conceptual model, it was necessary to ‘limit the number of firms comprising the sample. Ten U.S. multi- national firms, representing five industry groups, comprised the final sample. The industry groups included: pharmaceuticals, tire and rubber, automobile, capital equipment, and food processing. Each sample member maintained a wholly owned subsidiary in France, Brazil, and the United Kingdom. Corporate and subsidiary data for each corporation and its subsidiaries were Obtained through thirty-two in-depth interviews with international line personnel in the sample corporations. Since three national environments were isolated for more detailed analysis, the headquarters line executives responsible for the subsidiaries located in Brazil, France, and the United Kingdom were 254 the primary individuals interviewed within each company. Each company's subsidiary manager in France, Brazil, and the United Kingdom was also asked to complete a self-administered questionnaire sent to him by the individual or individuals interviewed at head- quarters. Eight companies forwarded the subsidiary questionnaires. Ten of the twenty-four questionnaires were completed and returned to the interviewer. Due to the quality Of the information gathered in the headquarters interviews, and the low response rate Of the subsidiary managers in returning the questionnaires, the major data source for the findings reported in this study was the headquar- ters line executives Of the sample firms. ijor Findings and Conclusions The discussion of the major findings and conclusions is comprised Of the following segments. First, the study findings on the locus of decision making for all sample firms and their inter- national subsidiaries are presented. Second, the findings Obtained from industry and functional comparisons are discussed. Third, the findings Obtained for each national environment are reviewed. Finally, the findings with respect to the relationship Of subsidiary performance and the locus of decision making are considered. When the overall level Of centralization in the locus of decision making was examined for industry comparisons, there were some Observed differences across industry groups; however, the dif- ference between the most centralized industry and the least cen- tralized industry was only .56. The tire and rubber industry 255 exhibited the highest centralization index of the industries repre- sented in the sample and the food processing industry had the lowest centralization index. Capital equipment was the second highest industry when centralization indices were compared. The findings with respect to the overall level of centrali- zation and decentralization in the locus of decision making for the sample firms and their international subsidiaries suggest that corporations are not necessarily either centralized or decentral- ized. Two concepts drawn from the literature in organization theory, integration and differentiation, provide better descriptors Of the locus Of decision making than would a single centralization measure or description. The findings suggest that the locus of decision making for all subsidiary units will be composed Of a number of decisions that will have varying levels Of participation at the head- quarters level and at the subsidiary level. A composite measure of the locus Of decision making will only provide some idea of the level of centralization characterizing a particular company's or industry's practices. The findings also suggest that the concept of the locus Of decision making is much more complex than earlier studies might indicate and should not be viewed as being described or measured on a bipolar scale only. When the overall locus of decision making for sample firms and their international subsidiaries across functional areas was considered, the findings illustrated varying levels of integration and differentiation were evident. Research and development and 256 finance were the two functions characterized by the highest frequency Of headquarters-imposed decisions or high levels of integration. Marketing was an area that apparently required both high levels of differentiation and integration. The remaining functional areas exhibited lower levels of integration and higher levels Of differ- entiation. Since these patterns were relatively uniform for all industry groups in the sample and reflect the headquarters repre- sentatives' perception Of the differences in functional areas that require different levels of integration and differentiation, the findings in this study suggest that the nature of the functional areas themselves will influence the locus Of decision making. The differences Observed in the patterns Of decision making characterizing different industries indicate that within certain industries, some functions may require more headquarters decision making or participation than others. While the findings indicate that there is substantial uniformity characterizing overall levels Of decision-making authority, there were substantial differences that appeared when the locus Of decision making for an individual functional area was compared for firms Operating in different industries. When centralization values for each functional area were compared on an industry-by-industry basis, the capital equipment industry showed the highest centralization indices in marketing, finance, and personnel. The tire and rubber industry had the highest centralization level in purchasing and research and 257 development. The lowest centralization index in marketing was exhibited by the tire and rubber industry. Pharmaceuticals were least centralized in finance. Capital equipment was least central- ized in production and research and development, and the food processing industry was least centralized in purchasing. Differences in industries with respect to the locus of decision making were also present when different environments were evaluated. Consequently, the findings indicate that there will be industry similarities and differences in the locus of decision making for the various func- tional areas which appear to be determined primarily by the nature of the product line characterizing the industry and the correspond- ing effects that product commitment raises for decision making in each Of the functional areas. The levels of integration and differ- entiation for the locus of decision making would then be expected to differ across industries as the findings indicate. The differences Observed in the locus Of decision making for the sample firms between Brazil and the two European environ- ments indicate that certain environmental characteristics will influence the level Of integration and differentiation character- izing the locus of decision making for firms within that country. Centralization indices in all functional areas were the lowest for the Brazilian subsidiaries. The French and British subsidiaries exhibited very similar centralization values. Some of the differences in the measures Obtained on the locus Of decision making for the different national environments 258 can be attributed to the attempts by some industries and firms to rationalize marketing, production, and purchasing on a regional basis, particularly in Europe. However, the lower levels of head- quarters participation in decision making in Brazil, particularly in the financial area, were pronounced and may be partially attributable to the differences in the environmental forces operat- ing there and the higher levels of uncertainty perceived by head- quarters executives as characterizing that environment. Geographic location may also account for some of the Observed differences in the locus of decision making between Brazil and the United Kingdom and France; however, the geographic factor is pri- marily associated with the fact that the Brazilian market may repre- sent a distinct unit and therefore subsidiaries Operating there are not subject to the requirements for integration the French and British subsidiaries face. Regional offices located in France, or within Europe, also apparently accounted for the slightly higher levels Of headquarters participation characterizing the locus Of decision making in France. In summarizing the findings on the functional, environmental, and industry relationships to the locus of decision making Observed in this study, it is apparent that the locus Of decision making is influenced by each of these factors. The particular locus of deci- sion making characterizing subsidiary organizations will be pri- marily determined by the overall desires and requirements for control and integration at the corporate level. Certain functions appeared 259 to be characterized by higher levels Of integration and/or differ- entiation than others regardless of industry type. However, the actual level of integration or differentiation for a particular function does vary from industry to industry. Differences in the locus Of decision making characterizing subsidiaries Operating in different national environments were less pronounced. Neverthe- less, some differences were apparent, particularly in the number of shared decisions characterizing subsidiary units in Brazil as well as in the higher frequency of subsidiary decision making occurring in the financial area for Brazilian subsidiaries, which appears to reflect the differences in the environmental contin- gencies posed by the three national environments being considered. Based on the industry, functional, and environmental aspects of the findings, certain implications for interpreting the influence Of the corporate and subsidiary characteristics on the locus of decision making arise. The uniformity of corporate policies on the locus Of decision making for all subsidiary units as well as the uniformity displayed in those policies across industries suggests that minimum levels Of integration are going to occur in each function regardless of industry or environmental area. This implies that the corporate and subsidiary characteristics outlined in the conceptual model are the factors which will primarily account for some of the variation in the application of those policies for an individual subsidiary or company. The overall determinants Of the locus of decision making seem to be accounted for by the nature of 260 the industry and product line and their impact on the requirements for integration and differentiation within functions. The corporate philosophy with regard to control seems to exert some influence; however, there do not appear to be substan- tial differences in the control philosophies exhibited by sample firms when the levels of headquarters participation in decision making are compared. While there are some differences, they are not exhibited in the extreme levels Of centralization or decentraliza- tion indicated by a preponderance of decision process categories one or five. The findings indicate that individual headquarters managers and subsidiary managers will also influence the locus Of decision making; however, again, the effect of their influence on the locus of decision making will be relatively minor, due to the overriding influence Of uniform corporate policies outlining the parameters for subsidiary decision making in all corporate sub- sidiaries. The availability of headquarters management talent was not demonstrated to appreciably alter the locus of decision making for sample firms, nor was their perception Of the availability of local managerial talent an influence on the locus of decision making for the subsidiary except in the fact that several executives commented that the talent pool the corporation could draw on in decision making was larger than that available in any particular subsidiary and reflected experiences in other markets which could enhance sub- sidiary performance through centralizing some decision making at headquarters. 261 Other factors suggested as being an influence on the locus of decision making were subsidiary age and size; however, again, their influence in determining the locus of decision making was relatively minor. It was demonstrated that in most companies sub- sidiary managers Operate under uniform decision-making guidelines with the exception Of the five firms that had varying expenditure authorization limits for the different sized organizations. The findings indicated that the subsidiary managers of the larger sub- sidiaries may in fact have less autonomy in decision making than the managers of the smaller subsidiaries whose operations are less critical to overall divisional or corporate performance and there- fore, less visible. However, the findings demonstrate that the manager of a large subsidiary may exert more influence in particu- lar decisions, such as marketing decisions which require a careful matching Of local market conditions with corporate plans for new products, advertising themes, etc. The relationship between the locus of decision making and subsidiary performance was presented in two sets Of findings. First, the findings indicated that successful managers will have somewhat more decision-making autonomy than will the less successful managers. All Of the companies in the sample took some action to effectively, if not formally, reduce the authority of substandard-performing managers. In most cases, however, the locus of decision making was not altered dramatically from the corporate guidelines and dif- ferences between managers Of high-performing units and low-performing 262 units were primarily demonstrated as being differences which required more consultation or "checking in" with headquarters for those managers who were managing units characterized by poor per- formance. The second set of findings related to subsidiary performance and the locus of decision making demonstrated no apparent relation- ship between the aggregate levels Of participation expressed as centralization scores and subsidiary performance. Both high- and low-performing subsidiary units were characterized as being high or above average in participation or decentralization in decision making. Likewise, in the group of subsidiaries grouped as performing below average, there were nearly equal numbers of subsidiaries which were either characterized as having high levels of subsidiary autonomy in decision making or as having a more centralized locus of decision making. The implication Of these findings is that for subsidiary performance to be maximized the apprOpriate levels of centralization or integration within and across functions must be balanced with the corporate and subsidiary requirements for differentiation or decen- tralization in each. Certain benefits to the subsidiary appear to accrue through both integration and differentiation within and across functions. Consequently, in order for both subsidiary and corporate performance to be maximized, the appropriate levels Of integration and differentiation for the subsidiary and the corporation must be embodied in the composition of the locus Of decision making for international Operations. 263 In summarizing the conclusions incorporated in the major findings Of this study, it appears that corporate policies with respect to the locus of decision making are much more uniform in application than previous studies would suggest and that many of the factors cited in the literature review as influencing the locus of decision making do so in a relatively minor way. The major determinants of the locus of decision making for the corporation as a whole appear to be the nature of the product line or industry in which the firm is operating. Since that characteristic will in turn influence the nature of the decisions that are made in each func- tional area and the interrelationships between decisions within and across functional areas, corporations Operating in different indus- tries will likely exhibit varying levels Of integration and differ- entiation in the locus of decision making within and across functional areas. Organizational units operating in different environments may find that environmental contingencies require higher levels of differentiation in certain functions; however, the findings indicate that certain minimum levels of integration will be present in each functional area regardless Of national environment. The financial function appears to be one means by which the sample corporations achieve a certain level Of integration in inter- national operations while allowing for substantial levels Of differ- entiation in the other functional areas. The decisions and activities in the financial area provide uniform control measures for monitoring the effects of decisions and activities in the other areas. The 264 findings are consistent with Lawrence and Lorsch, who suggest that high levels of differentiation will also require high levels Of integration. Since multinationals are characterized by less control over functional areas internationally than they are domestically, the financial function offers an opportunity for integrating inter- national Operations while allowing for substantial differentiation. Finance and research and development were characterized by the highest levels of headquarters participation in the decision-making process in all sample firms. Limitations As with any research effort, there are certain limitations associated with this study and the findings it generated. Because the research Objectives were primarily designed to allow for an in-depth look at the large number Of variables associated with a very complex research issue, only ten U.S. multinational firms were included in the sample. Consequently, conclusions on the locus of decision making values can only be made relative to these partici- pating firms. It cannot be assumed all multinational firms or industries will exhibit identical, or nearly identical values in measures Of the locus of decision making. Two limitations with respect to the data need to be mentioned at this time. Ideally, inputs from subsidiary managers on a number of questions would have been valuable in determining some Of the conclusions drawn from the findings. However, since this data- collection technique combining headquarters and subsidiary managers' 265 responses had not been utilized before, it was difficult to predict with any accuracy the rate Of return that would be associated with the subsidiary questionnaires. Second, because actual headquarters policies Of the decision- making process characterizing their subsidiaries generally and those Operating in France, Brazil, and the United Kingdom were not avail- able tO the researcher, the measures Of the locus of decision making may not be as precise as other measures. However, in the absence of other alternatives and the fact that the line executives with reporting relationships for these subsidiaries were the individuals reporting the information, they are probably very close to the actual decision-making processes characterizing the locus Of decision making for their subsidiaries. Implications Of the Findings The major implications of these findings for academicians and researchers interested in exploring the nature Of the relation- ship Of the locus of decision making and subsidiary performance is in the explication and description of the major variables that must be considered. The complexity Of the research task has been under- scored in both the literature review and in the findings. The observed differences in the locus Of decision making across indus- tries, functions, and environments suggest that these differences must be recognized and in some way accounted for in the design of future research. The need for greater precision in measuring and 266 reporting findings on the concepts Of authority and decision making is evident. The areas affording the greater research Opportunities appear to be in the development and refinement of methodologies designed to measure the precise nature of the relationship between the locus of decision making and its effect on both corporate performance and subsidiary performance. Since there appear to be some differences in the level of control associated with international operations and domestic Operations, studies of the locus of decision making characterizing domestic divisions and their relationship to head- quarters seem to be another area in which further research should be attempted. If the overall corporate philosophy toward control as well as product line concentrations is influencing the locus Of decision making, then similar differences among corporations should exist and characterize their domestic operating policies as well as their international ones. Future research on the levels of differ- entiation and integration within functional areas that lead to improved performance environments for sub-units in the organization would be particularly useful for guiding decision makers in both domestic and international policy settings on the locus Of decision making for sub-units within the company. The executives who participated in the study were keenly interested in the issues being studied. Since they, too, are inter- ested in finding the Optimal mix in the locus of decision making, the findings make available to them some indication of the level Of 267 participation characterizing other firms in their industry and in other industries. Differences within functional areas and across functional areas evidenced in these findings provide additional information in their assessments Of the appropriateness Of their current practices and policies. And, perhaps most importantly, as additional research in this area refines and adds to the body of knowledge available, this information can become useful to manage- ment in setting policy for decision making both domestically and internationally. The implications of these findings for governmental groups, particularly those in some of the developing countries that are exerting pressures for more local control over their economies and placing ownership limitations on foreign firms doing business in their countries, are twofold. First, the findings indicate that the current level Of subsidiary involvement in most functional areas is substantial and even higher in the one develOping country repre- sented in this study than in the more developed countries. The implication of these findings is that local units of multinational corporations that are wholly owned subsidiaries exercise considerable autonomy in decision making. Future research may compare and con- trast the locus of decision making that characterizes wholly owned subsidiaries with that characterizing joint ventures to determine whether there are appreciable differences in the locus of decision making for the two business forms and whether there are any per- formance implications for joint ventures. 268 A second implication of these findings for national govern- ments is that according to the findings in this study, certain benefits from integration or headquarters participation in decision making can accrue to the subsidiary unit and thereby enhance the organization's Opportunities for attaining high performance. If there is no particular relationship between the high-performing subsidiaries and the aggregate level of decentralization character- izing those units, governmental moves toward requiring more decen- tralization across functional areas may prove to be counterproductive in that the ability of the subsidiary organization to attain high performance levels may be influenced favorably by certain levels Of integration, as these findings suggest. APPENDICES 269 APPENDIX A LETTER OF SOLICITATION 270 APPENDIX A LETTER OF SOLICITATION MICHIGAN STATE UNIVERSITY CRADL ATE SCHOOL 0‘ BUSINESS ADMINISTRATIO\ EAST LANSING 1 MICHIGAN 1 48824 DEPARI‘KIhVT OF MARKET INC: AND TKANSWRTATIO.‘ AD‘IINISTRA [ION February 9, 1978 Dear Sir: As you know, one of the most difficult problems encountered by an international manager is the coordination and control of diverse international operations. Unfortunately, there is very little information available which could assist managers in weighing the costs and benefits of alternative decisions in this area. Consequently, the Graduate School of Business Administration at Michigan State University is conducting research to determine current corporate practices in this very important area of international business management. Our research effort involves two phases. The first, which has been completed, involved an exhaustive search and analysis of the information currently available to practioners and academicians in the area of coordination control of the multi- national corporation. Phase One resulted in the development of a model which we feel could be very useful to international managers in determining the optimal mix of control for headquarters and subsidiary personnel in decision making. Phase Two of the study will involve a test of the model's accuracy. Therefore, we are now requesting the cooperation of a carefully selected group of companies whose participation in the study is vital to establishing the reliability of our model. Since your company meets all of the qualifying criteria we have established for participants, we would greatly appreciate your firm's participation in this study. Since only fifteen companies have been invited to participate, your interest and cooperation would contribute substantially in helping us to achieve our objective. 271 272 Page 2 February 9, 1978 Your participation would involve an interview with yourself or your designee in headquarters who has primary line authority for your subsidiary operations in France, Brazil, and the United Kingdom. Your subsidiary managers in each of these three countries would also be asked to complete a short questionnaire. Neither the interview nor the questionnaire requires disclosure of any proprietary information regarding your corporation. Nevertheless, you have our assurance that your responses will be kept strictly confidential, and that your firm‘s name will not appear in any publication of the results of this research project. When the research is completed, we will be sending each participant a summary of the results. Ms. Donna Powell will be conducting the corporate interviews and will contact you in the next few days to discuss the project with you and to establish a convenient interview time. Thank you in advance for your interest and cooperation. Your assistance will be very much appreciated. Sincerely, Donald A. Taylor, Chairman Donna C. Powell Department of Marketing Doctoral Candidate je APPENDIX B HEADQUARTERS INTERVIEW GUIDE 273 APPENDIX B HEADQUARTERS INTERVIEW GUIDE Date Location HEADQUARTERS INTERVIEW GUIDE General Information 1, Company's Identification 2. Type of Industry Pharmaceuticals (1.1, 1.2, 1.3) Automobiles (2.1, 2.2, 2.3) Tire and Rubber (3.l, , 3 2 3 3) Heavy Equipment (4.1, 4.2, 4.3) Food Processing (5.1, 5 2 5 3) 3. Person Interviewed a. Title of your present position in the company. b. How long have you been in this position? 6 mos. or less 6 mos to 1 year 1 to 3 yrs. 3 to 5 yrs. 6 years or longer HHHHF‘ Corporate Characteristics SizeI ngplexity, and International Egperience 4. Approximately how many employees (mamagemant and non-management) are there in your firm? (Check One): [:1 Loco-4,999 [:1 ammo-(19,999 [_] 5,000-9,999 [_1 50,000 and over [_1 mace-29,999 5. a. What was your company's sales volume last year? amount of total corporate sales b. What is your company's primary 2 digit SIC code classification? c. Approximately what percentage of your total corporate sales fall within that 2 digit code? 6. a. Approximately what percentage of your total corporate sales for last year were derived from foreign sales? (including exports) I_l less than 5: I_] 25-35: [_I s to 10: [_1 331-502 [__I 10 to 151 [_l more than 501 [__J 15 to 202 [__j confidential [__j 20 to 252 L__] don't know 274 9. 275 b. Approximately what percentage of foreign sales represent exports from the U.S.? [:1 less than 52 [:1 251-352 L__] 5-101 L__] 35-502 [_] 10-152 [_] more than 502 [_] lS-ZOZ [_] confidential L__] 20-251 [__J don't know c. Approximately what percentage of total corporate profits are represented by foreign sales? (including exports) [:1 less than 5: [:1 25-351 [_] s-1oz [_] 351-50: [_] 10-152 [_] more than 502 L__] 15-202 [__J confidential [_I 20-251 [_] don't know d. Approximately what percentage of your foreign sales fall within the same 2 digit SIC code as your domestic sales? [:1 less than 52 [:1 25-352 [_] 5-102 [_] 35-502 L__] 10-152 L__] more than 502 L__] 15-202 [__j confidential L__] 20-252 [__J don't know a. Could you indicate the size of total corporate assets for last year? amount of total corporate assets. b. Approximately what percentage of total corporate assets are located in foreign countries? [_] less than 51 [_] 25-35: [_] 5-1oz [_] 35-502 I__J 10'152 L__] more than 502 [_] is-zoz [_] confidential [_] zo-zsz [_] don't know In how many countries does your firm have substantial marketing or production activities? Por example, you could include major export markets as well as those countries in which you maintain investments. [:1 less than 5 (:1 3l-40 [_] 6-10 [_] 111-so [_] 11-20 [_] more than 50 [_1 “’30 [_] conf ident ial [__j don't know Process Technology How would you describe the process technology of your firm's production? (Hand card to interviewee) §£2££ l gait Production-the majority of products are individually manu- factured to customer specification. No finished goods inventory. 2 Unit-Batch Productiogr-some products made to customer specifications, some produced in batches. 276 Score 3 Batch Production-—the majority of products manufactured in batches (some finished goods inventory). 4 Batch-Mass Production-some products manufactured in batches, some mass produced (large-batches) for inventory. 5 Mass Production--the majority of products mass produced for inventory. 6 Ease-Continuous Production-—some products mass-produced, some produced continuously (i.e., automated assembly line). 7 Continuous Production-majority of products produced continuously, twenty-four hours a day, seven days a week (i.e. metal or chemical processing). Corporate Organization 10. Do you have an organization chart? [:1 Yes {-1 No 11. How are activities grouped in this organization? (Show chart) International Division Customer Product Matrix Geographic Other Function 12. a. About how many staff positions of director level or above having international responsibility are there either at headquarters or at a regional headquarters in each of the following functional areas? Marketing Finance Personnel Research and Development Production Purchasing F E 5‘ the authority of these staff positions? Set Poligz Recommend Gather Data Other Marketing Finance Personnel Production Research and Development Purchasing HHHHHH HHHHHH HHHHHH HHHHHH HHHHHH 13. How many line positions are there between the subsidiary manager and yourself? the subsidiary manager reports directly to me I intermediary 2 intermediaries 3 or more intermediaries 14. 15. 16. 17. 277 How many line positions are there between yourself and the chief operating executive for the corporation? [:1 none [:1 three I__1 one L__] four or more [__J two a. Do you utilize regional committees or managers in your organization? [:1 Yes [:1 No (If yes: go to 15 b and 15 c) b. Are these organized primarily on a geographic or a product basis? [:1 regional [:1 product [:] both (geographic) c. Does the regional organization have line authority over the subsidiary manager? [:1 Yes [_] No (If yes: go to 15 d) d. In which of the following functional areas does the regional organization have line authority over the subsidiary manager? Marketing Finance Personnel Production Research and Development Purchasing HHHHHI—J Aggilability of Managerial Talent What is the number of senior level line executives in headquarters with primary international responsibility? less than S 5 to 10 10 to 15 more than 15 "HF-In HHHH Approximately how many foreign affiliates have a direct reporting relationship with you? less than 3 3 to 5 5 to 7 7 to 10 10 or more HHHHH 18. 19. 20. 278 a. How important do you feel previous international experience is for a person in your position or an equivalent one? For my position Extremely important Very important I 1 1 1 Don't know - no opinion 1 Somewhat important ___ Not at all important b. How important is it for the subsidiary manager? For a subsidiary manager Extremely important Very important Don't know - no opinion Somewhat important ] Not at all important Do you feel that the amount of involvement you or headquarters has in subsidiary or affiliate Operations is constrained by the number of headquarters personnel in- volved with international operations? (i.e. with more people, you would become more involved in directing subsidiary operations?) H HO—IV—‘f—‘F‘ [:1 Yes [ ] Mo [:1 don't know Do you perceive any shortage of managerial talent available in your industry who could assume line responsibilities at the corporate level for international operations? [:1 11¢! - [:1 No [Z] don't know Corpgrate Philosophy 21. 22. Generally, how would you describe your company's philosophy toward controlling international operations? Please select one of the categories from this list which best describes your corporate philosophy. (Hand card to person being interviewed.) [::J Headquarters maintains very "tight" control over subsidiaries and their operations through procedures and policies established by headquarters. I: ] Headquarters maintains very loose control over subsidiaries and their operations. Subsidiaries operate primarily as autonomous business units. H Headquarters coordinates subsidiary operations on a regional or international basis while subsidiaries share in basic decision making. H Cant determine. H H Would you say that the company in general maintains more or less control over foreign pperations in comparison to domestic? Much more control over international operations Somewhat more control over international operations About the same control in domestic as in international Somewhat less control over international operations Much less control over international operations Haunt-mun s—ae—ae—am—sm—e 279 23. Now, with respect to the following functional areas, how would you describe the amount of control exercised over international operations compared to domestic? a. Marketing Much more control over international Somewhat more control over international About the same control over international Somewhat less control over international Much less control over international Can't determine HE—lh—Jt—lh—OH b. Finance Much more control over international Somewhat more control over international About the same control over international Somewhat less control over international Much less control over international Can't determine c. Personnel Much more control over international Somewhat more control over international About the same control over international Somewhat less control over international Much less control over international Can't determine d. Production Much more contrbl over international Somewhat more control over international About the same control over international Somewhat less control over international Much less control over international Can't determine HHfi—JHHH e. Research ggd Development Much more control over international Somewhat more control over international About the same control over international Somewhat less control over international Much less control over international Can't determine HHI—IHHI—l Now,I'd like to ask you some general questions regarding your subsidiary Operations, and some more specific questions regarding your British, French, and Brazilian subsidiaries. Subsidiary Characteristics: Age and Size 24. Could you tell me the year in which you establishedjour first foreign subsidiary? year established don't know 280 25. In what years were the following subsidiaries established? French year established don't know Brazilian year established don't know British year established don't know 26. In comparison to your other subsidiaries, are these subsidiaries about the same size, larger, or smaller? French one of the larger about average one of the smaller HHH Brazilian one of the larger about average one of the smaller HHS—l British one of the larger about average one of the smaller HRH “Hi—I 27. a. Do ggy of your foreign subsidiaries account for more than 52 of total corporate sales? --—- [:1 Y" [:1 No [:1 Other (If yes: go to 27b) b. Do any of these three-French, Brazilian, or British subsidiaries—-account for more than 52 of total corporate sales? [:1 Yes [:1 Mo [:1 Other (If yes, go to 27 c) c. Which one(s)? [:1 French [ 1 Brazilian [ ] British 281 a. Within your corporation, does the size of the subsidiary influence the amount of decision naking authority that the subsidiary manager has? (Size in terms of sales volume or assets.) For example, does the manager of a large subsidiary have more or less decision making authority than the manager of a small subsidiary? [:1 Yes [:1 No [:1 don't know (If yes, go to 28 b) b. Since the decision making authority of the subsidiary manager varies with the size of the subsidiary, how would you describe the headquarters/subsidiary relationship in the determination of major decisions in marketing, finance, etc.? Headquarters Shared About Subsidiary Primarily Equally M Small subsidiary [-— f.- Medium subsidiary [ [ I I Large subsidiary HHH __ _l _ _l __ ___] Availability of Local Managerial Talent In general, how would you assess the availability of qualified managerial talent, whether United States or foreign, who would be available for assuming positions in your industry in France, Brazil, and Britain? a. France [:1 Large managerial pool, no difficulty in obtaining qualified managerial personnel. [::3 Moderate managerial pool, some difficulty in obtaining qualified managerial personnel. (::1 Small managerial pool, significant difficulty in obtaining qualified Imnagerial personnel. b. Brazil [::1 Large managerial pool, no difficulty in obtaining qualified managerial personnel. [::3 Moderate managerial pool, some difficulty in obtaining qualified managerial personnel. [:1 Small managerial pool, significant difficulty in obtaining qualified managerial personnel. c. Britain [ 1 Large managerial pool, no difficulty in obtaining qualified managerial personnel. 1 Moderate managerial pool, some difficulty in obtaining qualified managerial personnel. 1 Small managerial pool, significant difficulty in obtaining qualified managerial personnel. 30. 31. 32. 33. 282 would you say it is more or less difficult to obtain qualified personnel in different functional areas for international assignments, such as: Large Pool Mod. Pool Small Pool No Diff. Some Diff. Much Diff. Marketing Finance Production Personnel Research 8 Development Purchasing Hl—‘HHHH HUHHHH flow would you assess the availability of personnel within your company who could assume subsidiary management positions abroad? (including both us and non-US citizens) ] Large managerial pool, no difficulty in obtaining qualified personnel. ] Moderate managerial pool, some difficulty in obtaining qualified personnel. 1 Small managerial pool, significant difficulty in obtaining personnel. l—so—vv—s a. Is the amount of decision making authority the subsidiary manager has affected by the individual's experience or qualifications, or do all subsidiary managers have the same authority in decision making? [ ] Yes, decision making authority varies [ 1 No, decision making authority is the same (If yes, go to 32 b) b. Could you comment on the ways in which the experience of the subsidiary manager influences his authority? a. Does the company have written policy guidelines which indicate the amount of decision making authority each subsidiary manager has? [:1 Yes [ 1 No (If yes, go to 33 b) (If no, go to 33 d) b. Are these uniform? [_] 70! [__1 No (If yes, go to 33 c) (If no, go to 33 d) c. Now, with respect to corporate policies indicating the decision making authority of subsidiary managers, would you ndicate for each functional area our per- Band sheet to person being interv ewed ception of the policy guidelines? Very specific Research 6 Development Purchasing HHHI—J Very specific, General in some areas No detailed and guidelines and general guide- guidelines comprehensive only lines in others at all run-keting {—1 {—1 [:1 [:1 Fiance [:1 (:1 [_] [_] Personnel [_] [_] [_] Production [_] [_] [_] [_] [_] [_] [_] [_] [_] 283 DECISION-MAKING PROCESS Decision Process 1 The subsidiary manager generates alternative solutions and makes the decision himself. Decision Process 2 The subsidiary manager generates alternative solutions, makes the decision, and submits the decision to his superior for approval. Decision Process 3 Headquarters and subsidiary managers share the problem and collec- tively generate alternatives. Together you generate and evaluate alternatives and attempt to reach consensus on a solution. The solution that has the support of both the subsidiary manager and the headquarters manager will be implemented. Decision Process 4 Headquarters personnel generate alternative solutions, submit these to the subsidiary manager for his ideas and suggestions. Headquarters personnel then make the decision. Decision Process 5 Headquarters personnel generate alternative solutions, make the deci- sion, and inform subsidiary management of the decision. 284 Since there are no uniform written guidelines covering the decision making authority of the subsidiary manager, how is his authority established and communicated? Constantly evolving Verbally from line superior Memos, letters, etc. from line superior Verbally from headquarters staff Memos, letters, etc. from headquarters staff Geographic Location 34. a. Is there any relationship between the distance of the subsidiary from head- quarters and the amount of decision making authority the subsidiary manager has? [_] YO! {-1 No [:1 don't know (If yes, go to 36b) Would you say that the subsidiaries located the furthest from corporate or a regional headquarters have: [_-1 more authority than closer subsidiaries [__1 less authority than closer subsidiaries Subsidiary Environment and Locus of Decision Makigg 35. When major decisions are made in marketing, finance, etc., how would you rank the degree of participation by your subsidiary managers in general for each of these areas? (Band Decision Process card to person being interviewed.) b. Location of Decision Makigg All Subsidiaries Marketing: Process Process Process Process Process - Which markets to serve - which segments within a country? - Which countries? - Product line composition - New product introduction Pricing - Promotional budgets and strategy - Distribution channels and strategy e—o llllllllll“ H H H H H H H H "a” "HRH" "HRH" HHHHH HHHHH "HRH" HHHHH HHHHH HHHHH H H H a H H H H H H Finance: Capital investments Determination of annual budgets Foreign currency exposure Sources of funds (i.e. loans) H" “a H" HH “H "H H“ “H 36. 285 Process Process Process Process Process 5 4 3 2 1 Purchasing: - Choice of supplier - Specifications - Product - Price H b—l H e—a e-w H r—m h—J s—m H h—lh—J h—sh—J s-se-I HH hue—J Production: r-n y—a s- i—J s—e - "hat products are produced locally - Quality control levels - Level of output - Level of production for export and local markets - Production scheduling - Equipment replacement or installations H H m—s e-s e—s e—s-w H F! e—a Han—s a—a HI—l HHH hush—s hen—sud Personnel: - Hiring subsidiary officers - Subsidiary management training[ - Compensation levels - Management - Labor f—I I—JH e—s s—ae—m H "H H” fi—lh—I h—Jh—l Research and Development: - Determination of whether R a D activities occur at the subsidiary level - Level of R 8 D budget - Research content H H H l I H l H H H 0—! r—es—n e—se—a | ”H ”In “H I | I I HH Does the amount of participation in decision making in each of these areas vary at all by subsidiary? [:1 Yu {—1 No (go to 37) ( go to 36 b) Then, we could say that the preceding rankings characterize the degree of participation experienced by your French, Brazilian and British subsidiary managers in marketing, finance, etc. [:1 Yu [:1 No (If yes, go to question 38) (go to question 37) 286 Since the subsidiary managers in France, Brazil, and Britain differ in terms of their participation in decision making, could you indicate the location of decision making in these same areas for those 3 particular subsidiaries? (Continue with ranking form used in question 35) FRANCE a. Marketing Process Process Process Process Process which markets to serve - which segments within France - Which countries Product line composition New product introduction Pricing Promotional budgets and strategy Distribution channels; strategy IUUII llllllll" HHHHHHQ—O HHHHHHH "HHHHHH HHHHHUH HHHHHHH HHHHHHH HHHHH—VH HHHHHHH Finance - Capital investments - Determination of annual budgets - Foreign currency exposure - Sources of funds (i.e. loans) HHH—l HHh—IH Production - what products are produced locally - Quality control levels Level of output - Level of production for local markets and exports Production scheduling Equipment replacement and/or installations H H H H H H H H H H “a“ “a“ “H“ h—l HH H Ha Ha "H u-e Personnel - Hiring subsidiary officers - Subsidiary management training - Compensation levels - Management - Labor HH “H H“ “a Ha Ha H“ H“ Research and Development - Determination of whether R 6 D activities occur at the sub- sidiary level I I H I l H I I e—o I I H H — - um of n a n ma.» [:1 [:1 [:1 [:1 [:1 - Research content [_] [_] [_] [_] I ] Purchasing - Choice of suppliers [ l I ] [ ] I l [ l - Specifications - Product - Price H“ HH “a b. Marketing - Which markets to serve - Which segments within Brazil - Which countries? - Product line composition - New product introduction - Pricing — Promotional budgets and strategy - Distribution channels; strategy Finance - Capital investments - Determination of annual budgets - Foreign currency exposure - Sources of funds (i.e. loans) Production - What products are produced locally - Quality control levels - Level of output - Level of production for local markets and exports — Production scheduling - Equipment replacement and/or installations Personnel - Hiring subsidiary officers - Subsidiary management training - Compensation levels - Management - Labor Research and Development - Determination of whether R a D activities occur at the sub- sidiary level - Level of R 8 D budget - Research content Purchasing - Choice of suppliers - Specifications - Product - Price 287 BRAZIL Process l U! HHHHr—ee—m"! HHHHHHH HHHfi—J r-e H “H“ "H HH “H H“ H H “H Lou-0H “H H Process I b HHF‘HHHF‘ HHHHHHH HHHH H H "H HRH HHH h-l H Hi—l H“ “H l I hull—J H 0-H e—e H" Process HHHHHUH s-o 5.: H "H" h—l Huh—J H H“ HI—l e—er-s “H H t—lb—l H Ht—lL—J Process He—eI—ee-ne-ne—ue—e H H h—l H— HRH H“ b—l H H Ha i—J I I H HH H Process HHHHHHH HHHH e--e b—l HR RH HI—IH H H l I H be!“ H 0-!” c. Marketing 4 Which markets to serve - Which segments within the 0.x. - which countries? Product line composition New product introduction Pricing Finance - Capital investments - Determination of annual budgets - Foreign currency exposure - Sources of funds (i.e. loans) Production - Hhat products are produced locally Quality control levels Level of output Level of production for local markets and exports Production scheduling Equipment replacement and/or installations Personnel - Hiring subsidiary officers - Subsidiary management training - Compensation levels - Management - Labor Researchgand Development - Determination of whether R 8 D activities occur at the sub- sidiary level - Level of R a D budget - Research content melee-.123 - Choice of suppliers - Specifications - Product - Price Promotional budgets and strategy Distribution channels; strategy 288 BRITAIN Process VI 0" HHHHHH l—I e—s HHH ”0“ HH H" H H F. H Process '— e—J H “H HH "H Hind l | H Q—J H'— Process H HHHHHHH HHHH H H HF! e—n Ht—d Hind Hh—J H s—s H H H H Process I—lh—‘i—flh—‘HHH H H F! H has... h—J H I l H I ' t—JH H "H Process H llllllll“ I-IO-‘Hf—IHH HHHHHHH F-n b—J H HQ—l s—F-m He—d lr—QF-I| F-Io—m hie—J Q—sh—l F-Os—e' H H H ”F! H 289 Environmental Certainty/Uncertainty 38. 39. 60. 41. How would you characterize the following environments with respect to certainty and uncertainty in decision making? Level of Uncertainty France Brazil Britain High [:1 (:1 [:1 mam [_] [_] [_] Low [_] [_] [_] It has been suggested that frequent, unpredictable changes in technology, market behavior, economic, political, and social conditions create high levels of uncertainty in decision making for businesses. How would you rank each of these on the following 5 point scale for France, Brazil, and Britain? (Hand sheet to person being interviewed.) Level of Uncertainty a. France 2539 - technology - market behavior - economic - political s—l—ss—we—I r‘ I I I I I“? HHHH HRH" I I I I IN Huh-OH HRH” HHHH b. Brazil technology market behavior economic political HHHH HHHH HRH" l—JHHU O . Britain technology market behavior economic political HHHH HHHH HHHH HHHH Do you think that the level of uncertainty present in the environment of a subsidiary influences the amount of authority the subsidiary manager has in decision making? [:1 Yu __ Bow? L__] No Why not? (If yes, go to Al) (If no, go to 42) With respect to your French, Brazilian, and British subsidiaries, do you think that the level of uncertainty in their respective national environments has influenced you to retain more authority at headquarters or less authority at headquarters in the management of these subsidiary operations? More Authority at H9 Less Authority at HQ No Effect a. France [ ] b. Brazil [ l c. Britain [__j HRH HHH H H 290 It has been suggested that frequent, unpredictable changes in technology, market behavior, economic, political, and social conditions create high levels of uncertainty in decision making for businesses. How would you rank each of these on the following 5 point scale for France, Brazil, and Britain? a. France Level of Uncertainty F: p. 5' technology market behavior economic political III“ I I U I Finns—s r‘ I I I I I”? HHHH HHF‘H HHHH HRH" HRH" o—Je—lHe—a U“ Brazil technology market behavior economic political HHHH HHHH O 0 Britain technology market behavior economic political a—lh—‘HH b2. 29] Could you indicate to what degree you think the national environment of this particular country influences the decisions you make in each of the following areas. For example, does this particular environment exert a high degree of influence in marketing decision, production decision, personnel decision, etc. In other words, please indicate how important you think the environment is in influencing your decision process and/or outcoae in each of the following areas. Degree of Environmental Influences on Decision flaking Not at all Somewhat Don't Know Very Extremely Important Important No Qpinion Important Important Marketing Finance Production Personnel Research 8 Development Purchasing H H H H H U ‘3. 292 Now, could you indicate the importance of each of the following factors in terms of how important they are in influencing the location of decision making for your subsidiary units? Size and complexity of corporate inter- national operations Geographic location of subsidiary Availability of inter- national line per- sonnel at the head- quarters level Size of the subsidiary in terms of sales ' and/or assets Individual subsidiary manager's experience Certainty/uncertainty of the subsidiary environment Corporate philosophy with respect to control over international operations Nature of our product line (production and marketing processes characterizing the industry) Performance of the subsidiary in terms of sales and/or profits Unique nature of the subsidiary environment market characteristics (i.e. political, legal, economic, technological) (Place a check in the appropriate blank.) Degree of Influence Not at all Important Somewhat Igportant Don't Know No Opinion [_] I] I] I :1 I 1 [:1 Very Ipportant I l :1 I Extremely 2222.123 I l :1 I 42. 43. 293 Could you indicate to what degree you think the national environment of this particular country influences the decisions you make in each of the following areas. For example, does this particular environment exert a high degree of influence in marketing decisions,production decisions,personnel decisions,etc. In other words, please indicate how important you think the environment is in influencing your decision process and/or outcome in each of the following areas. (Hand sheet to person being interviewed) Degree of Environmental Influences on Decision Making Not at all Somewhat Don't Know Very Extremely Igpggtant Importgpg No Opinion Important Important Marketing [_] [_] [_] [_] [_] Finance [__1 L__1 I__] [__1 [__1 Production [__1 I_1 I_] [_1 [_] Personnel [_1 [_] I_1 [_] [_] Research 8 Development [_] [_] [_] [_] [_] Purchasing L__1 L__1 L__1 [__J L..1 Now, could you indicate the importance of each of the following factors in terms of how important they are in influencing the location of decision making for your subsidiary units? (Place a check in the appropriate blank.) Degree of Influence Not at all Somewhat Don‘t Know Very Extremely Igportant Igportant No Qpinion Important Igportant Sin and cowl-mity [:1 [:1 [:1 [:1 [:1 of corporate inter- national operations Geographic location [:1 [:1 [:1 [_] [_1 of subsidiary ] [:1 I Availability of inter- I: national line per- sonnel at the head- quarters level Size of the subsidiary [ in terms of sales and/or assets H H H H H H H I H Individual subsidiary [::] [::I [::l [::1 I::] manager's experience Certainty/uncertainty [:1 [:1 [:1 [:1 [:1 of the subsidiary environment Corporate philosophy [:1 [_] {—1 [:1 [:1 with respect to control over international operations 294 Not at all Somewhat Don't Know Very Extremely Impprtant Important Important Important Important Nature of our product [:1 [:1 [:1 [:1 [:1 line (production and ‘- marketing processes characterizing the industry) Performance of the [_-l [_—l [-] [_—] [__1 subsidiary in terms of sales and/or profits Unique nature of the __’ [ ] [ ] [ ] [ ] subsidiary environment market characteristics (i.e. political, legal, economic, technological) Now we are also interested in studying certain aspects of the performance of inter- national subsidiaries. The next questions will deal with subsidiary performance. 44. a. Could you tell me what measures you use to assess the performance of subsidiaries? Return on assets Return on equity Market share Sales volume Profitability Others HHHHHH b. Do you use any of these more than others? Which one(s)? c. Which of these do you consider to be the best evaluation of subsidiary per- formance? Why? As the final stage of the research project in which your organization has participated, we are interested in obtaining some assessment and measurement of the performance of your company. We recognize that the information for which we are asking is sensitive, and therefore we want to be explicit about the manner in which it will be used. The data in the form in which we are asking to report it will only be seen by my dissertation committee and will not be published. Instead it will be used to develop rank order comparisons between the various organizations which have participated in the study. 45. 46. 295 Total Organizational Performance We need to obtain your subjective assessment of the performance of your entire organization as it relates to competitors in this industry. Equating 1002 to ideal performance we would like you to indicate what percent of this ideal or optimal performance you personally feel the (your) organization is achieving in this industry. a. I personally feel that the overall performance of the corporation should be rated as S in the "x" industry. Now, equating 1002 to ideal subsidiary performance, could you indicate what per- cent of this ideal or optimal performance you personally feel your subsidiaries in general average? b. I personally feel that the overall performance of our subsidiary organizations should be rated as 2. Now, using this same criteria, could you estimate your personal assessment of the performance of your French, Brazilian, and British subsidiaries? c. France 2 d. Brazil 2 e. Britain ___! gapirical Measures of Subsidiggy Perforpance Over Time We are also interested in obtaining a few empirical measures of the trend of these three subsidiaries' performance over the past 5 years. Using this table (hand table to interviewee) we would like you to indicate the percent changg pp p ygar-tofiyear basis of three performance indicators: sales, before £55 profits; return pp investment before taxes for each subsidiary. Considering the base year 1973 (or the year 5 years before this study) as 100, would you please indicate, the level for each indicator for each year. For example, if sales in 1974 were 52 above 1973, you would put 105 in the 1976 column. If sales were 52 below the 1973 level in 1974, you would put 95 in the 1976 column and so forth. a. France 1.9.7.3 as 9.7.5 9.7.6 1_97_7. Sales 100 __ __ __ __ Before tax profits 100 ____ _____ ____ ____ Return on investment before tax 100 __ _ __ _ b. Brazil Sales 100 __ _ __ _ Before tax profits 100 _____ .____ Return on investment before tax 100 _____ .____ c. Britain Sales 100 Before tax profits 100 Return on investment before tax 100 47. 58. 296 Some are of the opinion that decisions in certain functional areas should remain at the headquarters level while others should remain at the subsidiary level. In other words, some functional areas may require centralized or headquarters control over decisions, while others generate the best performance when they are made at the subsidiary level. In your opinion, are there differences between functional areas (i.e. marketing, finance, production, etc.) which may require greater headquarters participation [:1 Yes [:1 No (go to 47 b) Why not? (go to 68) Please indicate these functional areas which you think require more headquarters participation in decision making than the others (check appropriate blank(s). Require Most headquarters Participation Marketing Finance Production Personnel Research and Development Purchasing In your opinion, are there differences between functional areas (i.e. marketing, finance, production, etc.) which may require greater subsidiary participation in order for pp; subsidiagy unit pg pg most successful? [:l Yes [:1 No (go to 48 b) Why? (go to question 49) Please indicate the areas which you think require greater subsidiary participation in order for the subsidiary to be successful. (Place a check in the apprOpriate blank(s). Reguires Most Subsidiagz Participation Marketing Finance Production Personnel Research and Development Purchasing I—dh—lHL—JHH 297 69. Generally, do you think the location of decision making authority between head- quarters and the subsidiary has an influence on a subsidiary's performance? [:1 Yes [:1 No (go to 50) How? 50. Do you think the location of decision making authority between headquarters and subsidiaries has an influence on a subsidiary's market performance? I:1 Yes [ 1 No [:1 don't know (If yes, How? ) 51. Do you feel the location of decision making authority between headquarters and the subsidiary has an influence on a subsidiary's financial performance? [:1 Y” [:1 Mo [:1 don't know (If yes, Bow? ) 52. Does a subsidiary manager with good performance have more authority than one that doesn't? E::1 YOU [::3 No [::1 don't know 53. Does the corporation reduce the authority of a subsidiary manager who's performance falls? [:1 Yes [:1 No If yes, Bow? ) seesaw—m In order to complete this study we would like to send this letter and questionnaire to the subsidiary managers of your French, Brazilian, and British subsidiaries. We would appreciate it if it would be sent from your office so that the subsidiary manager knows it has been cleared at headquarters. (Band person being interviewed subsidiary questionnaire and letter.) APPENDIX C SUBSIDIARY QUESTIONNAIRE 298 APPENDIX C SUBSIDIARY QUESTIONNAIRE Instructions This questionnaire should be completed by the chief executive officer of the subsidiary organization if at all possible. Please feel free to make any comments on any questions or the questionnaire itself. Thank you. 299 300 SUBSIDIARY QUESTIONNAIRE General Information 1. What is the name of the subsidiary's parent company? 2. What is the full name of the subsidiary organization? What is the address? In what year was this subsidiary established? 3. What is your name? a) What is your citizenship? b) Title of your present position in the subsidiary? c) How long have you been in this position? 6 months or less 6 months to one year 1 to 3 years 3 to 5 years 6 years or longer d) How long have you been employed by the parent company? (Include total years of service) 6 months or less 6 months to one year I to 3 years 3 to 5 years 5 to 10 years 10 to 15 years 15 years or longer HHHHHHH E 4. Please check the category wh best describes your subsidiary organization. manufacturing only, no local sales marketing only, no local production manufacturing and marketing, local production a sales other H e—s e—s H 5. Approximately how many employees (management and non-management) are there in your subsidiary? (Check one) less than 500 $00 to 1,000 1,000 to 3,000 3,000 to 5,000 5,000 and over HHHHH 6. 301 Are there any other corporate subsidiaries or affiliates (i.e. joint ventures) located within this country? [:1 m [:1 No If yes: how many others? How would you describe the process technology of your subsidiary's production? Please check one. [::] Unit Productigg_- the majority of products are individually manufactured to customer specification. No finished goods inventory. h—J gait-Batch Production - some products made to customer specifications, some produced in batches. I l L—J gatch Production - the majority of products manufactured in batches (some finished goods inventory) . h—l Batch-Mass Production - some products manufactured in batches, some mass produced (large-batches) for inventory. 0—! H H Mass Production —- the majority of products mass produced for inventory. H Haas-Continuous Production - some products mass produced, some produced continuously (i.e. automated assembly line). | I H Continuous Production - majority of products produced continuously, twenty— four hours a day (i.e. metal or chemical processing). Subsidiary Organization 10. Do you have an organization chart? [:1 Yes [:1 No Please indicate if there is a line manager for each of the following areas who reports directly to you. (Check the ones that apply) Marketing Pinance Personnel Research and Development Production Purchasing HH'HHH HHHHH H H Please indicate the number of professional level staff positions for each of the following areas within your subsidiary organization. Number of Staff Positions by Area Marketing Finance Personnel Research and Development Production Purchasing HHHHHH 11. 302 Does your parent company utilize regional comittees or regional managers in its organization? (For example, a Manager of European operations located in Europe.) a. [:1 Yes [ I No If yes: b. Are these organized primarily on a geographic or product basis? [:1 regional [:1 product [:1 both (geographic) c. Does the regional organization have line authority over the subsidiary manager? {:1 Yes [:1 No If yes: please indicate d. In which of the following functional areas does the regional organization have line authority over the subsidiary manager? Marketing Finance Personnel Production Research 6 Development Purchasing HHHHHH Availability of Managerial Talent 12. 13. a. How important do you feel previous international experience is for a person in your position or an equivalent one? For 51 Position Extremely Important Vsrv Important Don't Know - No opinion Somewhat Important _ Not at all Important b. Por someone at headquarters with line reporting relationships to subsidiaries? Per Beadguarters ggt. He—se—ss-ae—s [__J Extremely Important [_] Very Important [__J Don't Know - No opinion [_] Somewhat Important [__j Not at all Important In general, how would you assess the availability of qualified managerial talent, whether foreign or local, who would be available for assuming positions within your industry in this country? Check one. {__1 Large managerial pool, no difficulty in obtaining qualified managerial personnel. L__] Moderate managerial pool, some difficulty in obtaining qualified managerial personnel. '__] Small managerial pool, significant difficulty in obtaining qualified managerial personnel. 16. 303 Would you say it is more or less difficult to obtain qualified personnel in different functional areas within this country? For example, is it more or less difficult to find qualified marketing personnel than it is, say, to find production personnel? Large Pool Moderate Pool Small Pool No Difficulty gage Difficult) Much Difficulty Marketing Finance Production Personnel Research 6 Development Purchasing HHHHHH HHHHHH Decision Making and Corporate Policy 15. 16. Generally, how would you describe your company's philosophy toward controlling subsidiary operations? Please select one of the following categories which best describes your corporate philosophy.) l::j Headquarters maintains very "tight" control over subsidiaries and their operations through procedures and policies established by headquarters. ] Headquarters maintains very loose control over subsidiaries and their operations. Subsidiaries operate primarily as autonomous business units. ] Headquarters coordinates subsidiary operations on a regional or international basis while subsidiaries share in basic decision making. ] Can't determine. a. Does your company have written policy guidelines that indicate the amount of decision making authority you have as a subsidiary manager? C::] YO! (80 30 question 15 b) C::] Mo (go to question 16 d) b. Are these uniform for all subsidiary managers? [:1 Yes (go to question 16 c) {—1 Mo (go to question 16 d) c. would you describe these uniform policies as being: [:1 very specific, detailed, and comprehensive [__j general guidelines only L__] very specific in some areas and general guidelines in other areas (go to question 17) d. Since there are no uniform, written guidelines covering the decision making authority of the subsidiary manager, how is his authority established and cggmunicated? constantly evolving verbally from line superior memos, letters, etc. from line superiors verbally from headquarters staff memos, letters, etc. from headquarters staff FOO-OH HHH 17. 18. 304 Now, with respect to corporate policies indicating the decision making authority of subsidiary managers, would you indicate for each functional area your per- a ception of the policy guidelines. Very specific Very specific, General in some areas No detailed and guidelines and general guide- guidelines cggprehensive only lines in others __g£_gl$__ muting [_] I ] [_] [_] Finance L__] [__l [__J [__J Personnel [_] [_] [_] [_] Production [_] [_] [___] [_] Research a Development [_] [_] [_] [_] Purchasing [__l L__] [__l [__J When major decisions are made in marketing, financh, etc., how would you rank the degree of participation by headquarters personnel and by subsidiary management in each of the following areas? Place a check in the blank under the process which best describes your subsidiary/headquarters situation. Using the following definitions please indicate which process most closely describes the way the following decisions are made for your subsidiary. Process 1 - The subsidiary manager generates alternative solutions and makes the decision himself. Process 2 - The subsidiary manager generates alternative solutions, makes the decision, and submits the decision to his superior for approval. Process 3 - Headquarters and subsidiary managers share the problem and collectively generate alternatives. Together you generate and evaluate alternatives and attempt to reach consensus on a solution. The solution that has the support of both the subsidiary manager and the headquarters manager. Process 4 - Headquarters personnel generate alternative solutions, submit these to the subsidiary manager for his ideas and suggestions. Headquarters personnel then make the decision. Process 5 - Headquarters personnel generate alternative solutions, make the decision and inform subsidiary management of the decision. Location of Decision Mgkigg Process Process Process Process Process a. Marketing: - Which markets to serve e Which segments with a country? - Which countries? - Product line composition - New product introduction - Pricing - Promotional budgets and strategy - Distribution channels and strategy D... D. D... “D” 0.. HHHHH HHHHH HHHHH “HHS—OH HHHH HHHHH HHHHH s—s h—l H H H H r-s h—J H s-a 19. 305 Process Process Process Process Process b. Finance: 5 a 3 2 1 - Capital investments - Determination of annual budgets - Foreign currency exposure - Sources of funds (i.e. loans) Hm HH Hm HH HF! HH Hh—J s—se— H!“ H?“ c. Purchasing: - Choice of supplier - Specifications - Product - Price 0—. u—s e—e HS... H H“ h—l H H I—J h—J H“ H d. Production: - What products are produced locally - Quality control levels - Level of output - Level of production for export and local markets - Production scheduling - Equipment replacement or installations H H H H H H H H H “Ht—J Q—J HHH HHH HHH ”H H“ "H “H HH H“ e. Personnel: - Hiring subsidiary officers -.Subsidiary management training[ - Compensation levels - Management - Labor r-w ”H I—JII—J "H “H HH H” H HH HR r-se-w ”H f. Research and Develgzgent: - Determination of whether [ R 6 D activities occur at the subsidiary level - Level of R 6 D budget - Research content H“ H “H H HH H H“ H Some are of the opinion that decisions in certain functional areas should remain at the headquarters level while others should remain at the subsidiary level. In other words, some functional areas require centralized, or headquarters control over decisions, while others generate the best performance when they are made at the subsidiary level. 20. 21. 306 In your Opinion, are there differences between functional areas (i.e., marketing, finance, production, etc.) which ppz_require greater headquarters participation than others in order for the corporation pp_p whole pp pg successful? [:1 Yes (go to 19 b) [:] No Why not: Ygo to 20) Please indicate those functional areas which you think require more headquarters participation in decision making than the others by placing a check in the appropriate blank(s). gpguire Host Beadguarters Participation Marketing ] Finance Production Personnel Research and Development Purchasing HHHHH In your opinion, are there differences between functional areas (i.e. marketing, finance, production, etc.) which maz reguire greater subsidies: participation in order for the subsidippz unit pp.pp,most successful? [:1 Yes (go to 20 b) [_] No why? (go to question 21) ‘Please indicate the areas which you think require greater subsidiary participation in order for the subsidiary to be successful by placing a check in the ap- .propriate blank. gpguires Host Subsidippz Participation Kerketing [:1 Finance [__j Production [__1 Personnel [__1 lesearch and Development [__J Purchasing [ ] It has been suggested that national environments in which business decisions are made and implemented can be described as being certain or uncertain. Environments characterized by freguent, unpredictable changes in technology, market behavior, mconauic,polit1cal and social conditions are thought of as having high levels of uncertainty in decision making for business. How would you rank the environment you face with respect to certainty in decision making? Level of Uncertainpy in the Environment High 3 A 5 2 [:1 {-1 [:1 [_] |3~§ .22 O 23. 24. 25. 307 Now, would you rank each of these environmental elements on the following 5 point scale by placing a check in the appropriate blank? Level of Uncertainty £2! fiéfifi _l _2 2. _" 2‘. Technology [_] [_] [_] [_] [_] Harket behavior [_] [_] [_] [_] [_] Economic [_] [_] [_] [_] [_] Political [_] [_] [_] [_] [___] Do you think that the level of uncertainty present in the environment of your particular subsidiary influences the amount of authority you have as a subsidiary manager in decision making? [:1 Yes [:1 No How? Why not? (go to question 24) (go to question 26) Do you think that the level of uncertainty in this particular national environment has influenced your parent company to retain more authority at headquarters or to give you more authority at the subsidiary level than would be true if the environ- ment were less uncertain: Influenced parent company to: Retain more authority at headquarters or regional headquarters level. Delegate more authority to subsidiary management. Ras had no effect on allocation of authority between headquarters and subsidiary. Could you indicate to what degree you think the national environment of this particular country influences the decisions you make in each of the following areas. For example, does this particular environment exert a high degree of influence in marketing decision, production decisions, personnel decisions, etc. In other words, please indicate how important you think the environment is in influencing your decision process and/or outcome in each of the following areas. DegEee of Environmental Influences on Decision Making Not at all Somewhat Don't Know Very Extremely Igportant Ipportant No Qpinion Ipportant Ipportant Marketing Finance Production Personnel Research and Development Purchasing HHHHHH HHHHHH HHHHHH IHHL—Je—se—st—s HHHHHH 26. 308 Now, could you indicate the importance of each of the following factors in terms of how important they are in influencing the location of decision making for your subsidiary units? (Place a check in the appropriate blank.) Not at all Important Size and complexity [:1 of corporate inter- national operations Geographic location [::1 of subsidiary Availability of inter- [:1 national line per- sonnel at the head- quarters level Size of the subsidiary [ in terms of sales and/or assets Individual subsidiary E::l manager's experience Certainty/ uncertainty [:1 of the subsidiary environment Corporate philosophy [:1 with respect to control over international operations Nature of our product [ line (production and marketing processes characterizing the industry) Performance of the [ ] subsidiary in terms of sales and/or profits Unique nature of the [ ] subsidiary environment market characteristics (i.e. political, legal, economic , technological) Degree of Influence Somewhat Don't Know Very Extremely Important No Opinion Igportant Important [:1 [:1 [:1 [:1 [:1 [:1 (:1 [:1 [:1 [:1 [:1 [:1 [:1 [:1 [:1 {:1 1:1 [:1 [:1 [:1 (:1 (:1 [:1 [:1 (:1 [:1 [:1 [:1 [:1 [:1 [:1 {:1 CI} [:1 [:1 {—1 27. 28. 29. 30. 31. 309 a. Could you please indicate which of the following measures are used by head- quarters in assessing the performance of your subsidiary organization? Return on assets [ Return on equity [ Market share [ Sales volume [ Profitability [ Others [ b. Which of these do you consider to be the best evaluator of subsidiary performance? Why? Do you think the location of decision making authority between headquarters and subsidiaries has an influence on a subsidiary's performance? I 1 Y“ [:1 No (go to 29) Row? Do you think the location of decision making authority between headquarters and subsidiaries has an influence on a subsidiary's market performance? I ] Yes C::] No (go to 30) How? Do you think the location of decision making authority between headquarters and subsidiaries has an influence on a subsidiary's financial performance? I 1 In [:1 1'0. Row? Does a subsidiary manager with good performance have.more authority than one that doesn't? [:1 Yes I: J No [:1 Don't know 310 32. Does the corporation reduce the authority of a subsidiary manager who's per- formance falls? (::1 Yes [:Z ] No [:1 Don't Know If yes; Bow? Total Orggnizational Performance 33. We need to obtain your subjective assessment of the performance of your entire organization as it relates to competitors in this industry. Equating 1002 to ideal performance, we would like you to indicate what percent of this ideal or optimal performance you personally feel your subsidiary organization is achieving in this industry. I personally feel that the overall performance of the organization for which I am responsible should be rated as I in the "x" industry in (your country of operation). 34. a. Prior to assuming your current position, did you have any other international work experience with this corporation or.others? [:1 he (go to 34b) [:1 No (go to 35) b. How many years? c. What countries? 35. a. Have you held a position within headquarters or at the regional level? [:1 Yes (go to 35b) [___] No b. What was your title? c. During what years did you hold that position? Prom to Thank you for your assistance in completing this questionnaire. In order to obtain your responses as quickly as possible, please return the completed question- naire and any comments you may wish to make by AIR MAIL to: D. C. Powell Department of Marketing and Transportation Administration Graduate College of Business Administration Eppley Center Michigan State University East Lansing, Michigan 48826 U.S.A. WORKING BIBLIOGRAPHY 3H WORKING BIBLIOGRAPHY Books Allen, Louis A. Charting the Company Organization Structure. New York: Industrial Conference Board, No. 168, 1959. Arpan, Jeffrey 5, International Intracorporate Pricing. New York: Praeger, 1972. Barnes, M. C.; F099, A. H.; Stephens, C. N.; and Titman, L. G. Company Organization: Theory and Practice. London: George Allen and Unwin Ltd., 1970. Barnet, Richard J., and Mu1ler, Ronald E. Global Reach. New York: Simon and Schuster, 1974. Behrman, Jack N. 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