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The role of MNC headquarter

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FSM - Finance & Strategic Management SCIENTIFIC PAPER 'The role of MNC headquarter' Author(s) of paper: Simon Hansen Table of contents Table of contents 2 Problem formulation 3 The story of Multinational Corporations 4 Responsibility 4 Governance mechanisms 5 The role in the past 6 The role now 7 Headquarter tasks 8 Transfer of international managers 8 The future strategy for multinational corporations' headquarters 9 Conclusion 11 Bibliography 12 Problem formulation Globalization is placing production where it is most cost-effective, selling where it is most profitable, and getting capital from where it is cheapest. That is why multinational corporations exist. Globalization and the development of multinational corporations go hand in hand, with technology as main driver of this combined development. Company strategy has evolved over time, from the first multinational corporations. But what are the differences, and what is the main purpose of company headquarters today. That leads to the following questions to be examined in this scientific paper: - How to define the role of the headquarter? - What was the role of the MNC headquarter previously? - What is the role of the MNC headquarter today? - What is the main difference? - How will the role of the MNC headquarter evolve over time? The story of Multinational Corporations As globalization become more and more important for each day, multinational corporations are becoming more interesting. ...read more.


A strict hierarchy was the norm, with the headquarter at the top of decision making. By doing this, the corporation more or less neglect local behavior, needs, law and culture. Centralization moves every single important decision to the headquarter, who obviously can not be aware of every single movement in a local market as the local subsidiary is able to. The formalization removes any identity of the local subsidiary and replace it with the identity of the headquarter. This is because of the standardized procedures, which comes from the headquarter, and therefore removes any initiative and impression. The role now As when analyzing the role of the headquarter in the past, we will look at the elements to see how the current role is different. Role Where the headquarter before wanted both the local and global responsibility, corporations nowadays moves towards the global responsibility and thereby leaves the local responsibility to the local subsidiary. By focusing on the global responsibility only, the headquarter better can react to movements in the global market. Thus letting the local subsidiaries care about movements in the local market. But the corporation does not want to give up power in the decision making, and of course wants the local subsidiaries to act in a way that does not collide with the goals, values and beliefs of the headquarter. Therefore they need a set of governance mechanisms to control that, and that is looked at in the following. ...read more.


This might be a temptation to some leaders, as this gives them the opportunity to be present, virtually, in every part of the world. But this is dangerous, as the decentralization is the right way towards a corporation that is able to react and adapt to changes in the global and local market. Conclusion The relationship between headquarter and its subsidiaries can be described by governance mechanisms, centralization, formalization and normative integration. These describe how headquarters acts towards the subsidiary and thereby what role headquarters has in the organization. Previously multinational corporations was very centralized and formalized, thus giving headquarters a very important role in the corporation. The HQ was at the top in decision making, which had the effect that the corporation was not in a condition where it easily can react to changes in local markets. Corporations are going towards a more normative integration-approach towards headquarters role in the organization. The main difference between previously and present is that corporations nowadays are more capable of reaction to changes in local markets. Instead of directly making the decision in headquarters, now international managers are trained and socialized with common goals, values and beliefs. This creates an indirect decision making by the headquarter, as they have trained the managers who now makes decision according to local needs and changes. Corporation will be even more decentralized, thus giving the subsidiaries more responsibility and the ability to react to local changes. Furthermore technology, specifically communication, will move corporations towards the virtual organization. Here decision making can be coordinated across borders, due to instant communication throughout the organization. ...read more.

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