Turnaround strategies

The way multinational enterprises (MNEs) grow and succeed on the international stage is an area of research that has been well explored in literature. Ivey’s Assistant Professor Vanessa Hasse, however, is interested in the research road less travelled.

Specifically, Hasse is exploring how management responds to subpar performing foreign subsidiaries. Using data gleaned from Japanese MNEs with subsidiaries in various parts of the world, Hasse is investigating the impact of the types of responses, response timing, as well as cultural dimensions on how an organization attempts to turn its subsidiaries around.

How did you get started in this area of research?

As I was reading the International Business literature, I found that a lot of it is really about growth. Traditionally, much of the focus has been on questions such as: How can MNEs increase their international presence? Which entry modes should be chosen as MNEs expand their network? What can be learned from best performers? These are very exciting questions. But there seemed to be much less attention paid to the other side of the coin. What happens when there is not growth but a decline in subsidiary performance, and what should managers do when performance consistently decreases? I thought this would be a very fascinating area of research, and the answers would be relevant to practitioners as well.

What problem is your research trying to solve?

Responses at the subsidiary level may differ from those at the corporate level, and so I am exploring the different types of responses MNEs can take to address declining performance and their effectiveness for turnaround. I am also looking at how MNEs that operate across different countries, cultures, and time zones may respond differently to declining performance.

What did you find from your research?

Our findings show important differences between subsidiaries in the types of responses that could be detected or whether they receive any detectable response at all. For instance, subsidiaries with more expatriates were more likely to receive a particular response, probably because of better communication between the subsidiary and its headquarters. In some cases, subsidiaries received a response whereby investment into the subsidiary was increased and we found some evidence that this was associated with better turnaround times. The timing of a response may matter as well, but in a complex manner. Very quick responses seemed to not be very effective in terms of achieving a turnaround, perhaps because some of them might have been knee-jerk reactions. However, waiting too long before responding was also not ideal, probably because talent would leave the organization and the momentum of the performance decline became too strong. There seems to be a Goldilocks Zone of response timing – an optimal timing which is not too early so that the appropriate amount of due diligence could be conducted, but also not too late for the performance decline to become too engrained in the subsidiary. In our data, we found this zone to be between three to six years from the first detection of performance declines.

What does it mean for business?

What I find quite intriguing about this research area is that it promises to hold real practical value for decision-makers in MNEs. The goal is to gain a deeper understanding so that we can offer evidence-based guidance to organizations that are grappling with what to do when a subsidiary is performing poorly, such as should it receive more investment or should it be closed down? I am also looking forward to further conversations with decision-makers to learn more about their experiences in this regard.

What’s next for you?

I find this to be a fascinating and rich area of research. My co-authors and I are currently focusing on how an organization can determine the best types of responses, the effect that organizational structure can have on responses, and the role geographic and cultural differences between a subsidiary and its headquarters may play. I am looking forward to uncovering many more interesting insights in the future.

Listen to an interview with Vanessa Hasse