Headquarters - Subsidiary Relationship:

Issues and Challenges

A Study of A Dutch Shipyard’s Headquarters – Foreign Subsidiaries Relationship

Master Thesis

Name : Michelle Wolters

Student no. : 5983746

Date of submission : 10th of August, 2014

Course : MSc in Business Studies – International Management

Institution : Amsterdam Business School, University of Amsterdam

Supervisor 1 : Dr. Stephan von Delft

Supervisor 2 : Dr. Niccolò Pisani

Abstract

The aim of this study is to describe the MNEs headquarter and foreign subsidiaries relationship and

investigate what issues and challenges exist within this relationship. This relationship is investigated

from the perspectives of both the headquarter and subsidiary with the main purpose to identify in what

way those challenges between the headquarter and the subsidiary influence the relationship. There are

three main themes investigated with regard to this relationship: knowledge sharing, coordination and

control mechanisms and the degree of shared values. Furthermore, this study will take into account

the clients’ perspective on the relationship, within the internationalization of the case company.

Keywords : Internationalization, knowledge transfer, shared values, control mechanisms, headquarter

– foreign subsidiary relationship, trust

Acknowledgements

This thesis is written as final part of the master Business Studies at the University of Amsterdam.

First, I would like to thank Dr. Stephan van Delft for his guidance and support during the writing of

this thesis. Especially, the recommendation of some literature was very useful in the starting phase.

Second, I would like to express my gratitude to all the participants of this research for their time and

effort to share their opinions, knowledge and experience with me by participating in an interview.

Their input and contributions have been of great value for this study.

Amsterdam, August 2014

Michelle Wolters

Contents

1. Introduction ..................................................................................................................................... 6

2. Theoretical Framework ................................................................................................................. 10

2.1 Internationalization and the MNE ............................................................................................... 10

2.2 Internationalization Process ........................................................................................................ 11

2.2.1 The Uppsala Internationalization Model .............................................................................. 11

2.2.2 Different views on Internationalization ............................................................................... 12

2.2.3 Internationalization of Technical Consulting Firms ............................................................ 12

2.3 Headquarter – Foreign Subsidiary Relationship ......................................................................... 14

2.3.1 The Network Structure of the MNE ..................................................................................... 14

2.3.2 Shared Values ...................................................................................................................... 15

2.3.3 Barriers to Relationship Building ........................................................................................ 17

2.3.3.1 Interdependent Network ................................................................................................ 17

2.3.3.2 Information Asymmetry ................................................................................................ 19

2.3.3.3 Conflicting Interests ...................................................................................................... 20

2.3.3.4 Control Mechanisms ..................................................................................................... 21

2.4 Company – Client Relationship .................................................................................................. 22

3. Method .......................................................................................................................................... 24

3.1 Case Study Research ................................................................................................................... 24

3.2 Data Collection ........................................................................................................................... 25

3.3 Case Criteria and Selection ......................................................................................................... 27

3.3.1 Case Company ..................................................................................................................... 28

3.3.2 Chinese dredging market ..................................................................................................... 29

3.4 Qualitative Data Analysis ........................................................................................................... 29

4. Results ........................................................................................................................................... 31

4.1 Data presentation ........................................................................................................................ 31

4.1.1 Headquarter .......................................................................................................................... 31

4.1.2 Subsidiary ............................................................................................................................ 40

4.1.3Client ..................................................................................................................................... 51

4.2 Comparison ................................................................................................................................. 54

5. Discussion and Conclusion ........................................................................................................... 56

5.1 Discussion ................................................................................................................................... 56

5.1.1 Implications of Theory ......................................................................................................... 56

5.1.2 Implications for Managers ................................................................................................... 57

5.2 Conclusion .................................................................................................................................. 58

5.4 Limitations and further research ................................................................................................. 59

Bibliography .................................................................................................................................... 60

Appendix ............................................................................................................................................... 64

1. Discussion Guide ...................................................................................................................... 64

Figure 1: Internationalization of engineering consulting firms ............................................................. 13

Figure 2: Conceptual Model ................................................................................................................. 23

Table 1: Interviewee details .................................................................................................................. 26

Table 2: Interviewee details (client)...................................................................................................... 26

Table 3: Interview questions linked with the propositions ................................................................... 27

Table 4: Summary Headquarter ............................................................................................................ 39

Table 5: Summary Subsidiary Netherlands .......................................................................................... 49

Table 6: Summary Subsidiary China .................................................................................................... 50

Table 7: Cross-Case Data Analysis ....................................................................................................... 54

Table 8: Results on working propositions ............................................................................................. 56

List of abbreviations

HQ Headquarter

MNE Multi National Enterprise

IM International Management

FDI Foreign Direct Investment

IB International Business

FSA Firm Specific Advantages

ECF Engineering Consulting Firm

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1. Introduction

“Build an organization that is ready for the next generation of global competition”. This is one of the

outcomes of the McKinsey report “Urban world: The shifting global business landscape”. According

to this report, companies have to rethink about the structure and location of the management, due to a

shift of business towards emerging markets such as China. As a result of the increased complexity in

global business, management has to think about the challenges and issues that influence this

complexity. The Economist investigated the challenges that companies face when they have to

operate in increasingly international markets. They focused specifically on the role that cross-border

communication and collaboration play in the success or failure of the companies’ internationalization

strategy. One of their main outcomes in the report “Competing across borders” is that effective cross-

border communication and collaboration are a critical factor in the financial success of companies

with international aspirations (Bolchover, 2012). 48% of foreign businesses, including leading

multinational corporations, fail and withdraw from the Chinese market within two years of

establishing operations there.1 Hence, being a global brand does not guarantee success in China.

Companies such as eBay and Tesco failed to enter the market and those failures include both internal

and external aspects. As mentioned in the McKinsey and The Economist report , companies have to

focus on their internal structure in order to become more effective in the international markets.

Cullen and Parboteeah (2005) state that world economies are becoming increasingly borderless and

interlinked, allowing companies to expand their domestic business. In order to improve

competiveness and capture greater shares in more global markets, companies internationalize their

activities. On the other hand, Geppert et al (2003) indicate that globalization strengthens the views of

multinational enterprises (MNE). The reason for this being that organization are required to adapt to

both national and regional specifications while simultaneously draw attention to national and cultural

differences.

1 WeberShandwick 2013

7

Cullen and Parboteeah (2005) also state that there are some key trends in this globalization process.

These trends include the growing trade across borders, sharing of information technology, blurring

lines between borders and the rising importance for companies to become more multinational in order

to sustain a competitive position.

Stages during globalization towards foreign subsidiaries

By setting up foreign subsidiaries, a wide variety of knowledge and skills are created. Johansen (2007)

found evidence that motivation, knowledge, absorptive capacity and the role of the subsidiary

influences learning, and the more embedded the subsidiary, the better the collaboration between the

headquarter and the subsidiary. By creating knowledge in foreign subsidiaries, those subsidiaries can

be viewed as strategically important in generating knowledge of foreign markets. This is also

supported by Roth and Nigh (1992) and Birkinshaw (1996); a subsidiary may be strategically

profitable rather than financially profitable thanks to their valuable resources and capabilities. These

studies highlight the important role of the subsidiary in terms of strategic relevance and show that the

frequency and degree of communication influences the financial performance of the subsidiary. It is

likely that economic globalization is easier than cultural globalization, since firms have to take into

account different cultural and social aspects. According to Qin et al. (2011) more difficult aspects,

such as trust, could be potential obstacles in the cross-border collaboration.

While setting up a subsidiary, and thus expanding a firm’s business to a foreign market, companies

faces numerous challenges in maintaining an effective relationship between the headquarter and the

foreign subsidiary.

Cultural distances. Ambos et al. (2006) state that national and cultural differences and

organizational distance in relation to variety and work practices between headquarters

and foreign subsidiaries can create barriers to knowledge transfer and organizational

learning. (Kaufmann and Roessing 2005; Roth and Nigh 1992; Mudambi and

Navarra; 2004).

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The optimal balance between delegating and maintaining control and coordination.

(Roth and Nigh 1992)

Make sure that there is a common set of values and goals that exist in the

headquarters-subsidiary relationship that can play a role in minimizing conflicting

interests (Kim et al. 2005; Li 2005; Nohria and Ghoshal 1994).

So far, according to Schotter and Beamish (2011), most research in the domain of headquarter-

subsidiary relationship lack integration with the theory. One of the reasons is that most of the

literature take a one-sided perspective with respect to the level of analysis. Either they focus on the

headquarters or on the foreign subsidiary. Hence, little research exists in terms of viewing the

relationship closely from the perspective of both the headquarter and the subsidiary (Kaufmann and

Roessing, 2005). Roth and Nigh (1992) also identified that most of the research conducted on the

relationship between headquarter and subsidiary generally relates to the influencing aspects of the

financial performance of the subsidiary or the headquarter rather than the effectiveness of the

relationship. As such, the clients’ perspective has been less common to investigate in research

concerning the relationship between headquarter and subsidiary.

A single multinational company based in the Netherlands is the selected case company to investigate

the relationship between the Dutch headquarter and the subsidiary (both the location in the

Netherlands and the various locations in China), in particularly the knowledge sharing, the common

values and the degree of control mechanisms. One of the case company’s largest clients provided their

opinion of the delivered services. As a result, this information will provide an indication of the

effectiveness of the relationship towards the Chinese market. . In his research, Steers (1975) suggests,

to measure organizational effectiveness on the basis of operational goals that the organization is

aiming to pursue. Moreover, in business language, operational effectiveness is often divided into a

variety of components; leading and controlling functional performance, measuring and improving the

process and leveraging and automating processes. By combining the literature with the practical

approach of operational effectiveness, this research will define the effectiveness of the relationship in

terms of the processes and procedures within the organization.

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This thesis is structured as follows. First the relevant literature for this study is discussed. The

headquarter – subsidiary relationship literature is reviewed and is used as unifying theoretical lens to

conceptualize and discuss this relationship. To make it more specific, the literature on knowledge

sharing, coordination and control mechanisms and shared values sets the foundation for the discussion

of the concepts on which the three working propositions are developed. The section concludes with

the conceptual model and the supporting working propositions.

This study is designed by working propositions and a conceptual model. However, during the research,

the following central research question will be answered:

What are the issues and challenges related to operating in China from the perspective of both

the headquarter and subsidiaries?

The aim of this research is therefore to describe the MNEs headquarter-foreign subsidiary relationship,

to clarify what factors influence this relationship, to investigate the consequences and to point out a

direction to strengthen the relationship in the final chapter on managerial implications.

Furthermore, this research also attempts to gain an insight into how the internationalization process of

the case company so far may influence the relationship between the headquarter and subsidiary in the

future expansion. Therefore, a second sub-question will be answered:

Given the perspective of both the headquarter and subsidiaries relationship: how could the

organizational effectiveness of the headquarter – subsidiary relationship be improved?

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2. Theoretical Framework

The literature review will firstly describe the internationalization process of the MNE in general. The

second part will focus more on the specific relationship between the headquarter and subsidiary and

what kind of barriers exists to this specific relationship building.

2.1 Internationalization and the MNE

According to Williams (2009), “MNEs are amongst the world’s most powerful types of organizations”

(2009: 92). They “account for a large share of intellectual property rights and contribute to the

economic development of host countries in which they operate” (2009: 92). Buckley and Casson

(2009) describe the emerging role of the MNE in their research. Because of market imperfections,

firms will create an internal market in order to increase profits and avoid certain costs. First,

internalization of a market refers to the replacement of an arm’s length contractual relationship (e.g.

external market). Second, internalization of an externality refers to the creation of a market of any

kind where non-existent before. In this context, internalizing markets across national boundaries leads

to MNEs. Buckley and Casson (2009) indicate that knowledge is seen as the single most important

intermediate product to internalize external markets. The current view on MNEs that has emerged

over time treats them as social communities. Those communities are viewed as a ‘knowledge network’

that becomes activated by certain variables. One of these variables is inter-unit networking and their

research highlight the importance of knowledge creation and knowledge transfer across borders is

important in the current business environment (Buckley and Casson 2009; Williams 2009).

As said by Rugman and Verbeke (2004), MNEs are the key drivers of globalization, as they foster

increased economic interdependence among national markets. To go abroad, MNEs can make use of a

wide range of entry strategies such as exporting, franchising, licensing, joint-ventures or wholly

owned-subsidiaries. According to Buckley and Casson (2009), each entry modes has his advantages

and disadvantages. Drawing upon the literature, the optimal choice of entry depends on the firm’s

strategy and global objectives (Pan and Tse, 2000). In emerging economies such as China, MNEs

traditional face ‘liability of foreignness’. As a result of this liability of foreignness, companies faces a

higher degree of uncertainty in emerging markets. MNEs have to decide when they want to enter the

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host country and in what entry mode (Peng 2001). Furthermore, when firms internationalize, they

faces dual global and local pressures (Grøgaard 2012). One of the outcomes of their research is that an

MNE has to deal with global integration and identify the benefits of integration, while simultaneously

recognizing the value of investing in the development of local experience and networks. For that

manner, foreign subsidiaries are important for the MNE as a whole. Rugman et al (2011), focused in

their research also on global and regional strategies of MNEs. Over the past fifty years, there has been

a shift from a country level of analysis to the subsidiary level of analysis. The subsidiary acts as the

key building block in international business nowadays. The reason behind this statement is that the

subsidiary is important for the MNE because the subsidiary is embedded in the network of MNE’s

(Rugman et al. 2011).

2.2 Internationalization Process

2.2.1 The Uppsala Internationalization Model

There are many ways for MNEs to expand their business abroad. One of the most accepted and

widely acknowledge theories within this subject, is the Uppsala Model; A stage model approach of

internationalization (Johanson and Vahlne, 1977). This model explains how firms gradually intensify

their activities in foreign markets. It suggests that the potential benefits of exploiting firm specific

advantages (FSAs) abroad, needs to be weighed against the risks of operating in unknown foreign

environments and the costs of learning to do business there. It proposes that internationalization is a

certain path dependent process whereby a firm’s international expansion process is a function of its

past knowledge base. Furthermore, the stage theory approach argues that international expansion is

influenced strongly by managerial learning. The first step to internationalization improves the firms’

foreign market knowledge. Over time and through experience, firms increase their foreign market

commitment and expand to more psychically distant markets (Coviello and Martin, 1999; Johanson

and Vahlne, 1977).

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2.2.2 Different views on Internationalization

The assumption that the firm’s international expansion has to run through numerous stages has been

questioned and received some criticism. The view of internationalization through stages has been

challenged by the emergence of ‘born global’ firms. (Knight and Cavusgil 2004; Oviatt and

McDougall 2005). According to Hennart (2009), the internationalization model of Johanson and

Vahlne is determined by the MNE’s host-country experience. However, Hennart (2009) states that

companies that enter foreign markets must take into account the advantages of local complementary

assets and bundle those advantages with their own FSAs. Another study that criticized the Uppsala

model is the research of Oviatt and McDougall (2005). They highlight the rising importance of

adjustments to the stage model. As globalization trends shape the world business environment, new

types of firms have developed. Those firms focusing on rapid internationalization. Therefore, the

traditional internationalization perspectives like the Uppsala model are challenged. Knight and

Cavusgil (2004) also indicate a rise for more dynamic firms which becoming international very fast.

These firms distinguishes themselves from other firms because their origins are international, as the

management has a global focus. Those types of firms are called ‘early adapters’ of internationalization.

Due to increases in speed and quality of international communication and transportation, the costs of

multinational interchange has reduced. The main outcome of the study of Oviatt and McDougall

(2005) is that improved international communication and transportation along with the

homogenization of markets in many countries should simplify and as a result, shorten the process of

firm internationalization.

2.2.3 Internationalization of Technical Consulting Firms

Within the internationalization process of manufacturing firms, the stage process or the Uppsala

model of internationalization is often recognized as the dominant perspective. However, within

service firms, there are also stages identified in the internationalization process. These stages differ

from the stages in the Uppsala model (Roberts 1999; Krull, Smith and Ge 2012). Reasons for service

firms to internationalize can be reactive or proactive. Firms who are reactive are often demand-driven

and firms who are proactive are often supply-driven. Firms who are demand-driven, are also referred

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Phase 0

Pre-internationalisation:servicing the domestic

market

Phase 1

Chasing work and taking

every opportunity; developing

international contacts and

networks

Phase 2

Chasing work and taking

most opportunities; more focus on larger projects and profitable

work

Phase 3

Maintaining and

strengthening client

relationships; increasing focus on

developing geographically close markets

Phase 4

Focus on integrating

international operations and development

of centre offices; new

markets selected based

on future outlooks

Phase 5

Increasing coordination

of international

business operations; decreasing

autonomy of centre offices; strengthening and growing

of centre offices

to as client-following and they respond to the needs of the customer (Majkgård and Sharma 1998;

Krull, Smith and Ge 2012). By entering foreign markets, it is less uncertain for service firms to follow

the “client-following” strategy since they can make use of their existing network abroad. Within

service firms, Krull et al. (2012) make a distinction between service firms and Engineering Consulting

Firms (ECFs). The demand for the services of ECFs is most of the time project-based and they can

serve different countries with their technical knowledge and engineering services. Figure 1 shows the

different stages of this process for ECFs.

Figure 1: Internationalization of engineering consulting firms

Source: Adapted from Krul et al. (2012)

Krull et al. (2012) found that through the whole internationalization process of an ECF, the motivation

of individuals has a major influence on the process. One of the results of their study is that individuals

influences what direction the firm takes in the process of internationalization. They highlight the fact

that the role of the individual in shaping the strategy for the firm is important. One important finding

is that, instead of deciding on a strategy at a higher level and then push it into the rest of the

organization, ECFs often do it the other way around: they use a bottom-up strategy to internationalize.

Although the internal resources of a firm such as networks led to new opportunities, the motivation of

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the internal employee is of big importance for the internationalization process. Furthermore, the

relationships and network that are established by those ECFs are highly important for

internationalization of the firm (Krull et al. 2012; Coviello and Martin 1999).

2.3 Headquarter – Foreign Subsidiary Relationship

2.3.1 The Network Structure of the MNE

Rugman et al. (2011), indicate that the most important unit of analysis for most international business

theory is still the MNE as a whole, simply because most strategic decisions are taken at that level.

Hence, MNEs often faces difficulties with translating and applying firm-level theory to the subsidiary

as unit of analysis. Since the role of the subsidiary becomes more important, those subsidiaries

become the key building block of the MNE and are viewed as a differentiated network. Hence, the

MNE has to understand the linkages between subsidiaries to shift the focus from the parent firm to the

subsidiary as a unit of analysis. Foreign subsidiaries are often embedded in the MNEs network, while

simultaneously act as a member in its external market network (Li 2005).

According to Birkinshaw et al. (1998), the role of the subsidiary is becoming increasingly important

as contributor to the development of firm-specific advantages (FSAs). There has been a shift from the

MNE as only unit for the generation of FSAs to a more collective responsibility for the entire network,

including the subsidiaries. Moreover, they found that subsidiary initiative is strongly associated to an

entrepreneurial culture of the subsidiary. This entrepreneurial culture promotes the development of

specialized resources of the subsidiary as well. Ghoshal and Barlett (1990) state that MNEs are

considered multi-center structures where firm-specific competitive advantages can be located in their

networks of subsidiaries in different countries by accessing subsidiaries’ knowledge resources.

Building close ties with the external environment of the subsidiary allows them to develop new

knowledge that benefits the subsidiary, while simultaneously develop competences for the

organization as a whole (Ghoshal and Barlett 1990; Li and Scullion 2006). Moreover, Li and Scullion

(2006) identified this external environment as an important holder for knowledge. More specific,

15

customers are a very important source of local knowledge within his external environment, because

the customer can indicate their needs based on their existing knowledge.

The transformation towards the network structure of the MNE show that firms are becoming more

complex, less hierarchical and less dependent on firm-specific advantages developed mainly in the

home country and thus only by the parent company. Ambos et al. (2006) identified this changing role

of the HQ as prime source of knowledge and competencies. Headquarters becoming more and more a

receiver of knowledge from their internationally dispersed subsidiaries. Moreover, according to

Miesing et al. (2006) subsidiaries are creating their own knowledge and highlight the fact that for an

successful intra-organizational knowledge transfer a trust-based collaboration is necessary. Trust

encourages teamwork and collaboration and to create a more competitive global position, firms will

have to cooperate (Ambos et al. 2006; Miesing et al. 2006). Luo (2005) stresses the fact that within

the network MNE different subunits have to both cooperate and compete with each other. In his

research he combines both concepts and speak about ‘coopetition’. This is also found by Tsai (2002),

which implies that due to the rising globally dispersed networks of the MNE, the issue of coordination

and control is becoming more difficult (Luo 2005; Tsai 2002).

2.3.2 Shared Values

Volkmar (2003) identified the notion of shared values between headquarter and subsidiary and found

that the performance of the company as a whole is influenced by the degree of shared values.

Simultaneously this research found that conflict between headquarter and the subsidiary arises where

foreign subsidiaries have already established and developed their own unique culture. In order to

achieve alignment of organizational values between headquarters and subsidiaries, the degree of

overall organizational cultural asymmetry is associated with the amount of change required in the

foreign subsidiary. They highlight the notion of shared values between the headquarter and the

subsidiary. When those values are shared, the subsidiaries make decisions along the lines of the

overall corporate objectives (Volkmar 2003; Li 2005).

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In order to create mutual benefit for the headquarter and the subsidiary, one identified that trust,

shared values and a shared vision are important determinants to create those benefits. A high degree

of shared values among both the headquarter and the subsidiary is one way to improve the

relationship of both parties and has a positive impact on the organizational performance of the firm as

a whole. Moreover, to support global strategic integration, common view or a shared vision in the

headquarter – subsidiary relationship, is an essential element to improve organizational performance

(Li 2005; Nohria and Ghoshal 1994).

On the other hand, within the relationship between the headquarter and the subsidiaries there are

different specific control problems that arise and each relationship is differentiated to fit the particular

environmental and resource conditions in the specific context. According to Nohria and Ghoshal

(1994), centralization and “the extent to which decisions are made according to impersonal rules,

routines and procedures” (1994; 492) are some elements that occur in establishing this differentiated

fit in each subsidiary. Simultaneously, they also highlight the fact that it is difficult to achieve an

approach that both integrate and differentiate the values and procedures of the company. Contrary,

Williams and Triest (2009) found that the more shared values exist in the MNE, the more the

headquarter is willing to decentralize the decision making process. As a result, subsidiaries eventually

create their own values since they have more decision making power. Ultimately the subsidiary will

create different values compared to the headquarter. In their research, Williams and Triest (2009) link

the degree of decentralization to the subsidiary with cultural distance between the host and home

country. According to Welch et al. (2005), cultural distance may contribute to cross-cultural conflict.

Numerous elements of cross-cultural conflict act as a constraining factor in developing a successful

integration between different units within the MNE network. They found for instance that differences

in communication tactics make it harder for the parent firm to transfer the corporate values, objectives

and knowledge (Welch et al 2005; Ambos and Ambos 2009; Ghemawat 2001).

WP 1: A higher degree of shared values is positively associated with the organizational

effectiveness of the headquarter-subsidiary relationship

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2.3.3 Barriers to Relationship Building

2.3.3.1 Interdependent Network

As said by O’Donnell (2000), together with the increased international interdependence of

subsidiaries, firms can exploit their international activities to achieve and maintain a competitive

advantage in the global marketplace. The issue of interdependence between headquarters and their

foreign subsidiaries is much discussed in relation to the network view of the MNE (Li 2005; Roth and

Nigh 1992). To create valuable subsidiary resources and transfer them across the organization requires

a network of linkages between headquarter and subsidiaries and information sharing, which can

subsequently result in a high degree of interdependence. To coordinate the interdependence between

headquarter and subsidiary, there is a need for higher levels of social capital that facilitates the

coordination of cross-border activities between the headquarter and the foreign subsidiary (O’

Donnell 2000; Li 2005). This is also found by Kostova and Roth (2003) and Miesing et al. (2006),

who highlight the fact that it becomes increasingly important to create social capital under conditions

of higher interdependence. As said by Miesing et al. (2006), literature on social capital explains the

importance of shared norms and reciprocity within the organization, in order to establish an

environment where different members of the network create new knowledge. Together with this rising

creation of new knowledge, also the level of trust between the members of the network increases.

Since the rising globalization, more focus is on the relationships in business, to create a more

competitive position. In their paper, Miesing et al. (2006) define social capital as “the ability of people

to work together for common purposes in groups and organizations” (2006: 117). As also identified

by Ghoshal and Barlett (1990), the way firms compete globally requires an organizational learning

where knowledge and for instance managerial skills are transferred through the organization. Social

capital that is formed through interactions with the headquarter and the representatives of its foreign

subsidiaries, or boundary spanners, becomes a social good when experience and knowledge are shared.

Boundary spanners are described by Kostova and Roth (2003) as “an individual employed at a subunit

who currently has, or has previously had, direct contact(s) with a headquarters representative.” (Welch

et al. 2005; Kostova and Roth 2002; Li and Scullion 2006). Schotter and Beamish (2011) found that

18

boundary spanners are increasingly important for MNE’s. The presence of a boundary spanner does

have a positive effect on intra-organizational knowledge sharing. Moreover, boundary spanners can

build international trust between headquarters and subsidiaries. When there is a lack of trust between

the two parties, it is possible that subsidiary managers behave and make decisions only in their own

interest (Schotter and Beamish, 2011).

The nature and complexity of the headquarter – foreign subsidiary relationship is characterized by

tensions between the autonomy of the subsidiary and the need from the headquarter to control the firm.

Previous studies showed that centralization encourages the firm to share information because

centralization provides “coordination and integration across the interdependency” (2002; 186).

However, more recent studies show that centralization impede intra-organizational knowledge transfer

due to certain costs a firm has to make. From that point of view, centralization may be not the most

effective way to coordinate the subsidiary. Furthermore, headquarters are not able to make all the

decisions for the subsidiary as it does not possess the local knowledge of the foreign subsidiary

(Nohria and Goshal 1994; O’Donnell 2000; Tsai 2002). To receive more of this local knowledge from

the foreign subsidiaries, Ambos et al. (2006) found that headquarters can benefit from reversed

knowledge sharing. With this knowledge, headquarters can for instance make a more specific global

strategy or improve internal processes within the MNE itself. (Ambos et al, 2006).

The more distant there is between the home and the host country, the more difficult may be the

communication and understanding of the other party. According to Barner-Rasmussen and Björkman

(2005) for instance, achieving knowledge sharing among globally dispersed units is of great

importance. Hence, communication is necessary within an organization for transferring specific

knowledge in the organization. This may be more difficult within an organization with different

cultures, such as Western and Chinese organizations. Cultural difference is described by Qin et al.

(2008) as “the extent to which the shared norms and values in China differ from those in the country

where the MNE headquarters are located.” Numerous studies highlight the concept of cultural

distance in the relationship between headquarters and their foreign subsidiaries (Ambos and Ambos

2009; Gupta and Govindarajan 2000; Li and Scullion 2006; Ghemawat 2001). From a Western point

19

of view, China is frequently considered as “the most foreign of all foreign places”. Cultural distance

between the home and the host country affects the way knowledge is spread and the effectiveness of

this dispersion, and thus it affects the knowledge transfer within the firm (Li and Scullion 2006).

However, Ambos and Ambos (2009) identified in their research that little was known in our

understanding how knowledge transfer is affected by distance between the firm’s units. They found

that firms should take a look at how they adjust their transfer mechanisms to the distance between the

headquarter and the subsidiary in order to achieve the most effective knowledge transfer between

those units. In their study they made a distinction between geographic, cultural and linguistic distance.

This is in line with the study of Qin et al. (2008), who highlight that cultural distance may be an

important factor that influence cross-border knowledge transfer. In addition on the research of Ambos

and Ambos (2009), Foss and Pedersen (2002) point that the way knowledge transfer within the MNE

network cannot be the same due to context specific information and hence, organizations have to

implement different transfer mechanisms. Drawing further on different knowledge transfers within

organizations, Gupta and Govindarajan (2000) divided knowledge in both inflows and outflows.

Knowledge inflows is the knowledge that flows from the headquarter into the subsidiary, in order to

provide the subsidiary with the “ know-how” of the MNE. Knowledge outflows focuses on the

knowledge that flows from the foreign subsidiary back to the headquarter. This information is locally

developed, due to the specific environmental location of the subsidiary and provides valuable

information for the headquarter (Gupta and Govindarajan 2000; Qin et al 2008; Ambos et al. (2006).

2.3.3.2 Information Asymmetry

According to Björkman et al. (2004), information asymmetry arises when a foreign subsidiary decides

not to transfer knowledge to other MNE units, even though this would enhance the overall

performance of the parent company. It is in the subsidiary’s self-interest not to transfer this

knowledge. Barriers to knowledge transfer include motivational factors, the lack of absorptive

capacity, cultural differences and task distance. As a result, this could therefore raise the level of

information asymmetry (Nohria and Ghoshal 1994; Szulanski 1996). Simultaneously, Ambos et al.

(2006) indicate that it is becoming more and more important for the headquarter to absorb knowledge

20

from their foreign subsidiaries so that the headquarter can benefit from this local knowledge. In

general, subsidiaries have local information due to its location in the host country. As indicated by

Ambos et al. (2006), this local information is valuable for the competitive advantage of the MNE. Due

to this information advantage, headquarters are becoming more dependent on subsidiaries and their

local information. In their paper they focus mainly on the benefits for the headquarters using reversed

knowledge transfer, as explained by Ambos et al. (2006).

However, with regard to technology transfer, headquarters and subsidiaries faces higher uncertainty in

transfer this source of knowledge to host countries. Especially in emerging markets like China, many

threats for imitate and copying for the transferred technology seems to exist. One of the reasons is that

in China there is a lack of awareness regarding respect for intellectual property (Nohria and Ghoshal

1994; Kaufmann and Roessing 2005). Moreover, the strategic direction of both subsidiary and

headquarter could be different. The subsidiary will benefit in the short run from sharing technical

knowledge with the market, while the headquarter is more reluctant in sharing this technical

knowledge while having a more long-term vision (Kaufmann and Roessing 205).

WP 2: A higher degree of organizational knowledge sharing between the headquarter and

the subsidiary is positively associated with the organizational effectiveness of the

headquarter-subsidiaries relationship.

2.3.3.3 Conflicting Interests

Schotter and Beamish (2011) describe in their paper two forms of conflict within an organization:

functional and dysfunctional. The difference is that functional conflict improves the performance,

while simultaneously dysfunctional conflict has a negative effect on performance when this kind of

conflict arises during decision making processes. Divergent interests is one of the drivers of conflict

within an interdependent relationship. Within conflict, they made a distinction between task, process,

and relationship conflict. According to Jehn and Mannix (2001), process conflict is related to the

disagreement of employees on how specific tasks should be achieved. Within this process conflict,

task responsibility and task execution are issues that concern this process conflict (Schotter and

Beamish 2011; Jehn and Mannix 2001). Organizational conflict is based on information asymmetry,

21

which in turn is associated with the barriers to knowledge sharing as explained by Kaufmann and

Roessing (2005). As said by Mudambi and Navarra (2004), subsidiaries are initially established by the

parent firm with certain goals and objectives. In addition, several studies identify that by creating a

common set of values and goals in the headquarters-subsidiary relationship, this contributes to

minimize their conflicting interests (Kim et al. 2005; Li 2005).

MNEs has grown in size and organizational complexity over the years, and together with this, the

issue of coordination and control has become more apparent (Birkinshaw et al. 2000; Tsai 2002). As

said by Roth and Nigh (1992), an important aspect is the recognition of a foreign subsidiary as an

interdependence between the subsidiary and its headquarter. For specifying the managerial role within

the headquarter-subsidiary relationship, it is important that this interdependency is recognized. In this

way, the effectiveness of the relationship between the headquarter and the subsidiary may be

influenced. In their research, Roth and Nigh (1992) highlight the fact that it is necessary to look at the

integration process to manage the interdependent interests. They found evidence that if the

headquarter achieve goals and objectives through cooperation and greater coordination, this will result

in the subsidiary recognizing this interdependency. Roth and Nigh (1992) state that the development

of a shared MNE-wide management culture with flexible channels of communication leads to more

effective headquarter-subsidiary relationships and an increased commitment of the subsidiary

managers to the company as a whole. As said by Kauffman and Roessing (2005), in industries where

technology is transferred, conflicting interests arises when the goals of the subsidiary are not in line

with the goals of the company as a whole. They also found evidence that consensus between

headquarter and subsidiary management is harder to reach in industries where technology transfer is

imbedded. (Kaufmann and Roessing 2005).

2.3.3.4 Control Mechanisms

Gupta and Govindarajan (2000) identified that barriers to knowledge absorption could include power

struggle factors between the headquarter and the foreign subsidiary. Hierarchical relationships within

headquarters and subsidiaries can also be viewed as an agency-theory. Agency theory has been argued

to be useful in the context of identifying the relationship between HQ and subsidiaries (Mudambi and

22

Navarra, 2004). Within this hierarchical relationship, the theory assumes that the responsibilities and

decision-making authority are delegated from the headquarter to the subsidiary to a certain extent. If

the subsidiary make decisions that are not compatible with how it is desired by the headquarters, this

may lead to possible increase in the control of the headquarter. This is also in line with the research of

Roth and Nigh (1992), who state that an increasing discretion of the subsidiary within the decision

making process may increase the uncertainty from the headquarters’ point of view if the subsidiary act

consistent with the overall direction of the parent company. To overcome such uncertainties,

companies often set certain goals and procedures to make the subsidiary aware of the strategic

direction of the firm. Especially for an international dispersed organization it is important to align the

direction between the headquarter and the subsidiary because of the differentiated tasks and

responsibilities (Roth and Nigh 1992; Nohria and Goshal 1994). Simultaneously, Birkinshaw et al.

(2000) found that if the subsidiary overestimate the strategic role within the MNE, this lead to greater

coordination from the headquarter, which in turn reduces the level of cooperation between the

headquarter and the subsidiary. According to Tsai (2002) and Luo (2005), it becomes more difficult to

use coordination mechanisms within an organization when there are different units in the network that

has to compete with each other. The more the headquarter decides to centralize their control on its

subsidiaries, the less those subsidiaries are willing to share their knowledge with other subsidiaries in

the network (Tsai 2002).

WP 3: A higher degree of coordination and control mechanisms between the headquarter

and the subsidiary is positively associated with the organizational effectiveness of

the headquarter-subsidiaries relationship.

2.4 Company – Client Relationship

As indicated by Nell et al. (2011), headquarters and subsidiaries often share the same relationships

within their network. Both headquarter and subsidiary have for instance a relationship with the same

customer in the host country. To create competitive advantage there is a growing awareness that

collaborative relationships within the company and the network of the company, offer opportunities

for further growth (Ulaga 2003; Möller and Törrönen, 2003). Möller and Törrönen (2003) found that

there are three dimensions that are important for the value creation from the customer perspective.

23

Knowledge

Sharing

Coordination/

Control

Shared ValuesShared ValuesKnowledge

Sharing

Coordination/

Control

HQ Level

Organizational

effectiveness of

HQ – Subsidiary

relationship

Subsidiary level

Organizational

effectiveness of

HQ – Subsidiary

relationship

Overall MNE

Organizational

effectiveness of

HQ – Subsidiary

relationship

Client’s

Perspective

Efficiency, effectiveness and network functions are the dimensions most identified by customers

which create value for the customer. To make the dimensions more specific, Ulaga (2003) identified

eight dimensions of value creation, all identified from the customer perspective. These dimensions

include product quality; service support; delivery; supplier know-how; time-to-market; personal

interaction and the price. While most of the dimensions are based on the delivered products and

services, little is known about the degree of shared values and thoughts about the collaboration

between headquarter, subsidiary and the client and to what extent this creates value for the customer.

To summarize the described literature and to create a more specific model, the conceptual model

below is drawn. The model is based on the previously discussed literature. The model presents the

relationship between the headquarter and both the subsidiaries and, in addition, the clients perspective

is incorporated to create a complete picture and make the model a closed loop. The view of the client

serves like a check whether the shared values of the company are in line with the perspective of the

client.

Figure 2: Conceptual Model

24

3. Method

The following chapter addresses the methodology of this research. It reveals the steps that I have

taken, including the reasons, in order to create methodological fit. Furthermore this will increase the

quality of this research.

3.1 Case Study Research

The research design points out the way of how the research questions will be answered (Saunders et

al. 2009). Qualitative research lacks the strong procedures comparing with quantitative and therefore

qualitative research is often done in case-study design. The essence of qualitative research is to

identify characteristics and structure of a phenomena and therefore, case studies are helpful to a better

understanding of such phenomena (Jonker and Pennink 2009).

This study is a single case study where the emphasis is on exploring the case companies

internationalization and within it, the headquarters- subsidiary relationship in detail by describing the

theory on the subject meaningful. Eisenhardt’s (1989) model of building theory from qualitative case

study is used as a guideline in this research methodology to build new knowledge on the

internationalization process of the case-company. Eisenhardt (1989) explains case study as a strategy

that focuses on understanding the dynamics present within a single-setting, pursuing relations between

theory and the gathered data. For this research, qualitative, deductive and inductive research method

was chosen in order to build propositions from data recovered, moving from observations to broader

generalizations, whilst simultaneously developing existing literature on the subject.

In providing in-depth understanding of the current phenomena, the case study method is seen most

appropriate for this research. In order to gain understanding of the experiences of the respondents

involved in the collaboration process of the case-company, the primary research technique applied in

the data collection were semi structured in-depth interviews. This type of non-standardizes interview

offers the researcher the liberty to vary the order of questions, to ask additional questions and to

explore research themes (Yin, 2009).

25

3.2 Data Collection

The primary source of data collection is semi-structured interviews. There were approximately sixteen

“required” questions dealing with shared values, knowledge sharing and control mechanisms; this

structured dimension allowed for meaningful and standardized comparisons across interviews. The

questions with their corresponding propositions are shown in table 3. Each interviewer was also able

to add his or her own thoughts and visions arising within the interview. This is the unstructured part of

the interview and gives the research a more in-depth character.

To make myself more confident with qualitative research and the interview protocol, I’ve send an e-

mail to Andres Schotter (Schotter and Beamish 2011) with the question whether he had valuable input

for structuring the interviews. I received a document (see Appendix 1) that he used as a guide during

the interviews for his article. This document evolved as suggested in the pertinent methodological

literature (e.g. Yin, 2009 and Eisenhardt, 1989). His most important advice was to not probe too

specifically at the beginning of the interviews.

Within the single-case company research, altogether sixteen in-depth face-to-face interviews were

conducted. Four interviews were conducted in the Dutch headquarter, four in the Dutch subsidiary

and three interviews were conducted in the Chinese subsidiary. Lastly, also five interviews were

conducted at the biggest Chinese client in order to investigate the perspective of the client. All

interviews took 60 to 90 minutes and most of them were tape-recorded. Afterwards the interviews

were transcribed. Those steps are taken to minimize information biases. The respondents were

carefully choses and are from different departments and different function levels. These individuals

are likely to have different views and opinions with regard to the training process in China. Table 1

lists the interviewees from HQ unit to subsidiary unit and shows the function of each in the company.

The interview questions were designed to collect data that covered the propositions.

26

Headquarter Royal IHC

IHC China Training

(Netherlands)

IHC China Training (China)

Table 1: Interviewee details

Besides both the headquarter and the subsidiaries view, this research also included the clients view on

the collaboration. The feedback of the client on the delivered services and existing collaboration will

provide valuable information, in view of further internationalization. It answers for example the

following questions within the existing collaboration between the case-company and the client: are

they feeling comfortable with the procedures and where do they see room for improvement? Also

questions regarding their vision on training in general were included so that both the clients view on

the collaboration with the case company as the view on the delivered services are included. Therefore,

the following respondents were selected and interviewed:

Table 2: Interviewee details (client)

Secondary data, including personal observations accounted for the preliminary work in order to gain

understanding of the company and dredging industry. The interview schedule included both closed

and open questions, which were answered in the own words of the respondents. In the interview the

following key themes were covered: interviewees role within the organization and knowledge about

the Chinese market, the degree of knowledge sharing within the company (between HQ and

subsidiaries), the (strategic) vision of the Chinese subsidiary (currently and in the future, what has

been learned so far, possible challenges and issues regarding companies future business in China), and

Interviewee Function Unit Location

1. Director HQ NL

2. Director HQ NL

3. Area Manager HQ NL

4. Regional Director HQ CH

5. Director S NL

6. General Manager S NL

7. Project Manager S NL

8. Project Manager S NL

9. Sales Manager S CH

10. Operational S CH

11. General Manager S CH

Interviewee Function Unit Location

13. General Manager & CFO Client CH

14. HR Manager Client CH

15. HR Representative Client CH

16. Head of Dredging School Client CH

17. Operational (Captain) Client CH

27

the control mechanisms and decision making process. The interview questions were designed to

collect data that covered the propositions.

# Question WP1 WP2 WP3

1 What's your role within the organization? 2 What is your opinion about deliver dredge training in China? 3 How are you involved in the collaboration between the headquarter and IHC China Training? 4 In your opinion: what are your responsibilities within IHC China Training? 5 How well do you think the information flow between the HQ and IHC China Training (both

Netherlands and China) works out?

X

6 How do you share information about your work with the Dutch HQ? X

7 To what extent you consider the Dutch HQ to be knowledgeable about the Chinese market

conditions for training?

X

8 What kind of support do you expect from the headquarter, before, during, and after training? X

9 What are the different goals between the HQ and the subsidiaries with respect to training in

China?

X

10 Do you feel that your strategic direction is aligned with the strategy pursued by the HQ? X

11 Do you feel a difference between the vision of IHC China Training and the strategic direction

of Royal IHC in China from the HQ?

X

12 What is your vision for IHC China Training? X

If yes, what are the main goals at the moment?

What is your opinion about the future of the Chinese subsidiary?

13 What is your opinion about the current decision making process with respect to training in

China?

X

In what way have they exerted control?

14 What are the differences in the way the HQ exerts control with respect to selling training in

China in comparison with other countries?

X

15 When selling training in China, how should the decision making process should be designed? X

16 Are you aware of the current decision making process within IHC China Training? X

17 Do you think there is a clear vision about the decision making process in the headquarter

regarding training?

X

If yes: what is the current vision?

Table 3: Interview questions linked with the propositions

3.3 Case Criteria and Selection

The selection of the case is an important aspect in the case study design since the population is of

important influence on the generalizability of the findings (Eisenhardt, 1898). Several case studies

have been conducted to headquarter – subsidiary relationships, for China-based subsidiaries (Qin et al

2011) and for high technology companies (Nohria and Ghoshal 1994; Kaufmann and Roessing 2005).

Companies faces numerous issues and challenges in their internationalization process. In this study

the case selection criterion is the internationalization process with multiple subsidiaries. In addition it

had to be a case where the client was also willing to collaborate in the research to investigate whether

the headquarter and both subsidiaries thoughts and visions are in line with the clients point of view in

terms of collaboration. Thus, the case company was chosen due to a basic sampling frame (Yin,

2009); a Dutch based company with subsidiaries both in the home and host country.

28

This single-case study focuses on the Dutch shipyard sector and provide an analysis of the

relationship between the Dutch headquarter and the subsidiaries of Royal IHC. More specific, this

case focuses on the issues and challenges the Royal IHC faces in their internationalization strategy to

the Chinese market. Unit of analysis (Yin, 2009) are the Dutch based headquarter, one Dutch based

subsidiary and the foreign subsidiaries based in China. The following paragraphs reveal more

information about the background of the company and their internationalization process in China so

far.

3.3.1 Case Company

Royal IHC is focused on the continuous development of design and construction activities for the

specialist maritime sector. It is the global market leader for efficient dredging and mining vessels and

equipment and a reliable supplier of innovative ships and supplies for offshore construction. Royal

IHC has in-house experience for engineering and manufacturing integrated standard and custom-built

vessels, advanced equipment and also providing life-cycle support. Royal IHC has over 3.000

employees based at various locations in the world. (Royal IHC’s homepage) MTI Holland, Royal

IHC’s dredging knowledge center, is the worldwide leading center of expertise in the area of

translating knowledge of dredging, mining and deep-sea mining processes into the specification,

design and application of equipment. The Training Institute for Dredging (TID) is part of MTI

Holland. In any project there needs to be a balance between project, people and equipment. When

acquiring new modern equipment, the crew needs to have the right competences to be able to operate

the new equipment and its automation systems in such a way, that they fully benefit from the

efficiency of the equipment and achieve maximum results on the different projects. Training Institute

for Dredging (TID) can identify the room for improvement of dredging operators, identify their

training needs and design specific training programs in order to obtain the level of dredging

competences needed to perform the job.

The crisis in the shipbuilding industry has led to greater rivalry in the market. This has resulted in

increased price competition. To adapt to these new market conditions, one of Royal IHC’s spare

points is will be internationalization in order to increase efficiency and reduce costs. (Royal IHC’s

29

Annual Report 2013) In China, Royal IHC established an subsidiary: IHC China Training. (Royal

IHC’s internal presentation 2012). The board of management of Royal IHC points out that the transfer

of knowledge to customers and training their crew and intensifies customer relationships are spare

points for the future to gain access to potential markets.

3.3.2 Chinese dredging market

According to the International Association of Dredging Companies (IADC) the global dredging

market amounted to € 10.7 billion. China is the largest dredging market, accounting for 29% of the

total market worldwide. China remains an important market for Royal IHC not only for its current and

future growth potentials but as one of their its biggest customers, the world’s top ports and terminals

are located in Asia. One of Royal IHC’s spearheads is future internationalization. It intends to achieve

this by building a strong and broad distribution and service network in China. To become a leader in

services, the company has established the Training Institute for Dredging to offer the client

professional training, rather than solely as a support function to equipment sales. With establishing

IHC China Training, a visionary goal of the headquarter was to enter the Chinese market and provide

their clients with the desired training facilities for dredging. The headquarter of Royal IHC is located

in Kinderdijk, the Netherlands with a local subsidiary also located in Kinderdijk. The foreign

subsidiaries are located in Beijing and Tianjin providing sales, services and spare parts in China.

These Chinese offices report directly to the headquarter in Kinderdijk. The office in Beijing is

responsible for the sales of new vessels. The office in Tianjin is responsible for the sales of spare

parts, maintenance and services, including training for dredging.

3.4 Qualitative Data Analysis

Measuring qualitative data is a complex process, but it gives meaning to the results by incorporating

the explicit logics of the respondents. As said by Schotter and Beamish (2011), organizational

effectiveness appeared to be a more comprehensive measure compared to financial performance

measures and operational performance measures, because this method takes into account broader

organizational goals and multiple parties. Moreover, organizational effectiveness takes into account

that the interests of both headquarter- and subsidiary are not necessarily aligned. The effectiveness of

30

the relationship between the headquarters and the subsidiary of a MNE is also discussed in the article

of Roth and Nigh (1992). They describe the effective management as one of the key challenges for the

management. As indicated before, this research will describe the effectiveness of the relationship in

terms of the processes and procedures within the collaboration between the headquarter and the

subsidiaries. The perception of the interviewees are used to indicate this effectiveness.

This research is shaped by working propositions, which means that the way the data collection is

shaped has been influenced by the propositions. Therefore, the interview guide and the data collection

tries to answer the propositions. Together with the collected data through interview, secondary data is

also used as data source. The analysis of the data started with transcribing all the recorded interviews.

The data analysis is done through thematic content analysis for the transcripts. By this approach, data

will be categorized into meaningful data. (Saunders, 2009) According to Miles and Huberman (1984),

qualitative data analysis consists of three flows of activity: data reduction, data display and data

conclusion. Data reduction refers to the process of selecting, focusing and transforming the raw data

that appear in the interviews. It also includes the coding of the collected data. All the relevant data

was categorized, which refers to the first-level coding of data. After this, the first order codes are

reviewed in order to create themes; this is known as pattern coding. (Miles and Huberman, 1984) In

this research, the themes primarily emerges from the so called theory-related material technique. In

this way, the connection between the working propositions and the data is ensured. (Ryan and

Bernard, 2003)

31

4. Results

The next section firstly discusses the degree of which the working propositions are supported by the

findings of this research. This will be done by presenting the results per unit of analysis. After the

separate results, there will be a brief cross-analysis to compare the differences and similarities in the

case.

4.1 Data presentation

In the interviews, issues and challenges related to the headquarters-subsidiary relationship were

brought forth which were seen to have an impact on the relationship between the two parties. The

working propositions were tested and new insights were added to the findings. The different tables

provide the key summary of the findings and gives an overview of the perception of the interviewee

regarding the main themes of this research: knowledge sharing, shared values and coordination and

control. Based on the collected data, extra themes are added to the tables as those themes were

highlighted to be important for the interviewees.

4.1.1 Headquarter

1. Knowledge sharing

From the perspective of the respondents of the headquarter, the knowledge sharing overall is currently

seen as positive. If the subsidiary share all the information they have and as much as possible, the

decision from the headquarter will be more objective and more towards the direction which the

subsidiary wants.

“That’s certainly true. The procedure is in fact very simple and transparent. If they show me

the benefits of providing services to non-clients in China, than I will be happy to look at the

possibilities. But if they ask me just the question ‘is it a go or a no-go?’ than it is probably a

no. They have to convince me and provide me of all the information. And at the moment, I

think it’s going very well.” [Area Manager]

32

Since the product managers are more separate from the subsidiary, they rely more on the fact that

there is a certain trust in the organization to share the knowledge there is within the company. Trust is

something that is required by the headquarter from the subsidiary and simultaneously the headquarter

needs the subsidiary to accept and trust the decision, even if the decision is negative for the subsidiary.

“You never know what kind of information you are missing. Sometimes you get to know

information afterwards and then you think: ‘that’s a shame that I didn’t knew it before’. The

more you share, the less resistance you will generate. If you share less information, some

people may think it is deliberately kept away while that may not have to be the case. But I

think we’re on a good way now, as far as I can judge.” [Product Director 1]

The headquarter receives information from the Chinese market through the subsidiary. Since

competition is rising and the Chinese market is also becoming more knowledgeable about specific

technology, the headquarter wants the subsidiary to focus more and more on the information sharing

of the evaluation of the provided services in China.

“I see room for improvement in the feedback on what exactly is happening in China. We want

to know the feedback of our Chinese clients and learn from it to improve our future services. I

think that’s a point that could be better sometimes.” [Product Director 2]

The importance of transferring knowledge of the Western-way of working to the local subsidiaries

was seen important. In this way, the company strategy and philosophy will be much more embedded

in the local subsidiary and gives the customer the feeling that the company act like ‘one-company’.

By open and honest communication, the subsidiary will have a better overview of the company

strategy for a certain client or project.

“We have contact on a –almost- daily basis with Tianjin and Beijing and the GM of China is

visiting the Netherlands at least once a month. We always have discussions and meetings

going on, because the geographical distance is sometimes a problem though. But those visits

are very valuable for sharing both our thoughts and information.” [Area Manager]

33

The overall conclusion of the headquarter on the degree of knowledge sharing within the organization,

is that the more information they share, the better the relationship between the headquarter and the

subsidiary will be and hence, the effectiveness of this relationship. The headquarter stressed the

importance on collecting and receiving as much information as they can from the subsidiaries, in

order to make a deliberate decision.

2. Shared values

Most of the respondents of the HQ show the same clear vision about the strategic direction of the

subsidiary. Training is seen as a very valuable resource, but it should never be the first priority. It

should be a medium but not a goal:

“We see training as a resource to attract the people inside our business and make them aware

of the quality of our equipment. What we face in China, is that hardly no customer thinks

about training in the same way. That’s our problem.” [Area Manager]

Both the product directors and area manager are critical towards sharing technical knowledge to non-

clients in China.

“The biggest companies in China expressed the wish to become the biggest dredge company

in the world; not only in dredging, but also in building the dredge vessels. And if you look at

our history with some of the Chinese parties… they copied a lot of our stuff so I think we have

to be careful in sharing our knowledge with them. They don’t have respect for intellectual

property at all. In fact: it doesn’t even exist in China. So, we could do two things: ignore and

sell as much as possible or be careful and always look at it case by case. I prefer the latter.”

[Product Director]

In the company history there were some bad experiences with imitating and copying of the Chinese

market. It’s due to this fact that some respondent are somehow skeptical in serving the Chinese

market in the same way as they do it in other parts of the world.

34

“China remains a difficult market and it’s a continuous topic of discussion in our strategy. So

much is developing in this market. If we as a company have a new product, then they are

interested and they are willing to buy one. But afterwards you discover that there are entire

rows of the same copies in China! All our new innovative products are shown on Chinese

websites. That’s just so extreme in China.” [Product Director]

However, the HQ’s regional manager, located in Beijing, stressed the importance of changing the

strategy towards a more ‘open’ way. Competition was explained to becoming increasingly fierce, as

new local competitors were arising. Moreover, the local market is also becoming more developed,

forcing the company to adapt their strategy to the current developments.

“I would do it differently. I would say: you should always provide training and services,

including to non-clients. The only thing is that you have to be careful in what you are saying.

But from the area manager, it is a sore point. He had some bad experiences with Chinese

customers in the past and now he is really reluctant.” [Regional Director (CH)]

While the Dutch HQ respondents have a much more reluctant attitude towards technical knowledge

sharing with the Chinese market, the Chinese regional manager is less skeptical about this subject. His

vision is more wider and it seems that he has much more in-depth knowledge about the Chinese

market and attitude. The overall vision of the company towards the subsidiary seems to be clear but

there are some different thoughts about this approach. The services as provided by the subsidiary

should be used to create a distance between the company clients and non-clients, or used to set the

mind of the market.

3. Coordination and control

From the HQ, the subsidiary in China is seen as he local organization of the company and they should

focus on the philosophy of the local market. The role of the local subsidiary is to translate the vision

of the company to the local market and investigate simultaneously the customer needs. One of the

spare points of the company strategy is further international expansion but this doesn’t mean that the

companies foreign subsidiaries can approach the market exactly how they want it.

35

“Of course it is an advantage. The presence of the company in the local market gives them

the opportunity to detect the problem of the client and help them to solve it by training. We

are continuously looking for potential growth possibilities but it must be remembered that

local managers have their own interests as well. It is challenging to control this and make

decisions that so that we can both benefit” [Area Manager]

The HQ recognizes itself as a clear leader on decision making. They uses a top-down approach and

eventually they make the decision. However, most of the time this decision is based on information

provided by the subsidiary. Based on that, the subsidiary may influence the decision made by the HQ.

“It’s actually very simple: every case that is not a client I want to check first. Without my

permission there will be no training to non-clients.” [Area Manager]

Since the HQ does not want the subsidiary to have a pro-active attitude towards the market, this size

down the contribution or the initiative of the subsidiary in China.

“The policy for non-clients is that we first need approval. For our clients it is not a problem:

just go ahead. But otherwise we need their approval. That’s the policy and I think it is good to

have this formal.” [Sales Manager Subsidiary (CH)]

For the HQ it was difficult to find the right person in China. The company prefers an expatriate

manager since this person would act for the headquarters’ interests and manage the growth strategy

for China. However, the Dutch manager doesn’t speak the Chinese local language what makes it hard

to manage the subsidiary and talk with the client on a high level. The regional director in Beijing

explained that the local subsidiary manager faces challenges in how to manage and control the

subsidiary in China.

“It’s difficult for the GM in Tianjin. He is a Dutch guy and tries via tight control to keep his

employees together. But I don’t think that’s the most effective way.” [Regional Director (CH)]

36

Unless the critical attitude of the regional director towards the control mechanism of the company, the

HQ overall recognizes itself as the leader on the decision making process and thinks this is a clear and

effective procedure.

4. Conflicting interests

As indicated by Schotter and Beamish (2011), there are two forms of conflict within an organization:

functional and dysfunctional. Dysfunctional conflict has a negative effect on the performance of the

company. Divergent interests is one of the drivers of conflict.

“Those divergent interests is a constant dilemma. Every company of this size has to deal with

this kind of problems. Different business units have different interest and every unit has its

own business in China. And that’s okay, as long as everybody is aware of each other’s

activities.” [Area Manager]

The company faces a collaboration with multiple stakeholders. This multiparty collaboration is

complex to manage, since the stakeholders has to deal with a multitude of agendas. These different

interests adds to the perceived complexity of the process.

“Well, in my opinion, the subsidiary is often seen as an independent entity. From their point

of view is makes sense because they have to ensure that they keep sustainable but I think you

have to see it in a broader way. As an extra service for the company as a whole. We have a lot

of discussions about those different interests.”

5. Future market development

Cultural differences were seen by all of the respondents as challenging. These differences were more

identified in doing business with the Chinese customer than in the collaboration between the HQ and

the subsidiary. From the HQ’s point of view, future market development should be based on new

building vessels of the company, rather than expansion of the local subsidiary by providing services.

Although the HQ recognizes an increasing local market development, they are still very careful in

sharing technical knowledge and make less risky decisions.

37

The Chinese market is viewed as a difficult market to enter, at least for technical services e.g. training.

“What we face in China is that our clients hardly believe in training. That’s our biggest

problem. To convince them of the positive effects of training is our main challenge. And to be

honest: I don’t think we will manage to convince them in the near future.” [Area Manager]

Furthermore, the regional director explained why it is so hard to sell training in China. He stressed the

fact that another market approach is important and that the Chinese customer is committed to an

hierarchical approach.

“Chinese people do not ask questions because that is a humiliation. That’s a difference

between the cultures. If you show that you have learned a lot than you admit that you knew

too little. That is loss of face. And that’s different in comparison with Western countries.”

“If you send a trainer to China, it has to be a Western person otherwise a Chinese will not

see him as a professional. Especially a Dutch person is still considered as ‘high’. [Regional

Director (CH)]

From the headquarters point of view, future expansion in China is heavily depending on the market

development. They consider the Chinese market as more challenging in further expansion of the

business compared to the internal organizational structure between the Netherlands and China.

Respondents of the headquarter admit that the vision and the values of the company as a whole should

be shared in the subsidiary in order to make decisions along the lines of the overall corporate

objectives (Volkmar 2003; Li 2005). This is in line with Wech et al (2005), who stressed the fact that

differences in communication tactics make it harder for the Dutch HQ to transfer objectives and

knowledge. Hence, differences in those communication tactics could be found in the fact that Chinese

employees doesn’t want to discuss with the colleague on a higher level.

“For a Chinese it is difficult to discuss with a person who is in a higher position within the

company. For instance: a Chinese would never ask a question. And if you ask a question, they

would never answer.”

38

Headquarter

Main

Themes

Product

Director

Product

Director

Area

Manager

Regional

Director

(Beijing)

Composite

Extracts

Knowledge Sharing

and

Communication

Neutral

Positive

Positive

Positive

Positive

“Currently the information sharing is pretty nice. There’s always room for

improvement but in general it’s good.”

“The communication is always good, it’s sometimes the outcome what’s the

problem. Well, that’s a pity.”

Shared Values

Positive

Positive

Critical

Critical

Critical

“As a company, we think training is a very important tool to benefit the most of

our equipment.”

“We see training as a resource to attract the people inside our business and

make them aware of the quality of our equipment.”

“The Chinese market is extra complex because they want to copy our stuff. So

the worst-case scenario is that they copy the vessels and buy a training so that

they have a very nice product in the end. That is something we want to avoid, so

the general rule is: no training to non-clients.”

Coordination and

Control

Positive

Positive

Positive

Critical

Positive “It’s actually very simple: every case that is not a client I want to check first.

Without my permission there will be no training to non-clients.”

“It’s difficult for the GM in Tianjin. He is a Dutch guy and tries via tight control

to keep his employees together. But I don’t think that’s the most effective way.”

39

Extra Themes

Conflicting

Interests

Neutral

Neutral

Critical

Critical

“Those divergent interests is a constant dilemma. Every company of this size

has to deal with this kind of problems. Different business units have different

interest and every unit has its own business in China. And that’s okay, as long

as everybody is aware of each other’s activities. And sometimes you have to

think for the company as a whole instead of your own business unit. And there

are sometimes disagreements but in the end you have to do what is best for the

company.”

Future market

development /

Cultural

Differences

Critical

Neutral

Critical

Positive/

Critical

“The Chinese market for training is really difficult and will take a long time to

make the Chinese companies aware of the benefits of training. It’s mindset that

you have to change.”

“What we face in China is that our clients hardly believe in training. That’s our

biggest problem. To convince them of the positive effects of training is our main

challenge. And to be honest: I don’t think we will manage to convince them in

the near future.”

Table 4: Summary Headquarter

40

4.1.2 Subsidiary

1. Knowledge sharing

The subsidiary of the company is divided in two parts: one part is based in the Netherlands, while the

other part is based in Tianjin, China. The results of both the subsidiaries are divided in table 2 and

table 3 below. The knowledge sharing between China and the Netherlands is viewed as critical from

both parties. Since two years, one of the project managers of the subsidiary based in the Netherlands

is a Chinese speaking person. For the collaboration with the Chinese subsidiary this is noticed as

highly valuable, especially in the communication and knowledge sharing. Before, communication

between the Netherlands and China was explained to have been lacking for a long time, partly due to

language and cultural barriers. Schotter and Beamish (2011) highlight the importance of ‘boundary

spanners’ in the headquarter – subsidiary relationship, that decreases the dysfunctional conflict in

organizations. Although in this case the person who act as the boundary spanner is located in the

Netherlands instead of in the Chinese subsidiary, the overall performance of the subsidiary has

increased in China since his presence.

“Yes, I think it is really valuable for the company. If it is just translation then we have a local

trainer here. So he can do the basic translation. But of course, for the really complicated

program like DOCS (dredging system), the translation of X is really good because he has all

the knowledge. I think that if he really develop a program from IHC side, we can sell much

more.” [Sales Manager (CH]

The presence of such a ‘boundary spanner’ seems to be more valuable for the connection and

communication between the company and the client, then for the internal organization. Within the

subsidiaries, language doesn’t seems to be a problem but the geographical distance makes it

sometimes hard to discuss in-depth and transfer valuable information from the Netherlands to China.

Moreover, the Chinese sales manager needs more support from the Netherlands to show the clients

the benefits of the product. She stressed the fact that in China, people are less common with intangible

41

products, so she has to have tangible products to show the client the added value of the intangible

services the company provides. This is in line with the statement of the regional director in Beijing.

“Training in China is not seen as a priority. They are not used to training. By training, you

acknowledge that you miss particular skills. So if you apply for a training, you are in a weak

position beforehand.” [Regional Director (CH)]

“Well, now I’m only depending on my mouth to sell. I have nothing else. Of course, now it is

our benefit that we have a lot of relationships in the market. In China a different aspect than

the other markets is that you can sell something depending on your relationship. In China, if

you know more people, you have more value. I need more support from the Netherlands.

Because you want to sell more, you want to introduce more. I need more material, brochures,

everything. And that you can show that the program comes from Royal IHC, you already take

a lot of advanced knowledge. I think for the market exploration in the future we need to

develop our material first.” [Sales Manager (CH)]

The operational manager in China also believed that the communication and collaboration between

China and the Netherlands could be improved.

“I want to be more involved in the process and communication. In my opinion I could receive much

more information from the Dutch office.” [Operational]

Gupta and Govindarajan (2002) and Ambos and Ambos (2009) explain that organizations should take

a look at how they adjust their knowledge transfer mechanisms in order to achieve the most effective

information transfer. Currently, there are no fixed procedures and as a result this affect the

relationship between headquarter and subsidiaries.

So far, the knowledge sharing within the subsidiary is viewed from a content perspective. Both

subsidiaries explained that the information sharing could be improved but due to geographical

distance and time busy schedules the communication is sometimes lacking.

42

However, what became clear is that a lack of trust between both the subsidiaries seems to be part of

the daily operations in China. The Dutch general manager in China is also afraid of losing technical

knowledge to the Chinese market as he thinks the Chinese project manager will leave the Netherlands

in a couple of years to bring our knowledge to the Chinese market. This seems to be a more political

affair as he states:

“X is a guy who tries to gain as much knowledge as possible and then tries to get along well

with our Chinese customer. That is something what scares me. It is still a Chinese who has

come to the Netherlands to gain technical knowledge. And at a given moment, the Chinese

government will ask him to come back and share his knowledge with the Chinese market. It’s

all a political game.” [General Manager (CH)]

The fear of losing technical knowledge is somehow imbedded in the company. Although not

everybody experiences this as a problem, it is something that affects the inter-organizational

relationship. This entails that the subsidiaries faces a low level of trust. According to Schotter and

Beamish (2011), it is possible that subsidiary managers make decisions in their own interest when

there is a lack of trust. This is experienced by both the subsidiary in the Netherlands and the manager

of the Chinese subsidiary.

“ Trust is absolutely the problem. We spoke about the whole trust thing before and everything

seemed to be pronounced. And immediately I received an e-mail from X in China that

everything was arranged. But not what we agreed upon. ‘Here we go again’ were my first

thoughts.” [General Manager(NL)]

“And sometimes I make a decision not in line with the expectations of the subsidiary in the

Netherlands.” [General Manager(CH)]

As mentioned by Miesing et al. (2006), for successful knowledge transfer between subsidiaries, a

trust-based collaboration is necessary. The general manager of the subsidiary in the Netherlands

stressed the absence of clear procedures and an overview of responsibilities as one possible reasons

for this low level of trust.

43

“I think trust is much more an issue now because many things are unclear and not written

down. I think it’s important to first make things formal.” [General Manager(NL)]

From the subsidiary point of view, trust is a much more acknowledged as an important factor within

the relationship, which implies that the headquarter is less involved in the communication and less

aware of this low level of trust.

2. Shared values

Both the subsidiaries acknowledge the same vision and strategy for the subsidiary, as communicated

by the headquarter. However, there are some different thoughts about this vision and strategic

direction of the subsidiary, since they highlight the fast developing Chinese market as an important

factor to keep in mind.

“They continue to copy, until the products are on the same level. Currently, the degree in

level difference is already decreasing. In my opinion we have to adapt and change our market

approach to beat our competition.” [General Manager(CH)]

He experienced that headquarters did not listen enough to Chinese views, information and ideas

regarding further expansion in China and the development of the market. According to the subsidiary,

the headquarters sometimes lack to think from the local perspective. More information and

communication from the local market is needed to build a similar mindset. This same thought is

confirmed by the general manager from the Dutch subsidiary.

“It’s two-fold. On the one hand I have my doubts about the fact that we are sharing a lot of

valuable technical knowledge with our Chinese client, while simultaneously(and that is my

current driver): if we don’t do it; than someone else will do it. That’s how it is. Chinese

people always know how to find the right information and knowledge. The question is: how

far will you go?” [General Manager(NL)]

Although the vision from the headquarter is known and respected, the subsidiaries clearly have some

different thoughts about the strategic direction. Both the headquarter and the subsidiaries share the

44

vision that the subsidiary offers a unique selling point to the client, but the market approach of the

service is different. For the subsidiary it is part of their core business and hence they want to be more

pro-active in the market. Moreover, they are more aware of the developing market and want the

headquarter to listen more to the market and customer. Both the subsidiaries are aware of the

divergent interests of every business unit within the company. It is viewed as challenging to

collaborate and make decisions in favor of the company as a whole.

“That is what IHC faces. Everybody has his own opinion about everything but in the end,

nobody takes responsibility. Currently our Chinese organization is not well established. The

function of the office in Tianjin should be much more clear. Then we will have less problems

and irritation. It’s impossible to involve the whole company in the subsidiary” [General

Manager(CH)]

“Within Royal IHC everybody looks at us as and training as a valuable part in a life cycle of

a ship. Nobody in this company see training as a goal, but as part of the business chain. But

for us it’s different. Within the subsidiary it is really an end objective.” [Project Manager]

Both the sales manager and the operational manager in China have a less critical opinion about the

direction of the firm. Especially the sales manager respect the vision of the headquarter and is less

resistant. This is in line with the statement of the regional director in Beijing that in China the

hierarchical structure is much more imbedded in organizations.

“It is their policy and it’s also a political point. Of course I will try to wait for making

decisions and wait for their answer. If it is allowed than just go and if it is not allowed then I

will stop.” [Sales Manager(CH)]

Hence, both the subsidiaries share the same vision about the strategic direction of the subsidiary but

are critical towards the current execution of the daily operations. They are more aware of the changing

market needs and do believe that the headquarter should change their strategy to become more

successful in the Chinese market.

45

3. Coordination and control

The headquarter has set a policy and the subsidiaries should follow this policy. In the operational level

this seems to be known and accepted. Although the thoughts are not always similar, the subsidiaries

always ask permission from the headquarter in case it is a non-client.

“Normally you have to think together with the HQ and talk to them to provide evidence why

that training is good for the company as a whole. Because we can get a lot of information

from the market and we can help our potential client. So we can put all our evidence on the

table and then we discuss with the HQ. only by doing that we can get a ‘go’.” [Project

Manager]

As stated before, the subsidiary sometimes experienced the control of the headquarter as an obstacle

to make their own decisions. O’Donnel (2000) and Tsai (2002) highlight that headquarters are not

able to make all the decisions because for the subsidiary due to a lack of local market knowledge. In

this case, the subsidiary share the same feeling. However, in industries where technical knowledge is

transferred, it appears to be harder to reach consensus between headquarters and subsidiaries, as

highlighted by Kaufmann and Roessing (2005). Protecting technical knowledge is viewed as

important, but the company is struggling in finding a way to deal with in a way that both parties

benefit. Currently, headquarters attitude regarding sharing technical knowledge is somehow reluctant,

while simultaneously the subsidiaries is willing to share this knowledge with the Chinese market.

What became clear during the interviews is that the control from the headquarter is not seen as the

most obstructive aspect in the daily operations. Both the general managers from the Chinese and

Dutch subsidiary acknowledge that it is difficult to manage the business when there are two managers.

Together with the current absence of clear procedures on several topics, running the day to day

business is challenging. As mentioned before, one of the strategic priorities for the company is

internationalization. According to the general manager in China, they are trying to establish one office

that represents all services and products of the company.

46

“That’s why I am not in favor to arrange the sales from the Netherlands.” [General Manager

(CH)]

“The General Manager in China does not want us to have direct contact with Chinese

customers. He wants to be in charge and that’s the whole point.” [General Manager (NL)]

This is in line with the theory of process conflict of Jehn and Marnix (2001), in which employees

faces a disagreement on how a specific task should be achieved. In this case, the divergent interests of

both managers are intertwined. Roth and Nigh (1992) show that headquarters often set certain goals

and procedures to make the subsidiary aware of the strategic direction of the firm and to decrease the

uncertainties within the organization. This research shows that it is not only important to define the

strategic direction from the headquarters point of view, but the goals of the different dispersed

subsidiaries should also be in line to make the relationship more effective. A lack of clear procedures

is indicated as one of the biggest obstacles that creates uncertainties and conflict. Power and

leadership in this multi-party collaboration are distributed, which sometimes causes irritation.

Simultaneously, if there would be only one leader, some people may feel less involved and

responsible and maybe would size down their contribution.

4. Future market development

From the subsidiaries point of view, further expansion of the business in China is possible and is less

dependent on the market development. The respondents indicate quality of the delivered services, the

price of the services and the current market approach as the most challenging factors in further

expansion. In comparison with the headquarter, the subsidiary is less afraid of losing technical

knowledge to the Chinese market and is more aware of the fact that with the current market approach

it is difficult to attract new clients.

“By training we could learn from our potential clients. We are the market leader for dredgers

but basically we don’t know the status of Chinese dredgers for example. We have no clue. We

always say it is of bad quality but I don’t believe that.” [Project Manager]

47

The respondents of the subsidiaries acknowledged that imitating and copying in the Chinese market is

more rule rather than exception, but they have different opinions than the headquarter in how to deal

with this imitating behavior. According to most of the respondents of the subsidiary, one should not

focus on the fear of losing knowledge, but more on how to provide the client with as much knowledge

as needed so that they will buy their products. The world is becoming more and more global and the

Chinese companies will gather their information one way or another. The subsidiaries have the strong

believe that you should think with the client and use a more pro-active market approach, instead of

keeping your knowledge in the own company.

“If we have proper curriculums, proper designs and materials especially for the Chinese

market than we have a big change to sell more. They are willing to take our advice and new

knowledge from us. But we also need a proper price. Of course, now it is our benefit that we

have a lot of relationships in the market. In China a different aspect than the other markets is

that you can sell something depending on your relationship. In China, if you know more

people, you have more value.” [Sales Manager]

“In China, building on long-term relationship is still really important.”[General Manager

(CH)]

Both the sales and general manager in China stressed that the relationship between company and

client is highly important. During my visit in China I experienced also that you first have to build on a

strong relationship with the client before you can do business and negotiate. In comparison with

Western countries, doing business is less direct and as a company you really have to invest in the

relationship. From that point of view, it is understandable to serve the client only from the local office

in China.

48

Subsidiary The Netherlands

Main

Themes

Director

General

Manager

Project/

Sales

Manager

Project/

Content

Manager

Composite

Extracts

Knowledge Sharing

and

Communication

Positive

Critical

Critical

Critical

Critical

“The communication between our office in China and here could be better.

More sharing would probably increase our understanding of the Chinese

market.”

“It’s not about communication, it is about trust.”

Shared Values

Positive

Critical

Critical/

Positive

Neutral

Critical/

Positive

“For China Training we do have a vision to build China Training as a stand-

alone unit in China. By doing that we have to have sustainable training needs.

And we cannot only rely only on our clients. We have to explore our market and

try to attract as much training needs as possible. That may be bit different of the

vision of the HQ.”

“It’s two-fold. On the one hand I have my doubts about the fact that we are

sharing a lot of valuable technical knowledge with our Chinese client, while

simultaneously(and that is my current driver): if we don’t do it; than someone

else will do it. That’s how it is. Chinese people always know how to find the

right information and knowledge. The question is: how far will you go?”

Coordination and

Control

Positive

Critical

Positive

Neutral

Critical/

Positive

“The General Manager in China does not want us to have direct contact with

Chinese customers. He wants to be in charge and that’s the whole point.”

“It depends also on the organization of the business. We do not have clear

agreements, responsibilities and procedures on paper and that’s also a point of

irritation.”

49

Extra Themes

Quality

Neutral

Neutral

Critical

Neutral

“To improve the quality of our training, I think the attitude from our side need to

by changed from “you get what we deliver” to “we deliver what you

want/need”. We should think from the client side. They need training to solve

their problem. If we think from the client perspective: they need training

because they think training is good and they want to solve problems to make

more effective work. So if we think from that part, we can change our strategy to

talk with the client: by training we could really help you.”

Future market

development

Positive

Critical/

Positive

Critical/

Positive

Neutral

“I think there is a lot of potential but there are a few challenges and eventually,

in my opinion, I think it will be declining business. And the most important part

is that our price is too high for the Chinese market.”

“The future is all about quality. China Training has 2 purposes in my opinion.

One is to help the client and one is to stay connect to the client. To perform as a

bridge. So then we have to keep in mind our group strategy otherwise we will

lose the base. If we lose the base then it will be much more difficult to get

training needs.”

Table 5: Summary Subsidiary Netherlands

50

Subsidiary China

Main

Themes

General

Manager

Sales

Manager

Operational

Composite

Extracts

Knowledge Sharing

and

Communication

Critical

Critical/

Positive

Critical/

Positive

Critical

“But for me, I need some more support from the Netherlands. Because you want

to sell more, you want to introduce more, I need more support. All the material,

everything. If you can show that the program comes from Royal IHC, you already

take a lot of advanced knowledge.”

“I must admit that it runs smoothly at the moment. In the past that was a little bit

different, but currently it is okay.”

Shared Values

Critical

Neutral

Positive

Critical/

Positive

“For my personal idea, I don’t think that from one training the Chinese customer

can copy or imitate things. But off course we have the company policy and we just

have to follow up.”

Coordination and

Control

Critical

Positive

Positive

Positive “Well now I think it’s good to have it formal. The policy is not the problem. My

doubt at the moment is: I need a more quick response. Normally I got it too late.

You lose your chance.”

Extra Themes

Conflicting

Interests

Critical

Neutral

Neutral

“Well look at it in this way: we facilitate a piece of the organization in China.

Only disadvantage is that it is intertwined with interests. If we make a profit in

Tianjin (Ch.), than they think in the Netherlands: spend that money! But that is

not how it works.”

Future market

development

Critical/

Positive

Positive

Neutral

“Yeah well if you want to be more commercial in China, you have to decrease

your price first and you need a sufficient illustration of your program. That are

the two most important things for me.”

Table 6: Summary Subsidiary China

51

4.1.3Client

The effectiveness of the relationship between headquarter and both subsidiaries is measured both in

terms of the processes and procedures within the organization. However, expansion of the company to

a foreign country has as objective to enter that market and create new customers. One objective of

Royal IHC is to perform as ‘one-company’ to the global market. Hence, in China, one office is

established to serve the market and represent the company as a whole. This research investigates the

extent to which (and what) the Chinese client faces problems or ambiguities in doing business with

both the local Chinese subsidiary and the subsidiary based in the Netherlands. The vision of the client

related to the provided services and collaboration with Royal IHC is compared with the results of the

headquarter and subsidiary. To increase the effectiveness of the relationship between headquarter and

subsidiaries, the vision of the client is valuable. In this way, Royal IHC has more concrete information

on which aspect of the business chain they should focus. As mentioned in the literature, eight

dimensions of value creation for the customer are identified by Ulaga (2003). Some of those

dimensions have been investigated by the customer, to collect valuable information and compare

those results with the perspective of Royal IHC. The most striking and important outcomes are

explained below.

1.Communication

The communication between the client and IHC is experienced as very good. The client indicates

room for improvement in a more detailed communication and with more levels in the organization.

Moreover, the interviewees mentioned as a key focus point for Royal IHC the differences in

approaches between the Western market and the Chinese market.

“Our company really wants to continue the cooperation with IHC so IHC must really

understand the Chinese way of dredging. Make more tailor made programs and create a

better understanding of the market. IHC has to translate the Dutch way into the Chinese way.

From top down within our company they show a lot of interest in training: it’s the base for

52

collaboration. So my advice is to create a deeply understanding of our company culture so

that it can easily be translated into the Chinese dredging market.” [Operational]

“Focus on the training measures. More support from TID and more support in the Chinese

style. TID should make really good use of the consult hours. Go to Ghuangzhou and have

face-to-face communication. Just like those 3 days. It’s very valuable and you should do it

more often.” [HR Manager]

GDC indicates that, from their point of view, the subsidiaries in Tianjin and the Netherlands are quite

in line with each other. It is the internal policy of Royal IHC that both offices have different and

separate tasks, but they do not experience that as annoying or confusing.

“I can understand there are some internal processes within Royal IHC. We contact Tianjin

for training requests and then it goes from Tianjin to Kinderdijk (NL). So far, we do not have

problems with the communication. It is practical to communicate in China.” [HR

Representative]

“They have the same voice. That’s an advantage of IHC. They all act like one IHC.” [Head of

Training Centre]

The client perceives the Chinese project manager in the Netherlands as highly valuable and a big

improvement in the way of communication. Before, the client had to contact the office in Tianjin and

translate everything from Chinese into English first. As indicated by the sales manager and the

general manager in China, an important aspect of doing business in China is building on a long-term

relationship. From that point of view it is valuable for the company to keep the central point for the

business in China.

2. Shared values

All the respondents mentioned the differences between the Western and Chinese markets as the most

challenging for Royal IHC. According to the theory of Li and Scullion (2006), cultural distance may

be an important factor the influences cross-border knowledge transfer. What became clear during the

53

interviews is that the transfer of information is not the most challenging factor, but the transfer of the

philosophy of the Chinese client. As indicated by the respondents, the biggest challenge for Royal

IHC is to translate their program into a program that fits the Chinese market.

“Training is very important in order to improve our work. It’s a very critical aspect related

with our objectives. Of course there is a cultural distance. But that is most of the time in the

philosophy.” [General Manager & CFO]

“For European people, maintenance is something common, but for Chinese people it is not.

Training is on the philosophy level. IHC has to translate the Dutch way into the Chinese way.

You have to create a deeply understanding of our company culture.” [Operational]

“To improve our relationship, IHC has to focus on the evaluation of training. And more in the

Chinese style. Training is a philosophy and here in China it is not really common.” [HR

Manager]

In general, the collaboration between IHC and the client is viewed as a stable and good one. This is in

line with what I experienced during the client meetings in China. The most striking observations for

me in China were that everything is about relationship; the hierarchical and political structure in the

clients company; and the philosophy on training and ‘learning’ in general. Those aspects were also

many times highlighted by the respondents as important and hence my personal observations

confirmed these thoughts.

54

4.2 Comparison

In this section the cross-case analysis searches for differences and similarities across the discussed

headquarter and subsidiaries. In table 7 the composite findings of both cases are presented , together

with the degree of consistency across both cases. The conceptual model of this research is the guiding

principle in the comparison of the results. The degree of knowledge sharing and communication

within the company is viewed as most important of the three main themes. As indicated by both

headquarter and subsidiaries, the current situation with respect to communication and knowledge

transfer is positive. From the client perspective, the communication and collaboration is viewed as

positive, which is in line with the perspective of both headquarter and subsidiaries.

However, between the two subsidiaries a lack of trust appears to be a problem in the daily operations.

Since the headquarter is less involved in this process, the respondents of this unit of analysis did not

mention trust as a critical aspect. The respondents of both parties all indicate that a high degree of

knowledge sharing will have a positive effect on the relationship between headquarter and subsidiary.

With respect to trust as an issue within the subsidiaries, the respondents all acknowledged that a lack

of clear procedures and an overview of responsibilities is partly the problem.

Themes Headquarter Subsidiary

the

Netherlands

Subsidiary

China

Client Degree of

Consistency

Knowledge

Sharing and

Communication

Positive Critical Critical Positive

High

Shared Values

Critical Critical/

Positive

Critical/

Positive

Critical/

Positive

High

Coordination

and Control

Positive Critical/

Positive

Positive

Medium

Conflicting

Interests

Neutral/

Critical

Critical Neutral/

Critical

Medium

Future market

development

Critical Positive Positive

Medium

Table 7: Cross-Case Data Analysis

55

Although there are different thoughts about the strategic direction and vision of the headquarter, the

respondents share the opinion that shared values will have a positive effect on the relationship

between headquarter and the subsidiaries. However, both parties are somehow critical towards the

current situation with respect to the shared values. The headquarter is much more afraid of losing

technical knowledge to the Chinese market. The subsidiaries acknowledge this fear, but they have

different thought on how to deal with this issue. The theory of Volkmar (2003) and Li (2005) on

shared values between headquarter and subsidiaries is partially supported in this case. Both the parties

do think that shared values will have a positive effect on the relationship but are also critical in how to

create those shared values. Welch et al (2005) indicate that cross-cultural conflict may act as a

constraining factor in developing successful integration between different units. In this case, it may

not be the cultural conflict that appears to be a problem, but from the subsidiary point of view,

headquarters makes a negative decision on a new client opportunity to easy. According to the

subsidiary, the headquarters sometimes lack to think from the local perspective. More information and

communication from the local market is needed to build a similar mindset. According to the client, the

biggest challenge for Royal IHC is to translate the Western way of training into the Chinese way of

training. It is important for Royal IHC to create a shared vision specific for the Chinese market and

therefore the headquarter and subsidiaries have to define a clear strategic direction.

The headquarter recognizes itself as the clear leader on decision making. Although the subsidiary

respect this procedure, they do not experience this control by the headquarter as positive for the

relationship. The theory of Mudambi and Navarra (2004) in this case is partially supported. They

noticed that if the subsidiary make decisions that are not compatible with how it is desired by the

headquarters, this may lead to possible increase in the control of the headquarters. The headquarters

want to be in the lead and do not have the intention to change this. Although the subsidiaries share the

vision that a more decentralized control from the headquarter is preferable, the main issue can be

found in the control and coordination process within both subsidiaries. Again, a lack of clear

procedures and responsibilities is often cited as critical. Moreover, during the interviews and based on

56

my own observations, the presence of two managers in both subsidiaries does not have a positive

effect on the relationship between both subsidiaries since they faces different interests.

5. Discussion and Conclusion

This section will discuss the degree to which the working propositions are supported by the findings

of this research. The conclusion will summarize the key findings of this study, provide limitations of

this study and will provide recommendations for future research.

5.1 Discussion

5.1.1 Implications of Theory

As shown in table 5, the findings of this research support most of the working propositions. The cross-

case analysis supports the propositions stating that a higher degree of shared values and a higher

degree of organizational knowledge sharing is positively associated with the organizational

effectiveness of the headquarter-subsidiary relationship. Organizational effectiveness is measured in

terms of processes and procedures within the organization. One of the main outcomes of this research

is that a lack of clear procedures, responsibilities and tasks is one of the key issues in the relationship

between headquarter and subsidiaries.

Working Propositions

Results

WP 1

A higher degree of shared values is positively associated with the organizational

effectiveness of the headquarter-subsidiary relationship.

Supported

WP 2

A higher degree of organizational knowledge sharing between the headquarter

and the subsidiary is positively associated with the organizational effectiveness of

the headquarter-subsidiaries relationship.

Supported

WP 3

A higher degree of control mechanisms between the headquarter and the

subsidiary is positively associated with the organizational effectiveness of the

headquarter-subsidiaries relationship.

Partially supported

Table 8: Results on working propositions

57

Although empirical evidence on the influence of coordination and control on the relationship between

headquarter and subsidiary is mixed, surprisingly, the working proposition with regard to coordination

and control is partially supported. The theory of Mudambi and Navarra (2004) and Roth and Nigh

(1992) about coordination and control is supported from the headquarters point of view. Generally,

the decision-making process is delegated to the subsidiaries, however, if the subsidiary makes a

decision that is not compatible with how it is desired by the headquarters, they increase their own

control. The theory of Tsai (2002) and Luo (2005) is also supported: based on the results it became

clear that it is difficult to use coordination mechanisms within an organization with different units in

the network.

This case study research is particularly appropriate for further understanding of the headquarter and

subsidiary relationship for multiple reasons. First of all, as indicated by Kaufmann and Roessing

(2005), the level of maturity of research of headquarter-subsidiary conflicts in high technology

industries is low. Especially in China, as described in the literature, companies faces difficulties in

sharing their technical knowledge. Secondly, the presence of multiple subsidiaries have not been

tested often in headquarter and subsidiary relationships. The presence of a subsidiary both in the host

and in the home country adds new insight to the literature and can serve as an example for further

research on the inter-organizational relationships within the MNE’s network. The additional element

of the client perspective on the collaboration makes this case unique and acts like a control element on

the thoughts of the case company.

5.1.2 Implications for Managers

The proposed conceptual model is applicable to an organization that faces difficulties in managing the

relationship between headquarters in the home country and foreign subsidiaries. A base for a good

relationship is missing for the studied case company. Schotter and Beamish (2011) state that when

there is a lack of trust between headquarter and subsidiaries, it is possible that subsidiary managers

only behave and make decisions in their own interest. As indicated by a number of respondents, this

lack of trust stems from the fact that there are no clear procedures and rules within the organization.

Following the phases in figure 1, the case company currently finds itself in phase 4. In other words,

58

focus on integrating international operations and development of center offices and new markets

selected based on future outlooks. The further and more developed the phases of internationalization,

the more the organization requires a clear structure and responsibility processes. Collaboration and

relationship between headquarter and subsidiary become more in-depth, frequent and complicated in

comparison with, for instance, phase 2. From a management point of view, this implies that structure,

a solid vision and clear procedures become more important for an effective relationship between

headquarter and subsidiary. To create more trust in the organization, managers should focus on these

aspects.

However, control and coordination become less important in the later internationalization phases from

figure 1. The more the subsidiary is embedded within the local market and the more activities they

establish, the less the subsidiary wants the headquarter to control the decision making processes. From

the subsidiary point of view, the headquarter has less knowledge about the local market and assume

that they can make better decisions without too much control. From a management point of view, this

implies that the company should think about the decision making process, in order to positively

influence the relationship between headquarter and subsidiary.

From the client’s perspective, the most important message is to listen to their needs and wants. China

is still an emerging market and lagging behind on technological issues. In addition, relationship with

the customer is highly important in China. Managers may be more likely to act in accordance with

their own purposes rather than with the client goals, hence they may lose their customer. Managers

should focus on long-term relationship and adopt a patient attitude.

5.2 Conclusion

This single-case study has analyzed the issues and challenges in the relationship between headquarter

and subsidiaries in their internationalization strategy, specifically in China. Based on a theoretical

foundation three working propositions were developed in order to gain a better understanding of the

issues and challenges within headquarter - subsidiary relationship. Furthermore, the perspective on the

collaboration with the case company was investigated from a client’s point of view. This qualitative

59

research generated new insight in the literature through semi-structured interviews and personal

observations.

One important finding was that all respondents were aware of the highly divergent interests within the

organization. These conflicting interests impact the relationship between the headquarter and

subsidiary.

It is remarkable that the company-wide strategy focuses on delivering tailor made products and

services to their clients in order to strengthen and intensify customer relationships and in return gain

access to potential markets (Royal IHC’s Annual Report 2013). However, from the headquarters’

perspective, they act reluctant when it comes to the transfer of technical knowledge. Thus, the overall

company strategy is somehow difficult to follow for some part of the business.

The study indicates that to create a more effective relationship between headquarters and subsidiaries,

the three different themes all have a certain influence. The outcome of this study however confirm

most of the suggested working propositions and generate new issues and challenges that headquarters

and subsidiaries face in their collaboration and relationship.

5.4 Limitations and further research

The results of this study naturally have certain limitations. Qualitative case study research provides

little bias for scientific generalization (Yin, 2003). This research investigates a limited possible factors

that influence the relationship between headquarter and subsidiary. Since this is a single-case study

and in one single sector, this thesis does not claim to provide general explanations of the headquarter-

subsidiary relationship, specifically in Dutch based headquarters and their subsidiaries in China.

Further research should focus on other industries in order to investigate to what extent the studies

issues have a similar impact on the relationship in the high technology industry.

Furthermore, this research is based on one single clients’ perspective. Further research should focus

on multiple client perspectives in order to create a wider view on the collaboration and hence, to make

it more generalizable.

60

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Appendix

1. Discussion Guide

“Discussion Guide”

1. Introduction, outline broad purpose of research.

2. Start out with basic demographic questions, including company size, sales volume, number of

employees, number, and locations of operations, etc.

3. Begin with “big picture” style questions regarding headquarter initiatives and subsidiary reactions.

Example: What kind of headquarter initiatives at the subsidiary level have been

initiated during the last few years?

4. Follow-on questions to indirectly tap into the outcome of the implementation.

Examples:

In which initiative implementation have you been involved and what was

your role?

Was the initiative rejected or implemented at the subsidiary?

How did the rejection process develop and who was the driving force

behind it?

What was the outcome of the rejection for the subsidiary?

What was the outcome of the rejections for headquarters and the

company overall?

What were the reasons for the rejection?

Are those rejections common in your company and what were the short

and long term consequences of the process and its outcome?

Who were/are the key individuals (name and position) during the

initiative implementation phase?

Can you remember other individuals who behaved prominently

throughout the process?

Who were they?

What did they do?

Main prompts throughout the interview:

Can you tell me more about that?

Can you tell me how that works?

Can you tell me a story about the last time you visited the location?

Can you explain that another way?