Value chain completeness and the control of angency problems Our hypotheses in this subsection are based on the

following core premise. Premise from the HQ perspective, agency risk will be particulary high when subsidiaries with complete value chain are led by general managers who are local nationals. The generic agency problems. An agency problem axists whenever one party (the pincipal) delegates decision-making authority to another (the agent) and the agents actions differ from those which would maximaze principals welfare (Eisenhardt, 1989: Fama & Jensen, 1983: Jensen & Meckling, 1976). As illustrated by the following statement by Jensen and Meckling agency theorists have consistently suggested that the agency problems is quite. the problem of inducing an agent to behave as if he were maximizing the principals welfare is quite general. It exists in all organizations and in all cooperative efforts-every level of management in firms, in universities, in mutual companies, in cooperatives, in governmental authorities and bureaus, in unions and in relationship normally classified as agency relationships such as are common in the performing arts and the market for real estate (1976:309) As is also widely and correctly accepted in the extant literature (e.g. Fama & Jensen:1983; Holmstrem, 19798; Pratt&Zeekhause, 1984) the emergence of an agency problem requires the simultaneous presence of two types of asymmetries between the principal and the perfect goal aligment the principal would gain nothing by inveeting resources to reduce information asymmetry; similialy, in a context of perfect information tranparancy, the agent would be effectively deferred from persuing goals different from those of the principal. It is easy to infer from the above discussion that agency problems can be minimized through some combination of the following three control mechanisms reducing the agents discretion (by granting him/her less decision making autonomy), reducing goal asymmetry through appropriate incentive contracts and other mechanisms), and/or reducing information asymmetry (trough investments monitoring). Since none of these mechanisms is cost free, their use will be associated with control costs. Thus from a normative perspective, the principals challenge is to choose that combination of control mechanisms which minimizes the sum of control costs and residual agency loss. Agency Problems in the Context of Foreign Subsidiaries. In the course of managing the subsidiary, every generak manager must roudnely make a host of decisions. Paralleling the general agency context, there many occasions where the general manager must choose between the maximization of his/her own utility vs the maximization of the parent corporations overall global performance. For example, if the parent corporation sees itself engaged in a global chess game with another multinational competitor (Ghosal, 1987; Hamel&Prahalad, 1985), it may prefer to sacrifice profits in aparticular country in order to reap the employees in the focal subsidiary, make the general managers job more demanding, reduce perceived autonomy of the subsidiary general manager, and possibly even weaken the general managers reputation in the host countrys executive labor market. As this example illustration a situation such as this if the subsidiary general managers personal welfare depends more the reputation in the local labor market than on his/her reputation in the internal labor market al the MNE, he/she would have a strong incetive to propose those strategic options and, if possible make those strategis decisions that maximize his/her personal welfare rather than the welfare the MNE as whole.