When expanding into international markets, how much autonomy should home-office leaders give local teams? Maintaining excessively tight control over your overseas divisions can get in the way of their ability to operate efficiently and make decisions effectively — but giving them too much autonomy can also backfire, leading to quality issues, inconsistencies, duplicated work, and a host of other challenges.
To explore this tricky question, my colleague and I conducted more than 100 in-depth interviews with executives at multinational corporations based all around the world. We asked them how they have struck this balance in their organizations, and identified three questions that leaders should ask to determine the best way to support and collaborate with their international teams.
1. How fast-paced is your business sector?
The first key question to ask is, what is the pace at which your business sector has been growing in this new market? Fast-paced sectors usually require faster decision-making to respond to rapidly evolving opportunities and threats, and so teams in these sectors often benefit from greater autonomy.
For example, our interviews suggested that in the tech sector, Chinese customers expect new rollouts, features, and updates at a much faster rate than those in other global markets. Thus, to compete in this space, companies have to move fast or risk getting left behind. China’s leading ride-hailing app Didi Chuxing, for instance, launched its core product just three months after the company was founded — a lot faster than typical rollouts of similar products in other markets.
To succeed in such a market, multinational companies will benefit from giving their local teams substantial leeway to respond to shifting demand and competitive landscapes. For example, when the Indian mobile ad company InMobi expanded into China, it granted its China unit a lot more autonomy than it had given other local teams: While all other international teams worked with a shared product team based in India, the China unit had its own product team. Furthermore, local marketing, sales, finance, and many other business divisions reported directly to the general manager of the China team, not to headquarters. This allowed InMobi to act with the speed and agility of a startup, eventually partnering with more than 30,000 local apps to become China’s largest independent mobile ad network.
Importantly, this isn’t just a matter of the overall pace of an entire market. While the Chinese market moves quickly in many industries, executives should be sure to analyze the pace of the specific industry in which their businesses operate. Sectors such as chemical engineering and traditional manufacturing, for instance, grow relatively slowly and experience fewer changes (even in a generally fast-paced market such as China). Companies in these sectors will be better off centralizing decision-making in order to streamline operations and avoid costs associated with duplicating similar functions across different teams. For example, ExxonMobil has had a relatively stable customer base in China for years, and has experienced minimal need for rapid product development or other major changes. As such, its leadership decided to keep business operations and structures fairly centralized, with most key decision-making power remaining at the headquarters.
2. How much does your business depend on local assets?
Next, managers should consider the extent to which their business depends on local assets. If a global company relies heavily on capabilities such as local procurement, production, and sales, decentralization is necessary. Global fast-food chain Yum! Brands serves as a good example: When it launched Yum! China, it began sourcing, producing, and selling more and more products in China, leading headquarters to take a looser approach to management. Eventually, Yum! Brands even ended up spinning off its China division entirely, letting it operate and be publicly traded as a separate company.
In contrast, for businesses that depend less on local assets, a higher degree of centralization often makes more sense. For example, we talked with executives at many American and European luxury brands which have expanded into Middle Eastern markets to reach the substantial customer bases in the region. These companies typically retain relatively tight control over their global teams, in part because the resources required to design and produce luxury products are not located in these regions (e.g., specialized facilities, expertise, etc.). Luxury brands also typically depend heavily on the strong, centralized brand of the parent company, and so it makes sense for these organizations to integrate their regional teams closely with their headquarters to ensure this key asset isn’t diluted.
For instance, the French luxury brand Cartier designs and manufactures its products exclusively in France and Switzerland, and so it made sense for the company to keep its governance structures centered on its headquarters. In addition, Cartier’s key executives based in the Middle East (including its CEO and head of HR) are Cartier veterans originally from Paris, helping to ensure the company’s values and norms are consistently upheld even in this geographically distant subsidiary.
3. How strong is your relationship with local leadership?
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 feasible to give local teams greater autonomy.
For example, one of the reasons that Amazon India enjoys substantial autonomy is because the Indian team is led by Amit Agarwal — an Amazon veteran and longtime member of Jeff Bezos’s leadership circle who is deeply trusted by the home office. In contrast, interviews with the company’s senior leadership in 2019 suggested that HQ had less trust in its China team, and as a result Amazon China’s autonomy was more limited, with most of its functional units required to get permission from headquarters on many decisions (Amazon has since closed down its domestic business in China). Similarly, when InMobi hired a new, untested China manager, the company decided that only the local sales team would report to her, with all other China teams reporting into headquarters. But over time, as she built a track record of growth and won the trust of her bosses in India, she was able to gain more autonomy for her team.
It’s also helpful to note that there are different ways trust can develop. In some cases, it may simply take time to develop naturally, while in other cases, organizations can build trust into their cultures through concerted, intentional efforts. Netflix offers a particularly illustrative example of the latter: Its culture of radical transparency and trust encourages managers to only hire people whom they feel they can really trust, and to whom they can therefore feel comfortable giving substantial autonomy. This is evident across its global teams — for example, its business development director in Brazil was given the authority to sign contracts and agreements on behalf of Netflix without approval from anyone. Similarly, its director of marketing in Italy was entrusted to use the entire marketing budget for Italy however he wanted, with no oversight from his American boss.
Effective implementation takes planning and communication.
These three questions can help you determine how much autonomy to provide your international teams — but of course, figuring this out is just the first step. The next step is to develop a plan to actually implement these different levels and types of autonomy around the world. That means working with different departments to specify exactly where and how autonomy should be granted, and then making sure that information is clearly documented and communicated throughout the organization.
To start, managers should explicitly describe the categories of decisions that will likely be encountered (with specific examples of each), and determine who will be responsible for making them. Once they’ve developed this plan, home office managers can work with their counterparts on the ground to ensure smooth implementation. For instance, in answering the questions above, an executive at a U.S.-based Internet company determined that they should give their China team greater autonomy — they just weren’t sure exactly where or how. As such, they began conducting detailed planning sessions with representatives from every major department to identify areas where it would make the most sense to increase the China team’s autonomy. This led to concrete agreements with several departments:
On the sales team, managers both at headquarters and in local offices agreed that if a customer from the Chinese market was a global customer, the home office would take the lead, with the local team providing support. But if a customer was local, the China team would handle it themselves, and would have the authority to decide on prices, hold events, etc.
Marketing took a slightly different approach: Leadership decided that the local team should entirely develop its own marketing strategies, since effective user acquisition strategies were very different in the U.S. and Chinese markets. They decided that to ensure speed and agility, the local team shouldn’t have to consult with the home office before making marketing decisions, as long as they stayed within the approved budget and reported on the return on these investments.
Conversely, on the product front, the company determined that less autonomy was needed. Since the China market used the same product as other markets, the product team was centralized at the home office. However, a few engineers were assigned to focus on requests from the Chinese market in order to meet location-specific needs for new features or product modifications.
Of course, this is just one company’s approach. The details will vary widely based on the specific industry and market you’re hoping to enter. Depending on the pace of the sector, your reliance on local assets, and your level of trust in local leaders, you’ll need to determine which overseas divisions will benefit from a more centralized structure, and which will be better off making decisions more independently — and then develop a detailed, well-communicated plan to turn those ideas into actions.
This content was originally published here.