MASP São Paulo

Headquarters vs Foreign Subsidiary: The 20-80-100 Rule

International Business Challenges. Twenty and eighty is one hundred. This time, though, the Italian engineer, philosopher and economist Vilfredo Pareto has little to do with it.

Have you ever witnessed a headquarters manager – if not an entire delegation – visiting a foreign subsidiary of a multinational company? What was your role in the game? Were you the visiting manager, part of the host team, an independent observer, or the big boss expecting results in the Headquarters?

Depending on your answer, you may have a very different story to tell. I’ll tell you mine. It took place many, many years ago. Its main character is  Simon.

Another International Business Travel Story

Simon is the new global head of operations at a large multinational company. He is paying his first visit to the group’s Latin American subsidiaries. The itinerary touches three countries in ten days. The first stop is in Brazil. Before he left, the group CEO has warned him about a couple of issues that he will have to solve.

Luiz Carlos is the Brazilian country manager. His close collaborators in the São Paulo offices have been frantically working during the weekend, to get everything ready: presentations finalized, reports updated, meeting rooms booked, desks cleaned, floors polished and restaurant reservations made.

It’s six thirty in the morning. Simon’s plane has just landed, after an eleven-hour flight. Nivaldo, the driver, is waiting for him just outside the Federal Customs controls at the Guarulhos international airport.

When they get into the company car, Nivaldo struggles mixing English and Portuguese words to tell Simon that he will first take him to his hotel. He will then wait for him to get prepared and finally take him to the office. But Simon disagrees. He wants to go straight to the office and take advantage of every single minute of his trip.

Simon believes that, by going directly and early to the office, he will signal his commitment. He wants to give his Paulistanos colleagues a good example of “European” efficiency. And he takes no shower. Simon doesn’t know that his behavior will soon turn into a coffee machine joke about the lack of hygiene of Old World travelers.

During his two and a half days in São Paulo, Simon attends many hours of meetings with all the key people he had planned to see. Besides younger on average, his Brazilian colleagues are much more friendly and attentive with him than he’s used to in his home country.

On the other hand, Luiz Carlos, the country manager, finds it particularly hard to cope with Simon’s inquisitive approach. Despite his effort to appear collaborative, he is unpleasantly surprised that Simon has openly challenged his positions in front of his own people. From the second day on, answers coming from the Brazilian team are getting more evasive.

Simon will never forget the night skyline of the central Avenida Paulista from the rooftop bar of a stunning design hotel. He will never forget the best Japanese restaurant in his life. He will never forget the warm reception he got.

In the end, Nivaldo, the driver, takes Simon back to the airport. He is leaving Brazil with contrasting feelings. Has he missed any important piece of the puzzle? There’s no time to think about it now: Argentina and Chile are waiting.

Based on Simon’s understanding, decisions will be taken in the headquarters that will end up destroying value. A bit of mutual distrust has also arisen. Some business opportunities will be lost. A few people will have to search for another job. Simon’s next trips to São Paulo won’t be as smooth as the first one.

Challenge Unbundled

Simon is an intelligent person. He will learn from experience, in the end. O.K., nobody will ever tell him about the coffee machine joke. This time, though, the truth about his international business performance is:

  • He has grasped twenty percent of what’s really going on;
  • He thinks he understood eighty percent;
  • He will go back and tell the big boss that he got it one hundred percent.

In planning his visit, Simon has underestimated two aspects: the need to build long-term trust and the need to provide Luiz Carlos with the right level of empowerment. The hints about the known issues, coming from the group CEO, were justified in themselves, but gained disproportionate priority given the reference context. In the occasion, Simon lacked the necessary leadership to evaluate real priorities and to help his boss in putting his requests into context.

With few exceptions, the center-periphery interaction is a repeated game, and it needs to be played as such. Especially when the geographic distance is relevant and when frequent visits are not an option, building a long-term relationship based on mutual trust is a priority. This implies making the country feel the support of the center.

Success in international business relationships passes through having the right person, in the right place and with the right power. By openly challenging Luiz Carlos in front of his people, Simon has unwillingly put his authority at risk. A simple action that would probably work fine in Germany, the Netherlands or in France have been completely inappropriate.

Cultural traits of most Brazilians include being uncomfortable with direct negative feedback and with confrontational disagreement. Another typical characteristic is relationship-based trust, as opposed to fact-based. For those who are intrigued by the topic, I highly recommend Erin Meyer’s book, The Culture Map. Erin’s valuable work introduces a comparative, pragmatic approach to cross-cultural management.

In a perverse blend of actual misunderstanding and perceived understanding, chances are that Luiz Carlos will start basing his local leadership on the contrast with the headquarters. He will position himself with his team as the one that defends the interests of the periphery against the arrogance and superficiality of the center. He will do so while maintaining a guise of cordiality and an apparently collaborative attitude.

The Brazilian have a saying “para inglês ver”, dubbed “for the Englishman to see”, meaning “to keep up appearances”. The expression is said to date back to the beginning of the 19th century, when the Portuguese Imperial Court temporarily fled from Lisbon to Rio de Janeiro, under the pressure of Napoleon’s army, with the military help of the British Royal Navy and the financial support of Great Britain.

How to Improve Your Score

Many things could have worked differently. For each character of the story, there is a small set of actions that, if put in place, would dramatically improve the outcome.

If you are the visiting manager:

  • Choose the goals of your visit carefully, and make sure they are compatible with the scheduled time;
  • Listen, listen, listen; do not overestimate your ability to grasp reality and do not take your home country cultural standards for granted;
  • Think in terms of the value you are giving, not just of what you are taking away;
  • Help your boss put his priorities into context.

If you are playing the host:

  • Be patient with your guest and don’t jump to hasty conclusions;
  • Prepare your team beforehand, by providing them with clues about how foreigners’ behavior can easily lead to misinterpretation;
  • To the best of your capacity, impersonate your foreign counterpart’s point of view, and anticipate which answers are likely to generate misunderstanding.

Finally, if you are the big boss, you probably haven’t realized it, but you’re likely to hold the biggest responsibility in the whole story. By putting the accent on speed and execution, you will end up encouraging a tactical approach. Not that speed and execution are not valuable. However:

  • Encourage thorough understanding, trust building and a long-term vision;
  • Ensure that people with the adequate competencies and the right level of cultural awareness are building the company’s international relationships;
  • When appropriate, support your key people with targeted cultural coaching, and consider it as an option for yourself, too.

International business dynamics are as complex to manage as they are compelling and rewarding. Cross-cultural awareness is always a key success factor and a high-return investment.


Do you have a similar story to tell? In this case, please, leave your comments.

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