Reporting from foreign subsidiary: Why Is It So Difficult To Get Things Done On Time?

When an American company sets up a subsidiary in a foreign country, several controls are required to monitor the subsidiary’s operation. The American holding company must address legal, financial, managerial and cultural issues in order to achieve its objectives. And while these issues are expected and frequently observed, many managers get frustrated on how difficult it still is to standardize procedures across different countries and have their subsidiaries work at the same level of efficiency as corporate headquarters.

Mexico is no exception. Mexico is a country that naturally receives foreign investment and business (much more than it exports). It’s cheap and qualified labor, its geographic location next to the biggest market in the world, plentiful international treaties signed that promote free trade and avoid double taxation and its weak currency, offer foreign investors an attractive option to set up operations abroad. After working several years for subsidiaries of foreign companies, we have observed different levels of efficiency in the subsidiary’s reporting practices. We now describe some of the biggest obstacles we have observed:

Different tools and different expertise

It is not unusual to find different tools in the subsidiary than in the main office. Think software, communications or systems support. These investments can be considerable and probably not financially sound for the recently opened subsidiary. “If the operation is not as big, why should we invest the same in technology as home?” Or probably these technologies are not even available. So then, subsidiaries work with less efficient tools than their American counterparts but are expected to turn the same results. These differences should be considered when setting up goals.

Attention to the big picture

Foreign employees do not always see the big picture. They sometimes don’t even know what their reports are for, or the consequences of not delivering on time. Also, these employees want to send everything spotless, perfect, sometimes missing deadlines on the effort. Employees in the subsidiaries must understand their functions and the objectives of their reports. Sometimes, small adjustments can wait and won’t change the end product anyway.

People’s mind frame

Foreign subsidiaries’ employees do not have the same mind frame as their American counterparts. The American business culture that favors empowerment and accountability is seldom found in Mexican business staff. Our structures are more vertical, with layers of managers and supervisors that oversee their subordinates’ work. When employees in the subsidiary do not have this big brother observing their every-day activities, self-discipline and commitment have to be applied to meet deadlines. While this could be surprising, it takes time for them to become accountable and change their mind frame.

Softer exigency

When US managers have finally found employees they believe they can trust, they start being more flexible on their requirements. They tolerate some level of inefficiency instead of having to find a new employee and start from scratch.

A good tool to help American business monitor their foreign subsidiaries is an external audit. The auditor can become the owner’s “eyes” to oversee his branch. Just by knowing they will be audited, employees in the subsidiary will feel more pressured to comply in their obligations. And after some time, they start looking for support from the auditor to report timely and with more accurate figures, strengthening the relationship, in favor of the company.

Professional external auditors reduce the information asymmetry between the Mexican subsidiary and the foreign holding company. They verify legal and tax compliance and naturally elevate the internal control level.

If you would like to explore this resource further, please contact one of our experts who will gladly answer your questions.