Firms in developing Countries are more centralized than Anglo-Saxon/Scandinavian ...

From Harvard Business, Working Knowledge - "First Look" - by Martha Lagac

Do you need sign-off from headquarters when you want to make decisions? Or can you undertake capital investments, hire new employees, introduce new products, and otherwise exercise managerial independence in your daily work? In the age of globalization, the extent of firm decentralization and the reasons behind it are still something of a mystery, leading HBS professor Raffaella Sadun and colleagues to wonder whether product competition is one factor spurring the trend toward decentralization. The basic idea is this: Local managers' information might be increasingly valuable as more products crowd the marketplace.

To test this proposition Sadun, Nicholas Bloom, and John Van Reenen analyzed data on nearly 4,000 firms across 12 countries in Europe, North America, and Asia. "We find that competition does indeed seem to foster greater decentralization," they write in their working paper, "Does Product Market Competition Lead Firms to Decentralize?" [PDF]

The results by geography were also telling: "Intriguingly, we found that firms in developing countries (Brazil, China, and India), tended to be the most centralized, with almost all major decisions taken by the owners in the corporate headquarters. Japanese firms were also relatively centralized. In contrast, firms in Anglo-Saxon and Scandinavian countries (Canada, Germany, Sweden, UK, and US) were relatively decentralized. The rest of Europe (e.g. France, Italy, and Poland) tended to be in the middle of the decentralization ranking." Developing countries might experience tighter control from HQ due to less product competition, the authors suggest.

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