Opinion: the nature of what a subsidiary company does has changed dramatically, which brings challenges for local managers
By Mark Gantly and Esther Tippmann, NUI Galway
Foreign direct investment continues to make a strong contribution to the Irish economy. IDA Ireland recently reported that more than 245,000 people are directly employed in the multinational sector of more than 1,500 companies, an all-time high. Beyond those directly employed, foreign direct investment (FDI) leverages a further eight indirect jobs for every 10 direct.
Foreign direct investment has also helped develop our technical and managerial skillbase, building a workforce that is tuned to the opportunities of today and adaptable to those of the future. Sectors with a particularly strong FDI presence in Ireland include information and communications technology, pharma, medtech, financial services and digital services. In each of these sectors, the leading global players all have a major presence. For example, nine of the world’s top 10 companies in medtech have operations here.
However, the nature of a subsidiary has changed dramatically over the last few decades. In the 1980s and 1990s, many subsidiaries served a single business by performing a set of related activities in Ireland. Think, for example, of Digital Equipment Corporation, a company that had significant manufacturing operations in Galway from 1971 to 1994, assembling minicomputer hardware and distributing software.
From RTÉ News, IDA warns of very challenging outlook for foreign direct investment in Ireland
Today, most subsidiaries are multi-business campuses with diversified sites and a collection of activities that serve multiple businesses. Examples are plentiful and stretch across the early investors in Ireland, such as IBM, Apple and Microsoft, but also include more recent arrivals such as Google, Facebook and Salesforce. Many of those subsidiaries have research and development, marketing, sales, support and shared services activities and serve multiple businesses rather than a single line of business.
Another change is that managers require different kinds of leadership skills to succeed in leading this new type of subsidiary. In the past, it was sufficient to execute on a mandate and seek to incrementally develop the mandate into adjacent activities. This was aided by undertaking “intrapreneurial” projects to demonstrate competences in those adjacent activities in order to position the subsidiary for new investments.
Often, subsidiary leaders initiated this without explicit approval from corporate HQ. Returning to the example of Digital, both research and development and marketing functions were successfully established in Galway in the late 1980s. However, at that time, subsidiaries typically had greater financial discretion to explore new opportunities than is the case today. They also to deal with less complexity at the local site compared to today’s multi-business campuses.
From RTÉ Archives, Padraic O’Cathain reports for RTÉ News in 1986 on the company’s plans to set up a new research and development facility in Galway.
A strong track record of performance and an entrepreneurial mindset are still important to lead today’s new style of subsidiary. However, there are other skills which have become just as important.
The multi-business corporate campus
Leaders can identify unique opportunities for developing the subsidiary by working on new initiatives across those businesses. This requires a strong strategic mindset to identify the most promising opportunities and how these can benefit the multinational. Instead of a subsidiary-centric mindset, subsidiary leaders need to think ‘corporate’ – what is the corporate strategy for growth and how can they align with this?
It also means relinquishing a mindset of protecting the existing operations. Positioning for future mandates may require the wind-down or relocation of some current operations in order to free up resources to pursue more strategic opportunities.
From RTÉ News in 2015, Medtronic call centre in Dublin to close
Medtech companies in the west of Ireland, including Medtronic and Boston Scientific, have been very effective at moving low-margin businesses to lower cost locations. This frees up resources and management bandwidth to pursue new and higher margin businesses and to develop strategic functions like R&D.
The complexities of multinational organisations
To develop that multi-business campus, the leaders in subsidiaries must become adept at navigating the complexity of the internal organisation. Most multinationals are complex organisations with frequent changes in key decision makers. It is important to know and track the key decision makers for each business, and this requires leaders to be strong on relationship building and politically astute. Rather than ‘hide’ new projects from corporate, there is strong evidence that those leaders who socialise ideas early and enlist support from across the multinational are more effective at securing new investments.
Strong site leadership
Naturally, individual leaders will focus their day-to-day attention on their particular line business within the multi-business campus. But it is important that those leaders also come together as a team to ensure the long-term success of the site. While siloed self-interest may deliver in the short term, it will not deliver long term success.
If there is any silver lining for subsidiaries, it is the contrast between unpredictability in other countries and the long term stability of the Irish political system
A capable and diverse site leadership team will be more effective in anticipating and implementing the inevitable changes required for the subsidiary to survive and grow. Beyond ensuring the future success of the site, this ability to reinvent is of far more long term value to the multinational than a passive, dependent subsidiary.
Trump, Brexit and Covid-19
These three have created a challenging international business landscape and a global recession looms. Trumpism, Brexit and Covid-19 are troubling developments with an adverse impact already visible in international trade and FDI flows.
If there is any silver lining for Irish leaders in subsidiaries, it is the contrast between the turmoil and unpredictability in other countries and the long term stability of the Irish political system. In difficult times, for example the post 2008 recession, Ireland has been seen as a safe bet for FDI. Through the Covid-19 crisis, the calm and effective government response has been matched by outstanding performance by the medtech and pharma sectors in ensuring global supply chains for critical products continued to meet demand. This is a powerful message that the community of subsidiary leaders in Ireland can deliver to corporate decision makers.
Mark Gantly is Adjunct Professor of Management at the J.E. Cairnes School of Business and Economics at NUI Galway. Professor Esther Tippmann is Professor of Strategy, Leadership and Change at the J.E. Cairnes School of Business and Economics at NUI Galway
The views expressed here are those of the author and do not represent or reflect the views of RTÉ