The Role of Headquarters
New Horizons in International Business series
Edited by Ulf Andersson and Ulf Holm
Chapter 12: The Role of National Culture on the Headquarters–Subsidiary Relationship in the Multinational Corporation: The Effect of Power Distance
12. The role of national culture in the headquarters–subsidiary relationship in the multinational corporation: the effect of power distance Rian Drogendijk and Ulf Holm INTRODUCTION Managing a multinational corporation (MNC) inevitably involves crossborder interaction between managers at different organizational levels and in different countries. Researchers have discussed, at length, the importance of MNC headquarters (HQ) as a controller and distributor of resources and, more recently, as a catalyst for the exchange of resources, including knowledge, between corporate units (Chandler et al., 1987; Foss, 1997; Markides, 2002). Although this role may have changed over the years, most research maintains that the HQ has, and even should have, a central impact on the development of its subsidiaries. However, research has also shown that several factors impose limits to the HQ’s ability to exert its impact, such as the problem of information asymmetry (Roth and O’Donnell, 1996), knowledge closure between specific business contexts (Goodall and Roberts, 2003; Forsgren et al., 2005), and the HQ’s lack of power over influential subsidiaries (Andersson et al., 2007). Furthermore, although its formal position in the MNC hierarchy may give the HQ control over its subsidiaries through the centralization of some strategic decisions, this does not guarantee that it actually influences the decisions and operations made by the subsidiaries (Andersson et al., 2007). This chapter will focus on one aspect of the actual influence of HQs on their subsidiaries: the impact of international cultural differences. More specifically, we address the question of how the respective national cultural...
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