New management. How are subsidiaries integrated?

Examination Thesis, 2015

28 Pages, Grade: 07





1. Introduction
1.1 Problem background
1.2 Problem formulation

2. Introduction to the Headquarter Wal-Mart
2.1 The case of Wal-Mart in India

3. Why change the management
3.1 Kotter's 8 stage model
3.2 Cultural differences
3.2.1 Hofstede´s cultural dimensions
3.2.2 US-American vs. Indian culture

4. Overall Analysis and findings
4.1 Hofstede's analysis of culture - impact on Wal-Mart
4.2 Kotter's 8 stage model analysis and impact on Wal-Mart

5. Conclusion



This report is dealing with the relationship between multinational cooperation and the integration of new subsidiaries. It shows the multinational cooperation's, MNC's, which are nowadays also seen as set of differentiated networks, where some subsidiaries are creating competences on which MNC may depend, more clearly. Furthermore the autonomy subsidiaries receive through the MNC range from high level to very low, which is an important and influence rich tool for MNC's in international interdependence. In addition the multinational skills will be discussed to show their competitive advantage in a global marketplace.

It contains an analysis of cultural differences as well as change management and the investigation of if HQ are more resistant to change than their foreign subsidiaries. Primarily the problem background as well as the problem formulation is introduced, followed by the methodology. To limit the range of this topic the HQ such as the subsidiary case is introduced.

Continuing a composition of theories and observable strategies for the company are shown based on Kotter´s eight steps and Hofstede´s assumption of cultural differences between nations. The recommended model of Kotter demonstrates eight steps to transform an organization to be more successful. The model of Hofstede will help to take a closer look at the differences between the two cultures. Furthermore the findings and analysis of the two models are combined with the problem formulation. The report ends up with a final conclusion with a statement referred to the research question.


Abbildung in dieser Leseprobe nicht enthalten

1. Introduction

Multinational cooperation's, MNC's, these days are also seen as set of differentiated networks, where some subsidiaries are creating competences on which MNC may depend. (Budambi et al., 2013). The important resources which the MNC needs to handle are opportunities and threats on the external environment, which are controlled by the subsidiaries. (Budambi et al., 2013). The autonomy subsidiaries receive through the MNC range from high level to very low. (Dorrenbacher and Gammelgaard, 2006). An important and influence rich tool for MNC's in international interdependence. It not only helps the MNC to make use of their multinational skills to gain competitive advantage in this global marketplace, but also to make them sustain. (O´Donnell, 2000). A crucial part of the whole subsidiary integration process, is the resistance to change, rooting in the subsidiary itself. Building a closer integration across both parties starting from the MNC, can result in a better understanding and acceptance on both sides (Balogun et al., 2011).

The integration process is followed by two forces which are always going hand in hand, but do not complement each other; change and resistance. (Joney, 2007). An important step related to this process is to highlight the relevance and importance of the change, such as to which extent the change will affect all parties. (Child, 2005). The culture of a nation and institution are both still powerful tools against change, which affects the HQ and the subsidiary in equal measure.

But it is important to know, what exactly is meant by MNC and subsidiary. By a multinational cooperation, MNC, is meant that a company has other facilities in other countries, in one for instance. The management for such an operation, global management, is lead from the head quarter, HQ, which mostly is the home country. A subsidiary is in most cases a smaller company which was bought by the MNC. The subsidiary's actions are controlled by the parent-company. Not necessarily does the subsidiary have to adopt the parent companies name. Often the subsidiaries are keeping their origin name, but are owned by somebody else. An example is the car maker BMW which is the owner of Rolls Royce Motor Cars. However Rolls Royce belongs to BMW, but is still running under its own name. The HQ is responsible for the integration of the subsidiary. It needs to be introduced to possible management changes. This process however can come with many obstacles, which can exist on both sides.

1.1 Problem background

Wal-Mart, the world's most powerful and largest retailer is intensifying its activities in India. After failing with a Joint Venture with an Indian company, its subsidiary Best Price Modern Wholesale is now focusing on the Indian wholesale sector, instead of the end consumers. This topic is of relevance because MNC's often forget to integrate their subsidiaries, especial the foreign subsidiaries (Sanders, n.d). The integration is of importance because it generates a successful flow. Therefore this report will focus on Wal-Mart as the Headquarter and takes a closer look on its acceptance and integration of a foreign market. Best Price Modern Wholesale is a subsidiary of Wal-Mart and is a perfect case of how a subsidiary integration process can fail and how to manage the failure towards possible success.

The next chapter will therefore shortly introduce the problem formulation and related to that introducing the research question.

1.2 Problem formulation

The aim of this paper is to show the multinational cooperation management more detailed by an example of a foreign subsidiary. Furthermore the integration of the new subsidiary into a foreign market will be examined under consideration of cultural differences. While integrating a foreign subsidiary the Headquarter has to be aware of the potential barriers during this integration process like the resistance to change.

To point this out the following research questions will be observed:

Research question

What are the most important steps for a Headquarter to be successful with a foreign subsidiary?

Which role do cultural differences play within the integration process of HQ and subsidiary?

This paper assumes to find out that cultural differences have an impact on a foreign subsidiary and for a foreign market. In addition, that there will be resistance to change due to cultural differences.

A research can have a deductive or an inductive approach. Sometimes a research can have both approaches at same time. The deductive approach is when a researcher develops theory and hypotheses and designs a research strategy to test hypotheses. The inductive one is a research approach, where a researcher collects data and develops theory based on the research data analysis. (Saunders et al., 2009) This report is using the inductive approach because the researcher has developed a theory and analyses out of the data collected.

Type of data

Secondary data will deliver the base for this report. It is conducted by the use of books, academic articles and the internet.

The next chapter will introduce the Headquarter and in addition to that is introducing the case study for this paper.

2. Introduction to the Headquarter Wal-Mart

This chapter will introduce the Headquarter this report is dealing with.

Sam Walton founded Wal-Mart in 1962 in Arkansas, USA. Wal-Mart offered small discount stores as well as super centers. The difference between them are the variety of products offered. Within the first five years, Wal-Mart opened twenty-five stores across the nation and were able to make millions of Dollars revenue. In 1970 the first Wal-Mart distribution center was opened, one year after Wal-Mart Stores Inc. were founded. Every Day Low Prices was its motto throughout the years, which basically means offering brand and no name products to the lowest price. Through its large presence Wal-Mart was not only able to give their customers a lower price compared to the competitors, but also to make use of its bargaining power to get better prices. Out of that Wal-Mart gained customer loyalty from price-focused customers. Another reason why Wal-Mart could offer lower prices is because intermediaries are avoided. Since Wal-Mart had the position to decide which retailer to buy from, retailers shifted their production to third-world countries. On the one side to minimize labor costs, on the other side to win or keep Wal-Mart as a customer. Its large power of appearance and an efficient supply chain management, Wal-Mart were able to take over the retail sectors leader position. This again had influences on lowering prices. Investments in different areas like IT, transportation and technologies secured the success of Wal-Mart. By the end of the eighties the empire of Wal-Mart has grown to over one-thousand stores located through the USA with a multi-billion dollar worth of sales. In 2005, only seven years after founding the subsidiary Neighborhood Market, 20% of the US retail sector of grocery and consumables, are controlled by Wal-Mart (Gosh, Siddartha, 2010).

When realizing that foreign markets had great potential for discount retail, the decision to expand and become a global enterprise was made. The first expansion was towards Southand Latin-America and Canada. Asia was the next step focusing on China. Afterwards the European market was targeted with focus on the UK and Germany. Today Wal-Mart is present in over fifteen countries worldwide with over two million employees, and is on the first place of the Fortune Global 500 which represents the five hundred most strong-selling companies on earth (

Therefore a closer look on the Headquarter subsidiary relationship, on the base of a case study, will be taken in the following chapter, to make the impact Wal-Mart as a Headquarter

2.1 The case of Wal-Mart in India

Like mentioned above Wal-Mart is a global player which decided to expand the business worldwide. Hence the relationship between headquarter and subsidiary will be examined in this chapter to show the impact Wal-Mart has and how the integration process of a new subsidiary into a foreign market took course in this case.

The case study of Wal-Mart is a good example to show how the Headquarter has tried to integrate a subsidiary into a foreign market.

The fact that Wal-Mart failed full fills the expectations of Kotter's 8-stage model, which is a crucial instrument for the further analysis and investigation.

At the end of 2006 Wal-Mart formed a joint venture with the Indian company Bharti named Bharti Wal-Mart Pvt. Ltd. This joint venture was based on an equal stack for both companies. While Bharti was responsible for running the stores, Wal-Mart would take care of the supply Chain. The potential the Indian consumer the market offered attracted Wal-Mart's attention. Investing millions of Dollars into this cooperation the plan was to open stores in 2007 (Gosh, Siddartha, 2010). This announcement however, had a more negative than positive effect on the Indian population. Wal-Mart's huge presence and domination forced small shops and other big stores, within the US and other countries where Wal-Mart opened stores, to close. This would happen to Indian retailers and stores as well. The destruction of local retailers and small businesses, is also supported by the fact that Wal-Mart receives all its products from China. This had a negative effect on Wal-Mart's success in India, since the imported goods from China outworked the local producers (Cheng, 2014).

However the joint venture failed. 2012 Wal-Mart took over Bharti's 50% of their joint venture and with that also twenty Best Price Modern Wholesale stores, which became a subsidiary of Wal-Mart (Bose, 2013). Not only the wrong focus of Wal-Mart's entry were the reason of failure, but also facing local laws about ownership and local partnerships were a part of it. The focus of Wal-Mart India has been changed to whole sale instead of end consumers (White, 2015). Within the next five years the plan is to open another fifty stores in India, next to the already existing twenty, as well as the possibility to order products online. Wal-Mart learned out of their experiences years before, and is now receiving their products by almost 100% from local producers, such as local farmers (Thau, 2014) Another country where WalMart failed, is Germany. In the 90's Wal-Mart entered the German market. In 2006 it sold all its eighty five properties to a German company. Reason of the failure, was a big lack of integration to the foreign market, for example the employee attitude over for customers needed to be extreme friendly almost like dialog they had to memorize. Or an extra employee at the counter who puts the customers bought products in a bags, such as an extra employee in the store entrance who is welcoming customers with a friendly wave and memorized dialog. The European, or furthermore German, consumer culture is different compared to the US (Sucher, 2004).

The whole integration process of a new subsidiary especially into a foreign market is of huge importance for the Headquarter. Related to that, many barriers could appear during that integration process like cultural differences but rather the resistance to change. Therefore the following chapter is dealing more detailed with change management.

3. Why change the management

Like mentioned before the integration of a new subsidiary especially into a foreign market is a long process, where many barriers could appear. The management of the Headquarter is therefore of huge importance during that process, wherefore this chapter will examine why subsidiaries resist to change.

It is expected; that any organizational change is likely to meet some resistance and that there will be resistance to change if someone feels their interests are threatened. (Child, 2005) When dealing with organizational change, some threats are involved, the threat can be real or perceived and people involved in this change may feel that, they are losing something (Lorenzi and Riley, 2000). What will happen with their jobs or simply how their routines will be affected by this change (Lorenzi and Riley, 2000) Lorenzi and Riley formulate the change management as followed “Change management is the process by which an organization gets to its future state, its vision” (Lorenzi and Riley, 2000). It is important that managers understand why people are resisting a specific change (Child, 2005).

How to manage change has been analyzed by many researchers. For example Lewin argues that the change process consists of three steps, unfreezing, change and refreezing. It means to inform people about the relevance of change and how they will be affected by this change. The second step is to change from the old state to the new one and the third one is to institutionalize the change (Child, J., 2005). Kotter (1995) suggest 8 steps model for successful implementation of change, where integration of all steps is important and should be done in the sequence suggested. (Kotter, J., 1996).

Back in 1995 Kotter wrote an article in Harvard Review named “Leading Change, Why Transformation Efforts Fail” Kotter, 1995) . He published a book called “Leading Change” in 1996, the book was based on the article from 1995 (Kotter, 1995). In 2002 Kotter and Cohen published a book called “The Heart of Change” (Kotter and Cohen, 2002) and this book is based around the eight steps of change, first introduced in “Leading Change” from 1996.

Criticism about Kotter

Like any other model, also Kotter´s model has met some criticism by researchers. Sidorko

(2008) argues that it is difficult to implement all of the eight steps from Kotter´s model. Other researchers argue that the Kotter´s model should not be seen as a guarantee for success (Appelbaum, 2012). Taking into consideration the criticism directed towards Kotter´s model, the author has chosen to apply the model because it is practical to use and results from reallife experience.

3.1 Kotter's 8 stage model

John P. Kotter once made an observation of hundred companies who went through a management changing process. During this process he noticed eight errors that according to him are sources of failure. Out of that he developed the Kotter's 8 stage model, also called "the transformation", which according to him, and transforms the organization in a successful way. (Kotter, 1995). The following will present the eight stages.


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New management. How are subsidiaries integrated?
University of Southern Denmark
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ISBN (Book)
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International, International Management, Management, Walmart, Integration, Management Integration, INternational Integration, Economic Integration
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Henrik Fürst (Author), 2015, New management. How are subsidiaries integrated?, Munich, GRIN Verlag,


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