Abstract

Introduction
Sometimes researchers have the luck to see behind the curtain. A few years ago one of the authors of this short essay happened to interview the CEO of a subsidiary just a few hours after this person, a 45-year-old manager strongly committed to his subsidiary, was communicated the corporate decision to close down production at his subsidiary. A few days later the head of the subsidiary’s works council was similarly interviewed. Both interviewees were furious about the decision. One reason was that corporate management had not deemed it necessary to communicate the closure in person but had conveyed the bad news in a conference call, even though headquarters executives had often visited the subsidiary in the preceding months. What is more, corporate management left it completely up to the subsidiary’s CEO to break the news to the workforce. A second, probably more important reason for the deep frustration both of the subsidiary’s CEO and the workforce were ‘dashed hopes’. Acquired some 10 years previously, the subsidiary had done a very good job both in terms of developing the local market and of enhancing workforce skills. This had resulted in a steady flow of profits to corporate headquarters and in the subsidiary’s quite successful lobbying for a constant modernizing of the production facilities. Emerging hopes to develop into a regional production hub for Europe, however, were completely dashed by the conference call. A last reason for the workforce’s fury was the feeling of being unfairly treated, with production being relocated to a plant neighbouring corporate headquarters. This move was not only seen as devoid of any strategic foresight but also as a direct outcome of that plant’s constant lobbying of headquarters and of ‘cronyism’.
Even though it was beyond our scope to look into these accusations in detail, the case nevertheless shows that power and politics do matter in multinational corporations (MNCs). There are many different actors in and around multinational corporations with vested interests, arising from them belonging to different subunits of the multinational corporation. Once something of importance to one of these actors is at stake, power and politics come to the fore, with political manoeuvring (or politicking, to use another word) starting and other actors being drawn into the game. This, in our view, is the raw truth of any organization, and in particular of MNCs. This is a view however that strongly deviates from the mainstream international business and management literature, which sees power and politics in organizations as the exception, being nothing more than ‘dirty business’ preventing organizations from doing their normal work.
In the remainder of this short paper we will first try to explain what power and politics in MNCs means. We will focus on strategic conflicts that emerge between corporate headquarters and subsidiaries. Based on a discussion of the genuinely different interests of headquarters and subsidiaries, we will look at two typical situations in which political manoeuvring arises. The first is when corporate management adopts cross-border standardization strategies, while the second is when subsidiaries engage in entrepreneurial activities going beyond their assigned charter. This is followed by a discussion on how workers and their representatives are involved in such conflicts. In the concluding section we discuss the conditions for more effective involvement of workers and their representatives in headquarters-subsidiary politics.
A definition of power politics in multinational corporations
Let us take a look at another example further to elucidate power and politics in MNCs. It is the case of Scanfood, a Norwegian food sector MNC that has recently invested heavily in central and eastern Europe (CEE) (Fenton-O’Crevy et al., 2011). From the outset, the newly acquired subsidiaries in Poland and the Czech Republic ran into serious conflicts with the Norwegian side of the business over quality standards. The Norwegians were reluctant to share their knowledge and invest time and effort in improving quality at the Czech and Polish plants, as they feared both a further relocation of production to these low-cost locations and a decrease in the efficiency of their own operations. For their part, the Czech and Polish plants similarly did not trust the Norwegians. They felt frustrated, missing transfer of knowledge from the Norwegian plants and unhappy that these plants were ignoring or even actively rejecting existing best practices implemented at CEE subsidiaries. Mistrust went so far that the CEE subsidiaries became reluctant to report production problems as they feared sanctions for ongoing quality problems.
This example reflects what is at the heart of organizational politics: engaging in activities going beyond or even against one’s formal role, in order to influence the distribution of advantages or disadvantages within an organization (Robbins and Judge, 2009).
The HQ-subsidiary divide
The example of Scanfood is further proof of what Howard Perlmutter (1969) termed ‘the torturous evolution of an MNC’ more than 40 years ago. Many of the problems associated with turning large and diversified MNCs into effective and efficient organizations can be traced back to a very basic divide between the interests and expectations of corporate management and MNC subsidiaries. From the many interviews we conducted in MNCs of all kinds it transpired that corporate management expect in essence two things from their subsidiaries. The first is that their subsidiaries contribute in some way to the MNC’s overall success. This can take various forms depending on the particular role of the subsidiary. Subsidiaries that act as extended workbenches – such as Scanfood’s CEE subsidiaries – contribute in the form of timely delivery of efficiently produced high-quality products. Subsidiaries acting as ‘listening posts’ in foreign markets are expected to deliver information on business opportunities, new suppliers, innovative technologies, etc. A second crucial issue for corporate management is its desire to exert a certain amount of control over subsidiaries, not only to monitor and safeguard investments, but also due to the fact that subsidiaries explicitly or implicitly bear the name of the MNC. Any fraud, management deficits or PR blunders occurring in a subsidiary reflect poorly on the MNC as a whole. Companies like Nestlé can sing a song about this.
On the other side of the coin we have the interests and expectations of the subsidiaries. Two expectations turn out to be of particular importance for subsidiaries. Functionally truncated subsidiaries expect support and resources from corporate management, as seen in budget negotiations, a constant source of conflict. The headquarters-subsidiary divide widens further when we look at the second major expectation of subsidiaries: autonomy. In many interviews subsidiary autonomy, i.e. leeway to conduct business as deemed fit, was named as the single most important factor subsidiaries expect from corporate management. For good reason: on the one hand subsidiaries need a certain amount of autonomy properly to fulfil their tasks in a foreign market; on the other hand autonomy is also called for by subsidiaries in order to adapt to the changing local environment. However, subsidiary autonomy does not always concur with the strategic leadership and control missions of headquarters. Control can be pursued in two ways by corporate management – by treating local subsidiaries as strategic partners or as strategic dependents (Clark and Geppert, 2011).
Contested issues
Given such fundamental clashes of interest it comes as no surprise that conflicts emerge in MNCs. One highly contested issue triggering a large amount of political manoeuvring are corporate standardization strategies. Allowing economies of scale and scope, these are often of direct corporate benefit, not only in terms of profits and competitiveness but also in terms of subsidiary control. Such corporate standardization strategies can relate to particular products, cutting production and marketing expenses by selling identical products in similar markets. They also often relate to specific business processes, for instance, when headquarters implements corporate systems and solutions for enterprise resource planning, job evaluation or quality control. Sometimes corporate standardization strategies even affect the configuration of the subsidiary network, as seen with Opel, the European subsidiary of General Motors (GM). GM has taken several decisions to reduce the number of manufacturing plants in Europe with the intention of achieving better economies of scale in the oversupplied European car market. Car assembly in Antwerp/Belgium closed down in 2010, a move to be repeated in Bochum/Germany in 2014. Naturally, both decisions were strongly contested by the subsidiaries in question, as they seriously threaten their survival (Blazejewski, 2009). Subsidiary protests against corporate standardization strategies can also be observed in cases where subsidiaries are much less affected, possibly only losing certain tasks or a certain amount of functional scope. Protest forms can range from simply ignoring standardization strategies, to ceremonial adoption, shifting of emphasis and obstructing (Schotter and Beamish, 2011). In some cases, corporate management is even openly attacked, as was the case at Opel, where GM was denounced for its poor overall strategy.
Alongside corporate standardization strategies, subsidiary entrepreneurship is a second major source of conflict. As indicated above, subsidiaries often do not comply with the role initially assigned to them by headquarters. This can have several causes. One is that subsidiaries see lucrative business opportunities in their environment going beyond their charter. One example here is Agrotool, a French subsidiary of a medium-sized German MNC in the agricultural equipment industry (Dörrenbächer and Geppert, 2010), where French subsidiary management saw the opportunity to diversify into the public gardening market and successfully developed an innovative product to meet this demand. This case also reveals that going beyond the remit assigned by headquarters is often a matter of entrepreneurial spirit in the subsidiary (even though many MNCs are rather bureaucratic organizations). Finally, as discussed above, subsidiary entrepreneurship is also spurred by subsidiaries’ will to survive in a changing environment. One example here are CEE manufacturing subsidiaries that survived the cost-driven relocation of production to Asia by venturing into more demanding value chain steps such as process-related R&D (Dörrenbächer and Gammelgaard, 2006). Corporate ‘protest’ against such subsidiary entrepreneurship can emerge when corporate management feels bypassed or over-burdened with evaluating a large number of potentially self-serving subsidiary initiatives.
Influence tactics
Faced with emerging and/or worsening conflicts, actors in MNCs typically resort to a wide range of influence tactics. These tactics, described in seminal organizational behaviour contributions as for instance rational persuasion, inspirational appeals, coalition-building or pressuring, are also used in MNCs. Their use is often strictly goal-oriented and insistent, as shown by the following quote from the CEO of a global telecommunication service provider subsidiary: ‘From a theoretical perspective, one would assume that a corporation as large as ours follows a rational, strategic approach, but the opposite is the case. It is a highly political process, where who you know, who trusts you and what reputation you have [are the most important things]. Antechamber lobbying [walking the corridors of power] is exactly what you have to do – you have to talk to people, you have to convince them and you must not annoy them.…That takes time and continual effort. For me, it is a bit like “small strokes fell big oaks”.’ (cited in Dörrenbächer et al., 2014: 391)
Two particular characteristics of influence tactics deployed in MNCs are worth noting. The first characteristic stems from the fact that MNC headquarters often have to oversee a large number of subsidiaries. For subsidiaries this means first and foremost the need to attract positive attention at headquarters. Agrotool for instance followed a ‘boy scout strategy’, avoiding any behaviour that could offend headquarters combined with, whenever possible, referring to the subsidiary’s good track record. The difficult thing for corporate management is to distinguish between real achievements (such as at Agrotool) and impression management. This is a problem not only because corporate management has to oversee a large number of (often) distant subsidiaries, but also because certain subsidiaries have over the years become very adept at issue-selling. This can be a real danger, as the following example of a well-known global parcel service shows. Through intensive lobbying, the Pakistani subsidiary convinced regional headquarters for Asia to roll out their human resource management IT system to other subsidiaries in the region. However, in doing so it became apparent that while the system had certain advantages for the regional HQ’s reporting duties it offered insufficient functionality for other subsidiaries. Overconfidence on the part of the subsidiary combined with a regional headquarters that somewhat uncritically bought the arguments of a lobbying subsidiary ended in a big mess (Merchant and Chand, 2008).
The second characteristic of influence tactics used in MNCs is rooted in the cross-border nature of MNCs, bridging national cultures and institutional systems. Stakeholders are often able to exploit these differences in their political manoeuvring. In certain cases cultural differences are talked about and cultivated when they are of use for political strategies, while in others they are not mentioned or even suppressed. One example nicely illustrating this is the recent study on Japanese-Dutch joint ventures by Ybema and Byun (2011). While Dutch managers at Japanese subsidiaries in the Netherlands complained bitterly about the strict hierarchical attitude of Japanese expatriates which in their view went against the traditional egalitarian values of Dutch culture and hindered performance, Dutch expatriates in Japan did not see any problem in applying strict hierarchies themselves. In other cases, institutional differences can be leveraged. Pulignano (2006a), for instance, has shown that the effectiveness of tactics influencing the transfer of employment practices from corporate headquarters to subsidiaries is affected by local institutions. The study found that the Italian employment relations system is, in comparison to the UK one, more supportive of local subsidiary actors’ upgrading strategies within (US-based) MNCs. The study also stresses sector-specific differences, mainly attributable to the role of local production systems and whether these can easily be offshored.
Sources of power and workers’ involvement
The fact that skilful use of influence tactics can empower an actor and add to his structural power is basically a function of his dependency situation. While MNC subsidiaries are obviously dependent on their corporate management for legal reasons and in most cases also due to the fact that they are geographically and functionally truncated units, corporate management also depend to varying degrees on their subsidiaries, whereby the latter is a function of the sources of power subsidiaries control and can draw on. This is also where workers and their representatives come into play.
There are four sources of power subsidiaries can draw on (Dörrenbächer and Gammelgaard, 2011). First, as already discussed above, subsidiaries can have micro-political bargaining power. This encompasses lobbying and negotiation skills, issue-framing skills and the ability to form coalitions with actors both in the subsidiary and across the MNC. By itself, micro-political bargaining power is neither a very strong nor a very sustainable power resource. Nevertheless it is often a prerequisite for building stronger power resources (see below). A subsidiary’s micro-political bargaining power typically resides in local management’s relations with employee representatives. Research has shown that, alongside such aspects as the nature of the market and the degree of production integration, employment relations also play a role in determining how much micro-political bargaining power local managers and employee representatives are able to build (Edwards and Bélanger, 2009). Better regulated national and sectoral employment relations systems together with stronger unions force management constantly to negotiate and seek agreements with labour representatives. In weakly regulated countries and sectors (e.g. fast food or hospitality), such negotiations, as well as the resulting trust and negotiation skills, are far less pronounced.
A second source of power involves a subsidiary’s position in the MNC’s production value chain, i.e. systemic power. Such power arises when a subsidiary has gained, either through lobbying or a corporate decision, a prominent position in the value chain, controlling specific functions critical to the proper functioning of the overall value chain. Even though the power derived from such a position can be very strong, it is often only temporary – as seen in the Opel case, where Bochum workers strongly resisted initial corporate plans in 2004 to close one of GM's European factories. On account of the fact that the Bochum plant was the sole source of certain components used throughout other Opel/GM plants in Europe, the Bochum factory was able to deploy the tactic of going on a wildcat strike. Within just a few days, this strike brought production in other European plants to a halt, forcing GM to shelve its plant closure plans (Blazejewski, 2009). This however turned out to be a Pyrrhic victory, with the production of those components – the basis of Bochum’s systemic power – being transferred to another plant shortly after the strike. What followed were the decisions to close the car assembly plants first in Antwerp and then later in Bochum.
A third source of power is resource dependency. This emerges when a subsidiary controls resources that are rare, valuable, inimitable and non-substitutable. Such resources can be specialized knowledge, technology, an innovative product or a particular strength to leverage domestic business opportunities. It goes without saying that building up resource dependency power within a subsidiary involves not only subsidiary management but also the numerous efforts of workers and their representatives. A good example here is Agrotool’s product innovation initiative mentioned above. Workers and their representatives greatly contributed to the initiative, engaging in the innovation process, upgrading their skills in line with the new product’s more demanding production requirements and meticulously fulfilling stricter corporate performance standards for existing products in order not to endanger the initiative. Even though resource-based power is likely to be more sustainable than for instance systemic power, maintaining control over rare, valuable, inimitable and non-substitutable resources is not easy, at least in the long run, as the uniqueness of the resources might diminish over time.
A fourth and last source of a subsidiary’s power lies in the domestic institutional structures it is subject to, i.e. institutional power. Such structures, including customary practices, specific regulations and laws constitute strong and sustainable power for subsidiaries. These sources can be used in a proactive way, with for instance subsidiaries in interventionist states asking their governments for subsidies, e.g. to develop new products or to counteract the negative effects of corporate decisions. Workers’ representatives can play an important role here. In the GM case for instance union representatives at the GM/SAAB plant in Sweden negotiated an €1.1bn fund for regional infrastructure improvements to offset a potential plant closure (something considered to be normal practice in Swedish industrial relations, cf. Pulignano, 2006b; Blazejewski, 2009). Moreover, institutional structures can serve as a shield against undesired corporate policies. For instance the comparatively high cost of closing down a plant may prevent such closures, with labour representatives being able to drive costs by negotiating severance payments and other benefits such as training funds. Similarly, workers’ representatives can also play a major role in ensuring that corporate standardization strategies comply with national laws and regulations, not only in the fields of HRM and IR but also in terms of (data) privacy and health and safety. Attempts to introduce either country-of-origin or Anglo-American practices, often considered best practices by corporate management, are well documented in such industries as transport, fast food and retail where labour representation is often weak (see e.g. Gautié and Schmitt, 2010), but they also extend to core industrial sectors, as illustrated by a recent example in the German automotive industry. In this case, Hyundai Motors was accused by the trade union IG Metall of running the German operations in an ethnocentric, strongly authoritarian management style, hindering German works council members and trade union representatives in the execution of their statutory tasks (Ruhkamp, 2013).
Towards more effective workers’ involvement
Workers and their representatives have no other choice but to get involved in political processes and power struggles between corporate management and their subsidiary, as there is too much at stake for them: quality of work, levels of employee involvement and voice, and last but not least jobs. The previous section has shown that there are opportunities for workers’ involvement in political processes at headquarters-subsidiary level. However, these opportunities are full of preconditions, and the better these are met, the more effective worker involvement can be.
Leveraging the power deriving from the institutional environment first and foremost depends on the quality of the institutional environment itself (e.g. its ability to block undesired corporate standardization strategies). One key condition is that the institutional environment, in particular the employment relations system, offers a ‘toolkit’ for the political strategizing of workers and their representatives (Williams and Geppert, 2011). Research in this field reveals that certain countries (e.g. France and Finland) also provide such toolkits for sectors in which worker representation is considered weak, such as in the retail industry (see e.g. Geppert et al., forthcoming).
A second important condition is that workers and their representatives are aware of the options open to them (often dependent on experience and their level of legal knowledge) and have the political will, resources and skills to develop and make use of these toolkits. In countries with strong welfare institutions, these conditions can be a viable co-evolution path. Downward spirals are more likely in countries with weak welfare institutions and with a lack of opportunities to build robust tools to influence and resist corporate decisions. In both cases, strong and enduring efforts on the part of unions and workers’ representatives are needed to motivate and properly qualify workers and their representatives to support the development of effective political bargaining and opposition strategies.
As shown above, workers’ involvement in political processes at the headquarters-subsidiary level is not only exercised by blocking, delaying or modifying undesired corporate decisions but also by promoting subsidiary initiatives leveraging systemic power or resource dependency. Here too certain important preconditions need to be met for workers’ involvement to be effective, with workers’ representatives playing an important intermediary role. First, they need to raise awareness and encourage support for innovation projects among the workforce. This often falls on fertile ground, as labour-management cooperation on future-oriented projects is often viewed positively by workers (Rolfsen, 2011). Secondly, they need to build up a long-term, trust-based relationship with subsidiary management as it is usually the latter that drives the innovation process and sells the initiative to corporate headquarters. Building up such a relationship with the subsidiary management, however, is problematic, as management commitment to the location is often hard to evaluate. In some cases, such a relationship is clearly beyond reach, e.g. when the subsidiary management has no power, is non-existent or is made up of managers rotating within short periods of time. In other cases however a difficult-to-answer question remains. Research has shown that subsidiary managers’ location commitment is only to a minor extent determined ex-ante by their nationality (whether a local or expatriate manager), and is much more influenced by many other factors such as family situation, age and career orientation (Becker-Ritterspach and Dörrenbächer, 2011). For workers and their representatives, this often amounts to a frustrating trial-and-error process when pushing subsidiary management to take the initiative and sell an idea to headquarters. This is aggravated by limited knowledge of what kind of strategy to follow and what kind of influence tactics to use in such instances.
But even successful subsidiary initiatives can have a downside for workers and their representatives. This is due to the fact that initiatives enhancing the power of one subsidiary might at the same time fuel inter-subsidiary competition, putting pressure on fellow subsidiaries (Becker-Ritterspach and Dörrenbächer, 2009). While it would be naïve to think that such problems prevent subsidiaries and their workforces from taking their fate into their own hands, these initiatives nevertheless need to be accompanied by a long-term cooperation strategy in such cross-border interest representation bodies as European works councils. Alongside discussing the ‘terms of trade’ of workers’ involvement in subsidiary initiatives and related political processes at the headquarters-subsidiary level (e.g. a ban on workers’ involvement in initiatives with explicit and strong negative effects on fellow subsidiaries), cross-border interest representation bodies also enhance the power position of workers throughout the corporation. This is accomplished for instance through the additional information such bodies can provide to domestic workers’ representatives, facilitating coordinated action and resistance in cases of cross-border relocations or coercive comparisons. Another vehicle allowing cross-border interest representation bodies such as European works councils to provide institutional support for workers’ representatives and unionists are negotiations on transnational company agreements. These agreements apply to all subsidiaries, whether strong or weak, and address such crucial issues as minimum social standards, health and safety, cross-border restructuring procedures and profit-sharing schemes (Müller et al., 2013).
Conclusion
Power and politics are ubiquitous in headquarters-subsidiary relations. Enhancing workers’ involvement in political processes between corporate headquarters and subsidiaries is difficult. Notwithstanding national and sectoral differences, this sees workers’ representatives constantly caught between two stools, needing to invest in volatile relationships, to muddle through and to find and communicate appropriate strategies. This involves a lot of painstaking political legwork with no guarantee of success. But there is no alternative: ‘He who fights can lose, but he who does not fight has already lost!’ (B Brecht)
Footnotes
Funding
This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.
