Control Concepts in Multinational Corporations (MNCs)

- The Case of Swiss MNCs with Foreign Subsidiaries in India -

DISSERTATION

of the University of St. Gallen,

Graduate School of Business Administration

Economics, Law and Social Sciences (HSG)

to obtain the title of

Doctor of Oeconomiae

submitted by

Sigu Muringaseril

from

Germany and India

Approved on the application of

Prof. Dr. Li-Choy Chong

and

Prof. Dr. Narendra M. Agrawal

Dissertation no. 3398

Niedermann Druck, St.Gallen, 2007

The University of St.Gallen, Graduate School of Business Administration,

Economics, Law and Social Sciences (HSG) hereby consents to the printing of

the present dissertation, without hereby expressing any opinion on the views

herein expressed.

St.Gallen, October 15, 2007

The President

Prof. Ernst Mohr, PhD

To my parents

Jacob Cherian Muringaseril

and

Kunjamma Muringaseril

Acknowledgements

With this dissertation, another important milestone has been successfully

accomplished in my long journey of personal and professional development.

Therefore, I would like to take this occasion to thank my supervisor Prof. Dr. Li-

Choy Chong (University of St.Gallen) for providing me with this great

opportunity as well as the necessary discretion to develop my dissertation. I am

equally indebted to my co-supervisor Prof. Dr. Narendra M. Agrawal (Indian

Institute of Management, Bangalore) for the numerous inspiring discussions we

had in India as well as in Switzerland throughout the course of this research

project. Personally as well as professionally, I greatly cherish the time spent with

both the professors over the last couple of years.

Great endeavours always come with little sleep and lot of sacrifice. Hence,

finally, I would like to express my deepest gratitude to those dearest to my heart:

my father, Jacob Cherian Muringaseril, my mother, Kunjamma Muringaseril, and

my wife, Bobby Jacob Muringaseril. Without their love and endless support this

and many other endeavours in my life would definitely have not been possible. I

owe them everything.

St.Gallen, October 2007

Sigu Muringaseril

I

Table of Contents

Abstract .................................................................................................... IV

List of Exhibits...........................................................................................V

I. Introduction.......................................................................................1

A. Motivation................................................................................................. 1

B. Structure of the Thesis ............................................................................. 2

II. Literature Review and Framework................................................3

A. International Management ....................................................................... 3

1. Contemporary Reflexion .................................................................. 3

B. Multinational Corporation Characteristics................................................ 4

1. Overview ........................................................................................... 4

2. Typology........................................................................................... 4

C. Subsidiary Characteristics......................................................................... 8

1. Subsidiary Role and Subsidiary Strategy ......................................... 9

2. Subsidiary Autonomy and Centralisation.......................................13

3. Subsidiary Involvement and Entry mode .......................................16

4. Subsidiary Age ...............................................................................19

C. Environmental Characteristics ............................................................... 20

1. General Remarks ............................................................................20

2. Risk and Environmental Uncertainty .............................................20

3. Outcome Uncertainty and Outcome Measurability........................22

D. Control Modes ....................................................................................... 23

II

1. Behaviour Control ..........................................................................24

2. Bureaucratic Control ......................................................................25

3. Culture Control ...............................................................................25

4. Output Control................................................................................28

5. Monetary Incentive Compensation..................................................29

E. Theories.................................................................................................. 31

1. Agency Characteristics ...................................................................31

2. Stewardship Characteristics............................................................33

III. Hypotheses.......................................................................................35

IV. Research Design .............................................................................40

A. Research Methodology .......................................................................... 41

B. Research Process.................................................................................... 44

1. Population and Sampling................................................................44

2. Data Collection...............................................................................47

3. Data Analysis..................................................................................50

3.1. Multiple Regression Analysis...............................................50

3.2. Binomial Logistic Regression Analysis................................54

3.3. Correlation Analysis .............................................................55

C. Variables and Measures ......................................................................... 56

1. Control Variables............................................................................57

2. Structural Variables ........................................................................58

3. Environmental Variables ................................................................60

V. Results ..............................................................................................61

VI. Discussion............................................................................................69

A. General Discussion of Results ............................................................... 69

III

B. Conclusion ............................................................................................. 74

1. Continuance of Formal and Structural Control ..............................74

2. From Unidimensional to Multidimensional Control ......................75

3. Portfolio of Operative and Strategic Control ..................................76

4. Aptitude of Control Modes..............................................................76

VII. Reflexion and Implications for Future Research........................77

A. Critical reflexion and Limitations.......................................................... 77

B. Implications for future research ............................................................. 79

VIII. Closing Remarks .............................................................................80

References .................................................................................................83

Appendix .................................................................................................107

Questionnaire..........................................................................................111

IV

Abstract

The purpose of this dissertation was to conduct an empirical examination of the

types and degrees of control exerted by Swiss Multinational Corporations

(MNCs) on their Foreign Subsidiary Companies located in India, in dependence

of certain structural and environmental properties.

Applying agency and stewardship theory, the author used the constructs of

culture control, bureaucratic control and monetary incentive compensation to

conceptualise and test the governance mechanisms imposed by Headquarters to

limit diverging activities at the Subsidiary Company level.

The present research is a logical outgrowth of extant research done in this field of

international management to the Indo-Swiss context. For this purpose, the author

generated primary data from more than 70 Business Units of Swiss Foreign

Subsidiaries operating in India.

V

List of Exhibits

Exhibit 01: MNC Typologies................................................................................. 7

Exhibit 02: Schematic Comparison of Models of Subsidiary Strategy ............... 13

Exhibit 03: A Set of Control Predictors and Explanatory Variables ................... 35

Exhibit 04: Hypotheses Exemplarily Illustrated .................................................. 40

Exhibit 05: A Selected Set of Multivariate Data Analysis Techniques ............... 42

Exhibit 06: Relationship Between Paid-Up Capital and Culture Control............ 61

Exhibit 07: Relationship Between Paid-Up Capital, Bureaucratic Control as well

Monetary Incentive Compensation................................................... 62

Exhibit 08: Influences of Subsidiary Company Strategy and Subsidiary

Autonomy on Culture control ........................................................... 63

Exhibit 09: Influence of Subsidiary Company Strategy and Autonomy on

Bureaucratic Control ......................................................................... 65

Exhibit 10: Influence of Subsidiary Company Strategy and Autonomy on

Incentive Compensation.................................................................... 66

Exhibit 11: Influence of Outcome Measurability on the Use of Monetary

Incentive Compensation.................................................................... 67

Exhibit 12: Relationship Between the Different Control Modes......................... 68

Exhibit 13: Summary of Hypotheses Tested........................................................ 69

1

I. Introduction

A. Motivation

Advancement in technology, an increasing rate of globalisation, deregulation and

alleviation of restrictions has caused significant structural changes across the

globe and has increased the pressure of a highly selective market environment on

the various economic agents.

Particularly Multinational Corporations (MNCs), comprising of its headquarters

and its various foreign affiliated entities, which are geographically dispersed and

partly goal disparate (Ghoshal & Bartlett, 1990), are facing intensified multi-

point or hypercompetition since they expand across geographical and economic

borders not only to pecuniarily exploit arbitrages but also to explore and

strategically benefit from dynamic locational differences.

The purpose of this dissertation is to conduct an empirically based examination

of the types and degrees of control exerted by Swiss Multinational Companies on

their foreign subsidiaries located in India. Applying agency and stewardship

theory, we conceptualise and test the types and degrees of control imposed by

Headquarters (HQs), located in a relatively stable environment, on their affiliated

entities abroad, which are embedded in an uncertain and volatile habitat.

A thorough review of literature as well as previous analyses of similar conceptual

set-ups in different empirical contexts should not only help in developing an

adequate framework and subsequently deriving hypotheses, but also should help

us ultimately reveal through empirical testing whether and to what extent certain

structural as well as environmental properties moderate types and degrees of

2

control that are exercised by focal organizations to align actions, interests and

goals with their affiliated entities abroad.

The main objective of the present work thereby, is to apply a theoretical set of

propositional arguments to a new empirical context in order to examine and

contrast its predictive ability and limitations and to ultimately not only contribute

to the process of theory development through theory testing but to increase our

understanding of control MNCs use to monitor their affiliated entities and the

circumstances that influence its usage.

The present study is a logical outgrowth of extant research done in this field of

international management (O'Donnell, 2000, Chang & Taylor, 1999, Ghoshal &

Nohria, 1989), to the Indo-Swiss context. The rationale for this investigation is

not only rooted in the magnifying role played by India as a rapidly emerging and

attracting market but also results from the circumstance that previous, large-scale

empirical studies have mainly captured Anglo-American, Japanese or Korean

HQs-perspectives.

Keywords: multinational corporations; subsidiary company; control modes;

agency theory;

B. Structure of the Thesis

In the initial section of the paper, the author briefly outlines the point of

departure. Section two follows the objective to review certain streams of

literature as well as empirical studies in order to not only portray relevant

characteristics of the subjects and units of analysis but to also lay the

informational and conceptual foundation of this research. Section three will then

describe the various hypotheses derived in this study. The operationalization of

3

the variables and constructs, the population and sampling procedures, the

methodologies applied for the data collection and hypotheses testing will be

discussed in section four. The results of the statistical analyses are subsequently

described and discussed in section five. The final section ultimately summarizes

the findings, highlights limitations and provides recommendations for future

research.

II. Literature Review and Framework

A. International Management

1. Contemporary Reflexion

On the basis of Werner's (2002) typology, research within the field of

International Management can be broadly divided into two major categories: (i)

research on pure International Management, which is concerned with aspects of

management that do not exist in domestic firms (Ricks, 1991); and (ii) research

on cross-national or cross-cultural studies, which includes comparative studies on

management practices designed either cross-nationally or cross-culturally.

Most heavily researched, within the large body of International Management

literature, is the first category, comprising research on the description (Hendry,

1996), measurement (Makhija, Kim and Williamson, 1997), antecedents (Autio,

Spienza and Almeida, 2000, Reuber and Fischer, 1997) and consequences

(Geringer, Tallman and Olsen, 2000, Palich and Gomez-Meija, 1999) of

transnational expansion of companies, research on market entry related aspects

(Madhok, 1997, Buckley and Casson, 1998, Erramilli, 1996, Pan, Li and Tse,

1999 & Pan and Tse, 2000), studies on expatriate management and repatriation

(Gregersen, Hite and Black, 1996, Egelhoff, 1984, Kobrin, 1988 & Borkowski,

1999), multinational corporations (Bartlett, 1986, Bartlett and Ghoshal, 1989,

4

Harzing, 2000) as well as headquarters and subsidiary relationships (Birkinshaw,

1997, Taggart, 1998, Gupta, Govindarajan and Malhotra, 1999 & Roth and

O'Donnell, 1996).

B. Multinational Corporation Characteristics

1. Overview

Of the above mentioned areas and streams of International Management,

literature on Multinational Corporations (MNCs) has attracted substantial

attention among researchers. According to Ricks (1991) research on MNCs form

the core of international business research. This area includes, among other

aspects, reviews on the interactions between markets, governments and

Multinational companies (Dunning, 1992, Rugman and Verbeke, 1998), studies

on strategic processes within multinationals and models and descriptions, on

which the author will elaborate on in the subsequent section. Various aspects of

parent-subsidiary relationships in MNCs have been studied intensively for many

years (Martinez and Jarillo, 1989) as well.

2. Typology

Seizing Harzing's (2000) chain of argumentation, the author states that a

typology becomes useful in two ways: first, it significantly reduces complexity

through the creation of classifications with a set of related characteristics and,

second, if conceptually meaningful typologies can be developed, they can then

serve descriptive and predictive purposes. This section, hence, follows the

objective to highlight relevant structural characteristics of Multinational

corporations for the present research through a discussion of some existing key

typologies.

5

Various attempts have been made in literature to capture the true richness of

MNCs with definitions and concepts. Perlmutter (1969) for instance, used a

taxonomy which was based on management styles – namely geo-, poly- and

ethnocentric - to measure a firm’s degree of multinationality. Porter (1986)

distinguished between multidomestic and global firms based on the configuration

and coordination of the firm’s value chain. The framework developed by

Prahalad and Doz (1987) offers a rather context oriented classification based on

the nature of business, differentiating between global, multi-focal and local firms.

Probably Bartlett's and Ghoshal's (1989) four-fold typology of multinational,

international, global and transnational companies has been the most influential

and extensive one. The typology constructed, inter alia, included, environmental,

corporate, subsidiary, control and human resource characteristics. Many of the

studies on various aspects of MNCs that followed used either Bartlett and

Ghoshal's or a similar typology as a fertile base for their own research. Such

studies have been conducted by Sundaram and Black (1992), Leong and Tan

(1993), Ghoshal and Nohria (1993) and Roth, Schweiger and Morrison (1991), to

name a few. With the degree of centralisation being the predominant dimension

for differentiation, Martinez and Jarillo (1989) had distinguished between global

companies, i.e. companies labelled by a high degree of centralisation, and

multinational firms, who rather enjoy a laissez-faire doctrine and a great deal of

latitude.

Harzing (2000) has extensively reviewed and classified previous studies which

tried to conceptualise MNC typologies, concluding that, first, despite substantial

differences in details (e.g. number and types of variables included), most of the

studies show a considerable convergence in the basic characteristics (for example

with respect to the classification and characterization of companies, namely

multidomestic, global and transnational firms). Second, consistent with Weick's

(1995) posit of theory itself being a continuum, with guesses and speculations at

its beginning and explanations and models at its end, the first studies within this

theoretical stream were mainly descriptive and clinical in nature. Thereby

6

employing small samples and rather qualitative research. While later studies

attempted to test variables in a more systematic manner on a large-scale and

quantitative basis, thus being rather conclusive.

Empirically, especially in early premature stages of research, where little is

known about a phenomenon, when contemporary perspectives seem inadequate

because of little empirical substantiation, case study research is more appropriate

(Eisenhardt, 1989b). Therefore it is of no big surprise that most of the early

studies within the area of MNCs (Stopford and Wells, 1972, Doz, 1980, Bartlett,

1986, Prahalad and Doz, 1987, Bartlett and Ghoshal, 1989, White and Poynter,

1990) methodologically employed qualitative approaches, namely either

interviews or in-depth case studies.

Some researchers later on claimed that, hierarchy, as an approach of modelling

multinationals was being discussed by scholars without explicitly characterizing

the construct of hierarchy. As a consequence, and based on Simon's (1962) work,

Hedlund (1993) finally generated some general assumptions underlying the

modelling of MNCs as hierarchies. These assumptions are: (i) pre-specification

and stability of tasks and relationships, (ii) instrumentality and additivity of

individual elements of the organisation, (iii) unidirectionality and universality as

well as (iv) coincidence of knowledge, action and people hierarchies (Hedlund,

1993). Over time and especially in the nineteen eighties, it became increasingly

apparent to researchers that hierarchical models may not fully and adequately

reflect the complexity and reality of MNCs (Birkinshaw and Morrison, 1995).

7

Authors Type of study

Perlmutter (1969) Conceptual polycentric ethnocentric geocentric

Doz (1980) Empirical National responsiveness World-wide integration -

Porter (1986) Conceptual Multidomestic industry Global industry -

Bartlett (1986) Conceptual/Empirical Multinational Global Transnational

Prahalad and Doz (1987) Empirical Locally responsive Integrated Multifocal

Bartlett and Ghoshal (1989) Empirical Multinational Global Transnational

White and Poynter (1990) Empirical Geographic area Global product Matrix

Roth, Schweiger and

Morrison (1991) Empirical Multidomestic Global -

Wolf (1996) Empirical Single market strategy Integration strategy Interaction strategy

Typologies

Exhibit 1: MNC Typologies

Source: amended and modified from Harzing (2000)

Hence, more recently, research culminated in newer conceptualisations of

Multinational Corporations. In contrast to the early more static considerations of

Multinationals, another quite interesting though poorly acknowledged impetus of

thought has been received to the body of MNC research by Allen and Pantzalis'

(1996) approach. Both researchers invited scholars to consider Multinational

Corporations on a continuum of multinationality with purely domestic firms on

the one end of the spectrum and perfectly global firms on the other end, with

each MNC having its own distinct degree of multinationality based on the

composition and concentration of its foreign subsidiary network. A further,

interesting model of a rather heterarchical MNC structure has been designed by

Hedlund (1986). A multi-centred approach that dissolves the hitherto existing

dyadic "Home Country / Headquarters" and "Host Country / Subsidiary"

perspective and considers subsidiary as a semi-autonomous entity within a

differentiated system with less of calculative and coercive control to more

appropriately reflect the increasingly critical strategic role played by subsidiaries

(Hedlund, 1986).

8

The idea of heterarchy in discussing MNCs has been used before, to contrast

hierarchy, though, without giving any explicit definition or concept. The term

heterarchy is being used by MNC researchers to capture that part of reality which

is increasingly being non-hierarchically organised. Within this school of thought

(Safarian, 1966, White and Poynter, 1984, 1990, Poynter and Rugman, 1982,

Crookell, 1986, D'Cruz, 1986), subsidiaries have a much greater element of

strategic choice, more precisely, subsidiary managers are equipped with

considerable latitude to formulate strategy. And the strategy itself is greatly

constrained to context only. According to Birkinshaw and Morrison (1995), there

are three characteristics that distinguish a heterarchical from a hierarchical model

(i) dispersion of managerial capabilities and decision-making authority

throughout the organisation, (ii) the lateral relationships existing between a

foreign subsidiary and its affiliated entities, and (iii) the multidimensionality of

coordination, e.g. product and geography. Some of these aspects will elaborated

further at a later stage.

C. Subsidiary Characteristics

For the purpose of this research, it will suffice to say that a Foreign Subsidiary is

defined as any operational unit of a Multinational organisation at company level,

which is situated outside the parent country. Therefore, the terms "Foreign

Subsidiary", "Subsidiary Company (SC)", "Foreign Affiliated Entity",

"Subsidiary" and "Foreign Engagement" will be used interchangeably. The

relevant environment of a Foreign Subsidiary comprises not only of a multitude

of external linkages but also of a great deal of vertical and lateral linkages within

the MNC network (Ghoshal and Bartlett, 1990). However, it shall be noted, that

lateral linkages, i.e. relationships between the Foreign Subsidiary and its

affiliated entities, are conceptually excluded due to the direction and purpose of

this study.

9

1. Subsidiary Role and Subsidiary Strategy

For the sake of conceptual clarity, it shall be further noted, that research on

subsidiary roles and subsidiary strategies are somewhat capturing two sides of

the same coin and subsequently, are heavily interrelated and even partly

competing. Technically, research on the first category greatly considers this

aspect of Headquarters-Subsidiary Company relationship from the angle of a

head office, with subsidiaries having a role, whereby its role is being derived and

assigned by the corporate headquarters out of a holistic perspective (Birkinshaw,

1997). Whereby, research on the second category directly ties in at the subsidiary

level, focusing on business strategy of the foreign entity from a subsidiary

perspective (Birkinshaw, 1997).

Looking at the chronicle of research, one can observe a significant shift in the

perception of the role over time, played by MNCs’ affiliated entities abroad, so

called Foreign Subsidiaries. From initially miniature replicas of the parent

company, with to some extent, single function operations to corporate entities

with responsibilities for high value activities (Birkinshaw, 1996). Or to state

more strikingly, from simple cost contributors to high value creators.

During the early phases of MNC research, there was wide acceptance on the

integrable aspects of MNCs while some corporate functions ought to be

coordinated at the global level and others at the local level (Evans, Doz &

Laurent, 1989). Efforts were made to centralize and formalize the processes

within MNCs in order to benefit from scale economies and hence governance

mechanisms were rather, hierarchically and corporate processes rather, centrally

designed.

A Foreign Subsidiary's role was determined by the parent company and simply

assigned to the affiliated entity abroad (Birkinshaw, 1997). The process of target

10

definition and strategy formulation was under the control of the Headquarters and

Foreign Affiliated Entities, mainly, did only the implementation and execution of

the parental directive. In this phase of a rather functional operation, subsidiaries

assembled or marketed the parent's products and product lines in their respective

local markets (White & Poynter, 1984).

Researchers later on began to increasingly emphasize on external conditions and

started to gradually integrate more and more peripheral aspects into their models.

New contextual conditions such as differences in political, regulatory,

technological, cultural or societal environments, in which Foreign Entities

encounter distinct forces driving the competitive landscape in the local markets,

for instance. More and more dynamic and environmental aspects of the

relationship began to be exposed and as a consequence, decentralization was

postulated (Bartlett & Ghoshal, 1986). Internally, researchers also started to

focus on macro variations of control systems and processes across entire MNCs

(Gupta & Govindarajan, 1991). From a contingency theory perspective, Ghoshal

and Nohria (1989) consequently postulated that overall organisational

adaptiveness has to be enhanced by matching the increasing heterogeneity in the

context with appropriate differentiation in structure.

In this rather recent phase of research, Foreign Affiliated Entities are not only

given considerable autonomy with variable scope of decision (Taggart, 1998).

But the shift towards the set-ups of subsidiaries allowed researchers to define

subsidiaries as value-creating entities and based on the notions of their own

business decisions (Peterson & Brock, 2002), allowed them to analyse the

multiple strategic roles played by those corporate units as well. Such a shift in

perspective envisions subsidiary managers with considerable latitude, who try to

rather utilize their own strategic discretion and capabilities than to respond to

parental decree.

11

White and Poynter (1984) highlighted this natural progression of Foreign

Subsidiaries in a study, which was greatly acknowledged by scholars in this field.

Based on subsidiary activities, White and Poynter (1984) differentiated among (i)

marketing satellites, who simply market products within their respective host

countries, but which are centrally produced, (ii) rationalized manufacturers, who

produce certain component parts of a product and deliver them internationally as

part of an international manufacturing system (iii) product specialists, who

develop, produce and market a particular, limited product or product line for

multi-country markets, as they have specialized competencies related to that

product as well as the required set of resources, and (iv) subsidiaries that employ

a strategically independent strategy and who has the necessary capabilities as

well as the required discretion to develop lines of business for either local, multi-

country or global markets (White & Poynter 1984).

Following studies stressed and acknowledged that without the diversity of

opportunities through the market initiatives at the Foreign Subsidiary' level,

MNCs ability to adapt to changing environmental demands would be severely

constrained (Birkinshaw, 1997).

To some extent, the aforementioned change over time can be explained by the

interplay of two partially competing forces, namely, the pressure for global

integration and the pressure for local responsiveness (Prahalad & Doz, 1987).

Pressure for local responsiveness arises as MNCs have to respond to the

organizational environments in which they are embedded in and the extent can

differ significantly between the Affiliated Entities. This form of forces may be

ignited by the necessity for shorter time-to-market life-cycles, host country

regulations, highly demand oriented products and processes and subsequently the

need for product or process adaptations, to name a few. This is further supported

by environmental adaptation theories, such as the contingency approach, which

emphasizes the need for a strategic fit between external environment and internal

structure and point out that organizations have to continuously adapt to their

12

extra-firm environment in order to succeed. Pressure for global integration is,

inter alia, caused by decreasing profit margin, the potential to cut costs and

realize transnational scale economies, capital and technology intensity of

products or endeavours to exploit commonalities across products and processes

(Prahalad & Doz, 1987).

In the context of the present study, the author specifically focuses on, and later

on will empirically test, a strategy construct which is, to a great extent, related to

the concepts and ideas of 'partial world product mandates, lateral centralisation &

centres of excellence' (Roth and Morrison, 1992; Roth and O'Donnell, 1996, O'

Donnell, 2000, Poynter and Rugman, 1982 & Frost, Birkinshaw and Ensign,

2002), where the foreign entity has considerable competencies and

responsibilities for a set of value activities, associated with a particular product

for a multi-country market or geographic region respectively. Equipped in such a

manner, the author further assumes, that the foreign entity may also enjoy a great

deal of organisational flexibility in modelling its own processes. Scholars early

claimed, that organisational units require a certain level of latitude to

independently design a set of coherent organisational processes that support the

requirements of a new product (Abernathy & Clark, 1985). Conceptually, this

form of subsidiary role is also close to Frost, Birkinshaw and Ensign's (2002)

understanding of a centre of excellence as an organisational unit, which

embodies a set of capabilities and with the latter being leveraged by other parts

of the company group. However, a Foreign Subsidiary may not be

organisationally congruent with a centre of excellence. Multiple centres can

coincide or coexist within a single subsidiary or the competence profile of a

centre of excellence can also, alternatively, embody distinct functional areas of

various subsidiary companies.

To summarize, a basic comparison of strategies developed by Taggart (1997) is

illustrated in Exhibit 2.

13

QuiescentConstrained

Independent

ReceptiveAutonomousTaggart

(1997)

World

Mandate

Specialised

Contributor

Local

Implementor

Birkinshaw &

Morrison

(1995)

ActiveReceptiveAutonomousJarillo &

Martinez

(1990)

Black HoleStrategic

Leader

ContributerImplementerBartlett &

Ghoshal

(1986)

OthersStrategic

Independent

Product

specialist

Rationalised

Manufacturer

Miniature

Replica

Marketing

Satellite

White &

Poynter

(1984)

QuiescentConstrained

Independent

ReceptiveAutonomousTaggart

(1997)

World

Mandate

Specialised

Contributor

Local

Implementor

Birkinshaw &

Morrison

(1995)

ActiveReceptiveAutonomousJarillo &

Martinez

(1990)

Black HoleStrategic

Leader

ContributerImplementerBartlett &

Ghoshal

(1986)

OthersStrategic

Independent

Product

specialist

Rationalised

Manufacturer

Miniature

Replica

Marketing

Satellite

White &

Poynter

(1984)

Exhibit 2: Schematic Comparison of Models of Subsidiary Strategy

Source: Taggart (1997)

This shift of locus is logically accompanied by a number of implications on the

various facets of mutual interactions between Headquarters and its Foreign

Subsidiaries.

2. Subsidiary Autonomy and Centralisation

Another important structural characteristic of subsidiaries, with relevance to this

study, is subsidiary autonomy. Autonomy within organisations is 'related to the

division of the decision making authority between a local unit and an outside

organisation that controls it' (Garnier, 1982), or 'between centre and periphery in

an organisation' (Taggart, 1997), as in our case of multinational organisations,

between the Headquarters and its Foreign Subsidiary companies. It is worth

being noted at this point that theory (Roth and Morrison, 1992, Ghoshal, Korine

and Szulanski, 1994 & O'Donnell, 2000) frequently conceptualizes subsidiary

autonomy as the obverse of centralisation, whereby, centralisation is referred to

as 'the extent to which the locus of decision-making lies in the higher levels of

the chain of command' (Martinez & Jarillo, 1991).

14

According to Taggart (1997), within the body of early studies, some found

widespread use of centralisation of decision making and control (Dunning, 1958,

Safarian, 1966, Deane 1970 & Brooke and Remmers, 1970), while others

suggested higher degrees of decentralisation (Johnstone, 1965, Roccour, 1966 &

Garnier et al. 1979). Not really surprising, in lieu of the aforementioned, two

diametrically opposed perspective within the parent-subsidiary relationship, a

researcher can basically take. Namely, that of either a head-office/role or a

subsidiary/strategy perspective. This causing a trade-off, with subsidiary role

research favouring centralisation as well as control and subsidiary strategy

research preferring autonomy (Birkinshaw, 1997). Having said this, we can

assume that higher degrees of centralisation at the Headquarters' level will

correspond to lower degrees of autonomy at the subsidiary level and vice versa.

It is probably these inconsistent results in early studies that led later work to

tackle and analyse autonomy related issues more specifically. The division of

discretion between Headquarters and its Foreign Affiliated Entities, thereby, is

very much a function of a set of complex factors. It is this structural delegation of

decision making that also serves as a framework for the identification of

responsibilities and functions (Welge, 1981). Factors which can influence the

degree of autonomy that a subsidiary enjoys can be broadly divided into two

categories, namely (a) differences in parent and host country's environmental

context, and (b) structural characteristics of MNCs such as the subsidiary's

relative importance, ownership, degree of interchange of products or the size of a

multinational organisation (Garnier, 1982). Complementarily, Hedlund's (1981)

study indicates that a high level of intra-network transfer of goods as well as

market share reduces, whereas the subsidiary size in relative and absolute terms

increases its autonomy. Yet, Gates and Egelhoff (1986) point out that

Headquarters' influence as a moderator of the level of autonomy is probably the

most crucial and pronounced factor of all.

15

Subsidiary autonomy, which relates more to and is reflected in the formal

organisation structure (Ghoshal, Korine & Szulanski, 1994), discernibly

influences the latitude of subsidiary managers. Unlike pure influence, which can

also flow upward or horizontally, autonomy largely stems from structural

attributes and mainly flows downward (Bacharach and Lawler, 1980). Increasing

autonomy qualifies managers to perform corporate related strategic and operative

tasks far more independently. This is confirmed by many scholars (Rugman and

Bennett, 1982 & White and Poynter, 1984). Such strategic as well as operative

tasks include resource allocation, investment decisions, product or pricing

policies, target group selections, quality control decisions or development of

production plans and hence, most of the functions of the value chain (Martinez &

Jarillo, 1991).

Functionally, while autonomy is further advocated by Ghoshal and Bartlett

(1988) to facilitate the creation and diffusion of innovation at subsidiary level,

Ghoshal, Korine & Szulanski (1994) empirically found no perceptible influence

of autonomy on the intensity of inter-unit communication, namely, on both, the

level of information flow between Headquarters and subsidiary and between

lateral linkages of subsidiaries.

Interestingly, Prahalad and Doz (1981) illustrated that, at a much broader level

and as a consequence, the delegation of authority towards subsidiaries itself can

ignite a quasi-perpetual process with subsidiaries gaining further independence

from Headquarters with the implication for control and coordination being that,

as subsidiaries gain expertise, start performing excellently and mature with

respect to strategic resources, (i.e. technology, capital or access to markets) the

ability of Headquarters to control subsidiaries will be significantly reduced.

Scholars like Martinez and Jarillo (1991) support these findings by confirming

that autonomous subsidiaries, due to very little interdependencies, require the

least amount of coordination and control while subsidiaries who pursue higher

degrees of integration and centralisation, which correspond to lower degrees of

16

autonomy, make intense use of practically almost all kinds of coordination and

control mechanisms.

However, this may not belie that Headquarters remain the strategic apex of the

Multinational organisation and the ultimate responsibility for coordination and

overall strategic direction lies with the focal organisation in the home country.

The locus of control shifts but yet the interdependence remains.

3. Subsidiary Involvement and Entry mode

A further important aspect to be highlighted refers to the alteration in the

institutional arrangements established to conduct cross-border transactions within

a firm, the so-called market entry modes. Entry decisions have been of strong

interest to researchers for a very long time. In the 1960's, the main focus of

studies was export vs. foreign-direct investments (FDIs). In the 1970's, further

strategic options such as licensing and franchising were included. And since the

1990's, with the growing importance of emerging markets and equity regulations

as commonly practiced market entry barrier, international joint ventures (JVs)

have drawn the attention of scholars (Buckley & Casson, 1998).

Entry modes can be considered from a hierarchical perspective. Following the

conceptualisation made by Kumar and Subramaniam (1997), one can

differentiate between equity and non-equity modes of market entry on the first

hierarchical level, based on a probable equity involvement. At the second

hierarchical level, equity modes can be further subdivided into (equity) joint

ventures and wholly owned subsidiaries with both requiring a major resource

commitment in the host country. On the other hand, non-equity modes can be

further differentiated into contractual agreement and export (Pan & Tse, 2000)

with each institutional arrangement having its own merits and disadvantages.

Export is mainly characterized by domestic value creation, administrative control

and physical transfer of products and goods either directly through the company

17

itself or indirectly through intermediaries. The basis for a contractual agreement

is a binding contract between the company and an agent to produce and market

the product in the host country, in return for an economic rent (Kumar &

Subramaniam, 1997). Joint ventures, as institutionalized and equity based

arrangements, are realised through the pooling of tangible and intangible assets

between the company and its JV-partner and additionally through sharing or joint

ownership. The concept of wholly owned subsidiaries, with full ownership over

foreign operations as an integral characteristic, can be implemented either

through brownfield (acquisition) or greenfield investments.

Empirically, the preferential use of the aforementioned modalities to transfer a

product or service assimilated over time, as contextual conditions, started to

increasingly influence the choice of foreign market entry modes, a possible

epiphenomenon of increasing pressure for local responsiveness. The choice for

an entry mode, thereby, very much depends on a set of different factors.

According to Pan and Tse (2000) & Kumar and Subramaniam (1997), these so-

called predictors can be broadly categorized into firm-specific, product-specific,

(Erramilli & Rao, 1993, Kim & Hwang, 1992, Kumar & Subramaniam, 1997 and

Madhok, 1997), industry-specific and country-specific factors (Anderson &

Gatignon, 1986, Kogut & Singh, 1988 and Tse, Pan & Au, 1997).

From a theoretical perspective, the question of whether and to what extent

organizations should adapt and hence structurally respond to their environment,

has been central to a large number of environmental adaptation theories such as

institutional theories or contingency approaches.

From a transaction cost perspective, the preference for a particular market entry

mode and hence a firms degree of engagement or foreign involvement, will to a

great extent reflect a firm's desire to minimize transaction costs. The question of

how a firm should organize its boundaries in order to minimize transaction costs

becomes central. Transaction costs, inter alia, include costs of monitoring, costs

18

of establishing supplier relations, costs regarding the after sales market

(Dunning, 1989).

Market entry modes have been investigated using the theoretical lenses of

cultural and national factor frameworks as well. Kogut and Singh (1988)

hypothesized that increased cultural distance between home and host country,

increases the level of risk in post-acquisition integration and hence firms may

prefer less risky arrangements as modes of transaction. Their findings illustrated

that greater cultural distance predominantly resulted in joint-ventures and

greenfield investments rather than acquisitions. Similarly, Gatignon and

Anderson (1988) found evidence that cultural distance, rather leads to partial

than full ownership.

Agarwal and Ramaswami (1992) have examined in one of their studies, the

independent and joint influences of some of these factors on the choice of an

entry mode by applying multinomial logistic regression analysis. They concluded

that though firms want to increase their market presence through foreign direct

investments, their ability however is constrained to market knowledge

(Anderson, 1997), size and multinational experiences (Agarwal & Ramaswami,

1992). Kogut and Singh (1998) directly related cultural aspects to different

international operation modes, inter alia, stating that in contrast to wholly owned

subsidiaries, joint ventures may be troubled not only by the cultural distance of

the partner but also due to the concerns of sharing proprietary assets.

Further conceptual frameworks with explanatory power to some extent are the

eclectic model, also frequently referred to as the OLI-model, developed by

Dunning (1980) based on ownership specific, location specific and

internalisation specific advantages and the Swedish Uppsala model (Johanson &

Vahlne, 1977). Based on these distinct schools, literature, by and large,

distinguishes between two ways of modelling the process of alteration in

institutional arrangements. While the former is a static approach with entry

modes emanating from single stage decisions, the latter posits a dynamic

19

contemplation. In the second school, entry modes are considered to be a

continuum of gradually increasing levels of resource commitment (Chu &

Anderson, 1992) as a result of increasing market knowledge. Calof and Beamish

(1995), who epically investigated in one of their studies the general causes and

patterns of change in entry modes, consistently and concludingly, portray a

firm’s process of internationalisation itself as an ongoing sequence of adaptations

to a continuously changing international environment (Calof & Beamish, 1995).

4. Subsidiary Age

Conceptually, the construct of firm or subsidiary age is not new. Numerous

studies have examined the concept of firm age and its relations to various aspects

of internationalisation. Some have investigated why firms internationalize at an

early age (Oesterle 1997, McDougall, Shane and Oviatt, 1994 & Oviatt and

McDougall, 1997), others like Autio, Sapienza and Almeida (2000) have

examined the effects of firm age on international sales, its knowledge intensity

and the imitability of its core technology; Evans' (1987) study examined the

influence of firm age on company growth, the variability of its growth and the

probability of firm dissolution, suggesting that the latter will decrease with firm

age.

In the context of this study, the author assumes that the age of the Subsidiary

Company has an influence on the strength of relationship between the structural

variables under observation and control that is imposed by focal organizations on

their Foreign Affiliated Entities. This rationale is grounded in the presumption (i)

that increasing time of operation leads to a more solid embedding of the

Subsidiary Company into its corporate environment and (ii) organisational

learning at various levels within the Subsidiary Company increases with the

period of the Subsidiary Company's operations. Such as, an increase in

managerial and technical proficiency, higher host-country environmental

competencies and experiences or more profound market knowledge possessed by

20

local managers, which in turn leads to greater attempts to circumvent

Headquarters' governance mechanisms.

C. Environmental Characteristics

1. General Remarks

The centrality of the concept of environment with its components and dimensions

has been recognised by literature for a very long time (Lawrence and Lorsch,

1967; Perrow, 1967; Duncan, 1972). According to Werner (2002), this area of

research among others includes studies on global economy (Aram, 1997,

Czinkota and Ronkainen, 1997 & Denison et al. 1996), on domestic and global

market structures (Arora and Gambardella, 1997, Mascarenhas, 1996), on

political and regulatory environments in the home and host countries (Guillén,

2000, Nehrt, 1998, Rugman and Verbeke, 1998, Moon & Lado, 2000) and

research on the measurement and management of environmental risks (Shrader,

Oviatt and McDougall, 2000, Werner, Brouthers and Brouthers, 1996).

2. Risk and Environmental Uncertainty

Generally, the term risk is used to denote the probability of the occurrence of a

likely event. And if the probability of occurrence is unknown, we refer to it as

uncertainty. The term "risk" thereby actually does not state anything as to

whether a possible deviation from the expected values is positive or negative.

However, many management scientists and organisational theorists commonly

assign the label "risk" not only with strictly negative deviations and outcomes but

also use "risk" and "uncertainty" interchangeably. Despite these misconceptions

in theory, which are more than simply semantic, the author, for the sake of

usability of previous concepts and constructs in this study, will follow the

commonly established practice in the usage of the terms and ideas of risk and

uncertainty. Further, Jauch and Kraft (1986) accent, that a significant amount of

21

the theoretical and empirical work on environmental risks is based on the implicit

assumption that uncertainty is dysfunctional to outcomes and performances but

this may not be applicable as illustrated in their proposed model.

Environmental uncertainty or perceived environmental uncertainty is being

viewed as one of the key issues top managements and organizational

administrators have to cope with. Milliken (1987) noted that the construct has

often been inadequately understood. These problems and a lack of consistency in

prior conceptualizations made her develop not only a general definition but also

suggest three types of uncertainties about environments, namely state uncertainty

or perceived environmental uncertainty, effect uncertainty and response

uncertainty (Milliken 1987). Effect uncertainty refers to the inability to predict

the nature of the effect of a future state of the environment on the organization

and response uncertainty denotes the inability to predict the consequences of a

response choice (Buchko, 1994). State uncertainty or perceived environmental

uncertainty occurs when management perceives the organization's environment

to be unpredictable or perceives the prediction to be less accurate (Buchko,

1994). According to Milliken (1987) it is this type of uncertainty which is

conceptually closest to what is subject to general usage. Uncertainty about

environmental variables that impact corporate outcomes, as a consequence,

reduces the predictability of corporate performance and subsequently increases

risk (Miller, 1992).

Several studies have tried to develop appropriate measures of risk. According to

Miller (1992), literature on risk conceptualisation and measurement in the field

of international management can be broadly divided into two categories, namely

(i) the "particularist" view, which investigates uncertainties individually (e.g.

political risks or exchange rate risks), and (ii) the multidimensional and

integrated approach, which avoids exclusion of other interrelated risk variables

and hence investigates specific uncertainties jointly, with multidimensional and

integrated approaches forming the majority of risk measurement techniques.

22

A brief overview on measurement research shall follow. Lawrence and Lorsch

(1967) examined uncertainty associated with a specific job or function and hence

Milliken (1987) suggested that this scale may not be adequate to measure an

organizations general environment. Duncan (1972) conceptualized uncertainty

based on two dimensions, namely complexity and dynamism, and three

operational indicators that had been derived from these two categories. Downey,

Hellriegel and Slocum (1975) and Tosi, Aldag and Storey (1973) have

empirically assessed measurement properties of both concluding that both scales

have significant weaknesses. A more comprehensive and sophisticated scale was

developed by Miles and Snow (1978). The so-called "perceived environmental

uncertainty scale" developed by Miles and Snow comprises six subscales and 25

items where each of those six subscales correspond to six key sectors of external

environment namely supplier, competitor, financial market, government,

regulatory environment as well as unions. The respondents are asked to rate the

degree of predictability applying a seven-point Likert scale. Euromoney's proxy

for uncertainty, the "Euromoney country risk rating" uses nine categories that

more or less fall into three broad groups: analytical indicators, credit indicators,

and market indicators and ultimately calculates a weighted score for each

country.

3. Outcome Uncertainty and Outcome Measurability

Following the afore-mentioned chain of argumentation, environmental

uncertainty becomes, inter alia, manifest in outcome uncertainty caused through

host country or industry volatility. Outcome uncertainty denotes the probability

that the action undertaken by an agent (for example a Foreign Subsidiary

manager) will ultimately result in the intended outcome (O'Donnell, 2000). With

increasing uncertainty, the manager will have less influence on the outcome as

outcomes are only partly a function of the agent's efforts (Jensen & Meckling,

1976). Under these premises, outcomes will be increasingly affected by

undetermined and unsystematic disturbances from the environment. Hence when

outcome uncertainty is high, outcome based control modes as well as

23

performance related incentive compensations become less attractive to (i) the

principal, since the cost of shifting risk to the agents is much higher (Eisenhardt,

1989a), particularly when agents are risk avers, and (ii) to the agent, where the

lack of attractiveness to the agent is caused by his inability to diversify risk to the

same extent as the principal can generally do. Empirically, the outcome

uncertainty is frequently conceptualised and assessed by the outcome

measurability. The author, more specifically, will revert to this point later.

D. Control Modes

Generally, control can be defined as the sum of activities or mechanisms used to

obtain information about behaviours and decisions. It is to utilize the former to

regulate the conduct of activities so that the results are in accordance with the

plans, goals and expectations of the controller (Child, 1973).

Top managers at the Headquarters, who increasingly derive a considerable share

of sales and profit from overseas subsidiaries, or top executives who have a

significant part of their assets attributable to overseas operations, would not only

like to be assured that subsidiaries continue to contribute to the overall success of

the group but also have an increased desire to exercise control over these

affiliated entities abroad (Prahalad and Doz, 1981). Management researchers,

likewise, have been greatly concerned with issues and aspects of control in

organisations (Lawrence and Lorsch, 1967; Child, 1973; Edström and Galbraith,

1977; Mintzberg, 1979).

As businesses and companies became increasingly global, studies started to more

heavily focus on coordination and control mechanisms used by Multinational

Corporations as well as subsidiary companies (Nobel and Birkinshaw, 1998;

Borkowski, 1999; Chang and Taylor, 1999; Taylor, 1999; Gupta, Govindarajan

and Malhotra, 1999; Ferner, 2000; O' Donnel, 2000). Control mechanisms were

24

mainly used to integrate the activities within MNCs. However, it is generally

accepted that mechanisms used by multinationals to coordinate and control their

foreign affiliated entities are neither original nor exclusive to MNCs (Martinez

and Jarillo, 1989). Yet, the complexity and idiosyncrasies of MNCs make it an

interesting subject of study.

1. Behaviour Control

Behaviour control denotes control obtained by observing and monitoring the

behaviour of subordinates (Egelhoff, 1984). However, personal surveillance

requires a clear understanding of mean-end relationships because only then are

appropriate instructions possible. This form of monitoring is considered to be the

most direct one. Taken to its logical extreme, behaviour control would lead to

behaviour formalisation (Egelhoff, 1984). Ouchi and Maguire (1975), in one of

the early studies on organisational control examined the conditions that govern,

inter alia, behaviour control suggesting that especially in small organisations and

even more importantly when mean-end relations are completely understood,

behaviour control is exerted. Their research further indicated a decrease in

behaviour control as the hierarchical level increased.

On the very practical end, time-intensity, high control costs entailed with this

form of regulation and the frequent lack of proximity between controller and

his/her object of control make this form of control less attractive. Also, it is

considerably more restrictive than the other forms. Thus, it is quite likely that

MNCs use techniques other than behaviour control to monitor Foreign

Subsidiary management.

25

2. Bureaucratic Control

Bureaucratic control denotes integrating mechanisms such as rules, policies,

procedures and objective or target performance setting, to manage subsidiary

activities (Roth and Nigh, 1992). Plans and schedules are pre-established, rules,

policies and procedures are formalised and information and communication

systems are standardised, with all former elements being specified impersonally

(Van de Ven, Delbecq and Koenig, 1976). Bureaucratic control strategies reduce

Headquarters' direct involvement in Foreign Subsidiaries by replacing active

control (Roth, Schweiger and Morrison, 1991) through impersonal methods

(Edström and Galbraith, 1977) and explicit delineation of objectives. It utilizes

the extensive set of rules, regulations and procedures to restrict and limit

subsidiary management's activities and authorities (Baliga & Jaeger, 1984).

However, this requires that organisational members accept the legitimacy of an

organisation's authority. This mode of control is considered to be a relatively

simple form of controlling subunit activities, resulting in a greater degree of

decentralization (Galbraith, 1973). Object of control is organisational execution

and the output of activities rather than managerial behaviour. Hence it may limit

operational flexibility and organisational adaptiveness to a greater extent but at

the same time reduces the required verbal communication between headquarters

and subsidiary company to a minimum.

3. Culture Control

Corporate culture is considered to be a pattern of values, norms, beliefs and

expectations shared by the organization’s members (Schwartz & Davis, 1981).

These patterns serve as adaptive and regulatory mechanisms and are an important

guide to behaviour in addition to the explicit rules which exist. Especially in

instances where it is difficult to specify, monitor and control behaviour or output,

organisations may indoctrinate these values and norms to their organisational

members and hope that their acts are in accordance with the company's intents.

(Baliga & Jaeger, 1984). This form of control is rather implicit and informal and

26

coordination here is based on a broad and commonly accepted corporate culture.

Corporate culture finds its explicit organisational articulation in its symbols,

languages, perceived atmosphere, practices and in its corporate identity. Certain

corporate and human resource related practices facilitate the evolution and

diffusion of corporate culture within an organisation like a careful selection and

integration of new organisational members or training and socialisation. Further

facilitators are long-term employment, consensual decision-making or repeated

interactions among corporate members.

One, very practical way of exerting culture control in a MNC context is through

recruiting parent country nationals for international subsidiary positions (Ouchi,

1979) and consequently this mode of control may be adopted in culturally high

distant subsidiaries. Edström and Galbraith (1977) refer to this as control by

socialisation, characterized by (i) a significant number or proportion of

expatriates in top and middle management position in Foreign Subsidiaries, (ii)

de-emphasis of formalisation and (iii) an increased exchange of information

between Headquarters and its Foreign Affiliated Entities. These expatriates use

commonly shared assumptions as well as indoctrinated values and implement

social and corporate standards within the subsidiary companies, which are

derived from the Headquarters. In this context, Perrow (1971) observed an

interesting phenomenon associated with culture control denoted as the paradox of

decentralisation which states that the degree of control exerted in a decentralized

organisation can be even higher than in a centralized one. Again the assumption

is that, once organisational members have internalized firm's values, we can

expect them to make similar decisions under similar circumstances. Clegg and

Gray (2002) underpin these findings by arguing that most of the expatriates are

sent abroad on the basis of an ethnocentric staffing policy. Ethnocentric view

suggests that key positions in foreign subsidiaries should be staffed with parent

country nationals while the geocentric view, for instance, advises staffing

selections based on competencies and not on nationality (Perlmutter & Heenan,

1974). This kind of implicit cultural control over subsidiaries may not only

27

reduce agency costs due to shared values and goals but also makes rigid

bureaucratic control less necessary (Markus and Pfeffer, 1983).

Complementarily, Gong (2003) found empirical support for one of his

propositional arguments which state that with greater cultural distance, the

impact of parent country’s expatriate staffing policy on subsidiary performance

will be increasingly positive.

Since environmental characteristics surrounding a Multinational Corporation are

quite different or partly even unique, the extent to which companies use

expatriates or foreign assignments even within a single MNC can differ. Based

on a set of environmental (e.g. political risk, cultural distance and competition) as

well as organisational (e.g. level of complexity and interdependence) variables,

Boyacigiller (1990) has designed a model to account for the differential

utilization of expatriates in U.S. multinationals. However, in the past few years,

managers and academics (Zeira and Banai, 1983, Tung, 1987 & Harvey, 1989)

likewise have noted a marked reduction in the assignment of expatriates abroad.

This trend of replacement through host country nationals is inter alia fuelled by

lower costs, increasing managerial and technical proficiency in many countries,

indigenous operations, higher host-country environmental competencies and

more profound market knowledge possessed by local managers (Kobrin, 1988).

While recognizing the increased use of host country nationals, Kobrin (1988)

however maintains that (American) Multinationals may potentially face

difficulties in exercising control and in creating informal organisational links

across subunits. Underpinning Bartlett's (1982) argument that MNCs need to be

simultaneously, globally integrated and locally responsive, Boyacigiller (1990)

and Kobrin (1988) advocate from a control perspective that the phase-out of

expatriates has probably gone too far. However, in accordance with Gong (2003),

one may counter argue that parent companies, through a process of cultural

learning, may socialize host country nationals into their corporate culture and

hence, in such a manner, may still be able to exercise culture control.

28

4. Output Control

Output control is largely exerted through performance reporting systems which

evaluate the subsidiary’s output (Chang & Taylor, 1999) and implies that data

such as sales figures, return or profit are considered suitable and can be used to

monitor operations. In contrast to behaviour or bureaucratic control, companies

enjoy substantial organisational flexibility to choose the means and deliver

jointly predefined results. But the risk will be more or less transferred completely

to the agent as outcomes are only partly a function of behaviour (Jensen &

Meckling, 1976). Hence, particularly in culturally distant environments, where

uncertainty may possibly be higher, this mode of control can be less attractive to

the principal as well as the agent.

The process of managing and controlling individual corporate units through the

medium of measurable and prioritized results is not really new. Substantial

importance has been given to this particular domain of management techniques

approximately two decades before. Management by Objectives (MbO) refers to a

closed loop process, where managerial attention is clearly focused on results

rather than on activities and comprises co-determination of objectives, schedules,

measurement variables and control means (Duffy, 1989). Dirsmith, Jablonsky &

Luzi (1980) have epically assessed MbO as a management technique based on a

number of variables such as organizational perspectives, planning and control

orientation, flow of information, finally concluding that MbO serves as a control

mechanism by providing for feedback and measurement of objective attainment.

Not only in agency theory is information considered to be a commodity which

brings about costs but at the same time, it can be purchased as well (Eisenhardt,

1989a) thus giving information systems increased importance as a mechanism to

impose control. Such a consideration implicitly assumes that the principal can

limit the diverging and aberrant activities of the agent by investing money in

corresponding information systems such as MbO i.e. in output based control

modes.

29

5. Monetary Incentive Compensation

Given that subsidiaries are not only increasing in size and scope but also

maturing in terms of technology, capital and management resources scholars

have been greatly concerned about more subtler and newer forms of control

types. Another way of aligning headquarters' and subsidiary company's goals is

through the use of financial incentives, in which a portion of subsidiary

management's compensation is outcome-based (O'Donnell, 2000).

Conceptually, the total compensation for the management comprises fixed as

well as variable components. Fixed components mainly include a fixed salary

and fringe benefits such as cars, housing, school etc., while variable components

include short-term and long-term incentives and individual or group elements for

instance. According to the company's pay strategy or pay policy, the pay mix will

vary in terms of relative allocation. Balkin and Gomez-Mejia (1987) have

examined the effectiveness (which denotes the extent to which the compensation

strategy contributes to the achievement of organisational objectives) of different

pay strategies, arguing that effectiveness significantly depends on the match

between compensation strategy on the one hand and organisational as well as

environmental characteristics on the other (e.g. high-tech vs. traditional firms,

stage in product life cycle, scale or profitability etc.). Further conditions of

relevance for designing such a system include the decision horizon (a balance

between short-term and long-term objectives) (Rappaport, 1978), the executives

attitude and behaviour towards risk (Salter, 1973), his preference for direct pay,

deferred income and benefits (Lewellen and Lanser, 1973) or its link to

meaningful financial measures (Murthy and Salter, 1975).

Hierarchically, most of the early studies focused on the effects of compensation

strategies upon corporate level. Hence more recent studies (Galbraith and

Merrill, 1991, Gupta and Govindarajan, 1986) have started to concentrate on

30

business-unit level indicating possible trade-offs between different functional

strategies (e.g. R&D / Innovation - oriented vs. marketing - oriented strategies).

Interestingly, Gupta and Govindarajan (1986) further posit that the determination

of reward should be specified by some combination of a strict formula and

subjective assessment by the superior. A strict formula ensures reliance on rather

an objective formula with the merits of great precision and no exercise of bias in

assessing. Whereas a subjective assessment, allows for managers to pay attention

to tasks and objectives which are less operational and quantifiable, but at the

same time, of great importance (Gupta and Govindarajan 1986).

Martinez and Jarillo (1989) have thoroughly studied control mechanisms through

an exhaustive literature review finding that those mechanisms used by

Multinationals have evolved over time from focusing on the more formal and

structural tools initially to an appreciation of the subtler and informal forms of

coordination. They have argued that, in the early years, practically all studies

centred on the formal mechanisms of coordination such as departmentalization or

grouping of organizational units, centralization, formalization, standardization as

well as output and behaviour control. Then, from the 1980s onwards research

increasingly started dealing with informal, subtler mechanisms such as

socialization, acculturation and informal communications. From a contingency

perspective both authors argue that changes in the internationally competitive

environments forced strategic adaptations and adequate internal differentiation

by Multinational Corporations and hence the described evolution in theory was

driven by an occurred evolution in practice Martinez and Jarillo (1989). Werner

(2002) points out that type and degree of control is, inter alia, related to and

moderated by the role played by subsidiary, the level of interdependence, degree

of ownership or MNC nationality for instance.

31

E. Theories

Before directing particular attention to the theoretical perspectives applied in the

present study, a brief operationalization of the term theory is given below. A

theory is 'an ordered set of assertions about a generic behaviour or structure

assumed to hold throughout a significantly broad range of specific instances'

(Sutherland, 1975). According to Whetten (1989), and tied to its necessary

components, a theory must contain the following elements (i) a set of factors (i.e.

variables, constructs and concepts; relevant question: what?), (ii) a set of

internally consistent relationships of variables (i.e. introduction of causality;

relevant question: how?), and (iii) dynamics that justify the selection of factors

and proposed causal relationships (i.e. constitution of theory's assumptions:

why?). He further comments that, while these three elements together form the

essential ingredients of a simple theory, namely description and explanation, the

rather temporal and contextual questions of who? where? when? constitute the

range of a theory (Whetten, 1989). While data describes which empirical patterns

are observed, theory explains why these empirical patterns are observed (Sutton

and Staw, 1995).

Concordantly with Weick (1995) the author emphasizes that a good theory is the

result of socially constructed and cooperative development process.

1. Agency Characteristics

Agency theory provides theoretical underpinnings for various research efforts.

Whenever the completion of a task within a hierarchical relationship necessitates

the delegation of authority, which is actually central to the structure of any

multiperson business organization, agency analyses become useful (Jacobides &

Croson, 2001). In such a situation, the principal engages one or more agents to

perform some services on his behalf and hence delegates some decision-making

authority towards the agents. Agency problems occur due to an incongruence of

goals, an asymmetry of information and a diverging attitude towards risk.

32

However, this has to be accompanied by a particular model of man, which has

been neoclassically derived. The idea of “homo economicus” who is

opportunistic, individualistic and mainly self-serving (Donaldson & Davis,

1991). Such an “economic view” of utility maximization and own expenditure

minimization causes agency problems such as moral hazards (attempt to exert

less effort) and adverse selection (refers to the mispresentation of an agent's

abilities).

According to agency theory, the principal will generally attempt to control agents

in order to minimize the costs of the agency relationship. Agency costs refer to

the expenditures by the principal to monitor the agent, the bonding expenditures

by the agent and the residual loss, defined as the experienced reduction in

welfare of the principal (Jensen & Meckling, 1976). Within this domain,

contracts are considered to be the prime governing mechanisms to limit the

agent’s self-serving behaviour. Agency theory, in particular the principal-agent

research, is about determining the most efficient contract alternative, given

certain assumptions about people, organization and information in a particular

situation (Eisenhardt, 1989a).

Applied to the particular context of Multinational organisations, the

Headquarters-Subsidiary relationship by all means, has a principal - agent (Roth

& O’Donnell, 1996) or principal - multi agents structure. In this given context,

agency theory highlights the principal-agent relationship between the parent

company acting as a principal and the subsidiary acting as an agent. The design

of control now plays an important role while organizations expand and

internationalise, particularly, as it serves as an essential integration function in

MNCs. Increasing complexity and differentiation of structures, as side effects of

increasing degrees of internationalisation of Multinationals, generate a crucial

need to monitor and coordinate activities (Geringer & Hebert, 1988), as

Headquarters do have to ensure that the various activities originating and

33

executed in its foreign subunits are compatibly coordinated and support the

commonly shared objectives of the overall organisation (Egelhoff, 1984).

While operating the strategic objectives and interests (especially in culturally

distant and different contexts), management practices or types of control may

diverge and might not be salient for the principal at the Headquarters (Yan, Zhu

& Hall, 2002). According to Holmstrom, the more autonomy the agent enjoys,

the greater the information the agent possesses, the greater the specialized

knowledge required to perform the task and subsequently the greater the chances

for the occurrence of moral hazard and hidden information (Holmstrom, 1979).

This will possibly result in higher risks and uncertainties and therewith in higher

agency costs (Davis, Schoorman & Donaldson, 1997). In such cases, agency

theory traditionally suggests governing contracts like behaviour control, culture

control or output control for monitoring agents (Ekanayake, 2004).

2. Stewardship Characteristics

Assumptions made in agency theory, particularly about individualistic and self-

serving utility maximizers might not hold for all managers. Hence, newer, critical

writings posit that an additional theory might be needed to explain principal -

manager or Headquarters - Subsidiary relationships.

Stewardship theory, which is more a psychological and sociological approach to

governance, takes up an alternative perspective. In contrast to the economic

approach of agency theory, stewardship theory argues that managers are not

opportunistic, self-serving agents but rather good stewards of a company, who

work pro-organizationally and diligently, as well as behave in a collective

manner (Donaldson, 1990). Therefore, firstly, as can be seen from the

aforementioned behavioural premises, stewardship theory applies a distinct

model of man. Secondly, when a principal engages a manager to perform certain

tasks on his behalf, the situational assumption underlying the delegation of

authority is one that is characterized by aligned interests between steward and

34

principal, rather than by diverging goals and asymmetric information (Davis,

Schoorman and Donaldson, 1997). Stewards place a higher value to or have a

higher utility respectively on cooperative and pro-organisational behaviour.

Proponents of stewardship theory argue that in trade-off situations, stewards are

believed to work towards the overall organisations interest, and by doing so they

will simultaneously meet personal needs. Further, if performance variations arise,

then these are mainly caused by structural or situational differences in which the

steward is located rather than by the steward himself. It is these structural or

corporate characteristics that determine the facilitation of effective actions

(Donaldson and Davis, 1991).

Analogue to agency theory, stewardship theory is grounded in control as well.

However, in contrast to agency approaches, it posits empowering governance

structures and recommends control to be rather centralised with managers

(Dalton et. al., 1999). It exceedingly considers structures that facilitate and

empower stewards (Davis, Schoorman and Donaldson, 1997) to be far more

appropriate, further arguing that stewards' autonomy should be deliberately

increased. Specifically, with respect to Top Management level executives such as

the CEOs, for instance, stewardship theorists argue that they should be given

highest authority and discretion that will ultimately help to attain superior

performance. The rationale behind such kind of 'involvement oriented' (Lawler

1986) approaches is that challenges and responsibility will develop self-

regulatory behaviour and make stewards control their own behaviour. Too much

control imposed on stewards may not only lower their motivation but also - if a

manager rather prefers a stewardship over an agency relationship - can possibly

become counterproductive.

Both theories seem to be partially competing, but moreover it seems possible that

each of these theoretical approaches has validity in its own domain. Donaldson

(1990) somewhat argues, that stewardship theory may possibly prove appropriate

when coalition between principals and stewards persists, but if the same coalition

is called into question, agency theory might prove better. Interestingly, through

35

his form of argumentation for conditional appropriateness, he adds a dynamic

component into the organisational economics and management theory -

discussion.

III. Hypotheses

For recapitulation, Figure 3 exemplarily shows a set of structural, environmental

and control variables derived from theory to graphically add order to the

underlying conceptualisation of this research. The relevant set of factors for the

present dissertation, which have been extensively highlighted in the preceding

sections and repeatedly included in Figure 3, are based on an array of causal

assumptions between the variables, now transformed into propositional

arguments. The same will be further operationalised and empirically tested

hereinafter.

Environment

Control

Degree

Type

Multinational Corporation

HQ - level:- Nationality- Firm Size- Degree of Involvement- Degree of Internationalisation- Level of Interdependenceetc.

SC - level:- Subsidiary Role- Subsidiray Age- Tenure of Subsidiary President- Subsidiary Relative Importance- Subsidiary Autonomy- Entry Mode- Task / Decision Characteristicsetc.

PC & HC - level:- Environmental Uncertainty- Outcome Uncertainty- Geographical & Cultural Distanceetc.

Behaviour, Bureaucratic, Output, Culture Control

Incentive Compensation etc.

Low, Moderate, Highetc.

Environment

Control

Degree

Type

Multinational Corporation

HQ - level:- Nationality- Firm Size- Degree of Involvement- Degree of Internationalisation- Level of Interdependenceetc.

SC - level:- Subsidiary Role- Subsidiray Age- Tenure of Subsidiary President- Subsidiary Relative Importance- Subsidiary Autonomy- Entry Mode- Task / Decision Characteristicsetc.

PC & HC - level:- Environmental Uncertainty- Outcome Uncertainty- Geographical & Cultural Distanceetc.

Behaviour, Bureaucratic, Output, Culture Control

Incentive Compensation etc.

Low, Moderate, Highetc.

Environment

Control

Degree

Type

Multinational Corporation

HQ - level:- Nationality- Firm Size- Degree of Involvement- Degree of Internationalisation- Level of Interdependenceetc.

SC - level:- Subsidiary Role- Subsidiray Age- Tenure of Subsidiary President- Subsidiary Relative Importance- Subsidiary Autonomy- Entry Mode- Task / Decision Characteristicsetc.

PC & HC - level:- Environmental Uncertainty- Outcome Uncertainty- Geographical & Cultural Distanceetc.

Behaviour, Bureaucratic, Output, Culture Control

Incentive Compensation etc.

Low, Moderate, Highetc.

Exhibit 3: A Set of Control Predictors and Explanatory Variables

Source: Author

36

Hypotheses are defined as 'concise statements about what is expected to occur'

(Sutton and Staw, 1995). However, these empirically testable and propositional

arguments should not contain logical arguments about why empirical

relationships can be expected. Hypotheses have to be motivated by a

combination of causal reasoning and prior empirical findings, which provide

further support for the underlying theory (Sutton and Staw, 1995), while the

logical argumentations as to why empirical relationships can be expected are in

fact part of the justification process of hypotheses.

According to what has been illustrated, theoretically and empirically, in the

previous sections of the present work, the author hypothesizes that:

Hypothesis 1a: As the parent company's degree of involvement increases, the

degree of culture control will increase.

Hypothesis 1b: As the parent company's degree of involvement increases, the

degree of bureaucratic control will increase.

Hypothesis 1c: As the parent company's degree of involvement increases, the

degree of monetary incentive compensation will increase.

In compliance with agency theoretical considerations, the Hypotheses H1a, H1b,

and H1c are based on the notion that, increasing degrees of involvement, as

denoted by rising levels of paid-up capital, increase the principal's incentive to

monitor and control the foreign subsidiary. The rationale for this assumption is

rooted in the inherent risk associated with a high mobilisation of tangible and

intangible resources, particularly, if this is accompanied by difficulties in being

able to revert an investment decision which, consequently, may lead to high

opportunity or even sunk costs. Hence, top executives who have a significant part

of their assets attributable to overseas operations have an increased desire to

37

exercise control over these affiliated entities abroad (Prahalad and Doz, 1981).

Therefore, the author explicitly assumes that focal organisation's propensity to

impose higher degrees of control will similarly increase across the selected

control types, irrespective of the characteristics associated with the individual

control modes.

Hypothesis 2a: As the subsidiary's strategic role increases, the use of culture

control will increase.

Hypothesis 2b: As the subsidiary's strategic role increases, the use of

bureaucratic control will increase.

Hypothesis 2c: As the subsidiary's strategic role increases, the use of monetary

incentive compensation will increase.

The author further assumes that the importance of a subsidiary to its parent, as

denoted by its strategic role of regional centralisation, will positively moderate

the level of control exercised by the parent on its Affiliated Entity abroad. A high

level of strategic importance to the overall success and prospect of the focal

organisation does not necessarily require a high level of financial commitment to

the subsidiary. However, the subsidiary may be conceptually envisioned as a

high value creating entity and hence equipped with considerable capabilities to

utilize its own resources and competencies. Withal, the rising asymmetry of

information, due the gradual increase in knowledge on processes and foreign

product markets, accumulated with a subsidiary's growing strategic role for a

mandated product, additionally entails a certain amount of uncertainty to the

foreign engagement and ergo further increases the incentive to monitor and

control the economic agent more closely (Holmstrom, 1979).

38

H1a and H2a shall explicitly reflect a propositional challenge, made in this study,

of a phenomenon that gradually diffuses not only within the theoretical

landscape. Over the last couple of years, theoretically as well as empirically,

scholars observed a shift from an ethnocentric to a more geo- and polycentric

staffing policy within multinational organisations. Previous studies and empirical

findings indeed indicate that the number of expatriate assignments gradually

decreased and expatriate managers are perceptibly replaced by host country

nationals. The high assignment failure rates combined with the enormous costs of

expatriate assignments in terms of direct expenses, management time and human

misery definitely provide some explanatory power to this phenomenon (Kobrin,

1988). Nevertheless, the author challenges some of these findings in previous

studies by hypothesizing that expatriates, as a mode of imposing culture control,

are still deployed overseas and that the phenomenon is positively moderated by

increasing levels of strategic (H2a) and financial (H1a) importance of foreign

subsidiaries.

Hypothesis 3a: As the subsidiary's autonomy increases, the use of culture

control will decrease.

Hypothesis 3b: As the subsidiary's autonomy increases, the use of bureaucratic

control will decrease.

Hypothesis 3c: As the subsidiary's autonomy increases, the use of monetary

incentive compensation will decrease.

Hypotheses H3a, H3b and H3c are based on the foundation of stewardship theory.

Stewardship theory postulates subsidiary autonomy to be deliberately extended

(Davis, Schoorman and Donaldson, 1997), so that managers can perform

corporate related tasks far more independently and effectively. In compliance

with this chain of argumentation, the author hypothesizes that increases in

39

organisational latitude through increased autonomy shall lead to structural

situations that empower managers at the level of the Foreign Subsidiary

company. Conditions empowering Subsidiary manager can be partly realized

through decreasing levels of control exerted by Headquarters over their foreign

subunits and may not necessarily require lower levels of self-imposed

governance mechanisms from subsidiary company's side.

Hypothesis 4: As outcome measurability increases, the use of monetary

incentive compensation will increase.

H4 mirrors the assumption that increasing degrees of environmental stability, as

conveyed by higher levels of outcome measurability, will positively moderate the

use of monetary incentive compensation, as betoken by an increasing proportion

of performance based incentives in the total compensation package. Outcome

based contracts indeed align the preferences of agents with those of the principal.

In one of her studies, Eisenhardt (1989a) found empirical evidence for the

positively hypothesized relationship between outcome measurability and

outcome-based contracts (e.g. commissions, stock options, transfer of property

rights).

Hypothesis 5a: As the use of monetary incentive compensation increases, the

use of bureaucratic control will increase.

Hypothesis 5b: As the use of monetary incentive compensation increases, the

use of culture control will increase.

H5a and H5b shall mirror another conceptual challenge designed in this study.

Assuming in fact unidimensional control approaches, early researchers rather

40

investigated substitutive relationships between different control mechanisms.

Contrary to some of those early findings, the author, in this study, alternatively

assumes a simultaneous deployment of certain control types. Hence, the

hypothesized relationship in the contemporaneous exertion of distinct

governance mechanisms is rather assumed complementary and subsequently

positive in nature.

0, if Host country national

1, if Parent country national y

H1:

Degree of Involvement

CultureControl

(+)

Independent &Metrically scaled

BureaucraticControl

Parent SalesH1a:

Dependent variableOrdinally scaled / dichotomous

MonetaryIncentiveCompensation

Control variables:

Subsidiary Age

Dependent variableMetrically scaled

Dependent variableMetrically scaled

H1b:

H1c:

=0, if Host country national

1, if Parent country national y

H1:

Degree of Involvement

CultureControl

(+)

Independent &Metrically scaled

BureaucraticControl

Parent SalesH1a:

Dependent variableOrdinally scaled / dichotomous

MonetaryIncentiveCompensation

Control variables:

Subsidiary Age

Dependent variableMetrically scaled

Dependent variableMetrically scaled

H1b:

H1c:

=

Exhibit 4: Hypotheses Exemplarily Illustrated

Source: Author

IV. Research Design

A research design takes the following elements integratively into account:

Statement of research questions, determination of hypotheses (stemming from

prior observations and existing theories), definition as well as operationalization

of manifest and latent variables, selection of statistical tests to resolve

hypotheses, identification of population and sample, data collection (which

either provides support or refutes evidence for proposed hypotheses), data

analysis and interpretation of results (conversion of raw data into probabilistic

and meaningful explanations) and, finally, the overall evaluation of the process

(Black, 1999).

41

Thereby, the framework should provide answers to the following questions,

namely: Which sources of information will be used? What type of information

will be used to answer the research questions? What samplings will be used?

Which techniques will be applied to gather data? How will the data be analyzed?

(Cooper & Schindler, 1998).

The author will gradually provide answers to the above mentioned questions in

the subsequently following sections.

A. Research Methodology

Research techniques generally have to be scientific in nature. According to Black

(1999) the term "scientific" thereby refers to a systematic, empirically based and

replicable approach, that contributes to the process of theory development.

Research methodologies can be principally categorised into qualitative and

quantitative approaches. Research objectives, appropriateness of assumptions as

well as nature of applied variables thereby play important roles in the choice of

the right research techniques.

Quantitative research: When researchers want to look for nomothetic or law-like

relationships among certain phenomena of interest, by means of quantifications

and accurate measurements, this form of inquiry becomes relevant. Quantitative

methods, i.e. statistical analysis of experimental, survey or archival data, intend

to reveal common patterns that either characterize a population or a sample

thereof, on a large scale basis (Bentz and Shapiro, 1998). Quantitative research is

strongly based on the collection of considerable data from representative samples

for a few variables, while qualitative research tends to pursue fewer subjects but

investigates in greater depth (Black, 1999). Quantitative methods are well-suited

to identifying overall patterns, testing theories and developing predictions.

42

Figure 5 exemplarily illustrates a selected set of multivariate data analysis

techniques. A sequence of certain questions rightly addressed will lead to the

appropriate methodology.

Non-metric

Metric

dependentvariable

scale ofvariable

morethanone

dependentvariables

dependentvariable

NoYes

MetricBinary

MetricNon-metric

Non-metric

independentvariable

independentvariable

independentvariable

YesNo

SEE

MCA w/dummyvariables

CanonicalAnalysis w/

dummy variable

CHAID

MultipleDiscriminantAnalysis

Logit and ProbitAnalysis

MultipleRegressionw/dummyvariables

Loglinear

MultipleRegressionMultiple

ClassificationAnalysisAutomaticInteractionDetection

ConjointAnalysis

MultipleDiscriminantAnalysis

MANOVA

CanonicalAnalysis

LISREL

Amos

Non-metricFactoranalysisLatent StructureAnalysisNonmetricMDS

NonmetricClusteranalysis

ClusterAnalysis

FactorAnalysis

Multidim.Scaling

Non-metric

Non-metric

MetricNon-metric

MetricNon-metric

Both

Non-metric

Metric

dependentvariable

scale ofvariable

morethanone

dependentvariables

dependentvariable

NoYes

MetricBinary

MetricNon-metric

Non-metric

independentvariable

independentvariable

independentvariable

YesNo

SEE

MCA w/dummyvariables

CanonicalAnalysis w/

dummy variable

CHAID

MultipleDiscriminantAnalysis

Logit and ProbitAnalysis

MultipleRegressionw/dummyvariables

Loglinear

MultipleRegressionMultiple

ClassificationAnalysisAutomaticInteractionDetection

ConjointAnalysis

MultipleDiscriminantAnalysis

MANOVA

CanonicalAnalysis

LISREL

Amos

Non-metricFactoranalysisLatent StructureAnalysisNonmetricMDS

NonmetricClusteranalysis

ClusterAnalysis

FactorAnalysis

Multidim.Scaling

Non-metric

Non-metric

MetricNon-metric

MetricNon-metric

Both

Exhibit 5: A Selected Set of Multivariate Data Analysis Techniques

Source: Emory and Cooper (1991)

Qualitative research: In contrast, qualitative research methods are rather used to

reveal and detail characteristics of individual or group cases, based on the

qualitative analysis of mainly qualitative data. Through detailed and more in-

depth observations, one intends to get a bit closer to the underlying causal forces.

This is of particular importance especially in the early stages of theory

development. Methods and approaches that fall under the category of qualitative

research inter alia include case study, participatory inquiry, interviewing,

participant observations or interpretive analysis (Denzin and Lincoln, 2005).

Within the body of literature on research methodologies, two schools of thought

can be identified, one supporting the view that quantitative methods are not

reconcilable with qualitative approaches, while others posit a convergent multi-

method application (Dachler, 1997; Scandura and Williams, 2000; Jick, 1979).

43

Supportive to the second school, Snow and Thomas (1994) inter postulate a

balanced research agenda with multi-faceted research approaches. In lieu of the

fact that no single research method is capable of adequately addressing the

different methodological issues like validity or reliability (Jick, 1979), the

second, rather combined approach seems only reasonable.

Validity refers to the logic of inferences drawn from a study and, according to

Cook and Campbell, serves as the best approximation to the truth or falsity of

conclusions and predictions (Cook & Campbell, 1976). The concept of validity

inter alia encompasses three different facets, namely internal validity, external

validity and construct validity. Internal validity concerns causality and requires

a covariation between the variables under investigation to be asserted of a true

cause-and-effect relationship (Scandura and Williams, 2000). External validity

refers to the generalizability across different times, settings and individuals, and,

is closest to the common understanding of generalizability. A close fit between

the construct an instrument is supposed to measure and the actual observations

made with the same instrument, determine a high construct validity (Bernard,

2000). Reliability is characterised by the level of consistency supplied in a series

of measurements over several replications. The concept of reliability comprises

test-retest reliability, parallel test reliability (e.g. interrater reliability) and

internal consistency (e.g. Cronbach's coefficient alpha) (Emory and Cooper,

1991).

Researchers do have to be aware of flaws and shortcomings inherent in single

methodologies and subsequently think about obtaining corroborating evidence by

applying a combination of methods to examine the same phenomenon (McGrath,

1982). This is referred to as triangulation. The potency of triangulation is based

on the notion that the weaknesses of each research strategy will be equilibrated

by the strength of the counter-balanced methodology (Jick, 1979). The basic idea

is that, different theories, methods, techniques or sources are applied to get a

richer understanding of the phenomenon under observation. Denzin (1978) refers

to this as 'multiple triangulation'.

44

B. Research Process

1. Population and Sampling

The basis for the sampled population is Foreign Affiliated Entities of Swiss

Multinational Companies with operative and strategic engagements in India.

Headquarters are located in Switzerland. Epistemologically, it will suffice to say

that the term "engagement" formally encompasses the full bandwidth of

institutional arrangements established to conduct cross-border transactions within

a firm, starting from non-equity to equity operations.

Using multiple data sources (such as company directories, databases, internet or

publicly accessible lists) around 130 Swiss Multinationals with various

operations in India were identified as the theoretical population of the study. Pure

portfolio investments (such as investments in stocks, bonds and other long-term

marketable securities, as well as banking liabilities) or meanwhile liquidated or

merged companies were excluded, ultimately resulting in the relevant practical

population size of approximately 113 Swiss Multinationals. To ensure

probability sampling and relative industry distribution of firms, amongst others,

the final set of firms was distilled in a multi-step process.

The Corporate Headquarters were approached, in an initial contact, via telephone

for identification of the targeted executives at the Headquarters and Subsidiary

company level and also for pre-information purposes about the study. Subsequent

to that, an information package comprising further relevant background

information on the study was sent to the concerned person within the parent

company. Upon receipt of the final approval from the HQs regarding the

companies' participation in the study, the corresponding Top Managers of the

Subsidiary Companies were addressed, for specification of further particulars.

This process was accompanied by additional preparatory research to obtain

further information on the targeted companies such as locations in India,

company structure, affiliated industry, no. of strategic business units etc.

45

Surprisingly most of the empirical studies to date have primarily looked at

corporate-levels of Foreign Subsidiaries. While corporate strategic decisions tend

to be more portfolio-oriented (portfolio of various strategic business units),

business unit or strategic business unit (SBU) decisions are more market and

product oriented (Galbraith and Merrill, 1991). Strategic business units can have

distinct competences and capabilities, resource requirements or information

processing demands that must be accommodated in the relationship. Hence, the

author believes that only at the level of strategic business units, an appropriate

level of abstraction and aggregation can be reached, which ultimately leads to

relatively homogenous units of analysis.

Consequently, strategic business units have been chosen as units of analysis in

this study. However, for the preservation of independence and to prevent larger

companies from biasing the results, only a maximum of 2 business units per

parent company have been included into the sample. For the present work, the

author was able to ultimately use a sample of more than 70 business units of

Swiss Foreign Subsidiaries in India. The basic idea of sampling is that some

elements in a population provide useful and valuable information on the entire

population. The goodness of a sample can be assessed through its validity.

Validity of a sample depends upon (i) accuracy, which is defined as the degree to

which bias is absent and (ii) precision, i.e. precision of estimate which can be

measured by the standard error of estimate, for instance (Emory and Cooper,

1991).

46

The study is further based on a cross-sectional design. Companies included in

present work operated in various industry groups such as:

I. Machinery and Parts

(i.e. General, Cement, Electrical, Textiles, Pumps & Valves)

II. Services

(i.e. Financial, Engineering, Software)

III. Chemicals

(i.e. General, Lubricants, Pharmaceuticals)

IV. Instruments and Appliances

V. Vehicles and ancillaries

(i.e. no Original Equipment Manufacturers /OEMs, Suppliers only)

VI. Machine and Small Tools and

VII. Trading

India was chosen as the location of Swiss Foreign Subsidiaries due to the

following reasons:

� India's continuous attractiveness and its strong long-term economic

outlook (Khanna & Huang, 2003).

� Swiss companies are starting to increasingly consider India as a target

market in the scope of their international business development strategies.

� The author was able to collect primary data, in the context of a research

project, which was conducted under the patronage of the Swiss State

Secretariat for Economic Affairs (SECO).

47

2. Data Collection

Field study was used to collect the data required to conduct the testing analysis of

the propositions stated above. The spectrum of techniques that can be applied

generally within field studies include case studies, observations, interviews or

surveys.

To obtain adequate data for the purpose of the present work, the author has

conducted interviews. Interviews, as methodological tools, are conversations

which aim at obtaining information in an asymmetric relationship between

interviewer and interviewee based on certain ground rules (Gubrium and

Holstein, 2001).

Much diversity can be found within conventional interview techniques, each with

its own advantages and disadvantages. Roughly, the following forms of

interviews can be distinguished: (i) according to the degree of control over

responses: unstructured interviews, semi-structured interviews and structured

interviews, (ii) according to number of respondents: individual interviews and

group interviews, and (iii) according to the type of data collection: face-to-face

vis-à-vis telephone interviews.

As mentioned above, to conduct the survey for purposes of the present work, the

author has applied fully structured, face-to-face interviews with individual

respondents as informants. The rationale behind the use of this kind of interview

was (i) a highly structured and standardised interview design to assure that the

variation observed in the data results from the variation in the constructs being

measured and to avoid, to the greatest extent possible, biasing and interviewer

errors (Couper and Hansen, 2001); (ii) despite higher costs and longer data

collection periods, the author decided in favour of face-to-face interviews

because of its appropriateness for longer interviews particularly when

accompanied by complex questions, (iii) its higher response rates (low response

rates can potentially reduce the confidence as to the generalizability of the survey

results to the population from which the survey is drawn (Snow and Thomas,

48

1994)), and (iv) the greater flexibility in terms of question content (Singleton and

Straits, 2001).

The prime advantage of a survey as a data-collection technique is its efficiency in

generating a large amount of data which can ultimately be subject to statistical

analysis (Snow and Thomas, 1994). The survey was designed to mainly yield

metrically scaled, as well as a few non-metrically, but ordinally scaled

information. Hence, response categories were primarily operationalised in the

form of Likert-scales, ratings, and rankings or in the case of a few closed

questions, interviewees were directly asked to specify their answers numerically

(e.g. Paid-up Capital or Year of Establishment). No open-ended questions were

included in the questionnaire.

As targeted interviewees, two options were incorporated: (i) a HQ-based

Executive with responsibility for the business operations in India, or (ii) the

locally based Country head of the Swiss Foreign Subsidiary, who is responsible

for the entity's activities in the region. The Headquarter based respondent was

particularly addressed when formally the level of Foreign Engagement of the

Swiss company was low and hence, captive infrastructure in India was moderate,

e.g. as in cases of direct export or contractual agreements for instance.

Further, multiple responses from some of the sampled companies have been used

to validate the same on the constructs measured using primary data. For this

purpose, an assessment of the level of interrater agreement was performed by

calculating the Pearson product moment correlation across certain metrically

scaled questionnaire items for each pair of multiple responses. For recapitulation,

interrater reliability denotes the correlation between scores given by the two

raters and indicates the consistency of ratings. Interrater assessment shall help in

addressing the research methodological issue of reliability (parallel test

reliability).

49

A few pilot interviews were conducted in the initial phase to refine the concepts,

latent variables and constructs as well as the length, sequence and

operationalization of questions included (for clarity and relevance purposes).

These results were used to further calibrate the data collection tool. Data

collection occurred over a period of three months.

The entire interview survey was first prepared in German and in the subsequent

step translated into English. Parts of the survey were then re-translated back into

German in order to verify whether the intended meanings of the variables and the

items used were accurately captured.

Prior to conducting the sampled interviews on-site in India and Switzerland, a

detailed interview training session was provided to the additional two

interviewers. In the first step, a general introduction of the project (i.e. goals,

project design, underlying theoretical streams etc.) as well as a thorough

introduction of the survey material (i.e. questionnaire: structure, sequence,

variables and constructs, operationalization of items, response categories: Likert-

scales, rankings, ratings etc.) was given to familiarize the interviewers with the

entire set-up.

In the second and subsequent session, interviewers received general introductions

of the interviewing practices (i.e. procedure, duration, neutral interview

technique etc.) and briefings on common interviewer, interviewee and situation

related errors (i.e. response sets, halo effects, pseudo-opinions, social desirability

effects as well as social distance and sponsorship effects).

50

3. Data Analysis

The triangulation design applied in the context of this paper encompasses (a)

Multiple linear regression, (b) Binomial logistic regression as well as (c) Pearson

product moment and Point biserial correlation analyses, techniques all of which

will be briefly introduced and described in the subsequent pages.

3.1. Multiple Regression Analysis

Multiple regression analysis is used by researchers, if one wants to study the

dependence of one metrically scaled dependent variable, frequently referred to as

"Regressand", on one or more metrically scaled explanatory variables, frequently

referred to as "Regressors". Although it examines the dependence between

Regressand and Regressors, correlation does not automatically imply causation.

The assumption of an underlying causal relationship between endogenous and

exogenous variables has to rather come from theory or scientific hunch. The

prime purpose of this technique is to obtain predicted values of the endogenous

variable through estimations of the respective regression coefficients and

specification of the model as well as to draw inferences on how closely the

obtained parameters are to the true values of the population (Gujarati, 2003).

Generally, a multiple regression model with two explanatory variables can be

formulated as

i 0 1 1i 2 2i i

i

Y = ß + ß X + ß X + u

Y�������

where iY is the estimated value of iY , 1iX and 2 iX denoting the independent

variables and where 0ß is the regression constant, 1ß and 2ß are the regression

coefficients to be estimated with 0ß known as the intercept and 1ß and 2ß as the

partial slope or regression coefficients. Mathematically, ui is nothing but the

difference between the actual values iY and the estimated values iY , as can be

seen above. Statistically, ui is a random variable, a quantity whose taken values

51

are either positive or negative and to which a probability distribution is assigned.

Technically, it is nothing but a stochastic error or disturbance term which

subsumes all the inexplicitly stated, non-systematic influences on Yi (Gujarati,

2003). Generally, the regression constant together with the regression

coefficients are determined in such a manner that the sum of squared differences

between actual Y values and estimated Y values is a minimum. The equation is

thereby defined by the ordinary least square (OLS) criterion. Unlike hierarchical

linear models, usual regression analysis equations contain only one stochastic

disturbance term.

As mentioned earlier, it is the appropriateness of assumptions that plays an

important role in the choice of the right research technique. Hence, the following

part aims at briefly highlighting some of the major assumptions underlying

regression analysis:

(1) Homoscedasticity

Heteroscedasticity refers to the circumstance that the variance of the disturbance

term var (ui) in the equation for any value of the independent variable X is not

constant. If the error term has a constant variance, they are said to be

homoscedastic. In the presence of heteroscedasticity in the disturbances, the

estimates for the regression coefficients remain unbiased (Cohen et al., 2003),

however, it can lead to inefficient parameter estimates (e.g. standard errors,

confidence intervals) and hence, as a result, can lead to wrong inferences (e.g.

significance tests) when statistically testing the hypotheses (White, 1980).

Econometricians say, as a rule of thumb, that the ratio of conditional variance at

different values of X should not exceed 10.

Symbolically, homoscedasticity can be written as

i i i2 2var (u ) = E(u - E(u)) = σ

52

The absence of a subscript on σ2 indicates that the variance of ui for each Xi is a

constant, positive number.

After a first optical inspection through constructing a few scatterplots (where one

plots the residuals in turn against each of the independent variable and the

predicted value Y ), various statistical tests can be applied to detect

heteroscedasticity, such as (i) the Goldfeldt-Quant test, which is particularly

used when it is believed that the variance consistently increases or decreases with

increasing X; its calculation also requires a reordering of observations with

regard to the X variable that supposedly causes heteroscedasticity, (ii) the

Breusch-Pagan test (which is designed to detect linear forms of

heteroscedasticity, frequently observed when time-series data is being analysed)

or (iii) the general White-test (a special case of the BP test) which can test all

forms of heteroscedasticity, however requires large sample sizes and has less

statistical power (Greene, 2007).

(2) Autocorrelation

This assumption simply postulates that disturbances, given any two X values, Xi

and Xj (with i ≠ j), are uncorrelated (Gujarati, 2003) and hence can be written as

cov (ui, uJ|Xi, Xj) = E {(ui - E(ui)| Xi } {(uj - E(uj)| Xj } = 0, for all i ≠ j

To identify the presence of autocorrelation in the residuals of a regression model,

researchers can exemplarily either perform a Durbin Watson test or Box-Pierce

Q test. The Box-Pierce Q statistics is commonly used to test the null hypothesis

that the first K autocorrelations are zero. Though autocorrelation can arise in

cross-section data among contiguous units as well, then referred to as spatial

correlation. For instance, in the so called "keeping up with the Joneses - effect",

when error terms pick up the effect of omitted variables (Maddala, 2001).

53

(3) Multicollinearity

This statistical property states that there should be no perfect linear relationship

among the explanatory variables. To state more simply, there should be no

perfect correlation between the independent variables. Otherwise, statistically

and conceptually, both independent variables in the equation can be modelled by

one.

With higher correlations, it becomes increasingly difficult to determine the actual

effect of X on Y. Econometricians generally state that high collinearity does not

per se violate this assumption, indicating that it may inevitably lead to higher

standard errors, wide confidence intervals for the regression coefficients and

subsequently to smaller t-statistics.

Multicollinearity can be detected with the specification of tolerance (TOL) or the

variance inflation factor (VIF), for instance, which can be written as

21j jTOL R= − and 2

1

1j

j

VIFR

=−

whereas Rj2 denotes the correlation coefficient between the exogenous variables

(Gujarati, 2003) with high values of Rj2 indicating highly correlated independent

variables. It shall be noted that the variance inflation factor is the inverse of

tolerance. jTOL values close to 1 indicate little multicollinearity, whereas values

close to 0 indicate substantial threat with respect to the violation of the

multicollinearity assumption. jVIF displays how much of the variance of the

coefficient estimate is being inflated by multicollinearity, with values of the jVIF

that are substantially less than the threshold of 10 being considered non-

problematic (Cohen et al. 2003).

All hitherto explicitly illustrated assumptions are basically drawn with the

purpose to cancel out, to the extent possible, unsystematic influences that might

act on Y. Further assumptions include variability in X values, the number of

54

observations to be greater than the number of parameters or explanatory

variables, linearity of the model in its parameter or a zero mean value of

disturbance (Gujarati, 2003).

3.2. Binomial Logistic Regression Analysis

To operationalize a regression model that relates the independent variables to

probability estimations of group membership for the dependent variable (Tansey

et al., 1996), two of the most commonly used functions in management research

are the probit and logistic functions.

The choice of a logistic model in this study and its predominant use in theory is

based on its various advantages over a probit model, which includes for instance

its advantage in the interpretation of regression coefficients in terms of the odds

(more in-depth discussion on further advantages and disadvantages over the

probit model can be found in (Cohen et al., 2003)).

Principally, logistic regression analysis yields a probability estimation for the

occurrence of the response variable, given the values of the predictor (Davis &

Offord, 1997), using a maximum likelihood estimation procedure. Binary or

binomial logistic regression analysis is considered to be an appropriate statistical

technique when the dependent variable is categorical (nominally scaled with

values coded 0 or 1) and the independent variables are metrically scaled,

frequently denoted by covariates (Reese & Bierend, 1999). It further offers major

advantages that make it more suitable in many situations than a two group

discriminant analysis, for instance. It may be preferred for the following reasons:

(i) it does not strictly rely on the assumptions of multivariate normality and equal

variance - covariance matrices and (ii) due to its ability to incorporate nonlinear

effects (Hair et al., 1998).

55

With the help of a latent (an empirically unobservable) random variable zk the

continuous values of X are transformed through a linear combination into the

values of Y, 0 and 1 (Backhaus et al., 2006).

Now, in order to fully operationalize a regression model for dichotomous

outcomes, one additionally requires, as mentioned above, a mathematical

function that relates the predictor X through the random variable to the predicted

probability score of being a case (y = 1 or y = 0). To yield the probability

estimation for the occurrence of value 1, regression analysis accesses the logistic

function

k

1p (y = 1 ) =

1 + 1

k

k k

z

z z

e

e e− =+

with e = 2.71828183 (Euler's number) being the basis for the probability

function.

3.3. Correlation Analysis

The prime objective of correlation analysis is to measure the degree or strength

of association between two variables which is expressed by the correlation

coefficient. The selection of an appropriate coefficient depends on the measure of

the variable pairs under observation.

For the purpose of the present research, the author will use Pearson product

moment correlation coefficient (for variables of interval scale) as well as Point

1

•

1 0

0 0

k J jk k

J

j

z x u

w i th

i f z ky k

i f z k

β

=

= +

=

≤

∑

≻

56

biserial coefficient (since one variable is metrically scaled and the second

variable is of nominal scale).

The Point biserial coefficient is calculated as follows:

where px and qx are the Y means of the two groups of the dichotomy, *s is the

standard deviation of the sample and with p being the proportion in one group

and q = 1 - p being the proportion in the other group.

C. Variables and Measures

As mentioned earlier, one of the main purposes of the present research is to

conduct an empirically based examination of the extent to which certain

structural as well as environmental properties moderate types and degrees of

control mechanisms used by focal organizations to align the activities, interests

and objectives with their affiliated entities abroad. The following section now

provides the operationalization of those manifest as well as latent variables used

in the present study.

The Cronbach's alpha is an important measure of the reliability of an instrument.

It is frequently applied to latent variables, variables which, in contrast to manifest

variables, cannot be directly observed. The construct validity of such multi-item

variables, frequently referred to as internal reliability, can be measured through

Cronbach's alpha. As a rule of thumb, internal consistency coefficient alpha for a

particular construct requires a value of 0.7 or higher to be further considered as a

reliable instrument.

*

p q

pb

x xr pq

s

−=

57

The Cronbach's alpha is calculated as follows (Black, 1999)

2

12

11 x

N

i

i

SN

N Sα =

= −

−

∑

where N is the number of items of a latent construct, Si2 denotes the variance of

the individual items and Sx2 is the variance of the entire construct. In order to

calculate the degree of internal reliability for an unobservable variable, certain

basic premises have to be met. For instance, (i) we require a consistent level of

measurement across all items / items have to be of the same scale as well as (ii) a

consistent conceptualisation of the items with regards to content and range of

values. Consistent with our previous discussion on methodological issues

associated with respective research strategies, the calculations of Cronbach's

coefficient alpha will help to further address and resolve reliability issues.

1. Control Variables

� Culture control: This form of rather implicit control can be operationalised

through the use of expatriates for top management team positions at

Foreign Subsidiaries, i.e., recruiting of parent country nationals vs. host

country nationals to head the companies operations abroad; In such a case,

the endogenous / dependent variable becomes dichotomous with values

taking 0 for host country nationals and 1 for parent country nationals.

Alternatively, following Edström and Galbraith's (1977) concept of

socialization, culture control can be measured through the indication of (1)

the number of managers comprising the subsidiary top management team

and (2) number of managers who are host country nationals.

58

� Monetary incentive compensation: This form refers to the aligning of

Headquarters and Subsidiary Company goals through the use of financial

incentives. Key informants were asked to indicate the percentage of

compensation paid through each of the following components: (1) fixed

salary (2) fringed benefits (3) short-term incentive and (4) long-term

incentive. The sum of percentages allocated to elements (3) and (4) is used

to measure the degree of monetary incentive compensation. This measure

of monetary incentive compensation was patterned after a similar measure

used by Galbraith and Merrill (1991) & Balkin and Gomez-Mejia (1987).

The endogenous variable is metrically scaled (interval scale).

� Bureaucratic control: To measure the extent of bureaucratic control, which

denotes mechanisms such as rules, policies, explicit delineation of

objectives to manage subsidiary activities, respondents were asked to

indicate on a five-point Likert scale the frequency with which certain

information such as operating expenditures, sales figures or capital

equipment purchased were shared. The construct was operationalised

through seven items. The construct is based on several previous

conceptualisations, including Ghoshal and Nohria (1989), O'Donnell

(2000), Galbraith (1973). The dependent variable is metrically scaled (of

interval scale). The Cronbach's α coefficient measured for bureaucratic

control was 0.711. The construct therefore has an acceptable degree of

reliability and can be used for further analysis.

2. Structural Variables

� Parent Company Sales: Sales revenue, as a parent company specific

contingency, is assumed to influence the relationship between the

structural variables of interest in this study and the control modes. This

variable is measured as the natural logarithm of the annual sales of the

59

parent company, since natural logarithm reduces heteroscedasticity

(Kerlinger, 1986). The variable is metrically scaled (of interval scale).

� Subsidiary age: Subsidiary age has been operationalized through

indication of the Year of Establishment (YoE) of the Foreign Subsidiary

Company. The variable is metrically scaled (of interval scale) as well.

Statistically, both variables, parent company sales and subsidiary age,

shall provide control for potentially biasing effects and hence, are

designed as control variables in this study.

� Degree of involvement: Paid-up capital was used to assess the degree of

parent companies foreign involvement. The informants were asked to

indicate the paid-up capital in 2006, cumulated since the subsidiary

company's inception. This exogenous variable is metrically scaled (of

interval scale).

� Subsidiary role: In accordance with a large body of research (D' Cruz

1986, Crookell 1984, Poynter and Rugman, 1982 & Rugman and Benett,

1982), the strategy of regional centralisation is being conceptualised in

such a manner that the subsidiary handles research and development,

procurement, production as well as marketing and sales for a mandated

product within a multi-country market or for a geographic region

respectively; This measure of strategic role was patterned after a similar

measure used by Roth and Morrison (1992), Roth and O'Donnell (1996) &

O'Donnell (2000). The construct was operationalised through nine items

with realisation being measured on a five-point Likert scale. The

Cronbach's α coefficient measured for subsidiary role was 0.714.

Indicating a favourable degree of reliability and hence can be used for

further analysis.

60

To assess the various roles played by a Foreign Entity, literature has

alternatively operationalized Subsidiary Company mandates through the

number (single vs. multiple functions) and types of Foreign Subsidiary

functions relocated to the host country (Chang and Taylor, 1999).

Operationalized in such a manner the explanatory variable would be

metrically scaled (of interval scale) as well.

� Subsidiary autonomy: Despite being part of the formal organisation

structure, subsidiary autonomy is a latent variable construct (Ghoshal,

Korine & Szulanski, 1994). This measure was patterned after a similar

measure used by Ghoshal, Korine & Szulanski, (1994), Ghoshal and

Nohria, (1989) & O'Donnell (2000). Subsidiary autonomy as an

independent variable in this study is metrically scaled (of interval scale).

The internal consistency measure, conceptualised in form Cronbach's α,

for this scale is 0.866, indicating a highly satisfactory degree of reliability.

3. Environmental Variables

� Outcome measurability: Outcome measurability has been used in this

study as a manifestation of environmental uncertainty which is caused

through the host country or industry volatility. The construct was

operationalised in the form of a five item variable and the corresponding

realisations were measured on a five-point Likert scale (O'Donnell, 2000).

Outcome measurability used as an independent variable is metrically

scaled (of interval scale). The Cronbach's α coefficient exhibited for

outcome measurability as a construct was 0.905 and indicates a highly

favourable degree of reliability. This latent variable can, hence, be

doubtlessly included for further analyses.

For conceptualizing environmental uncertainty the so called perceived

environmental uncertainty scale developed by Miles and Snow (1978) can

61

be alternatively used. It comprises six subscales, where each of those

subscales corresponds to six key sectors of external environment. The

respondents then are asked to rate the degree of predictability using a

seven-point Likert scale.

V. Results

The following section provides the results of the statistical tests performed to

investigate the hypotheses derived and described above.

Exhibit 6 presents the results of binary logistic regression analysis conducted to

examine the relationship between paid-up capital, as covariate, and culture

control, as dichotomous dependent variable. As results of Exhibit 6 indicate, no

significant relationship was found between the level of involvement and the

recruiting of parent or third country nationals for top positions in the

international subsidiaries located in India. Hence Hypothesis 1a was not

supported.

Independent Variables Culture control

B Wald Paid-up Capital 0.002 0.598 SCage 0.064 0.793 PCsales 0.000 0.70 - 2 Log Likelihood 45.726 Model Chi-Square 8.378

Exhibit 6: Relationship Between Paid-Up Capital and Culture Control

Source: Author

62

Hypotheses 1b and 1c investigated the moderating effect of the parent company's

degree of involvement, indicated through its paid-up capital, on bureaucratic

control and monetary incentive compensation respectively. For both relations, a

positive moderating effect was assumed. Exhibit 7 summarizes the findings of

the multiple regression analyses conducted to test H 1b und H 1c. However, no

significant moderating effect was found for either dependent variable. Therefore,

neither H 1b nor H 1c was supported.

Independent Variable Bureaucratic controla Incentive Compensationa

Paid-up Capital 0.001 0.002 (0.000) (0.003) SCage 0.011 - 0.514 (0.016) (0.355) PCsales - 0.002* 0.002 (0.000) (0.000) R2 0.174 0.076

Adjusted R2 0.114 0.009

F 2.884 1.130 a Unstandardized regression coefficients are shown; standard errors are in parentheses * p < 0.05

Exhibit 7: Relationship Between Paid-Up Capital, Bureaucratic Control as well Monetary Incentive

Compensation

Source: Author

Exhibit 8 highlights the results of the binary logistic regression analyses

performed to test Hypotheses 2a and 3a. H 2a predicted that with increasing

strategic relevance of the Subsidiary Company, captured through subsidiary's

63

increasing role, Headquarters' propensity to exert implicit culture control will

increase.

Independent Variables Culture Controla

Model 1 Model 2 Model 3 B Wald B Wald B Wald Subsidiary role 2.149** 9.547 1.664** 8.087 Subsidiary autonomy - 0.880 2.926 - 0.098 0.072 SCage 0.155 4.257 0.131 3.169 0.100 2.911 PCsales 0.000 0.043 0.000 0.754 0.000 0.278 - 2 Log Likelihood 48.557 51.851 62.554 Model Chi-Square 22.632 19.338 8.634 a Unstandardized regression coefficients are shown; ** p < 0.01

Exhibit 8: Influences of Subsidiary Company Strategy and Subsidiary Autonomy on Culture

control

Source: Author

The analyses conducted and presented in Exhibit 8 shows that H 2a was

supported and a significant positive impact of strategic role on culture control

was found. The probability estimation yielded through logistic regression was p

= 0.759. Statistically, the hit ratio of 75.9% is higher than its proportional as well

as maximum random likelihood and hence a relevant and robust indicator for the

degree of culture control exerted. Hypothesis 3a investigated the relationship

between increasing degrees of subsidiary autonomy and decreasing degrees of

culture control. As shown in Exhibit 8, no significantly moderating effect was

found between the two variables. Hence H 3a was not supported. But the

64

negative sign of the correlation coefficient indicates a rightly assumed direction

of association between the two variables.

To assess the goodness of the binary logistic regression model as well as its

overall fit, further tests, i.a. Cox & Snell R-Square and Nagelkerkes R-Square,

frequently referred to as the Pseudo R-Square statistics of logistic regression

models, were performed. Both statistics (Cox & Snell R2 = 0.342, Nagelkerkes

R2 = 0.467) were found to be at an acceptable level.

At this point, it is important mentioning that both independent variables, i.e.

subsidiary role and subsidiary company, were found to be significantly correlated

(r = 0.421; p = 0.001). Hence the author had to examine whether the

multicollinearity assumption has been violated and if yes, to what extent the

violation has had any degrading effects on the parameter estimates (i.e.

regression coefficients, standard errors, confidence intervals and t-statistics).

Recapitulating, this statistical property posits that there should be no perfect

linear relationship among the independent variables, with high collinearity not

necessarily and automatically violating the multicollinearity assumption.

Therefore, special attention has to be paid to the respective models (models 1,

models 2 and models 3) within Exhibit 8, 9 and 10, where, in order to examine

the collinearity effects, in a first step, the equations were redefined with

iteratively dropping out one of the supposedly interacting explanatory variables.

Additionally, in a second step, the corresponding values for tolerance and

variance inflation factor of the two multiple regression equations (used to test H

2c & 3c as well as H 2b & H 3b) were measured with TOLSCroleSCauto taking value

0.823 and VIFSCroleSCauto taking value 1.216 respectively. These statistics (confer

step 1 and step 2) being performed, the author can satisfactorily state that the

presence of multicollinearity does not degrade the parameter estimates in the

present regression equations to such an extent, that the multicollinearity

assumption is being violated.

65

Exhibit 9 and 10 highlight the results of multiple regression analyses performed

to examine the influences of subsidiary company role and autonomy, as

Regressors, on bureaucratic control and monetary incentive compensation, as

Regressands, respectively, with all variables being at the interval scale.

Independent Variables Bureaucratic controla

Model1 Model2 Model3

Subsidiary role -0.069 0.026 (0.094) (0.089) Subsidiary autonomy 0.218** 0.190** (0.090) (0.082) SCage 0.009 0.013 0.01 (0.007) (0.007) (0.007) PCsales -0.0001* 0.0002* -0.0001* (0.000) (0.000) (0.000) R2 0.235 0.155 0.227

Adjusted R2 0.180 0.110 0.187

F 4.290 3.481 5.588 a Unstandardized regression coefficients are shown; standard errors are in parentheses * p < 0.05 ** p < 0.01

Exhibit 9: Influence of Subsidiary Company Strategy and Autonomy on Bureaucratic Control

Source: Author

As shown in Exhibit 10 subsidiary role was found to moderate monetary

incentive compensation and the relationship (Hypothesis 2c) is highly significant

66

(p = 0.001). However, data illustrated in Exhibit 9 reveals that, subsidiary

company mandates were not significantly related to bureaucratic control

(Hypothesis 2b). Nevertheless, interestingly, the statistically indicated

relationship between the former is negative. This direction of relationship is

important as it is exactly what the author has expected and in contrast to previous

empirical studies, has conceptually challenged.

Independent Variables Monetary Incentive Compensationa

Model 1 Model 2 Model 3 Subsidiary role 8.098*** 8.129*** (2.240) (2.019) Subsidiary autonomy 0.071 3.294 (2.143) (2.145) SCage -0.397 -0.395 -0.441 (0.167) (0.162) (0.183) PCsales 0.0004 0.0004 0.0004 (0.000) (0.000) (0.000) R2 0.311 0.311 0.151

Adjusted R2 0.262 0.275 0.106

F 6.328 8.588 3.367 a Unstandardized regression coefficients are shown; standard errors are in parentheses *** p = 0.001

Exhibit 10: Influence of Subsidiary Company Strategy and Autonomy on Incentive Compensation

Source: Author

Further, data shown in Exhibit 9 supports Hypothesis 3b, which states the

influence of subsidiary autonomy on bureaucratic control. As previously

mentioned, bureaucratic control was conceptualised in a reversely scored

67

manner, with higher scores indicating loosening degrees of control. Hence a

significantly positive relationship between the former indicates that with

increasing degree of autonomy, the degree of impersonal, bureaucratic control

decreases.

The regression coefficient resulted from the equation model to test the

association between subsidiary autonomy and monetary incentive compensation

was not found to be significant. Hence, Hypothesis 3c was not supported.

The Durbin Watson statistics performed to assess the degrees of correlation

between the disturbances in the two multiple regression equations (used to test H

2c & 3c as well as H 2b & H 3b) revealed no significant presence of first order

autocorrelation. Values measured were Durbin WatsonH2c&H3c = 2.055 and

Durbin WatsonH2b&H3b = 1.270 respectively.

Independent variables Monetary Incentive Compensation

Outcome measurability 6.268** (2.288) SCage -0.403 (0.162) PCsales 0.0023 (0.000) R2 0.252

Adjusted R2 0.208

F 5.715 a Unstandardized regression coefficients are shown; standard errors are in parentheses

** p < 0.01

Exhibit 11: Influence of Outcome Measurability on the Use of Monetary Incentive Compensation

Source: Author

68

Exhibit 11 presents the results of the regression model used to test Hypothesis 4.

The data supports Hypothesis 4, which says that with increasing outcome

measurability, the use of monetary incentive compensation increases. The

relationship was found to be positive and significant.

Exhibit 12 provides the results of the correlation analyses performed to test

Hypotheses 5a and 5b. Correlation analysis was applied, since no causal

relationship was assumed between the different types of control, which,

conceptually, are endogenous variables.

Monetary Incentive Compensation

Bureaucratic controla -0.404*

Culture controlb 0.103

a Pearson correlation coefficient between the control mechanisms is shown

b Point biserial correlation coefficient between the control mechanisms is shown;

Note: Culture control is a dichotomous variable

* p < 0.05

Exhibit 12: Relationship Between the Different Control Modes

Source: Author

Hypothesis 5a was tested with Pearson product moment correlation statistics,

since both variables were metrically scaled and Hypothesis 5b was tested with

Point biserial correlation statistics, as culture control was operationalised as a

dichotomous variable and hence underlying data were at interval and nominal

scale.

69

As indicated by the significantly negative correlation coefficient, the data

supports Hypothesis 5a, which states that with increasing use of bureaucratic

control, the use of monetary incentive compensation increases. However, data

presented in Exhibit 12 do not provide support for Hypothesis 5b, which

examined the correlation between culture control and monetary incentive

compensation, as no significant relationship was found.

VI. Discussion

This part of the study follows the objective to summarize and discuss major

findings of the relationship between the environmental and structural attributes

on the one hand and the control mechanisms on the other.

A. General Discussion of Results

Exhibit 13 provides a summarizing overview of the hypotheses tested in the

present work and serves as a basis for the following discussion.

HYPOTHESES SIGN SUPPORT

H 1a: Involvement → Culture Control + No

H 1b: Involvement → Bureaucratic Control + No

H 1c: Involvement → Monetary Incentive Compensation + No

H 2a: Subsidiary Role → Culture Control + Yes

H 2b: Subsidiary Role → Bureaucratic Control + No

H 2c: Subsidiary Role → Monetary Incentive Compensation + Yes

H 3a: Subsidiary Autonomy → Culture Control - No

H 3b: Subsidiary Autonomy → Bureaucratic Control - Yes

H 3c: Subsidiary Autonomy → Monetary Incentive Compensation - No

H 4: Outcome measurability → Monetary Incentive Compensation + Yes

H 5a: Monetary Incentive Compensation → Bureaucratic Control + Yes

H 5b: Monetary Incentive Compensation → Culture Control + No

Exhibit 13: Summary of Hypotheses Tested

Source: Author

70

Interestingly and contrary to the author's expectations, no hypothesized

moderating effects of increasing levels of financial involvement on control

mechanisms were found. What may be the reasons of failure to find a moderating

effect of parent company's involvement on subsidiary control?

A look at the statistics shown in Exhibit 7 reveals, that the coefficient of

determination R2 for both the regression models, which is commonly used as a

measure of the goodness of fit of a regression line, is low. The percentage of total

variation explained by the respective models is only 17.4 % and 7.6%

respectively. A coefficient of determination R2 of 0 would be mean that there is

no relationship between the exogenous and the endogenous variables. One

feasible explanation may arise from the measure used to operationalize the parent

company's degree of involvement. The author used the level of paid-up capital as

a proxy for the focal organisations engagement in India. Alternatively, the author

could have used other financial or structural measures such as the amount to total

capital invested or foreign assets attributable to overseas operations (Chang and

Taylor, 1999), (for a more comprehensive overview refer to the work of Nguyen

and Cosset (1995)).

The strategically increasing relevance of Subsidiary Companies for the long term

prospect of the parent company, inter alia, finds its articulation in the role played

by the affiliated units abroad. From entities with initially single function

operations, these entities have now emerged as increasingly important parts of an

international value chain. Endowed with considerable latitude for research and

development, production, marketing as well as sales and distribution, they

increasingly accumulate specialized knowledge with respect to mandated

products. From an agency perspective, it was argued that such situations of

increased strategic relevance will lead to increased attempts to control and align

agent's activities.

Two of the suggested relationships, namely subsidiary role's moderating effect on

culture control as well as on monetary incentive compensation, were supported.

71

However, no evidence was found for the moderating effect on bureaucratic

control. Now, how can these results be interpreted?

Taking up Perrow's (1971) paradox of decentralisation, which states that the

degree of control exerted in decentralised organisations can be even higher than

that in centralised ones especially when culture control is applied, we may find

logical explanations as to why Hypotheses H2a and H2c were supported and

Hypothesis H2b not. Culture control is an implicit form of control exerted

through internalised values and norms. Nevertheless, expatriates tend to be

strongly committed to Headquarters (Gregersen & Black, 1996). Unlike

bureaucratic control, which utilizes an extensive set of rules, regulations and

procedures, culture control does not regulate and hence restrict subsidiary

management's activities as extensively.

Organisational units need a certain degree of discretion to not only design their

own set of organisational processes that support new products (Abernathy &

Clark, 1985) but to also reconfigure internal and external competencies to

address the rapidly changing environments (Teece, Pisano & Shuen, 1997). This

may, at the same time, explain why, despite increased inducement to control

caused by the unit's growing strategic importance for the parent company, no

empirical evidence was found for the exertion of increased bureaucratic control.

Consistent with this chain of argumentations, monetary incentive compensation

also aligns rather than limits subsidiary management's goals and initiatives,

through the use of performance related financial incentives. It leaves enough

latitude for managers to utilize their own resources as well as competencies and

at the same time provides room for operational flexibility, which is important to

pursue the strategy of regional centralisation. This may also explain why the

relationship between increasing subsidiary role and increasing use of monetary

incentive compensation was found to be significantly related, resulting in

Hypothesis 2c being supported.

72

Subsidiary autonomy was another structural characteristic of interest to this

study. Based on the theoretical considerations, particularly based on those of

stewardship theory and its behavioural premises, it was argued, that managers, as

good stewards of a company, require enabling and empowering corporate

structures (Davis, Schoorman and Donaldson, 1997) for effective actions. To

facilitate the same, proponents of this theory posit exceeding degrees of

subsidiary autonomy. In compliance with this line of argumentation, the author

had hypothesized that increasing levels of subsidiary autonomy will ultimately

lead to decreasing levels of subsidiary regulations and control, which in turn

reflect a more empowering contextual environment. As it has already been

illustrated in the previous section, data supported the hypothesised inversed

moderating effect of autonomy on bureaucratic control. However, neither culture

control nor monetary incentive compensation were found to be significantly

related to subsidiary autonomy. What are plausible explanations to this?

Subsidiary autonomy is very much related to and reflected in the formal

organisation structure (Ghoshal, Korine & Szulanski, 1994). Stronger than any

other mechanism under consideration in the present study, it directly influences

the degree of latitude subsidiary management enjoys. Despite a high reduction in

active control, bureaucratic control, through the pre-establishment of plans,

formalisation of procedures and standardisation of systems (Van de Ven,

Delbecq and Koenig, 1976), strongly limits an entity's organisational and

operational flexibility. Hence, changes in the level of autonomy will inevitably

entail discernible changes in the framework of intra-firm structural relationships.

In contrast to that, monetary incentive compensation as well as culture control

are rather more implicit and subtler forms of governance and hence do not

restrict organisational adaptiveness. Having said this, its seems to be quite logical

as to why changes in the degrees of autonomy were significantly related to

bureaucratic control only.

Outcome measurability as a latent construct was used in this study to capture the

concept of environmental uncertainty. For recapitulation, it denotes the degree

73

with which outcomes are specifiable and quantifiable. In this work it was

hypothesised that higher measurability, which reflects lower levels of perceived

environmental uncertainty, will influence the use of monetary incentive

compensation positively. As shown in the previous section, this hypothesis was

supported as these variables are significantly related, indicating a strong match

between compensation structure and environmental characteristics.

High degrees of state uncertainty naturally cause significant difficulties to not

only measure outcome but also in determining whom to reward (O'Donnell,

2000). From an agency theory perspective, researchers (Eisenhardt, 1989a;

Jensen & Meckling, 1976) have additionally argued that, especially in such

situations, risk will increasingly be transferred to the agent, as outcomes are only

partly a function of one's own efforts. But what if the agent is risk averse and,

unlike the principal, is not able to diversify risk. On the contrary, this implies

that, monetary incentive compensation becomes increasingly attractive with

lower degrees of uncertainty and, in turn, with higher degrees of measurability,

not only to the agent, due to the aforementioned reason, but also to the principal,

as the costs of shifting risk to the agent and hence the costs entailed with this

form of governance is lower.

Last but not least, the author investigated the relationship between the distinct

control mechanisms. Contrary to the frequently shared assumption of a partially

substitutive relationship between different control modes, the author rather

assumed a complementary nature of applied control. As indicated in the last

section, one hypothesised relationship, more precisely, that between monetary

incentive compensation and bureaucratic control, was found empirically

supported, while no significant evidence was found for the assumed correlation

between monetary incentive compensation and culture control. What do these

results imply?

Let's consider the following situation in which a subsidiary company not only

plays a strategically important role for the parent company but is also

74

simultaneously embedded in a relatively stable environment. From what has been

illustrated so far, Headquarters, in order to further limit subsidiary's latitude, may

favour a combination of bureaucratic control and monetary incentive

compensation over a combination of the latter with culture control. One plausible

explanation for such a constellation directly results from the characteristics

associated with the respective governance mechanisms. Monetary incentive

compensation does not enable immediate actions. They are rather designed based

on long-term considerations. Through the extensive set of rules and procedures,

bureaucratic control mechanisms, however, endorse prompt sanctions. A second

source of explanation can possibly be found in the monitoring costs associated to

the respective types of control. Expatriate staffing very much entails high control

costs making this option frequently less attractive to companies which face

higher resource constraints. This being said, in such specific cases, an

organisational control design concept comprising bureaucratic control and

monetary incentive compensation can be considered more suitable.

B. Conclusion

One of the main purposes of the present work was to examine the types and

degrees of control imposed by Headquarters on their Foreign Subsidiaries

depending on certain environmental and structural characteristics. Thereby, the

author focused on 3 types of governing mechanisms which are commonly

applied in Multinational Corporations. This chapter presents some of the

conclusions drawn from the findings in this study.

1. Continuance of Formal and Structural Control

Generally, governance and control play an essential integrating function in

Multinational organisations. The importance of control stems from the fact that

Headquarters do have to ensure that the various activities originating from and

executed in its geographically dispersed subunits are compatibly coordinated and

75

support the overall objectives of the organisation as a whole (Egelhoff, 1984).

The higher the degree of specialisation or differentiation among the various intra-

firm units, the higher the need for mechanisms of integration. In integrating these

operations, Headquarters do have a choice. A choice in specifying the types and

levels of control it has with its respective overseas subsidiaries.

Based on an exhaustive review of literature on control used by Multinational

Corporations, Martinez and Jarillo (1989) describe an observed evolution in

those mechanisms of coordination and integration. From initially more structural

and formal mechanisms to subtler and informal mechanisms of control. The

former category includes departmentalization, centralisation, bureaucratic control

as well as output and behaviour control. The latter category comprises mainly

lateral relations such as task forces and interdisciplinary teams, informal

communication and socialisation frequently referred to as organisational culture.

This evolution is mainly explained by changing environmental influences faced

by Multinational Corporations. However, the findings of the present work

indicate a continued presence of formal and structural mechanisms of control in

internationally operating firms. Both results are not mutually contradictory. Yet,

for the moment (the author will elaborate on this point in the following sections),

it will suffice to note the persisting existence of control mechanisms of the first

category, namely, the existence of structural and formal control.

2. From Unidimensional to Multidimensional Control

An increasing number of recent studies on control exercised within firms indicate

another trend that moves from unidimensional approaches towards more

complex, multidimensional control systems. Meaning that various monitoring or

integration mechanisms are deployed simultaneously within organisations. These

instruments are then added to and not substituted for each other. Interestingly and

consistent to these previous findings, the results of this study support this

theoretically as well as empirically observed phenomenon for the given context.

While the author has investigated the relationship between distinct control types,

76

he found significantly related evidence for a complementary and simultaneous

deployment of certain control types.

3. Portfolio of Operative and Strategic Control

In compliance with what has been illustrated so far, it can be further argued that

companies do selectively combine their efforts of coordination based on the

characteristics associated with the various control types. As previously stated

integrating mechanisms such as bureaucratic control rather focus on rules and

procedures and hence limit operational flexibility. Clearly, this type of control is

highly operative in nature. In contrast to that, monetary incentive compensation

schemes strongly focus on the end of mean-end relationships and therefore

strategically align subunits' activities. As shown in one of the empirically

supported hypothesis, monetary incentive compensation is significantly

correlated to bureaucratic control and hence, by all means, it can be stated that, in

the given empirical context, companies do apply a combined set of operative and

strategic measures to align interests and activities.

4. Aptitude of Control Modes

If the strategically increasing role of subsidiary companies, from single function

operators and simple cost contributors to high value creators, is accompanied by

a high state of environmental certainty, a set of less formal but rather subtler and

more strategic control mechanisms must be applied. In such a manner

Headquarters can endorse strategic initiatives at the subsidiary company level

and avoid containment of operational flexibility at the functional level. However,

on the contrary, if parent companies, want to narrow organisational latitude and

rather prefer operative control over operations, more formal and structural

mechanisms such as bureaucratic control must be applied. This will help limiting,

more strongly, potentially diverging and aberrant activities at the Subsidiary

Company level, particularly when the magnitude of incentives for managers is

moderate due to increasing environmental volatility and uncertainty.

77

VII. Reflexion and Implications for Future Research

A. Critical reflexion and Limitations

Finally, it will be noteworthy to critically reflect on the present work. The first

few comments refer to the theoretical and conceptual part of the dissertation,

whereas the final comments focus on methodologies as well as the empirical

context applied to this study.

Firstly, the author would like to comment on the theoretical approaches applied

in the present work. Agency theory as well as stewardship theory mainly served

as the basis for deriving the hypotheses used to predict the type and level of

control exerted in Multinational Corporations. Agency theory and as well as its

economic view of a utility maximising, opportunistic and self-serving agent who

attempts to exert less effort may be too simplistic to accurately model today's

reality in Multinational Corporations (O'Donnell, 2000). Further theories such as

intraorganisational network approaches, comparative national culture

frameworks, and self-regulating behavioural approaches could have been

applied alternatively. However, does agency theory become less important or

even obsolete within this context? The question must be clearly negated as the

principal-agent structure with all its possible epiphenomena like self-interest,

goal divergence and information asymmetry still remains. Ergo, a rather

combined multi-theoretical application can be the only plausible answer. Further

research is necessary to help us understand when, for instance, agency theory

rather fits into the organisation and management theory framework, relative to

stewardship theory and vice versa.

The next point targets the control modes applied for the purpose of this research.

Alternative to the three types of governing mechanisms examined in this study,

further control concepts could have been investigated. Following the

78

aforementioned evolution of control mechanisms applied by Multinational

Corporations, one could have examined some of the subtler forms of control,

namely the use of interdisciplinary or temporary teams, the intensity of informal

communication flows through the number of meetings or transfer of managers

among corporate subunits or the establishment and diffusion of organisational

culture within affiliated entities abroad.

Another point of criticism focuses on the dyadic design of relationship assumed

between the focal organisation and its subsidiary companies in this study. Given

the fact that multinational organisations usually comprise more than one entity

abroad, this complexity reducing assumption, drawn for the purpose of analytical

simplicity, may not adequately capture and accurately mirror empirical dynamics

in organisations. Hedlund's (1986) concept of heterarchy or network models,

where organisations are considered to be a web of formally and informally

structured arrangements may be more appropriate since a clear tendency can be

perceived with regard to an increase in the density and proliferation of linkages

among different economic entities. Hence, for further studies, a subset of the

aforementioned organisational characteristics has to be specified more

adequately.

The third set of comments refers to the operationalization of variables and the

application of methodologies. Exemplarily, in this study, culture control has been

operationalised as a dichotomous variable, which can take values of 0 and 1.

Alternatively, following Edström and Galbraith (1977), culture control could

have been operationalised by measuring the ratio of the number of managers who

are from host or third country to the total number of managers comprising the top

management team in a Foreign Subsidiary. This would have caused a change in

the measurement scale of the variable, i.e. from nominal scale to interval scale

and hence would have naturally led to the application of distinct data analysis

techniques. A change from binary logistic to multiple regression analysis and

from Point biserial to Pearson product moment correlation analysis.

79

Finally, some critical remarks shall be made with respect to the empirical data

set. Cross section data, i.e. data on several variables at one point in time, have

been collected and applied for the hypothesis testing. Cross section data has its

own heterogeneity problems such as size and scale effects which have to be taken

into account (Black, 1999). A further valid point of criticism may refer to one of

the idiosyncrasies resulting from the Indo-Swiss empirical context and its effect

on the results with specific reference to the extraordinarily high number of small

and medium sized Swiss companies operating in India. Underdog companies

frequently face higher resource constraints (Eisenhardt, 2002), i.e. lack of

financial positions, lack of possibilities to distribute costs across different

products or product lines. This can, to a great extent, determine control decisions.

Another crucial aspect to be considered is the origin of the company. Since

management processes, values or norms and consequently patterns of decision-

making are, at least partly, shaped by cultural characteristics (Kelley, Whatley &

Worthley, 1987) the nationality might influence its preference for types and

levels of control exerted.

B. Implications for future research

Evidently, a study such as this can greatly benefit from extensions and

replications with following properties:

Firstly, as subsidiaries mature with respect to strategic resources, as businesses

and industries change with respect to the nature of competition, Multinational

Corporations should find substitutive mechanisms of control (Prahalad and Doz,

1981) and hence, subtler and more informal control types shall be investigated.

This will lead to an understanding of the functioning of newer mechanisms of

control in transnational organisation. However, this does not imply that classical

control modes are less important. As previously stated, the reality is that control

mechanisms are greatly overlaid and that any Headquarters-Subsidiary

80

relationship will exhibit multiple types of control to varying degrees (Birkinshaw

and Morrison, 1995).

This leads us to the second property, the application of comprehensive control

strategies, i.e. simultaneous imposition of distinct control mechanisms. Such

complex control systems have to be investigated more intensively in order to

enhance our understanding of the interdependencies among the different

mechanisms.

Thirdly, control concepts shall be more strongly related to its consequences in

order to evaluate the efficiency and efficacy of various control types.

Finally, for the sake of analytical simplicity, the exertion of control has been

examined under certain MNC-specific structural premises such as a dyadic

architecture with vertical Headquarters and subsidiary company linkages,

excluding additional lateral linkages between subsidiary and further affiliated

entities. Such complexity reducing, though fairly restrictive corporate

assumptions, shall be further loosened for future studies. This is of great

importance, since applicability and appropriateness studies of newer, more

informal control systems, like lateral decision making for instance, structurally

require a specific corporate design as pendant.

VIII. Closing Remarks

Multinationals Companies, in their quest for ways to gain and sustain

competitive advantages in a growingly global business environment, have started

to increasingly approach newly emerging markets. Parent companies, in their

pursuit to not only to pecuniarily exploit arbitrages but to also explore and

strategically benefit from locational differences, assign their Foreign Subsidiaries

with different mandates.

81

In implementing these mandates, Foreign Subsidiaries encounter new and

distinct market forces along with differing environmental conditions. These

peculiarities in the corporate periphery necessitate appropriate differentiation in

the internal structure of Multinational Companies - such as a stronger shift of

locus towards the set-ups of subsidiaries, which will naturally be accompanied by

various implications on the diverse vertical and lateral linkages between

Headquarters and Subsidiary Company. These, amongst others, include a general

revision of the Foreign Subsidiary's role or strategy, an increased delegation of

decision making authority towards subsidiary managers, more operational

flexibility to design its own processes and sufficient latitude to enhance

organisational adaptiveness.

However, this should not belie the fact that the ultimate responsibility for

coordination and overall strategic direction lies with the Headquarters, generating

a crucial need to compatibly coordinate the various activities executed at the

subsidiary level, so that they ultimately support the overall objectives of the

corporate group.

Control concepts play an essential role in performing the aforementioned

integrating function. However, the aptitude and effectiveness of respective

control strategies significantly depends on numerous factors, inter alia, on

structural and environmental aspects.

Hence, as previously mentioned by the author, the purpose of this dissertation

was twofold. Firstly, it was the author's intention to apply a theoretical set of

empirically testable and propositional arguments to a new context in order to

examine its predictive ability and limitations. Through this process of theory

testing, the author hopes to have contributed to the process of theory

development within the field of subsidiary management and subsidiary control,

which forms the core of Headquarters-Subsidiary relations research.

82

Secondly, the epistemological aim was to further increase our understanding of

control Multinational Corporations exert to manage their Affiliated Entities

abroad. Once a clear and thorough understanding, of how types and degrees of

control are being moderated by specific structural and environmental

contingencies, has been established, this relational framework can serve for

descriptive and predictive purposes in the given context.

To conclude, following Whetten's (1989) posit that a good theorist inter alia has

to have the sensitivity to find a balance between the virtues of

comprehensiveness and parsimony, the author hopes that present work was able

to strike such a balance and provides impetus for future research within this field

and context.

83

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Appendix

Interview Directory of Sampled Companies

COMPANY NAME FIRST NAME FUNCTION LOCATION

ABB LTD. Uppal Ravi Managing Director Bangalore/ India

ALL E TECH Mian Ajay Chief Executive Officer Noida/ India

BALDOR ELECTRIC INDIA PVT. LTD.

Raibagi Sunil Director Pune/ India

BLASER SWISS LUBE INDIA PVT. LTD.

Chakraborty Santosh Managing Director Delhi/ India

BOBST INDIA PVT. LTD.

Keller Rodolphe President Pune/ India

BRUDERER PRESSES INDIA PVT. LTD..

Fernandez P.A. Director Mumbai/ India

BTS INVESTMENT ADVISORY Guggenbühl Alastair Managing Partner Zurich/ Switzerland

BUHLER (INDIA) PVT. LTD.

Mane Dipak Managing Director Bangalore/ India

BURCKARDT COMPRESSION (INDIA) LTD.

Rao Rallabhand Managing Director Pune/ India

CFL CROSSFREIGTH Singh Yogesh Chief Executive Officer Rümlang/ Switzerland

CLARIANT CHEMICALS Meier Heiner Vice Chairman & MD Mumbai/ India

CONCAST AG Zuber Jacques President & CEO Zurich/ Switzerland

CREDIT SUISSE Doshi Mihir Managing Director Mumbai/ India

DURECO INTERNATIONAL Durrer Markus Principal Horw/ Switzerland

ENDRESS+HAUSER FLOWTEC INDIA PVT. LTD.

Bhandiwad President & Director Aurangabad/ India

GEBERIT AG (SCHWEIZ) Ernst Christian Head International Sales Rapperswil/ Switzerland

108

COMPANY NAME FIRST NAME FUNCTION LOCATION

GEORG FISCHER AG Elben Helmut Head of Corporate Planning

Schaffhausen/ Switzerland

GIVAUDAN Pal Ajit Regional Director Bangalore/ India

GUEDEL INDIA PVT. LTD.

Raibagi Sunil Director Pune/ India

HOLCIM Hugentobler Paul Executive Committee Member

Zurich / Switzerland

HUBER+SUHNER ELECTRONICS PVT. LTD.

Banz Benedikt Chief Executive Officer Gurgaon/ India

INTEGRA HINDUSTAN CONTROL LTD.

Parikh Madhukar Chief Executive Officer Vadodara/ India

KAIZEN INSTITUTE (INDIA) PVT. LTD.

Puri Ashok Managing Director Delhi/ India

KARL SOTRZ Eicher Anton Director Sales Tägerwilen/ Switzerland

KBA-GIORY INDIA PVT. LIMITED

Gupta Atul Chief Executive Officer Delhi/ India

KISSSOFT AG Dinner Hanspeter Director Distribution Hombrechtikon/Switzerland

KUEHNE+NAGEL PVT. LTD.

Mueller Volkmar Managing Director Gurgaon/ India

KUONI INDIA LTD.

Dhanbhoora Rustom CEO - Managing Director

Mumbai/ India

LONZA LTD INDIA Umkanth Subramanyan

Managing Director Mumbai/ India

LPS BOSSARD Jain Rajesh Managing Director Rotakh/ India

LUWA INDIA PVT. LTD.

Abrell Gottfried President Bangalore/ India

METTLER-TOLEDO Malhotra Ashok Managing Director Mumbai/ India

NESTLE INDIA LTD.

Roland Martial Chairman & Managing Director

Gurgaon/ India

NOVARTIS INDIA LIMITED

Shahani Ranjit Vice Chairman & MD Mumbai/ India

109

COMPANY NAME FIRST NAME FUNCTION LOCATION

NOVOLEX GMBH Meier Daniel Chief Executive Officer Oberriet/ Switzerland

OTTO-HOSTETTER INDIA PVT. LTD.

Pradhan S Chief Executive Officer Bangalore/ India

PACKSYS GLOBAL PVT. LTD.

Beat Rupp Manging Director Rueti/ Switzerland

PIT SOLUTIONS von Ziegler Dieter Chief Executive Officer Murg/ Switzerland

RIETER AUTOMOTIVE AG Thébaud Frédéric Vice-President Winterthur/ Switzerland

RIETER INDIA PVT. LTD.

Enderle Michael Chairman Delhi/ India

SAURER ARBON AG Schöler Rolf Erik Area Sales Manager Arbon/ Switzerland

SAUTER RACE Suresh R. Director Chennai/ India

SCHILLER HEALTHCARE INDIA PVT. LTD

Sanghvi Vikram Managing Director Mumbai/ India

SCHOELLER TEXTILE AG Kuehne Ruedi Chief Financial Officer Sewelen/ Switzerland

SCHURTER INDIA PRIVATE LTD.

Lokhandwala Agari Managing Director Vadodara/ Switzerland

STÄUBLI INDIA Mahajan Surjit Singh Managing Director Mumbai/ India

SUHNER INDIA PVT. LTD.

Amann Philipp Chief Executive Officer Bangalore/ India

SWISS INTERNATIONAL AIRLINES Schmid Urs General Manager Mumbai/ India

SWISS RE SERVICES Date Dhananjay Managing Director Mumbai/ India

SYNGENTA INDIA Apte Prakash Managing Director Mumbai/ India

SYNGENTA SEEDS Nadga Surendra President Pune/ India

USTER Rathnam V.R. President Bangalore/ India

110

COMPANY NAME FIRST NAME FUNCTION LOCATION

VICTORINOX INDIA PVT. LTD

Goel Anish Managing Director Mumbai/ India

XL INSURANCE Popp Thomas Chief Executive Officer Gurgaon/ India

ZIEGLERTEX INDIA PVT. LTD

von Ziegler Dieter Chief Executive Officer Murg/ Switzerland

111

Questionnaire

A. General Information on Your Company

I. Contact Details

Name:First name:Function:Company:Department:Street / No:Postcode / Town / Country:Telephone:Mobile (optional):Fax:E-mail:

II. Questions on Your Parent Company

Plant manf./engineering Electronics TelecommunicationsAutomotive/supplier Food/beverages/tobacco Mail orderConstruction Optics/precision mech. TextilesElectrical engineering Pharma/chemical ServicesEquipment manufacturer IT/software Others

1. 2. 3.

2004 2005 2006

a. 10 years ago:

c. 2006 (last financial year)

2004: CHF 2005: CHF 2006: CHF

1

a. 10 years ago:

c. 2006 (last financial year)

2004: CHF 2005: CHF 2006: CHF

2. In which sector(s) does the Parent Company operate? (Multiple answers possible)

3. Please state three most important strategic business areas of the Parent Company.

Please specify

4. Please quantify the number of employees in the Parent Company for the last three years.

5. Please specify the share of foreign employees to total employees of the Parent Company?

% of total number of employees

b. 5 years ago: % of total number of employees

% of total number of employees

6. Please quantify the Parent Company's sales volume (in CHF millions) over the last three years.

7. Please specify the share of foreign sales to total sales of the Parent Company?

% of total sales volume

b. 5 years ago: % of total sales volume

% of total sales volume

8. Please quantify your company's profits (in CHF millions) over the last three years.

112

III. Questions on the Subsidiary Company in India

YoE: INR m 2006: INR m

1. 2. 3.

Plant manf./engineering Electronics TelecommunicationsAutomotive/supplier Food/beverages/tobacco Mail orderConstruction Optics/precision mech. TextilesElectrical engineering Pharma/chemical ServicesEquipment manufacturer IT/software Others

Plant manf./engineering Electronics TelecommunicationsAutomotive/supplier Food/beverages/tobacco Mail orderConstruction Optics/precision mech. TextilesElectrical engineering Pharma/chemical ServicesEquipment manufacturer IT/software Others

2004 2005 2006

2004: INR 2005: INR 2006: INR

2004 2005 2006

2004: INR 2005: INR 2006: INR

2

1. In what year did you start your operations in India?

2. What is the level of paid-up capital in INR millions?

3. Please name the three most important strategic business units / subsidiaries in India. (By order of importance)

Year of Establishment

Please specify

4. In which sector(s) does your 1. Business Unit / Subsidiary in India operate? (Multiple answers possible)

5. In which sector(s) does your 2. Business Unit / Subsidiary in India operate? (Multiple answers possible)

Please specify

6. Please quantify the number of employees of your 1. Business Unit / Subsidiary in India for the last three years.

7. Please quantify the sales volume (in INR m) of your 1. Business Unit / Subsidiary in India over the last three years.

8. Please quantify the number of employees of your 2. Business Unit / Subsidiary in India for the last three years.

9. Please quantify the sales volume (in INR m) of your 2. Business Unit / Subsidiary in India over the last three years.

113

Please state the number of hierarchical levels in the business unit in India. (Top management, middle management, etc.)

Since what date has the current head (CEO, General Manager, Country Manager, etc.) been in his post in the business unit in India? (MM/YYYY) (MM/YYYY) (MM/YYYY)

Please specify the nationality of the Country Head

Please specify the nationality of the respective Business units/

Subsidiaries

Subsidiary strategy

Indicate to the extent in which each of the following factors characterize the role of the subsidiary for its major product or product line:

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

Monetary incentive compensation

Management / Leadership StyleBusiness Unit 1 Business Unit 2

No. of hierarchical levels No. of hierarchical levelsPlease quantify the average size (number of people) in the first three hierarchical levels.

No. of people in top management No. of people in top managementNo. of people in top management No. of people in middle management

% HCN % HCN

No. of people in lower management No. of people in lower management

PCN = Parent Country National, HCN = Host Country National, TCN = Third Country National.PCN = Parent Country National, HCN = Host Country National,

PCN = Parent Country National, HCN = Host Country National,

Please define the composition of the following hierarchical levels: PCN = Parent Country National, HCN = Host Country National, TCN = Third Country National.

% PCN % PCN

% HCN % HCN

% TCN % TCN% PCN % PCN% HCN % HCN

% TCN % TCN

PCN = Parent Country National, HCN = Host Country National, TCN = Third Country National.

(c) Lower management level

(b) Middle management level

(a) Top management level

% TCN % TCN% PCN % PCN

Business Unit 1 Business Unit 2

Subsidiary primarily executes the strategy developed at the Headquarters? (1 = to a very great extent 5 = to a very little extent) rev. scored!

Subsidiary has international responsibility for procurement activities? (1 = to a very little extent - 5 to a very great extent)

Subsidiary has international responsibility for R&D activities? (1 = to a very little extent - 5 to a very great extent)

Subsidiary has international responsibility for production activities? (1 = to a very little extent - 5 to a very great extent)

Subsidiary has international responsibility for marketing and after sales activities? (1 = to a very little extent - 5 to a very great extent)

Subsidiary has international responsibility for certain secondary activities? (1 = to a very little extent - 5 to a very great extent)

The subsidiary posses some key strategic decision making authority concerning a mandated product or product line? (1 = to a very little extent - 5 to a very great extent)

Subsidiary has a high level of specialized knowledge regarding a product or product line? (1 = to a very little extent - 5 to a very great extent)

International market development costs are incurred by the subsidiary? (1 = to a very little extent - 5 to a very great extent)

% Short term incentives % Short term incentives% Long term incentives % Long term incentives

Business Unit 1 Business Unit 2

Indicate the percentage of Top Management compensation paid through each of the following components:

% Fixed salary % Fixed salary% Fringed benefits % Fringed benefits

114

Subsidiary autonomy

Indicate the relative influence of the headquarters and the subsidiary on the following aspects related to the subsidiary:

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

Outcome measurability

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

Bureaucratic monitoring

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

1 5 1 5

Business Unit 1 Business Unit 2

Changes in product policy (i.e. new product design)(1 = HQs decides alone - 5 = subsidiary decides alone)

Changes in communication policy (1 = HQs decides alone - 5 = subsidiary decides alone)

Changes in price policy (1 = HQs decides alone - 5 = subsidiary decides alone)

Selection of material suppliers(1 = HQs decides alone - 5 = subsidiary decides alone)

Changes in the manufacturing process (1 = HQs decides alone - 5 = subsidiary decides alone)

Production schedules and plans (1 = HQs decides alone - 5 = subsidiary decides alone)

Quality controls decisions (1 = HQs decides alone - 5 = subsidiary decides alone)

Target group/market selection (1 = HQs decides alone - 5 = subsidiary decides alone)

Business Unit 1 Business Unit 2

Changes in organisation structure (i.e. reorganisation)(1 = HQs decides alone - 5 = subsidiary decides alone)

Changes in staffing policy (i.e. hiring or promotion)(1 = HQs decides alone - 5 = subsidiary decides alone)

Changes in corporate finance (i.e. equity or debt financing)(1 = HQs decides alone - 5 = subsidiary decides alone)

The objectives of this subsidiary are clearly stated (1 = to a very little extent - 5 to a very great extent)

There are specific performance objectives for this subsidiary (1 = to a very little extent - 5 to a very great extent)

Performance targets are set for this subsidiary (1 = to a very little extent - 5 to a very great extent)

The outcomes toward which this subsidiary works are specified precisely (1 = to a very little extent - 5 to a very great extent)

This subsidiary's important objectives are stated numerically (1 = to a very little extent - 5 to a very great extent)

Business Unit 1 Business Unit 2

Operating expanditures (1 = daily, 2 = weekly, 3 = monthly, 4 = quarterly, 5 = annually)

Sales figures (1 = daily, 2 = weekly, 3 = monthly, 4 = quarterly, 5 = annually)

Quality control assessments (1 = daily, 2 = weekly, 3 = monthly, 4 = quarterly, 5 = annually)

Budgeting process (1 = daily, 2 = weekly, 3 = monthly, 4 = quarterly, 5 = annually)

Resource allocation (1 = daily, 2 = weekly, 3 = monthly, 4 = quarterly, 5 = annually)

Capital equipment purchases (1 = daily, 2 = weekly, 3 = monthly, 4 = quarterly, 5 = annually)

Strategic business plans (1 = daily, 2 = weekly, 3 = monthly, 4 = quarterly, 5 = annually)

DR. DES. SIGU MURINGASERIL CURRICULUM VITAE

Page 1 of 4

PERSONAL INFORMATION

Address: Asia Research Centre (ARC)

University of St.Gallen (HSG)

Dufourstrasse 40A

CH-9000 St. Gallen

Switzerland

Phone: + 41 71 2242489

Mobile: + 41 79 4392272

Email: sigu.muringaseril@unisg.ch

Date of Birth: 27 February 1977

Nationality: German (Indian Origin)

Marital Status: Married

CAREER OBJECTIVE

To leverage the expertise and knowledge gained in the field of strategic and international

management thereby providing corporate houses the required infrastructure to efficiently and

efficaciously manage their business operations worldwide.

EDUCATIONAL PROFILE

DOCTOR UNIVERSITY OF ST.GALLEN (HSG), SWITZERLAND 2004-07

OF Specialization in International Management:

ECONOMICS Multinational Corporations (MNCs) (Dr. oec.) Headquarters-Subsidiary Relationships (HQs-SCs)

Control Concepts within MNCs

PREDICATE: WITH GREAT HONORS (VERY GOOD)

Doctoral Thesis:

Control Concepts in Multinational Corporations (MNCs)

The Case of Swiss MNCs with Foreign Subsidiaries in India

Supervisor:

Prof. Dr. Li-Choy Chong

University of St.Gallen (HSG), Switzerland

Co-Supervisor:

Prof. Dr. Narendra M. Agrawal

Indian Institute of Management Bangalore (IIMB), India

DR. DES. SIGU MURINGASERIL CURRICULUM VITAE

Page 2 of 4

VISITING SCHOLAR INDIAN INSTITUTE OF MANAGEMENT BANGALORE 2005-07

Research & Operating base

DIPLOM-KAUFMANN UNIVERSITY OF TÜBINGEN, GERMANY 2003

Equivalent to MBA Major in Strategic Management and Marketing

Minor in Management & Organizational Psychology

PROFESSIONAL PROFILE - BUSINESS

FOUNDER & CHAIRMAN INDIA SYMPOSIUM - BRAND EQUITY: MILLION SWISS FRANC PLUS

Founded in 2005 Annually recurring leadership platform which strives to foster the

economic and social ties between India and the German-speaking

Website: regions of Europe, consisting of Germany, Switzerland and Austria

www.india-symposium.org actively and sustainably.

PREVIOUS SPEAKERS & PARTICIPANTS include

Ministers, Ambassadors & Top Executives of ABB, Allianz, Citigroup,

Credit-Suisse, DaimlerChrysler, Ernst&Young, Evalueserve, Holcim,

IBM, Infosys, KPMG, McKinsey&Company, Rieter, SAP, Siemens,

Swiss International Airlines, SwissRe, Swiss State Secretariat for

Economic Affairs SECO, UNCTAD, World Economic Forum (WEF)

and Zurich Financial Services.

TRAINEESHIPS PORSCHE 2002/03 Headquarters, Stuttgart / Germany

Product Management Cayenne and Carrera GT

Member of the Porsche Pool - Talent Search Program

DAIMLERCHRYSLER 2001 Headquarters, Stuttgart / Germany

Product Management Telematics

INDO-GERMAN CHAMBER OF COMMERCE 2000 Head Office, Mumbai/India

CONSULTING TYPE OF PROJECTS 2004-07 Various Projects Strategic Scenario Development, Benchmarking Projects, International

Market Development to name just a few

CLIENT PORTFOLIO Small and Medium Sized Enterprises (SMEs), Multinational

Corporations (MNCs) and Governmental Organisations.

DR. DES. SIGU MURINGASERIL CURRICULUM VITAE

Page 3 of 4

PROFESSIONAL PROFILE - ACADEMIA

INITIATOR & RESEARCH PROJECT ON

PROJECT LEADER INTERNATIONALIZATION OF SWISS COMPANIES TO INDIA

In cooperation with and under the patronage of Swiss State Secretariat

for Economic Affairs / Swiss Federal Ministry for Economics; Examination of up to 100 Business Units of Swiss Foreign Subsidiaries

in India

INITIATOR FIT FOR INDIA - PROGRAM @ UNIVERSITY OF ST.GALLEN

Internship and Trainee - platform for HSG Students in India; Target:

Cross-sectional design; 10-15 internships in India p.a.

PROMOTER & ADVISOR EXECUTIVE AND BUSINESS TRIPS TO INDIA

Executive MBA 2005/06 - 45 Executives

Business Delegation 2006 - German Bank incl. 48 corporate clients

PROGRAM DIRECTOR ASIA CONTEXT AT IIMB Exchange Program of HSG in 2005 and 2007

GUEST LECTURES EXECUTIVE MBA IN GENERAL MANAGEMENT

India-specificat University of St.Gallen 2005/06

EXECUTIVE MBA IN LOGISTICS MANAGEMENT

at University of St.Gallen 2005/06

SWISS CHAMBERS OF COMMERCE AND INDUSTRY Event Partner & Regular Speaker 2006/07

PUBLISHING EUROPEAN ACADEMY OF MANAGEMENT CONFERENCE 2005 Exemplarily; List of publications available upon request

MISCELLANEOUS

INVITATION & CII INDIA RECEPTIONS AT THE WORLD ECONOMIC FORUM

PARTICIPATION in Davos 2005, 2006, 2007 and 2008

DELEGATE CAREER 2005, SINGAPORE Delegate of the University of St. Gallen (HSG), Switzerland

DR. DES. SIGU MURINGASERIL CURRICULUM VITAE

Page 4 of 4

LANGUAGES

German, English, Malayalam, French, Hindi

PERSONAL SKILLS & COMPETENCIES

Leadership Skills

Analytical Skills

Intrinsically motivated, highly dedicated and strongly committed

PERSONAL INTERESTS

Family

Sports: Soccer, Karate and Chess

REFERENCES

Prof. Dr. Narendra M. Agrawal Indian Institute of Management Bangalore (IIMB)

Professor for Organizational Behaviour (Letter of Reference available on request)

Prof. Dr. Li-Choy Chong University of St.Gallen (HSG)

Director, Asia Research Centre (Letter of Reference available on request)

Dr. des. Sigu Muringaseril

Dated the 21st day of January 2008