When expanding into international markets, how much autonomy should home office leaders allow local teams? Maintaining excessively tight control over your overseas divisions can hamper their ability to operate effectively and make decisions effectively, but giving them too much autonomy can also backfire, leading to quality issues, inconsistencies, duplicates and a host of other challenges. .
To explore this delicate question, my colleague and I conducted more than 100 in-depth interviews with leaders of multinational corporations based around the world. We asked them how they found this balance in their organizations and identified three questions leaders should ask to determine how best to support and collaborate with their global teams.
1. How fast is your industry changing?
The first key question to ask is: how fast has your industry grown in this new market? Fast-moving industries typically require faster decision-making to respond to rapidly changing opportunities and threats, and therefore teams in these industries often enjoy greater autonomy.
For example, our interviews suggested that in the technology sector, Chinese customers expect new rollouts, features, and updates at a much faster rate than those in other global markets. So, to be competitive in this space, companies must act quickly or risk being left behind. For example, Didi Chuxing, China’s leading ridesharing app, launched its core product just three months after the company was founded, much faster than typical rollouts of similar products in other markets.
To succeed in such a market, multinational companies will have to give their local teams substantial leeway to respond to changing demand and competitive landscapes. For example, when Indian mobile advertising company InMobi expanded into China, it gave its Chinese unit much more autonomy than it had given other local teams: while all other international teams worked with a common product team based in India, the Chinese unit had its own product team. Additionally, local marketing, sales, finance, and many other business divisions reported directly to the China team’s general manager, not the corporate office. This allowed InMobi to act with the speed and agility of a startup, ultimately partnering with over 30,000 local apps to become China’s largest independent mobile ad network.
It is important to note that this is not just about the overall pace of an entire market. As the Chinese market is rapidly changing in many industries, leaders should be sure to analyze the pace of the specific industry in which their companies operate. Sectors such as chemical engineering and traditional manufacturing, for example, are growing relatively slowly and experiencing less change (even in a generally fast-moving market like China). Companies in these industries will benefit from centralizing decision-making to streamline operations and avoid the costs associated with duplicating similar functions between different teams. For example, ExxonMobil has had a relatively stable customer base in China for years and has had little need for rapid product development or other major changes. As such, its management decided to keep operations and business structures fairly centralized, with most major decision-making powers remaining at headquarters.
2. How dependent is your business on local assets?
Next, managers need to consider how dependent their business is on local assets. If a global company relies heavily on capabilities such as local sourcing, production, and sales, decentralization is necessary. Global fast food chain Yum! Brands is a good example: during the launch of Yum! China, it began to source, produce and sell more and more products in China, which led the head office to take a more flexible approach to management. Finally, yum! Brands even ended up spun off its China division entirely, leaving it to operate and trade as a separate company.
In contrast, for companies that are less dependent on local assets, a higher degree of centralization often makes more sense. For example, we spoke with executives of many US and European luxury brands that have expanded into Middle Eastern markets to reach the region’s substantial customer bases. These companies typically retain relatively tight control over their global teams, in part because the resources needed to design and produce luxury products are not located in these regions (e.g. specialized facilities, expertise, etc.) . Luxury brands also typically rely heavily on the strong, centralized brand of the parent company, so it makes sense for these organizations to tightly integrate their regional teams with their headquarters to ensure this key asset is not diluted.
For example, French luxury brand Cartier designs and manufactures its products exclusively in France and Switzerland, so it made sense for the company to keep its governance structures centered around its headquarters. Additionally, Cartier’s key leaders based in the Middle East (including its CEO and HR director) are Cartier veterans from Paris, helping to ensure that the company’s values and standards are always upheld. , even in this geographically remote subsidiary.
3. How strong is your relationship with local leaders?
The final question to ask yourself is: how much do you trust your local counterparts? The stronger and more trusting your relationship, the more it will be possible to give greater autonomy to local teams.
For example, one of the reasons Amazon India enjoys substantial autonomy is that the Indian team is led by Amit Agarwal, an Amazon veteran and longtime member of Jeff Bezos’ executive circle, who enjoys of a deep confidence of the head office. In contrast, interviews with the company’s senior management in 2019 suggested that headquarters had less confidence in its Chinese team and as a result Amazon China’s autonomy was more limited, with most of its business units in front of obtaining clearance from headquarters for many decisions (Amazon has since closed its domestic operations in China). Similarly, when InMobi hired a new untested Chinese manager, the company decided that only the local sales team would report to it, with all other Chinese teams reporting to headquarters. But over time, as she built a track record of growth and gained the trust of her bosses in India, she was able to gain more autonomy for her team.
It’s also worth noting that there are different ways to build trust. In some cases, it may just take time to develop naturally, while in other cases, organizations can build trust into their cultures through concerted and intentional efforts. Netflix offers a particularly illustrative example: its culture of radical transparency and trust encourages managers to only hire people they feel they can really trust, and who they can therefore feel comfortable giving substantial autonomy. This is evident across all of its global teams – for example, its business development manager in Brazil has been authorized to sign contracts and agreements on Netflix’s behalf without anyone’s approval. Likewise, his marketing manager in Italy was given the task of using the entire marketing budget for Italy as he saw fit, without scrutiny from his US boss.
Effective implementation requires planning and communication.
These three questions can help you determine how much autonomy to give your international teams – but of course, understanding this is only the first step. The next step is to develop a plan to implement these different levels and types of self-reliance around the world. This means working with different departments to specify exactly where and how autonomy should be granted, then ensuring the information is clearly documented and communicated across the organization.
To begin, managers should explicitly describe the categories of decisions that are likely to be encountered (with specific examples of each) and determine who will be responsible for making them. Once they have developed this plan, head office managers can work with their counterparts in the field to ensure smooth implementation. For example, in answering the questions above, an executive at a US-based Internet company determined that he needed to give his team more autonomy in China. He just didn’t know exactly where or how. As such, they began holding detailed planning sessions with representatives from every major department to identify areas where it would make the most sense to increase the autonomy of the China team. This led to concrete agreements with several departments:
Within the sales team, head office and local office managers agreed that if a customer in the Chinese market was a global customer, head office would take the initiative, with the local team providing support. But if a customer was local, the Chinese team would take care of it themselves and have the power to decide prices, organize events, etc.
Marketing took a slightly different approach: management decided that the local team should entirely develop their own marketing strategies, as effective user acquisition strategies were very different in the US and Chinese markets. They decided that to ensure speed and agility, the local team shouldn’t have to consult with head office before making marketing decisions, as long as they stayed within the approved budget and reported the return on those investments.
Conversely, on the product front, the company determined it needed less battery life. Since the Chinese market used the same product as other markets, the product team was centralized at the head office. However, a few engineers were tasked to focus on Chinese market demands to meet location-specific needs for new features or product changes.
Of course, that’s just one company’s approach. The details will vary greatly depending on the specific industry and market you are hoping to enter. Depending on the pace of the industry, your reliance on local assets, and your level of trust in local leadership, you will need to determine which foreign divisions will benefit from a more centralized structure and which will be better placed to make decisions more independently. . – then develop a detailed, well-communicated plan to turn those ideas into action.