Marketing Channels in Foreign Markets: Control Mechanisms and the Moderating Role of Multinational Corporation Headquarters–Subsidiary Relationship

Abstract

To manage marketing channels, subsidiaries of multinational corporations (MNCs) must balance mandates from headquarters (HQ) with the local realities of the foreign markets. The performance implications of subsidiary–distributor relationship efforts thus are contingent on the HQ–subsidiary relationship. Drawing on marketing channels, economics, and organization theory literature streams, the authors (1) describe the complex performance properties of output and process control mechanisms that MNC subsidiaries deploy to manage foreign distributors and (2) conceptualize the HQ–subsidiary nexus along three attributes that should moderate the performance effects of control mechanisms: task coordination, or HQ's central coordination of processes across subsidiaries; subsidiary decision involvement, or two-way communications and consensual decision making between HQ and the subsidiary; and relational disharmony, or the extent of the HQ–subsidiary conflict. The authors test the hypotheses using field data from German and Japanese MNCs in the United States and Bayesian models that account for measurement error, endogeneity in the control mechanisms, heterogeneity in country of origin, and nonlinear and interactive terms for the latent constructs. The results demonstrate the importance of the HQ–subsidiary relationship for managing the subsidiary–distributor relationship.

The Evolution of Marketing Channels: Trends and Research Directions

“…Similarly, as more dynamic models of interfirm relationships emerged (Jap and Ganesan 2000;Palmatier et al 2013), they helped spur a new era of relationship marketing in channels (Palmatier et al 2006). Recent channel research reflects the diversification and maturation of the domain, as well as the significant disruption caused by e-commerce and internationalization (Grewal, Kumar, and Mallapragada 2013).…”

“…Channel intensity is a key variable in channel strategy ) and often determines the type of intermediary, market coverage, and distribution. Ansari, Mela, and Neslin (2008); Ingene, Taboubi, and Zaccour (2012); Grewal, Kumar, and Mallapragada (2013).…”

“…It is a fundamental determinant of how a market offering moves from the producer to the end user, so this structure influences not just the value provided but also the performance of all the interdependent organizations that help deliver the offering. Because channel structures can take various forms, from simple, direct-to-user sales to complex, multichannel intermediaries tailored to local business conditions (Ansari, Mela, and Neslin 2008;Grewal, Kumar, and Mallapragada 2013), channel structures research offers vast possibilities for advancing marketing thought. Research on the channel structure mostly aims to understand the most efficient or optimal structures for a given environment (Ingene, Taboubi, and Zaccour 2012;Palmatier et al 2014); because of the complexities of most marketing environments, it has developed into a fruitful body of literature.…”

“…Firms have various options when pursuing new market opportunities, including direct market entry, joint ventures, partnerships, and acquisitions (Wang and Lestari 2013). Depending on market, regulatory, and competitive factors, firms need an appropriate strategy that will enable them to overcome both their lack of local knowledge and the difficulty of executing channel functions (Grewal, Kumar, and Mallapragada 2013). Because knowledge gained from one market might not transfer directly to a new market, due to cultural, market, legal, or political differences, firms also must take care when adapting their existing strategy to local conditions.…”

The Evolution of Marketing Channel Research Domains and Methodologies: An Integrative Review and Future Directions

“…Simple methods might fall short in accounting for, for example, unobservable heterogeneity that comes along with more complex and dynamic marketplaces and hence, more sophisticated approaches are imperative. Interestingly, only Grewal et al (2013) use a Bayesian estimation approach in their research on channel management. Given that Bayesian methods allow scholars to account for heterogeneity in a flexible way, and correct for measurement error, we can expect to see more studies using such methods in the future.…”