Subsidiary evolution

By Mark Diorio

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There has been a profound shift in paradigm in regard to multinational corporations (MNCs) and their foreign subsidiaries during the past 10 years. In many cases, MNC headquarters are no longer the sole source of competitive advantage because foreign subsidiaries are playing a more competitive role in corporate success.

A subsidiary can refer to an MNC's holdings in a host country or to a single entity, such as a manufacturing or sales operation. Subsidiaries are now well-managed offices with unique resources and specialized capabilities. In fact, many subsidiaries have developed a degree of specialization in product, market and technology that far exceeds that possessed by corporate headquarters. But corporate “control” can still stifle this positive stance. If you work for a subsidiary, then you may want to reflect on whether your subsidiary is evolving to enhance its capabilities – or letting them atrophy – and what this means to your career program.

Norms and Practices

Typically in the packaging industry, a subsidiary is remotely located to manufacture or distribute products and/or to provide customer support within a specific region. Within that marketplace, there are norms and practices that relate both to customers and employees; the ability of a subsidiary to navigate through these factors will ultimately deliver success, marginality or failure. While it is important to adopt the norms and practices of any region, it is also important to become embedded in the culture (and to be seen this way locally).

Who Manages Subsidiaries?

Twenty years ago, it was common for someone from an MNC to run a remote factory. This manager's primary purpose was to teach local workers the logistics of the business, impart the company's culture onto the workforce, and attempt to ensure a structure that was immune to corrupt and unethical influences. Many successful subsidiaries today are managed by local employees rather than officers relocated from corporate headquarters. Many “ex-patriots” did a great job training local managers to run their subsidiaries and these subsidiaries have flourished beyond expectations with local management in place.

Corporate office reassignments to other countries are rarely beneficial long-term for either the subsidiary or the MNC. While having a head-office subsidiary manager can address the challenge of communicating between the subsidiary and the corporate office, difficulty arises when that communication must then be transferred to the local market and employees.

When Cultures Collide

Regardless of the pedigree of a head-office manager, local customers never truly embrace a “foreigner.” Generally, if an international company has someone from another country running its local subsidiary, they are essentially telling the local employees (and, to a certain extent, their customers within that market) that they either don't trust the locals or they believe them to be incompetent in running their business for them.

One U.S. MNC success story has been Applied Materials (with its subsidiary, Applied Materials Japan) because early on, Applied Materials hired a local Japanese manager to run this subsidiary. But not all companies allow for this. Years ago, when I lived in Asia, I met a European who was running a subsidiary in China. He was somewhat successful, but realistically he could never foster that subsidiary to its full potential because he could not become embedded into the culture. Similarly, his Chinese counterpart would have had the same issues if placed in Europe.

Who's Managing Your Company?

If you are working for a foreign subsidiary with a head-office assigned manager in charge, where does that leave you? Do you or a colleague ever have the chance of taking over the management of the subsidiary? No? Then consider yourself a mercenary. Hey, that's okay – just make sure that they're paying you well because they need you!

But congratulations are in order if your subsidiary is progressive and on the move (if your manager is part of the market and understands the customers' personal tendencies and technology demands and if you are able to attract top-shelf human resources). If that's the case, then chances are your subsidiary is evolving to new heights. AP

Mark DiOrio, chief executive officer, can be contacted at MTBSolutions Inc., 1630 Oakland Road, Suite A102, San Jose, CA 95131-2450; 408-441-2173; Fax: 408-441-9700; E-mail: [email protected].


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