Headquarters-subsidiary relationship governance in emerging markets of Central Eastern Europe : a study in Poland

Multinational enterprises often seem to be on a ‘roller coaster’ when managing their operations in transition economies, especially because of the volatile business and political environment. The study analyses the subtle equilibrium between formal control and day-to-day coordination in the Headquarters-Subsidiary (HQ-S) relationship of more than 70 subsidiaries of large multinational companies in Poland, taking the cultural differences between the headquarters and subsidiary country into account. It is concluded that in the best performing multinationals, strategic and operational control mechanisms are tightly organised, building a platform on which intensive coordination and attuning occurs to deal with the day-to-day management challenges. Interestingly, also for entering new markets, a prospector strategy focusing on innovation shows better results than copying of competitors. However, it also reveals that there is no simple and uniform recipe for managing subsidiaries. The road from governance to performance is not a one-way street, creating flexibility and learning capabilities at the subsidiary level clearly contribute to the success of international operations.