iBusiness, 2012, 4, 198-207
http://dx.doi.org/10.4236/ib.2012.43025 Published Online September 2012 (http://www.SciRP.org/journal/ib)
Empirical Analysis of Interactive Control’s Effectiveness:
A Parent-Subsidiary Company’s Interdependence
Perspective
Biao Luo1, Jie-Jie Yu1, Hong-Mei Ji2
1School of Management, University of Science & Technology of China, Hefei, China; 2School of Business, Anhui University, Hefei,
China.
Received July 1st, 2012; revised July 30th, 2012; accepted August 9th, 2012
ABSTRACT
Due to the increasingly complex business environment and the principal-agent relationship, the enterprise group should
establish a control system to prevent agency risk. Besides traditional system control, the parent company tends to adopt
an interactive control including decentralized decision making, process communication and target incentive to guide
and govern the subsidiaries. As an elastic control mechanism, the interactive control’s effectiveness could be influenced
by the resources dependence relationship which is objective existence between the parent and subsidiary company.
Based on the classical literature review, this study analyzes the effects of interaction control to the performance (“inter-
active control → performance”) and the interdependence’s regulating role by a total sample and a multiple-group struc-
tural equation analysis based on Chinese groups’ data, the results show that the interactive control could improve the
subsidiaries’ performance, but different control process has its particular applicable interdependence situation. In the
conclusions, we proposed some suggestions to promote the interactive control’s effectiveness in the enterprise group’s
management practices.
Keywords: Enterprise Group; Interdependence; Interactive Control; Performance
1. Introduction
An enterprise group and its subsidiaries can be regard as
a “community of interests” based on a common strategic
targets and interests, as the management organizations of
a enterprise group, the parent company has two basic
functions—“loss prevention” and “value creation”, on
the one hand, the parent company must keep each sub-
sidiary in control for the possible loss which is brought
by the subsidiary managers’ self-interested behaviors
under the principal-agent risk [1], on the other hand, the
parent company should achieve the value appreciation
through coordination and integration of the group’s ad-
vantage resources [2]. However, there must be a manage-
ment control system to support these functions’ realiza-
tion, the system control is often used in a bureaucracy,
but now, the subsidiary’s position has had a change, for
example, many subsidiaries have become the group’s
strategic leaders, so as to there also need an interactive
control mechanism which takes the interaction between
headquarter-subsidiary company’s managers as carrier.
As the essential approach for information transfer and
collaborative management, interactive control deeply
affects resource synergy efficiency and effectiveness [3].
Therefore, it’s a very meaningful research subject to ex-
plore how to proper use and dynamic adjustment the in-
teractive control mechanisms.
In fact, many scholars have recognized the importance
of interactive control, but different scholars have differ-
ent focus on the question about how to improve its effec-
tiveness. There are two main research directions, first,
focus only on the effectiveness of different interaction
control channels, such as different carriers (electronic or
face-to-face interaction) have different results [4]; second,
concerns the matching between some interpersonal char-
acteristics and interactive control, such as the influence
of trust [5]. But it is a pity that the directions both about
the subjective relationships among the participants, and
the objective relationships between the parent and sub-
sidiary company is ignored, that is resource dependency
between the parent and subsidiary company (“interde-
pendence” for short) [6]. The interdependence is a de-
manding relations due to the knowledge, brands, equip-
ment and other tangible or intangible advantage re-
sources [7]. Indeed, it usually determines the synergetic
needs of internal resources, while these needs will affect

Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary
Company’s Interdependence Perspective
199
the parent company’s interactive enthusiasm. Meanwhile,
the interdependence could determine the position of a
certain subsidiary with which as a key reference for the
subsidiary managers to take actions or choice a starting
point [6], and then will make different responses to the
interactive control initiated by the parent company. Thus,
the adaption of interactive control must be subject to the
regulation of the interdependence, only when the two
objective factors are matched each other can the subsidi-
ary reach its maximum performance.
More recently, the increasing international competition
speeds up the diversification process of the enterprise
group, the development of information technology leads
the inter-organizational boundary obscurity [8], the en-
terprise group’s internal relationships become so com-
plex and dynamic, this means that what’s the matching
rules between interdependence and interaction control
must be put forward to research schedule, and this study
is a result of trying to build a match mode between in-
terdependence and interactive control.
2. Theories and Hypothesis
2.1. Interactive Control and Its Influences on the
Performance
Interactive control generally come from a certain conver-
sation, in which human being is regarded as the subject
[9]. Hallahan (2007) divided interactive control process
into three parts: decision-making decentralization, proc-
ess communication and target incentive according to the
strategic management process (strategic formulation, stra-
tegic implementation and strategic assessment & feed-
back) [10]. As shown in Figure 1, decision-making de-
centralization indicates the subsidiary manager’s discour-
se right granted by the parent company in the strategic
formulation stage. Process communication is a sharing
information or auditing plan procedure [11], including
the parent company’s managers participate in the formal
and informal activities in the process of subsidiary’s stra-
tegic implementation stage, such as meetings, training or
to visit, etc. [12]. Target incentive refers to the reward
given by the parent company on the basis of the comple-
tion situation of subsidiary’s strategic targets, which is a
mirror of the interactions in evaluation system-design
and performance appraisal [13]. In addition, the incen-
tive-satisfaction of the manager who is motivated will
directly affect his effort level in the next strategic cycle.
Therefore, target incentive can be regarded as interactive
control of the strategic assessment & feedback stage.
Decision-making decentralization, process communi-
cation and target incentive achieve the purpose of “loss
prevention” and “value creation” from different ways.
First, decision-making decentralization responses the
degree of being controlled by the parent company through
assigns decision rights. Subsidiary managers could par-
ticipate in the management of enterprise group more ac-
tively with a resource scheduling permissions [14]. Fur-
ther more, this participation enhance the managers’ ini-
tiative and creativity, this could facilitate innovation ac-
tivities, and then they would like be easier to accept the
group’s strategic plan [15]. If lack of the right to partici-
pate in, the subsidiary managers may reduce the response
speed to the market or technological change [16], then
inter-organization’s synergistic efficiency will decrease.
Second, process communication realizes the purpose
of supervision and constraints on the subsidiary manag-
ers’ behaviors by auditing the plan’s implementation [16].
Communication could promote information transfer and
knowledge sharing [17], make the subsidiary managers
recognize the position of both their own subsidiary and
other subsidiaries in the group more clearly, and then
will improve the understanding and identification of the
strategic targets [18], more likely to have cooperative
behavior, the inter-organization transaction costs reduced
[19]. Process communication is an essential condition of
effective cooperation (Minbaeva, 2005) [20], that is to
say, it is the basic guarantee of the effective coordination.
Third, target incentive is a reward mechanism oriented
by strategic targets; its final purpose is to encourage the
subsidiary managers to turn external stimuli into internal
conscious behavior. Actually, target incentive affects the
agents’ risk-taking spirit, coordination and organizational
commitment by establishing a common interest (Allen
and Kilmann, 2001) [21], so as to limit self-interested be-
havior, but to promote cooperation and collaboration.
Hypothesis 1: Interactive control from parent to sub-
sidiary company could increase subsidiary’s perform-
ance;
Hypothesis 1a: Decision-making decentralization could
increase subsidiary’s performance;
Hypothesis 1b: Process communication could increase
subsidiary’s performance;
Hypothesis 1c: Target incentive could increase sub-
sidiary’s performance.
2.2. Interactive Control Effectiveness of
Different Interdependence Situations
On a broad scale, dependence means “a factor’s depend-
ence degree on another factor in order to perform its own
tasks or outputs effectively”, Vegt and Vilient (2002)
divided dependence into tasks-dependence (tasks) and
output-dependence (outcomes) [22]. O’Donnell (2002)
extended this conceptualization to the interdependence of
multinational organization, and was described as “the
state in which the outcomes of a foreign subsidiary of a

Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary
Company’s Interdependence Perspective
200
MNC influence or are influenced by the actions of an-
other unit within the firm operating” [18], that is degree
can be decided by the important resources and knowl-
edge. This study defined the interdependence between
parent and subsidiary company (“parent-subsidiary in-
terdependence” for short) as “the state in which the tasks
and outcomes of a subsidiary influence or are influenced
by the parent company”. The basic properties of interde-
pendence are intensity and asymmetry, in which the in-
terdependence intensity is the sum of dependence of both
sides, while the interdependence asymmetry is the dif-
ference [23,24]. Preliminary studies have shown that the
interdependence intensity and interdependence asymme-
try would have a differential impact on the interactive
control’s effectiveness.
2.2.1. Interactive Control Effectiveness of Different
Interdependence Intensity
As the interconnections increases, the interdependence
intensity will increase. Different intensity can have dif-
ferent resources synergetic ability, and need different
interactive control to support their synergy. In this part, a
comparative analysis of different intensity will be pre-
sented to explore the interactive control effectiveness in
different situations (that is, “interdependence intensity is
high” and “interdependence intensity is low”).
First, the parent-subsidiary interdependence intensity
could affect the subsidiary’s strategic position. As the
parent-subsidiary interdependence intensity increase, the
subsidiary’s strategic decisions will have a greater effect
on the group, and even affect the enterprise group’s stra-
tegic formulation, Ghemawat and Levinthal (2008) called
such subsidiary strategy as a tactical choices [25], the
parent company would like to coordination overall strat-
egy through relatively centralized in the face of such sub-
sidiaries. when the parent-subsidiary interdependence in-
tensity is low, the subsidiary managers are often more
familiar to the subsidiary than the parent company man-
agers, at this point, the subsidiary managers’ participa-
tion in the subsidiary’s decision-making are more impor-
tant. For example, when multinational companies form a
global integrated business networks, compared with local
subsidiaries, foreign subsidiaries often have lower inter-
dependence intensity degree, these subsidiaries should be
“encouraged” to developing innovative activities or new
strategy, so as to looking for new ways to enhance the
overall value [26].
Hypothesis 2a: Decision-making decentralization’s ef-
fectiveness must be higher when the parent-subsidiary
interdependence intensity is low.
Second, the parent-subsidiary interdependence inten-
sity could affect the needs of resource sharing, Roth and
Nigh (1992) confirmed that there is a positive correlation
between interdependence intensity and coordination work
[27], that is to say, as the interdependence intensity in-
crease, the parent company’s coordination work will in-
crease. Similarly, Ambos and Mahnke (2010) put for-
ward the Parenting Advantage Theory to explain the
parent company should increase process communication
when the parent company has a better understanding and
an enough ability to support the subsidiary’s operations
[28]. On the contrary, when the parent-subsidiary inter-
dependence is low, the parent company managers’ active
communication behaviors may lead to the subsidiary ma-
nagers’ “defense” [29], and then bringing to the market
risk or loss risk.
Hypothesis 2b: Process communication’s effectiveness
must be higher when the parent-subsidiary interdepend-
ence intensity is high.
Third, the parent-subsidiary interdependence intensity
could affect the level of moral risk and the difficulty of
individual performance evaluation. When the parent-sub-
sidiary interdependence intensity is high, the subsidiary
may obtain a stable supply or customer channels within
the enterprise group, it will be difficult to find out the
subsidiary managers’ true performance information, en-
courage rationality become distinguish [30]. Further more,
as above, subsidiary’s high strategic position and its
available resources will indirectly reduce the level of the
subsidiary manager’s moral hazard, yet the opposite
when the intensity is low, the subsidiary managers’ self-
interested will be more easily achieved due to a high in-
formation asymmetry [31], target incentive’s direction
function become more important.
Hypothesis 2c: Target incentive’s effectiveness must
be higher when the parent-subsidiary interdependence in-
tensity is low.
2.2.2. Interactive Control Effectiveness of Different
Interdependence Asymmetry
Interdependence asymmetry reflects the resource capac-
ity gaps of both sides. Based on the resource dependence
theory, the resource advantage side will form an external
control to the resource disadvantage side, so there will be
a voluntary compliance of the disadvantage side to the
advantage, which may reduce or increase the demand for
a certain interactive control process. In this part, a com-
parative analysis of different asymmetry will be proposed
to explore the interactive control effectiveness in differ-
ent asymmetry circumstances (that is, “the subsidiary is
more dependent on the parent company” and “the parent
company is more dependent on the subsidiary”).
First, the parent-subsidiary interdependence asymme-
try could affect the subsidiary managers’ agency risk.
When the subsidiary is more dependent on the parent
company, it will obtain the necessary resources from the

Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary
Company’s Interdependence Perspective
201
havior of subsidiary managers. The subsidiaries which
have the advantage resources will retain a dominant posi-
tion in the parent-subsidiary company negotiation, and
these companies’ managers tend to be more positive.
However, to some subsidiaries which have the disadvan-
tage resources, subsidiary managers’ initiative tend to be
lower but to be a key factor to enhance the performance,
so the parent company must take several ways to enhance
the managers’ initiative and enthusiasm [37]. In term of
the Expectancy Theory, when the importance of a be-
havior increases, the superior organization must increase
the incentive.
parent company, even some resource disadvantage sub-
sidiaries must be supported by the parent company in
order to survive and make profits [32,33]. The external
control determines the subsidiary managers tend to obey
the parent company while itself is in a resource disad-
vantage, decision-making decentralization can give full
play to their individual wisdom, simultaneously enhances
their work enthusiasm by enhance the subsidiary man-
ager’ involvement. On the contrary, once the parent com-
pany is more dependent on the subsidiary, the external
control will be very weak or disappear, high level of de-
cision-making decentralization may bring more “perfor-
mance manipulation” space to the subsidiary managers
[26], the parent company managers must be difficult to
implement top-down decision-making plan, and even
part of the subsidiary may feel be restricted by the parent
company [34].
Hypothesis 3c: Target incentive’s effectiveness must
be higher when the subsidiary is more dependent on the
parent company.
According to the above assumptions, this paper con-
structs a conceptual model that shown in Figure 2 fol-
lowing. Hypothesis 3a: Decision-making decentralization’s ef-
fectiveness must be higher when the subsidiary is more
dependent on the parent company. 3. Method
Second, the parent-subsidiary interdependence asym-
metry could affect the cooperative relationship. When the
subsidiary at a disadvantage, the process communication
could contribute to the knowledge sharing, and promote
the parent company and subsidiary to learn from each
other [17], thus supporting the subsidiary operation and
enhancing the ability of subsidiary managers [35]. How-
ever, if the parent company is at a disadvantage, the sub-
sidiaries’ dominant position could cause the parent com-
pany’s “attention”. Harzing’s research showed that “in
order to avoid a loss risk, the parent company will adopt
a strict control mechanism to ensure the subsidiary man-
agers’ compliance with their companies’ status improve”
[36], that is to say, communication at this time tends to
care for the parent company rather than the subsidiaries,
making it be seen as “interference” by the subsidiary
managers, which directly lead to intensify the conflict,
then has a adverse effects to the overall benefits.
3.1. Sample
In order to obtain the real interdependence and perform-
ance information, a mail or a printed questionnaire was
sent to the subsidiaries’ managers, who can more prop-
erly identify the subsidiary’s industry and competitive
environment, as well as the interactive control degree.
The samples came from the alumni network of the Uni-
versity of Science & Technology of China, including the
graduate and on learning EMBA students or their groups’
subsidiaries’ managers, and some other alumni who are
suitable for the questionnaire. The samples have covered
manufacturing processing, electronic communication and
commerce services, pharmaceutical and chemical and
some other industries. The total of 430 questionnaires
was issued (including 300 copies and 130 invitation
mail), and 147 questionnaires were returned in which 140
were valid, the effective rate is 32.56%.
Hypothesis 3b: Process communication’s effectiveness
must be higher when the subsidiary is more dependent on
the parent company. 3.2. Measures
The measured variables of the latent variables have been
main reference from the original questionnaire of earlier
Third, difference parent-subsidiary interdependence
asymmetry could have different requirements on the be-
Figure 1. Strategic management process and interactive control.

Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary
Company’s Interdependence Perspective
202
studies. In order to make it easier to answer, we make
some local corrections to the original questions by sev-
eral face-to-face interviews with some respondents. All
questions were described as a five-point Likert scale, and
the latent variables were measured as follows.
1) Interdependence was measured with a four-item in-
dex based on O’Donnell’s research, including: a) Result
dependence; b) Task dependence. Both were questioned
from two different directions, i.e. “parent company’s de-
pendence on subsidiary” (“parent → subsidiary depend-
ence” for short) and “subsidiary’s dependence on parent
company” (“subsidiary → parent dependence” for short).
The following statement is an example: “my company
(i.e. the subsidiary which you are working for, similarly
hereinafter) depends on the parent company to effec-
tively perform its task in order to continue performing its
own tasks effectively” [18], the marking schemes are
from “strongly disagree” to “strongly agree”.
2) Decision-making decentralization was measured
with a five-item index from Persaud (2005), including: a)
Management staff recruitment/dismissal (human resources)
or organizational structure change (“HR or organiza-
tional change” for short); b) Budget allocation or profits
expenditure; c) Production and operation process; d)
Market distribution; e) Product pricing strategy, the coef-
ficient alpha for the scale was 0.89 in Persaud’s research
[38].
3) Process communication was measured with a three-
item index based on Subramaniam’s research, including:
a) Formal electronic communication; b) Formal face-to-
face communication; c) Informal communication in other
ways [6].
4) Target incentive was measured with a three-item
index from Armstrong and Murlis (2005), including: a)
Personal financial incentives; b) Personal non-financial
incentives; c) Subsidiary incentives (the incentive object
is subsidiary as a whole but not the individual) [39].
5) Subsidiary performance as measured with a three-
item index based on Ndofor’s（2011) research, including:
a) Market growth; b) Profit margin; c) Return on invest-
ment [40].
3.3. Data Validations
Due to the questions was local corrected, we examined
the reliability and validity test of our questionnaire re-
sults. The data processing tools are SPSS17.0 and
AMOS17.0, and the analysis methods was Structural
Equation Modeling (SEM). The exploratory analysis
showed that the maximum partial coefficient was 0.968;
the maximum kurtosis coefficient was 1.346, so we could
think of the sample to approximate as a normal distribu-
tion.
As shown in the Table 1, 1) Reliability test: the mini-
mal reliability of these scale (assessed with Cronbach’s
alpha) equaled 0.653 (others are higher than 0.7), with
reaches the lower limits of acceptability. 2) Validity test:
on the one hand, all questions were based on early stud-
ies, so we can agree that the questionnaire have a good
content validity. On the other hand, the KMO values of
each latent variable are higher than 0.6, with reach the
acceptability. But the loading values of “management
staff recruitment/dismissal or organizational structure
change” and “budget allocation or profits expenditure”
are lower than 0.5 (others are higher than 0.5 and reach
significant level), so we removed these two measured
variables in order to improve the questionnaire construct
validity.
3.4. Analysis and Results
3.4.1. Step 1: SEM Analysis o f th e Whole Sample
A “interactive control → performance” model is de-
signed and analyzed to prove the effects of three interac-
tive control processes on the subsidiary performance, the
path analysis results are shown in Figure 3. The fit indi-
ces including absolute fit indices (P > 0.05 and RMSEA <
0.08), incremental fit indices (IFI > 0.9, CFI > 0.9) and
parsimonious fit indices (x2/df < 2) are all reach the fit-
ting degree, this means the model agrees well with the
practice.
Figure 3 shows that the interactive control can en-
hance the subsidiary performance in a whole. The path
coefficient of the “decision-making decentralization →
subsidiary performance” is 0.21 (P = 0.049), and reaches
the level of significance, so do the other two processes
(“process communication → subsidiary performance” is
0.19 (P = 0.095); “target incentive → subsidiary” is 0.26
(P = 0.028)), the conclusion is consistent with Hypothe-
sis 1a, 1b and 1c. Again, the conclusion shows that the
interactive control process are effective in Chinese en-
terprise groups’ practice, as we can see in the theories
before, this result can infer that decision-making decen-
tralization has enhanced the strategic satisfaction and
strategic execution of subsidiary managers, so they can
play their personal wisdom more effectively. Similarly,
process communication has promoted the resource- shar-
ing and formed a common strategic perception, so as to
enhance the corporate efficiency, and target incentive has
established a common interest between the subsidiary
managers and the group.
In addition, there is a highly relevant between target
incentive satisfaction and decision-making decentraliza-
tion/process communication degree. As decision-making
decentralization degree increase, the target incentive-
satisfaction decrease (correlation coefficient is −0.2, P =

Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary
Company’s Interdependence Perspective
203
Table 1. Reliability and validity test results.
Measures Cronbach’s α Loadings KMO
Parent → subsidiary dependence 0.653 0.641
 Result dependence (RD) 0.555
 Task dependence (TD) 0.756
Subsidiary → parent dependence 0.737 0.677
 Result dependence (RD) 0.623
 Task dependence (TD) 0.777
Decision-making decentralization (DM) 0.704 0.713
 HR or organizational change (DM1) 0.312•
 Budget allocation or profits expenditure (DM2) 0.374•
 Production and operation process (DM3) 0.735
 Market distribution (DM4) 0.702
 Product pricing strategy (DM5) 0.675
Process communication (PC) 0.711 0.614
 Formal electronic communication (PC1) 0.509
 Formal face-to-face communication (PC2) 0.849
 Informal communication in other ways (PC3) 0.766
Target incentive (TI) 0.768 0.685
 Personal financial incentives (TI1) 0.664
 Personal non-financial incentives (TI2) 0.706
 Subsidiary’s incentives (TI3) 0.810
Subsidiary performance (SP) 0.845 0.689
 Market growth (SP1) 0.644
 Profit margin (SP2) 0.889
 Return on investment (SP3) 0.892
Note: “•” are the measured variables been deleted in follow analysis.
Interactive control processes
- Decision-making decentralization
- Process communication
- Target incentive
Interdependence
- Interdependence intensity
- Interdependence asymmetry
Parent company
Subsidiary
Performance
Regulating effect
Figure 2. Conceptual model.

Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary
Company’s Interdependence Perspective
204
DM
DM3
DM4
DM5
PC1
PC2
PC3
PC
TI
TI1
TI2
TI3
SP
SP1
SP2
SP3
0.81
0.89
0.89
0.65
0.26
**
0.21
**
0.19
**
0.51
0.72
0.80
0.81
0.70
0.70
0.67
0.71
Standardized estimates
Chi-square(x
2
) = 63.461; P = 0.067; degree of freedom (df) = 48; RMSEA = 0.048;
x
2
/df = 1.322; IFI = 0.973; CFI = 0.972
−0.20
*
0.45
**
−0.12
Figure 3. Path analysis results. Note: N = 140. ***P < 0.01; **P < 0.05; *P < 0.1 (two-detail), the same below.
0.074), conversely, as process communication increase,
the target incentive-satisfaction increase (correlation co-
efficient is 0.45, P = 0.000). Indeed, higher decision-
making decentralization degree may increase the infor-
mation asymmetry, and then make a negative impact on
the establishment of a common perception. However,
process communication just plays a role of passing stra-
tegic information, and improves the subsidiary managers’
understanding of target incentive indirectly. Thus, al-
though decision-making decentralization can improve
subsidiary performance, but only a moderate decentrali-
zation can improve the group strategy related-perform-
ance (i.e. the performance matches with the group strat-
egy).
3.4.2. Step 2: Multip l e-Gro up Analysis
In order to verify the interactive control effectiveness of
different interdependence situations, this part will make
the interdependence as a regulating variable, with a mul-
tiple-group analysis to test the “interactive control →
performance” model. Based on Gundlach and Cadotte’s
study, begin by figuring out the standardized value of the
original data, then the interdependence intensity value is
“parent → subsidiary dependence” add “subsidiary →
parent dependence”. We divide the group to “high-inten-
sity” and “low-intensity” by K-mean cluster analysis,
there are 87 cases in the “high-intensity” group and 53
cases in the “low-intensity” group. Differently, the inter-
dependence asymmetry value is “subsidiary → parent
dependence” minus “parent → subsidiary dependence”.
We divide the interdependence asymmetry groups by the
“+” or “−”, that is, “+” is the “subsidiary is more depend
on parent company” group (“subsidiary → parent” group
for short), and “−” is the “parent company is more de-
pend on subsidiary” group (“parent → subsidiary” group
for short), there are 84 cases in the “subsidiary → parent”
group and 56 cases in the “parent → subsidiary” group.
The interdependence intensity and asymmetry groups
both have a higher significant in default model by com-
paring with parallel model, equal intercept model, this
indicates that different interdependence will lead to dif-
ferent effectiveness of interactive control , we choose the
default model as the comparative analytical object. Table
2 following shows the results of the path coefficients and
critical ratio for differences between two parameters
(C.R. for differences) of different groups in standardized
estimates.
According to Table 2, we can draw the following con-
clusions: 1) Process communication’s effectiveness is
significantly higher when the parent-subsidiary interde-
pendence intensity is high, Hypothesis 2b is supported.
The path coefficient of “PC → PI” is 0.33 (P = 0.016) in
“high-intensity” while it is below the significant level in
“low-intensity”, moreover, the C.R. for differences is
1.741 which reaches the significant level (P < 0.1). This
result can infer that the connection established by the
knowledge or information between the parent and sub-
sidiary company could support a better implementation
of the group strategy, process communicate set up a
bridge of the resource sharing effectively; 2) Target in-
centive’s effectiveness is significantly higher when the
subsidiary is more dependent on the parent company,
Hypothesis 3c is supported. The path coefficient of “TI
→ PI” is 0.43 (P = 0.002) in “ubsidiary → parent” while s

Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary
Company’s Interdependence Perspective
205
Table 2. Results of the multiple-group analysis.
Different interdependence intensity groups Different interdependence asymmetry groups
High-intensity Low-intensity C.R. for differencesSubsidiary → parentParent → subsidiary C.R. for differences
DM → PI 0.13 0.28* −0.789 0.16 0.15 0.011
PC → PI 0.33** 0.06 1.741* 0.17 0.11 0.488
TI → PI 0.17 0.29* −0.09 0.43*** 0.02 1.961**
it is below the significant level in “parent → subsidiary”,
the C.R. for differences is 1.961 which reaches the sig-
nificant level (P < 0.05). this result can infer that target
incentive can less the subsidiary managers’ self-interest
and improve their work effort much better when the par-
ent company is in the resource advantage position; 3)
Decision-making decentralization and process commu-
nication’s effectiveness are slightly higher when the par-
ent-subsidiary interdependence intensity is low, the con-
clusion general agree with Hypothesis 2a and 2b. Despite
the C.R. for differences are not reach the significant level,
the path coefficient of “DM → PI” is 0.28 (P = 0.096) in
“low-intensity” reaches the significant level (P < 0.1)
while it is below the significant level in low-intensity, so
do the path coefficient of “TI → PI”. The result can par-
tially demonstrate that low levels of strategic correlation
may need the subsidiary’s managers to play their indi-
vidual wisdom but not only to accept the parent com-
pany’s limited support. Similarly, high levels of strategic
correlation can lessen the moral hazard degree, but add
the difficulty to identify individual performance, which
may lead target incentive to be more important when the
correlation is low.
4. Conclusions
Nowadays, internal interdependence has become an in-
creasingly important tool with which the enterprise
groups can achieve and maintain a competitive, and how
to manage these subsidiaries within a differentiated in-
terdependence effectively is an important research topic.
This paper took the influences of interactive control on
subsidiary performance as a main line, and future analy-
sis the interdependence’s regulating role. The results
show that the interactive control can improve the sub-
sidiary performance while the interdependence has a
regulating effect on the positive effects. For the business
practice, we can reveal the following reference meanings.
On the one hand, only if rational identify the advan-
tage resource of the parent company, and have a clear
understanding of the interactive control at the same time,
can the parent company’s managers take effective inter-
active control. In the enterprise groups’ practice, the in-
teractive control’s formulation and later adjust always
not completely rational [41], the parent company may
have an excessive control but neglect resource coordina-
tion, or excessive coordination but increase the costs.
Indeed, the parent company should identify interdepend-
ence between parent and subsidiary company, in a short
term, the interdependence is often in a steady state, the
parent company should take interactive control from a
match perspective, while in a long term, the relationship
is quite complex and dynamic, the parent company
should keep a dynamic and timely adjust to the interac-
tive control. As indicated in the results of this study, we
can see that the basic rules include: when the interde-
pendence intensity is low (or become lower), the parent
company should adopt a higher (or increase) the degree
of decision-making decentralization and target incentive,
while adopt a higher (or increase) the degree of process
communication under the opposite condition; when a
subsidiary is more depend on the parent company (or
dependence increases), the parent company should adopt
a higher (or increase) the degree of target incentive.
On the other hand, the enterprise groups should in-
crease competitive and managerial abilities of their par-
ent companies to ensure that the parent-subsidiary rela-
tionship controllability and interactive control feasibility.
The subsidiaries in a enterprise group often have differ-
ent ability level, and the parent company must properly
handle relations among its own, resource advantage sub-
sidiaries and resource disadvantage subsidiaries in good
balance, as an important lever, once the parent company
lost the controlling power to the subsidiaries, it will lose
the regulating ability to ensure the interactive control
efficient at the same time, for instance, target incentive
effectiveness must be lower while which is face to a re-
source advantage subsidiary. In addition, the enterprise
groups should improve the matching extent between in-
teractive control and strategic targets. If the matching
degree is identified or effective matching, it will be eas-
ier to avoid excessive centralization or decentralization,
and to take a more effective process communication. In
the design process of target incentive, the parent com-
pany’s managers should have an objective assessment to
the subsidiary managers’ individual performance, which

Empirical Analysis of Interactive Control’s Effectiveness: A Parent-Subsidiary
Company’s Interdependence Perspective
206
then can set up an incentive system based on both effi-
ciency and fairness.
However, the study is not without limitations, with
which require future research. First, the research sample
possibly has a certain regional characteristic, as most
sources are from Beijing, Anhui, Jiangsu or surrounding
cities, this may reduce the universality of our conclusions,
but a good fitting result reflects the certain research value.
Second, this research lacks to analysis of the groups’
basic properties, such as there may exist a different in-
fluence on interactive control between the state-owned
enterprise and the private enterprise. Thus, there should
be some further research on this subject, for example, to
increase the survey sample range and size to enhance the
applicability of conclusions in the empirical study, or use
other research methods (e.g. case study) to verify the
reliability of the findings.
5. Acknowledgements
This study was supported by the National Natural Sci-
ence Foundation of China (No.70802058) and the na-
tional innovation research group projects of National
Natural Science Foundation (No.70821001). Many thanks
to the EMBA students at the University of Science &
Technology of China, as well as other managers who
filled the questionnaires in Guangzhou, Beijing and other
cities.
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