With decentralized federation, the subsidiaries have more decision-making power and can make local adjustments so that the products are developed to suit the location and society.
And with coordinated federation, there is an interplay between global integration and local adaptations. In other words, the head office develops the core innovation and the products and the subsidiaries make the local adaptations.
The local adaptations are made by the subsidiaries.
But what is the difference? Let's take Nestle as an example. Kitkat is a chocolate bar. In Japan, for example, there are 300 different varieties, adapted to Japanese tastes.
The Decentralized Federation could suit Nestle because the local subsidiaries have adapted the product development of KitKat to Japanese consumer behaviour, but a Coordinated Federation could also suit Nestle because the basic idea of a chocolate bar with KitKat comes from Nestle, i.e. the headquarters, and local adaptations for the Japanese market were made by the subsidiaries.
Can you explain the difference using Nestle (Kitkat) as an example?
The decentralized federation, is a multinational model with great autonomy of the subsidiaries, but only weak linkages within the MNC, which acts mainly as a holding company. While national subsidiaries in decentralized federations enjoy considerable independence from the headquarters, those in centralized hubs remain strongly dependent on the parent company. The decentralized federation follows most likely a multinational strategy and resource seeking motives. European companies like Philips, Nestle, and Unilever advocated that model in the 1930s when Europe was dominated by rising tariffs and discriminatory legislation.
The coordinated federation is an international model where Corporate management treats subsidiaries as foreign extensions of the domestic operations. Many assets and resources are decentralised but controlled from center. This control is important and results in tight, format, system-based control. Knowledge is based on parent technology and expertise while locally adapted. The coordinated federation was employed by many American companies like General Electric, Pfizer or Procter & Gamble who enjoyed fast international expansion in the 1950s and 60s. Based on size and financial power they have developed in their large home market, at that time the largest, richest and most technically advanced market, their motivation was driven by seeking new markets to facilitate further sales growth.
These simplified models serve to illustrate the basic structure on which the organization of companies is still based today. In reality, organizational structures of multinational companies are more complex and often use a combination of different organizational structures to accommodate the variability of markets and subsidiaries. Nestlé has a matrix organizational structure that combines both functional and divisional structures. They combine decentralization and global integration and are, in addition, subdivided into regions (previously five, from 2025 three regions).
Different business areas are not uniformly integrated into the organization in the regions. In Germany, for example, the pizza business is managed separately in the form of a joint venture, while in the USA it remains part of the company's own business.
The extent to which Nestlé actually has KitKat 300 variants in Japan can hardly be verified from the outside. Various figures are circulating on the Internet. It should be borne in mind that these are not only flavor variants but also seasonal items and different pack and container sizes. Japan has a special position in relation to this product and is often used as a lucky charm or small gift. I hope this answers your question for now. Next week, we will discuss the different roles that subsidiaries can play in a company and deepen your understanding.
The coordinated federation is an international model where Corporate management treats subsidiaries as foreign extensions of the domestic operations. Many assets and resources are decentralised but controlled from center. This control is important and results in tight, format, system-based control. Knowledge is based on parent technology and expertise while locally adapted. The coordinated federation was employed by many American companies like General Electric, Pfizer or Procter & Gamble who enjoyed fast international expansion in the 1950s and 60s. Based on size and financial power they have developed in their large home market, at that time the largest, richest and most technically advanced market, their motivation was driven by seeking new markets to facilitate further sales growth.
These simplified models serve to illustrate the basic structure on which the organization of companies is still based today. In reality, organizational structures of multinational companies are more complex and often use a combination of different organizational structures to accommodate the variability of markets and subsidiaries. Nestlé has a matrix organizational structure that combines both functional and divisional structures. They combine decentralization and global integration and are, in addition, subdivided into regions (previously five, from 2025 three regions).
Different business areas are not uniformly integrated into the organization in the regions. In Germany, for example, the pizza business is managed separately in the form of a joint venture, while in the USA it remains part of the company's own business.
The extent to which Nestlé actually has KitKat 300 variants in Japan can hardly be verified from the outside. Various figures are circulating on the Internet. It should be borne in mind that these are not only flavor variants but also seasonal items and different pack and container sizes. Japan has a special position in relation to this product and is often used as a lucky charm or small gift. I hope this answers your question for now. Next week, we will discuss the different roles that subsidiaries can play in a company and deepen your understanding.