How Are Subsidiary Companies Managed?

In this chapter, we will be looking at various aspects of subsidiary management. One may perhaps imagine that in a large and diversified corporate group, certain amount of decision rights need to be delegated to its subsidiaries, otherwise it would be undesirably slow and prohibitively costly to make all decisions centrally. Delegation however incurs control loss, and the parent company, therefore, has to decide on a workable level of delegation that is optimal. Another management issue would be the coordination of activities across the corporate group. If what the subsidiary performs is highly integrated into the production value chain of the parent company, delegation may have to be balanced with appropriate control to ensure that targets of the group as a whole are met. Monitoring of performance may vary in frequency and detail, and evaluation criteria may be financial or non-financial. Conflict management may also be an issue, such as when the parent and subsidiary face different pressures and have conflicting interests. There also needs to be some form of self-enforcement to allow members within the corporate group to act coherently. In the subsequent sections, I will look at each of these management issues and see how academic literatures address them.