Change in the management of subsidiaries due to increasing value competition - as a starting point for a survey on the impact on employment and occupational qualifications†

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Publication Type:

Conference Paper

Authors:

Heike Proff

Source:

Gerpisa colloquium, Paris (2012)

Keywords:

multi-market management

Abstract:

Currently, automotive companies are increasing their value added in the growth markets of the BRIC countries, despite the risk of losing knowledge, especially in China. Protecting their global market position and handling the major markets, especially the Chinese market, require high levels of foreign investment, not only in production, but also in other value-adding activities such as research and development (R&D). A new form of value chain competition arises.
 
Therefore, global automotive manufacturers’ and suppliers’ management has to adapt to the changing importance of the foreign subsidiaries and now has to coordinate them at least on a regional basis, if perhaps not yet globally.
 
However, up to now, despite the regionalisation in East Asia, Latin America and sub-Saharan Africa, the value-adding activities of the subsidiaries have been largely confined to single foreign markets. In addition, the interactions between the subsidiaries compared to the exchange relationship between subsidiaries and the parent companies have been low. This has mainly been caused by inter-company transfer pricing and tight, centralized management by the parent companies.
 
Therefore, “integrating a (new) site into the value added network”, as a fourth step in traditional international market management (after 1. Identifying attractive markets and sites, 2. Deciding on the form of internationalisation and 3. Deciding on the form and timing of establishment), has had to be extended by a multi-market management to reduce product substitutability and the scale and scope disadvantages within and between multinational companies (as a first step, to prevent overcapacities) (cf. Proff 2007 and Proff, Proff 2008, based on Bulow et al. 1985). In a second step, the coordination of international value adding activities must be improved in order to further reduce scale and scope disadvantages. Multi-market management thus becomes coordinated multi-market management.
 
Coordinated multi-market management has to increase the exchange between subsidiaries through “strategies covering coordination needs” (cf. Peng, Meyer 2011, pp. 457), which is still low in the automotive industry compared to the exchange relationships between the subsidiaries and the corporate centre or parent company (cf. Fuchs, Apfelthaler 2009, p. 214).
 
Many different “strategies covering coordination needs” are discussed in the literature (cf. overview in Kutschker, Schmid 2011, p. 1035):
 
-        Technocratic coordination strategies that aim to impose routines and standards on operational inputs (e.g. execution of operational processes) and operational outputs (e.g. results) through rules and programmes, plans, budgets, reporting systems and formalisation,
-        People-orientated coordination strategies that are carried out by personal instructions, autonomy, visits, executive transfers, standardisation of roles and culture-orientated coordination and
-        Other “strategies covering coordination needs” such as transfer prices, knowledge transfer and self-organisation.
 
Although many studies examine which coordination strategy is most efficient, and under what contextual factors the use of a specific coordination strategy is particularly efficient, they have not yet succeeded in finding the answers. For this reason, international companies normally use a range of different coordination strategies simultaneously.
 
We used an oral survey as our empirical methodology, in order to identify first indications of future changes in the management of subsidiaries on the basis of increasing international value added competition, and conducted in-depth interviews with experts in the automotive industry using a structured interview guideline. The interviews lasted around one and a half hours on average. This methodology was selected because assessments of future developments, i.e. the strategic perspective of the respondents, were to be recorded. It was therefore impossible to use conventional hypothesis testing and an analysis by multivariate methods.
 
We conducted interviews of 93 industry experts (generally from leading automotive industry associations), well-known academics and top managers (generally managing directors) of subsidiaries of German automotive manufacturers and suppliers in the BRIC countries of Brazil, Russia, India and China – all in the year 2010 during research trips to all four countries – and in the German parent companies
 
The interviews showed that of the many “strategies covering coordination needs” discussed in the literature, four appear to be particularly important: 1. Regional management with extensive autonomy from the corporate centre and coordination based on value consensus, 2. Institutionalised knowledge transfer with coordination based on differences in know-how, 3. Personnel transfer with hierarchical coordination and 4. The offer of shared support functions, with coordination via transfer prices which exploit tax advantages.
 
The interviews therefore showed that these four “strategies covering coordination needs” appear important to the experts and are in some cases already pursued in the multinational automotive companies, but that they are not yet followed to an adequate extent. In China in particular, the many sites have not been coordinated so far in a Chinese or Asian network, but mostly remain autonomous value-adding units.  With the fast growth in China and the other BRIC markets, coordination needs will increase (cf. Proff 2012 and Bernhard 2011, p. 31), the role of subsidiaries therefore has to be redefined.
This finding gives rise to a need for further research. We therefore propose a subproject
“Changes in the management of subsidiaries of multinational automotive companies within a new international division of labour and changes in the employment relationship”
for the new GERPISA International Research Project in the field: New Demarcations in the Global Automotive Industry - Breakup of the Triad, as proposed by Ludger Pries and Antje Blöcker.
 
For this subproject, we can derive the following assumptions:
  • Due to increasing value adding activities in subsidiaries operating in emerging markets, a change from a previously largely locally orientated management to a regional and even globally orientated management with increasing autonomy and accretive influence on the management of the parent company is probable.
  • Parent companies need skilled workers, because branding, technical development and the production of central components still have to be done within the parent companies.
  • Despite the shift of research and development activities into new growth markets, the Triad will remain a central location for innovation, because Asian manufacturers are investing heavily in the Triad.
 
In this subproject we will examine assumptions relating to the influences on employment and occupational qualifications in the foreign locations as well as at the parent companies in Germany. Therefore, case studies will be conducted with parent companies of German manufacturers and their subsidiaries in the BRIC countries (in collaboration with GERPISA colleagues in France and Italy, possibly with partners in the BRIC countries). The research framework will consists of theories on the role and coordination of subsidiaries in the international management and value adding activities of multinational enterprises.
 
 
 
 
Selected References
 
 
Bernhardt, W. (2011) Die Automobilindustrie im Jahr 2025 – heute die Basis für den Erfolg von
            morgen legen, in: `Zeitschrift für die gesamte Wertschöpfungskette Automobilwirtschaft
            (ZfAW)´, 14. Jg., S 26-33.
Bulow, J. I., Geanakoplos, J. D., Klemperer, P. D. (1985) `Multimarket oligopoly. Strategic substitutes
            and complements´, in: Journal of Political Economy, Vol. 93, pp. 488-511.
Fuchs, M., Apfelthaler, G. (2009): `Management internationaler Geschäftstätigkeit´. 2. Aufl., Wien.
Kutschker, M., Schmid, S. (2011) `Internationales Management´, 7. Ed., Munich..
Peng, M., Meyer, K. (2011): `International Business´. London.
Proff, H. (2007): `Dynamische Strategien: Unterstützung der Erreichung der angestrebten Wettbe
werbsvorteile im internationalen Wettbewerbsprozess´. Wiesbaden.
Proff, H. (2012) `Managing the transition to electric mobility in Chinese automotive subsidiaries of
MNCs´, will be published in: International Journal of Automotive Technology & Management”,
Spcial Issue on China Strategies, 2012.
Proff, H., Proff, H.V. (2008) `Dynamisches Automobilmanagement. Strategien für Hersteller und
Zulieferer im Internationalen Wettbewerb´. 1. Aufl., Wiesbaden.

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