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INTERNATIONAL BUSINESS NEGOTIATIONS
Factors that influence the negotiation in head office
subsidiary relationship in Japan and Korea
A case study of Philips
By
Daniella Fjellström

A dissertation submitted to Södertörn University
College Institute of Business Studies for the degree of
Master’s in International Business and Marketing
June 2005

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Abstract
Fjellström, Daniella (2005) International Business Negotiations: Factors that influence the negotiation in head office subsidiary relationship in Japan and Korea. A Master’s Thesis submitted to Södertörns University College, Sweden.

Negotiations are a frequent part of international business. Parties involved in a negotiation face different problems in reaching a successful outcome. When the parties have different cultural backgrounds the faced problems becomes more complex. The study provides for an understanding of the negotiation and influencing factors in head office subsidiary relationship. The relationship is complex since the head office and the regional subsidiaries have different cultural backgrounds. One case study is performed between a global Dutch company and two of their local subsidiaries in Japan and Korea. A framework for the analysis is developed and the factors that influence the negotiation are identified. The data were compiled from interviews from the Dutch side. The study reveals that the negotiation between the head office and their subsidiaries is complex. Culture is not the only barrier but the cultural awareness becomes critical. Other major influencer between the head office and the subsidiaries are the organisation itself, status of the atmosphere and the relationship.

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Executive summary
Global companies use regional subsidiaries in different markets. The reason for using local subsidiaries is their knowledge about the local environment, the market and its culture. One aspect that is often more or less rejected is the negotiation between the local subsidiaries and the head office, especially when they are parts of different cultures. Who should work there, local people or people from the head office? What factors influence the negotiation between the parties that belong to the same company but still think differently because of their cultural backgrounds? These are important questions that have not been studied from the HQ/subsidiaries perspective in a large extent before.

Global Royal Philips Electronics have regional subsidiaries in Japan and South Korea. Local people are working there and they serve as an important link to the customers. The relationship that the head office has with the regional subsidiaries is crucial for their business. A good relationship will improve its business and offer better support to the customers. The current situation is that the local subsidiaries have strong cultural background that influences the business, which in turn influences the relationship with the head quarters. It creates a gap in the interaction to the head office and the business units in Philips. The findings of the research suggest that culture is not the only influence on the negotiation in head office subsidiary relationship. A model is illustrating which factors influence the negotiation in head office subsidiary relationship. Other factors such as the organisation itself, status of the atmosphere and the relationship also influence the negotiation. The organisation includes objective, negotiators, organisational culture, and cultural enhancement. Organisational culture that need to be kept strong in head office subsidiary relationship so the subsidiaries feel that they belong to the organisation. If the organisational culture is weak it is natural for the subsidiaries located in the Far East to be more regional driven. Status of the atmosphere includes conflict/cooperation, power/dependence and expectations.

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