The influence of multinational enterprises on subsidiaries: context matters

Purpose - The purpose of this paper is to examine how differences in the institutional environments of a multinational enterprise (MNE) shape the role of management control systems (MCSs) and social capital in the headquarter (HQ)-subsidiary relationship of an emerging economy MNE. Design/methodology/approach - A case study design was adopted in this research in order to understand how the differences in the institutional environments of an MNE shape the design and use of MCSs. Data were gathered by means of semi-structured interviews, document analysis and observations. Interviews were conducted at the Nigerian HQ and UK subsidiary of the Nigerian Service Multinational Enterprise (NSMNE). Findings - The study found that the subsidiary operated autonomously, given its residence in a stronger institutional environment than the HQ. Instead of the HQ depending on MCSs means of coordination and control, it relied on social capital that existed between the HQ and subsidiary to coordinate and integrate the operation of the foreign subsidiary studied. Research limitations/implications - The evidence from this research indicates that social capital could be effective in the integration and coordination of multinational operations. However, where social capital becomes the main mechanism of coordination and integration of HQ-subsidiary operations, the focus may have to be, as in this case, on organisational social capital and the need to achieve group goals, rather than specifically designated target goals for the subsidiary. The implication of this is that it may limit the potential of the subsidiary to explore its environment and search for opportunities. These are important insights into the relationship between developed country-based subsidiaries and their less developed countries-based HQs. Practical implications - A practical implication of this research is in the use of local or expatriate staff to manage the operation of the subsidiary. While previous studies on the MNE, from the conventional perspective of multinational operation, suggest that expatriates may be sent to the subsidiary to head key positions so as to enable the HQ to have control of the subsidiary operation, it is different in this case. The NSMNE has adopted a policy of using locals who have the expertise and understanding of the UK institutional environment to manage the subsidiary’s operation. Social implications - This research sheds some light on how development issues associated with a multinational institutional environment may shape the business activities and the relationship between the HQ and subsidiary. It gives some understanding of how policies and practices may have different impacts on employees as businesses attempt to adjust to pressures from their external environment(s). Originality/value - The reliance on social capital as a means of coordination and control of the foreign subsidiary in this study is significant, given that previous studies have indicated that multinational HQs normally transfer controls and structure to foreign subsidiaries as a means of control. Also, while previous studies have suggested that MNEs HQ have better expertise that enables them to design and transfer MCSs to foreign subsidiaries, this study found that such expertise relates to the institutional environment from which the HQ is operating from. Through the lens of institutional sociology theory, these findings directly contribute to the literature on the transference of practices and control systems in international business discourse.