Management Global Organization Design
by
Tatiana Kostova
  • LAST REVIEWED: 07 July 2020
  • LAST MODIFIED: 22 April 2013
  • DOI: 10.1093/obo/9780199846740-0045

Introduction

The term “organization design” has been used in a variety of ways ranging from a very narrow focus on organization structures to a very broad conceptualization as a system of organization structures, processes, and people that facilitate the implementation of the organization’s strategy. The term has been used as both static and dynamic, depending on whether it captures a snapshot of an organization at a given moment in time, or whether it reflects a process of change, realignment, and reshaping of all organization design elements. In addition, research on organization design has extended beyond the boundaries of the firm including interorganizational networks. This bibliography employs the broadest definition of the term and both its static and dynamic aspect, as this allows coverage of a wider body of work.

Introductory Works

Many of the concepts related to organization design have their roots in organizational studies that preceded the emergence of the field of international management. These include, for example, the classic works Galbraith 1995, Drucker 1973, Mintzberg 1983, Lawrence and Lorsch 1967, and others who developed the key principles of organization design based on a well-articulated systems view: organization design is more than just structure; different strategies lead to different organizations; and for an organization to be effective, all the policies must be aligned with one another. While recognizing that these pieces are not specifically focused on the global organization, they have served an important foundational role and have greatly contributed to shaping research in this area. For the purposes of brevity, this section does not cover the full history of the concept but instead focuses on its application in the context of multinational companies (MNCs).

  • Drucker, P. F. Management: Tasks, Responsibilities, Practices. New York: Harper and Row, 1973.

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    In this landmark text, Drucker defines a number of design principles for the creation of effective organizations. He argues that structure is an essential element for the organization’s success but also that it is not an end in itself. A key managerial responsibility is to ensure consistency between organizational structure and goals.

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  • Galbraith, J. R. Designing Organizations: An Executive Briefing on Strategy, Structure and Process. San Francisco: Jossey-Bass, 1995.

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    This is a practitioner-oriented, concise guide to designing effective organizations. It presents a wealth of examples about the role of organizational design relative to a firm’s policies, behavior, and performance, and it describes how leaders can affect processes of organizational change through effective organizational design.

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  • Lawrence, P., and J. Lorsch. Organization and Environment: Managing Differentiation and Integration. Boston: Harvard University Press, 1967.

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    This seminal text develops further the open-systems concept by analyzing how a company’s external environment influences its pattern of organization and administration. It presents empirical evidence to support the claim that different structures are more or less appropriate to address the varying demands of the environment (technological, market, and economic).

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  • Mintzberg, H. Structure in Fives: Designing Effective Organizations. Englewood Cliffs, NJ: Prentice-Hall, 1983.

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    In this classic guide for managers on developing effective organizational structures, Mintzberg identifies five major coordinating mechanisms (mutual adjustment, direct supervision, the standardization of work processes, input skills, and outputs) and five major parts of organizations (strategic apex, middle line, operating core, technostructure, and support staff).

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Resources

Reflecting the centrality of the topic of organization design, it can be found in one way or another in all international management and international business textbooks. Similarly, all management journals interested in MNCs research have published scholarly articles related to this topic. The references below are not meant to be comprehensive but are perhaps the most well-known and widely used resources on the subject.

Textbooks

Various textbooks on global strategy, international business, and especially international management would typically include at least one chapter on the topic of organization of MNCs. The ones included here are representative of different types of textbooks—more academic or practitioner oriented, for undergraduate or graduate students. Bartlett and Beamish 2010, which inherits the previous editions co-authored with Sumantra Ghoshal and Julian Birkinshaw, is perhaps the best known in the area of international management. Building on the foundational work of IB scholars such as Christopher Bartlett, Sumantra Ghoshal, Yves Doz, and C. K. Prahalad, the text is organized around the concept of “transnational company.” The book is particularly suitable for graduate and executive students, as it presents important ideas of international management in an engaging essay format, coupled with excellent cases and readings. Deresky 2010 and Phatak, et al. 2008 are traditional textbooks that offer great structure to the presentation, detailed discussion of all important issues, many longer and shorter cases and current examples. Dunning and Lundan 2008 is almost an encyclopedia on multinational companies, presenting a very thorough and scholarly account of many management-related topics, including two chapters dedicated to MNC organization. Tallman 2009 is rather academic and readable at the same time and covers organization design issues from a current viewpoint and from a global strategy perspective.

  • Bartlett, C., and P. Beamish. Transnational Management: Text, Cases and Readings in Cross-Border Management. 6th ed. New York: McGraw-Hill/Irwin, 2010.

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    Main ideas here are that complex transnational strategies require equally complex organizational capabilities to achieve local responsiveness, global integration, and worldwide learning and that organization is not only formal structure but also management processes and interpersonal relationships. Four MNC models are discussed—Decentralized Federation, Coordinated Federation, Centralized Hub, and Integrated Network—with emphasis on Integrated Network and its distributed interdependent capabilities and flexible integrative processes.

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  • Deresky, H. International Management: Managing Across Borders and Cultures, Text and Cases. 7th ed. Upper Saddle River, NJ: Prentice-Hall, 2010.

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    Includes a chapter on organization structure and control systems and a chapter on international alliances. In addition to regular textbook material—definitions and descriptions of main concepts such as types of organization structures and approaches to control and coordination in MNCs—it also presents many examples, discussion questions, in-class exercises, and small cases. It is particularly suitable for undergraduate students.

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  • Dunning, J., and S. Lundan. Multinational Enterprises and the Global Economy. 2d ed. Cheltenham, UK: Edward Elgar, 2008.

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    This is an encyclopedic scholarly book on MNCs covering an impressive range of topics. Two chapters on MNC organization focus on internal and external networks, respectively. Internally, the topics include typology of structures and organizational forms, affiliate role and autonomy, and country differences. The external networks chapter describes forms of cross-border cooperation modes, including equity and nonequity joint ventures, strategic alliances, and cartels.

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  • Phatak, A., R. Bhagat, and R. Kashlak. International Management: Managing in a Diverse and Dynamic Global Environment. 2d ed. Boston: McGraw-Hill/Irwin, 2008.

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    Comprehensive and thorough presentation on the topic of MNC organization. Includes basic material, such as types of organization structures, their advantages and disadvantages, as well as more advanced transnational and heterarchy models. Discusses managerial control processes, types of control and effectiveness, problems of control in international companies’ parent-subsidiary relationships, strategic control mechanisms, and subsidiary roles. The book also offers many interesting examples.

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  • Tallman, S. Global Strategy. Hoboken, NJ: Wiley, 2009.

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    Presents a contemporary discussion of global structures and a review of the literature on this topic. In addition to basic material, it discusses the strategy-structure link from different theoretical perspectives, including a resource-based view and transaction cost economics. Also addresses interorganizational solutions including outsourcing, international alliances and joint ventures, as well as the changing role of headquarters.

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Journals

Management journals have paid a great deal of attention to the topic of global organization design. Although not comprehensive, the following list includes some of the top academic journals that have published works in this area: Academy of Management Journal, Academy of Management Review, Journal of International Business Studies, Organization Studies, Journal of International Management, Journal of Management Studies, Journal of World Business, and International Business Review. Of course, there are many other academic journals that have also published work on related topics.

Summary and Review Pieces

The following are a few summaries and reviews of the topic of MNC organizations. A more detailed description is provided for what is considered one of the most widely referred reviews, Westney and Zaheer 2001. This is a very comprehensive and well-written account on the evolution of theorizing on MNCs as organizations. It takes a chronological approach to follow the development of the main ideas in this area. Several distinct stages are identified. The work prior to the 1980s, which was based on economic and competitive models developed by Hymer 1960 and Vernon 1966, suggested that firms internationalize to exploit firm-specific advantages for which there were imperfect markets (e.g., Buckley and Casson 1976, Dunning 1977, Caves 1982). The primary topic of interest in this period was foreign direct investments and internationalization of firms. The piece also describes the structural evolution model (Stopford and Wells 1972) rooted in Chandler’s work and specifically the Harvard Multinational Enterprise Project, which began in 1966 as the first large-scale empirical study of multinational organization. The second stage emerged during the 1960s and 1970s and was focused on “MNE activities in terms of value-adding activities (from export to sales offices to production facilities to full value-chain subsidiary), mode of operations (from arm’s-length transaction through partnerships with locals to wholly owned operations), and location (from more familiar to less familiar country locations)” (Westney and Zaheer 2001, p. 353). The model of “internationalization process of the firm” focuses on “the development of the individual firm, and particularly on its gradual acquisition, integration and use of knowledge about foreign markets and operations and on its successively increasing commitment to foreign markets” (Johanson and Vahlne 1977, p. 23). Another distinct approach to studying MNC organization during the early years of IB research focused on the evolution of managerial mind-sets as proposed by Perlmutter 1969.

  • Buckley, P., and M. Casson. The Future of the Multinational Enterprise. London: Macmillan, 1976.

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    The authors focus on cross-border market imperfections (e.g., time lags between interdependent activities, restrictions on discriminatory pricing, unstable bargaining scenarios, asymmetrical knowledge, and government distortions) as the drivers of a firm’s decision to gain ownership and control of its foreign operations, thus becoming a multinational organization.

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  • Caves, R. Multinational Enterprise and Economic Analysis. Cambridge, UK: Cambridge University Press, 1982.

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    Reviews the theoretical and empirical contributions that economic analysis has made to our understanding of why multinational enterprises exist.

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  • Dunning, J. “Trade, Location, and Economic Activity and the MNC: A Search for an Eclectic Approach.” In The International Allocation of Economic Activity: Proceedings of a Nobel Symposium Held at Stockhel. Edited by B. Ohlin, P. Hesselborn, and P. Wijkman, 395–418. London: Macmillan, 1977.

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    Dunning’s eclectic paradigm argues that a firm will engage in foreign direct investment (FDI) if three conditions are satisfied: (1) the firm possesses exclusive ownership advantages; (2) it is more beneficial for the firm to use these advantages rather than selling or leasing them; and (3) it is profitable for the firm to utilize these advantages outside of its home country.

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  • Hymer, S. H. “The International Operations of National Firms.” PhD diss., Massachusetts Institute of Technology, 1960.

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    Hymer was the first scholar to attempt to systematically explain the activities of firms outside of their national boundaries. He theorizes about the costs of doing business abroad, which put foreign firms at a disadvantage relative to local firms. He argues that firms can successfully internationalize when they possess specific advantages that set them apart from local competitors.

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  • Johanson, J., and J. Vahlne. “The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitment.” Journal of International Business Studies 8.1 (1977): 23–32.

    DOI: 10.1057/palgrave.jibs.8490676Save Citation »Export Citation » Share Citation »

    Introduces a model of “internationalization process of the firm.” It focuses on the development of the individual firm, and particularly on its gradual acquisition, integration, and use of knowledge about foreign markets and operations and on its successively increasing commitment to foreign markets.

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  • Perlmutter, H. “The Tortuous Evolution of the Multinational Corporation.” Columbia Journal of World Business 5.1 (1969): 9–18.

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    Argues that the real nature of international firms cannot be captured by data on volume of foreign sales or by the number of foreign employees; what is also important is the way executives think about doing business around the world. The author identified three orientations—ethnocentric, polycentric, and geocentric—and discussed their nature and organizational consequences.

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  • Stopford, J., and L. Wells. Managing the Multinational Enterprise: Organization of the Firm and Ownership of the Subsidiaries. New York: Basic Books, 1972.

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    Examines multinational firms’ strategies and structures and develops a descriptive model to illustrate firms’ typical stages of internationalization.

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  • Vernon, R. “International Investment and International Trade in the Product Cycle.” Quarterly Journal of Economics 80.2 (1966): 190–207.

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    Focuses on the role of country-specific factors relative to the origin of firms’ competitive advantages and the location of their value-added activities.

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  • Westney, E., and S. Zaheer. “The Multinational Enterprise as an Organization.” In The Oxford Handbook of International Business. Edited by A. Rugman and T. Brewer, 349–379. Oxford: Oxford University Press, 2001.

    DOI: 10.1093/0199241821.001.0001Save Citation »Export Citation » Share Citation »

    Provides a very detailed review of the evolution of knowledge on MNCs and their organization. The authors take a chronological approach explaining how the views and theories on MNCs developed over time starting with the strategy-structure paradigm and evolving into the activities and process focus. This is an excellent summary of the evolution of the topic.

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Additional Reviews of Organization Design Issues

Many international management scholars have provided additional extensive discussions on topics related to organization design of MNCs. Some have been broader in scope, while others are more focused on particular subtopics. Although not intentionally written as reviews, the following sources offer some useful summaries. Kogut 1989 discusses some of the foundational concepts of his theory of the multinational corporation. Malnight 2001 presents empirical evidence of the coevolution of organizations and environments. Lane, et al. 2004 reviews current approaches and research in international management and organizations. Berry 2009 proposes a novel framework of firm international configurations. Buckley and Casson 2010 presents the results of their thirty-year research collaboration centered on the multinational corporation. Greenwood, et al. 2010 contains a good overview of a parallel stream of research that investigates the organizational structure of global professional firms and the operational challenges they face across their organizational and institutional environments. Finally, Djelic and Quack 2003 broadens the lens through which organizational issues are viewed. Rather than focusing on the emergence of a dominating organizational form as a result of globalization, they discuss the “multilevel and multilayered historical processes” marked by “competing and conflicting actors and logics” (p. 303).

Foundational Work

The dominant paradigm in global organization design is the “strategy-structure” model. It follows the general management research on the fit between strategy and structure, a proposition based on the early work of Alfred Chandler. Chandler 1969 introduced the “strategy-structure-performance” paradigm that broadly suggests that structure follows strategy and without the proper organization even the best strategy will fail. Superior performance requires both an insightful strategy and a matching organization that is congruent and consistent with the strategy. Many works of international management scholarship, starting with Stopford and Wells 1972 and Fouraker and Stopford 1968, have applied this general management model to the case of the MNC, building on the specificity of these companies. This literature has produced widely accepted conceptualizations and theoretical models that constitute the core of the field of international management with regard to both research and teaching. Special attention has been given to the role of differentiation in the context of geography and the need to reconcile different and sometimes conflicting goals in such organizations. Galbraith 2000, for example, discusses strategy-structure in light of additional complexities due to geography, foreign governments, and worldwide customers and products. Building on the strategy-structure paradigm, subsequent research employs more of a contingency approach by focusing on how firms respond to environmental factors in their international activities. Daniels, et al. 1984 and Egelhoff 1982 are examples of early work analyzing the strategies and structures of multinational corporations. Porter 1986 discusses organizational structures in the context of global competition. Weinshall 1983 draws attention to the dynamic aspects of organizational design.

  • Chandler, A. Strategy and Structure: Chapters in the History of the Industrial Enterprise. Cambridge, MA: MIT Press, 1969.

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    Describes the evolution of the largest American corporations in the 1960s and how they addressed the challenge of effective administration as they expanded. It documents the rise of the “M-form” organization characterized by delegation of operational decision making to separate divisions and creation of the headquarters unit responsible for strategic decisions and monitoring the performance of the divisions.

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  • Daniels, J., R. Pitts, and M. Tretter. “Strategy and Structure of U.S. Multinationals: An Exploratory Study.” Academy of Management Journal 27.2 (1984): 292–307.

    DOI: 10.2307/255926Save Citation »Export Citation » Share Citation »

    Large US multinational companies are classified by the structure through which their foreign operations report to headquarters. Structural groups are then compared using dimensions such as product diversity, dependence on foreign operations, strategic emphasis, and ownership and control characteristics. The result is a model relating these variables to multinational structure.

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  • Egelhoff, W. “Strategy and Structure in Multinational Corporations: An Information-Processing Approach.” Administrative Science Quarterly 27.3 (1982): 435–458.

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    Adds to the foundational contingency strategy-structure fit model by explaining this relationship based on information processing. Data from US and European MNCs provide empirical support for the link between strategy and structure as well as for the role of information processing.

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  • Fouraker, L. E., and J. M. Stopford. “Organizational Structure and the Multinational Strategy.” Administrative Science Quarterly 13.1 (1968): 47–64.

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    Argues that organizations with a single (or a few) related product lines and a high degree of vertical integration tend to adopt centralized structures. Organizations with diversified product lines tend to have decentralized, divisional structures. The article shows that the first firm type tends to concentrate on domestic markets, while the second accounts for most US direct investment abroad.

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  • Galbraith, J. Designing the Global Corporation. San Francisco: Jossey-Bass, 2000.

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    Addresses organization design issues for the specific case of global organizations. It discusses strategy-structure in light of additional complexities due to geography, foreign governments, and global customers and products. It provides hands-on guidance on how to match strengths and strategies with effective design options to build flexible global networks. Although intended for practitioners, this book is grounded in research.

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  • Porter, M. “Competition in Global Industries: A Conceptual Framework.” In Competition in Global Industries. By M. Porter, 15–60. Cambridge, MA: Harvard Business School Press, 1986.

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    The main arguments in this text are (1) a number of global developments (e.g., infrastructure, technology, fluid capital markets, etc.) have led to growing international competition and widespread globalization of industries; and (2) this context requires rethinking of how firms can configure and coordinate their international activities to gain a competitive advantage over domestic and foreign rivals.

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  • Stopford, J., and L. Wells. Managing the Multinational Enterprise: Organization of the Firm and Ownership of the Subsidiaries. New York: Basic Books, 1972.

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    Presents results from a big study of US MNCs. The main finding is that organization structure is linked to strategy. MNCs follow a “stage model” of international organization based on foreign product diversity and importance of international sales. They use four types of structure in different stages of internationalization—international division, global area, worldwide product division, and global matrix.

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  • Weinshall, T. Managing Growing Organizations: A New Approach. New York: Wiley, 1983.

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    While in the same structural contingency tradition, this book recognizes specifically that “global” and “growth” occur often simultaneously and that organization design needs to take the dynamics of growth explicitly into account. The book includes a number of remarkable cases (e.g., the Roman Catholic Church, the Mafia) and theories that are quite relevant to multinational organization design.

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Integration-Responsiveness Framework and the Transnational

The most influential model in MNC management is the Integration-Responsiveness (I-R) framework. It is definitional for the field. First introduced in the late 1970s, this model is still dominating research, teaching, and the practice of international management. It has inspired a huge body of empirical work, as well as several notable conceptual extensions that define modern thinking on international management and MNC design. Below are brief summaries of the original work on the I-R model, the transnational model, empirical research based on these concepts, and further conceptualizations inspired by them.

Original I-R Model

This model was first proposed by C. K. Prahalad (Prahalad 1976) and further developed by Prahalad and Doz 1987 and Bartlett and Ghoshal 1989. The I-R model is theoretically based on the contingency framework of Lawrence and Lorsch 1967 (cited under Introductory Works), but it extends this framework in two significant ways: bringing the environment into consideration and moving beyond formal structure to a broader discussion of strategy, structure, and management processes. The model suggests that MNCs face two types of pressures from the environments in which they function—for local responsiveness (LR) and for global integration (GI)—and that they position themselves strategically as a result of these two sets of influences. The model is visualized by a 2 x 2 grid with LR and GI as its two dimensions, respectively. Based on where an entity stands on the grid, it is said to follow four different types of strategies—international, multinational, global, and transnational (Bartlett and Ghoshal 1989). The LR-GI model serves as an effective analytical tool to evaluate and categorize business entities. While initially designed for industry-level analysis, the framework was quickly extended to the firm level and has proven to be very robust and useful in both applications. The firm level recognizes that there is intra-industry variation with regard to a company’s responses to the pressures, as managers try to position their organizations in a strategically distinctive way. In addition, it has been used to map functions within a company and even activities within functions. The other notable extension of the model compared to the original contingency framework is that it evolved from being focused exclusively on strategy to serving as a basis for analysis of structures and organizational processes. Doz 1980 provides excellent examples of how companies respond to political and economic conditions. It illustrates the link between company strategy and organizational processes. Finally, it is important to note that in addition to the contingency perspective, scholars have also used the institutional theory perspective to explain the mechanisms by which the GI-LR decision in MNCs is influenced by institutional context and institutional processes. Institutional theory based work is cited throughout this chapter.

  • Bartlett, C., and S. Ghoshal. Managing Across Borders: The Transnational Solution. Cambridge, MA: Harvard Business School Press, 1989.

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    This volume describes the transnational model of the firm—an integrated network of subunits, where neither the corporate headquarters nor the national subsidiaries dominate the firm. In this flexible approach to cross-border coordination, product development is decentralized, technological knowledge is created and disseminated through interactive networking, and coordination is maintained through commitment.

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  • Doz, Y. “Strategic Management in Multinational Companies.” Sloan Management Review 21.1 (1980): 27–46.

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    Reviews the results of the author’s extensive filed research of the management processes in about a dozen multinational corporations. It focuses on the strategies and administrative processes used by these companies to reconcile the conflicting economic and political imperatives they face in the global arena.

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  • Prahalad, C. K. “Strategic Choices in Diversified MNCs.” Harvard Business Review 54.4 (1976): 67–78.

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    The author exemplifies some of the problems associated with operating within a global matrix and describes ways to improve strategic focus in diversified MNCs.

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  • Prahalad, C. K., and Y. Doz. The Multinational Mission: Balancing Local Demands and Global Vision. New York: Free Press, 1987.

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    Based on the authors’ extensive field research in the international strategic and operational management of a number of global firms. It is primarily a synthesis of previously published research. Part 1 discusses the dominant strategic imperatives confronting the organization and the identification of an appropriate strategy. Part 2 discusses the managerial capacities to implement the strategy.

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Transnational Model

The concept of the transnational company that stemmed from the I-R work has had a huge impact on international management for both research and practice. The transnational model suggests a company that is very locally responsive and very globally integrated at the same time. This conceptualization was based on two key ideas. First, Bartlett and Ghoshal 1989 (cited under Original I-R Model) moved the discussion from the need to balance competing pressures and the inherent trade-offs between localization and integration, which was so central in the work of the early 1980s, to the idea that in MNCs there is also a critical need for worldwide learning. In effect, they introduced a third dimension in the I-R paradigm: that of cross-border learning and innovation, which they suggested drives the development of processes and systems in the organization. Second, to achieve such worldwide learning in the context of high localization and integration, they conceived of MNCs as networks. In contrast to the hierarchical hub-and-spoke models of the multidomestic or global firm, the subunits in a transnational organization are linked to each other directly in a variety of ways—through flows of information, people, goods, knowledge, etc. The new concepts of “integrated network” and “differentiated network” were introduced as alternative labels for the transnational, became widely used in the 1990s, and continue to dominate the field until now. The core ideas of the transnational corporation were later extended beyond the boundaries of the firm. Ghoshal and Bartlett 1990 in particular advanced the concept of the internally differentiated interorganizational network defined by two aspects. First is the notion of the internally differentiated and networked company, which consists of geographically dispersed and goal-disparate organizations including its headquarters and the different national subsidiaries. Second is the notion of the interorganizational networks, which captures the fact that companies are also embedded in an external network consisting of all other organizations such as customers, suppliers, regulators, and so on, with which the different units of the multinational must interact. The structural properties of a firm’s external network depend on certain attributes such as resource configuration and internal distribution of power.

  • Ghoshal, S., and C. A. Bartlett. “The Multinational Corporation as an Interorganizational Network.” Academy of Management Review 15.4 (1990): 603–625.

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    Conceptualizes the multinational corporation as an interorganizational network that is embedded in an external network, which includes organizations such as customers, suppliers, and regulators. The presented theoretical model relates multinational attributes to certain structural properties of its external network.

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Empirical Research on the I-R and Transnational Frameworks

Hundreds of international management scholars have used, critiqued, or tried to extend the I-R framework. Some examples include rigorous empirical work, and others include new conceptual developments informed and motivated by this model. On the empirical side, notable contributions are the works Roth and Morrison 1990, Roth 1992, and Malnight 2001, which test different aspects of the I-R framework. In a more practitioner-oriented article, Prahalad and Bhattacharyya 2008 introduces the idea of a hybrid organization solution meant to reduce the tension between global integration and local responsiveness. Devinney, et al. 2000 offers an extension by adding managerial beliefs to the I-R model. These articles also describe some of the more common types of headquarters-subsidiaries configurations.

  • Devinney, T., D. Midgley, and S. Venaik. “The Organizational Imperative and the Optimal Performance of the Global Firm: Formalizing and Extending the Integration-Responsiveness Framework.” Organization Science 11.6 (2000): 674–695.

    DOI: 10.1287/orsc.11.6.674.12528Save Citation »Export Citation » Share Citation »

    Expands upon the I-R framework by adding a third set of environmental pressures that incorporates the beliefs of managers and by employing the idea of efficient frontiers.

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  • Malnight, T. “Emerging Structural Patterns within MNGs: Toward Process-Based Structures.” Academy of Management Journal 44.6 (2001): 1185–1208.

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    Extends Bartlett and Ghoshal’s perspective and provides additional supporting evidence in favor of the transnational solution. Findings suggest that MNCs respond to complex global competitive environments by increasing internal structural complexity, i.e., by developing global internal networks. They do so on the basis of process rather than the more conventional product, function, or market specialization.

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  • Prahalad C. K., and H. Bhattacharyya. “Twenty Hubs and No HQ.” Strategy + Business 50 (2008): 24–29.

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    Discusses “the gateway-hub structure,” which is advanced as a “third alternative”—a hybrid that reduces the tension between global integration and local responsiveness. Corporate leaders who are based in business unit–style organizations in selected gateway countries have a natural base from which to extend their footprint into nearby markets.

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  • Roth, K. “International Configuration and Coordination Archetypes for Medium-Sized Firms in Global Industries.” Journal of International Business Studies 23.3 (1992): 533–549.

    DOI: 10.1057/palgrave.jibs.8490278Save Citation »Export Citation » Share Citation »

    Specifies the basic configuration and coordination patterns for medium-sized firms competing in global industries. Results suggested five distinct archetypes: concentrated hub, local innovator, transnational innovator, regional federation, and global. The most effective approach was “selective globalization,” in which the firm defines its global strategy around a narrow subset of the value chain.

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  • Roth, K., and A. Morrison. “An Empirical Analysis of the Integration-Responsiveness Framework in Global Industries.” Journal of International Business Studies 22.4 (1990): 541–561.

    DOI: 10.1057/palgrave.jibs.8490341Save Citation »Export Citation » Share Citation »

    The study tested the I-R framework with businesses competing in global industries. It identified contextual conditions associated with different sets mapped to the I-R grid, as well as competitive attributes distinguishing each group. Several broad extensions to the integration-responsiveness framework were suggested.

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Conceptual Developments Based on the I-R and Transnational Frameworks

The I-R framework and the notion of the transnational have inspired new conceptual developments as well. Hedlund 1986 proposed the term “heterarchy” as the multinational of the future. This model saw the MNC as “actively seeking advantages originating in the global spread of the firm” (Hedlund 1986, p. 20) and depicted a number of key features such as centers with different attributes, loose coupling between units, and normative control systems. Although conceptually similar to the transnational, the emphasis in the heterarchy is on exploring internal firm-specific advantages, especially the emergent advantages of being a multinational, in that the heterarchy is intellectually closer to earlier IB work (e.g., Hymer 1960, cited under Summary and Review Pieces; Kogut 1983). Along the same lines, many scholars further focused on exploring the advantages of management of multinational networks of operations (Dunning 1981, Kogut 1983, Kogut 1984, Kogut 1993). The “combinative capacity” (Kogut and Zander 1992) of such networks enhances an MNC’s ability to generate additional strategic advantages by combining distributed knowledge, resources, and capabilities. Nohria and Ghoshal 1997 discusses the value creation potential of the differentiated network model. As a further extension, and with a particular focus on learning and innovation in MNCs, Doz, et al. 2001 introduces the metanational model. The modern models of MNCs such as transnational, heterarchy, and metanational have had several important implications for the research agenda in the area of organization design. There are several interrelated topics that have emerged based on these broad conceptualizations. First is the important and sometimes strategic role that subsidiaries play in such organizations in addition to the roles of central and regional headquarters. Second is an evolving understanding of control and coordination in MNCs, encompassing not only the more formal and structural approaches but also more informal and organic solutions based on social networks and social capital. Central to these trends is the research on headquarters-subsidiary relationships. Third is the critical role of knowledge, its distributed nature among the many subunits and locations of the MNC, and its strategic importance for the global competitiveness of these companies. Fourth is the idea of internal and external networks in which the company is embedded and the processes that occur in those networks. Although conceptually these topics are rather intertwined, for the purposes of clarity and structure they are organized in separate sections here.

  • Doz, Y., J. Santos, and P. Williamson. From Global to Metanational: How Companies Win in the Knowledge Economy. Boston: Harvard Business School Press, 2001.

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    The “metanational” model is conceptualized as consisting of three planes—sensing, mobilizing, and operationalizing. Sensing and operationalizing are organized around sites (or locations) and their associated teams of people and capabilities rather than around national subsidiaries. Mobilizing (mediating plane) is made of certain objects, deemed “magnets.” A set of organizational features required to create metanational advantage are identified.

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  • Dunning, J. H. International Production and the Multinational Enterprise. London: Allen and Unwin, 1981.

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    Presents a collection of papers by John Dunning and several co-authors originally published between 1973 and 1981. The book reviews developments in the theory of the multinational enterprise and focuses on the interaction between the firm and government policies.

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  • Hedlund, G. “The Hypermodern MNC: A Heterarchy?” Human Resource Management 25.1 (1986): 9–35.

    DOI: 10.1002/hrm.3930250103Save Citation »Export Citation » Share Citation »

    Discusses the concept of heterarchy in relation to the multinational corporation, which refers to a networked global organizational model where competitive advantage can be exploited from any part of the global organization (not just from the home market).

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  • Kogut, B. “Foreign Direct Investment as a Sequential Process.” In The Multinational Corporation in the 1980s. Edited by C. Kindleberger and D. Audretsch, 38–56. Cambridge, MA: MIT Press, 1983.

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    This seminal piece conceptualizes FDI as largely sequential flows stemming from the advantages of flexibility of a multinational system.

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  • Kogut, B. “Normative Observations on the International Value-Added Chain and Strategic Groups.” Journal of International Business Studies 15.2 (1984): 151–167.

    DOI: 10.1057/palgrave.jibs.8490488Save Citation »Export Citation » Share Citation »

    Suggests that strategy formulation can be fruitfully seen as placing bets on certain markets and on certain links of the value-added chain. Companies can compete in different strategic groups across countries and can benefit from developing strategic flexibility to benefit from uncertainty.

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  • Kogut, B. “Learning, or the Importance of Being Inert: Country Imprinting and International Competition.” In Organizational Theory and the Multinational Corporation. Edited by S. Ghoshal and D. E. Westney, 136–154. New York: St. Martin’s, 1993.

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    Explores the idea that a multinational corporation’s founding country and related systems influence its operations around the world.

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  • Kogut, B., and U. Zander. “Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology.” Organization Science 3.3 (1992): 383–397.

    DOI: 10.1287/orsc.3.3.383Save Citation »Export Citation » Share Citation »

    The authors argue that firms learn new skills by recombining their current capabilities. They apply this idea to the firm’s make/buy decision and suggest that firm boundaries are defined by how good a firm is currently at doing something, by how good it is at learning specific capabilities, and by the value of these capabilities as platforms into new markets.

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  • Nohria, N., and S. Ghoshal. The Differentiated Network: Organizing Multinational Corporations for Value Creation. San Francisco: Jossey-Bass, 1997.

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    This text is mostly a synthesis of previous work conducted by the authors. The central idea is that the modern multinational enterprise needs to be organized as a differentiated network to exploit the full value-creation potential of its global capabilities. The authors relate this concept to organization theory and test it empirically.

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Differentiated Roles in Multinational Companies

Consistent with the view of the MNC as a complex coordinated federation or network of semi-autonomous units, scholars have taken a multilevel perspective in examining the roles of different parts of the MNC, primarily focusing on three levels—central headquarters, subsidiaries, and regional headquarters. The attention has evolved over time, with the initial focus being on the role of central headquarters, the majority of the work done in the early 21st century on the role of the subsidiary, and only recently shifting to the level of the region. The following three references represent the earlier work on central headquarters. Chandler 1991 highlights two basic functions of corporate headquarters of multibusiness firms—entrepreneurial (value-creation) and administrative (loss prevention)—and suggests that both are critical for firm performance and success. He also discusses industry variation in these roles. Along similar lines, Foss 1997 proposes a broader range of functions for central headquarters. In addition to simply monitoring and providing incentives, headquarters can facilitate exploiting economies of scope and other synergies and in building up internal capital markets. In Foss’s words, headquarters may “create the positive” rather than merely “avoid the negative.” Collis, et al. 2007 provides an empirical test of the determinants of the size and structure of headquarters based on an international sample of MNCs. Results confirm the importance of firm strategy, company size, and governance system including ownership and regulation, and country of origin. Interestingly, the study shows that small, “lean and mean” headquarters are not always best, as they need to fit the aforementioned factors. Following this early work, and commensurate with the transnational focus, most of the attention in the early 21st century has been on subsidiaries and their special role, what leads to different roles, and what their organizational implications are. Birkinshaw and Hood 1998, on subsidiary roles, provides a nice overview on the topic. A more detailed summary of this vast research is provided below, organized into two subsections focusing respectively on typology of subsidiary roles and their determinants and the implications of subsidiary roles in MNCs. In addition, a separate subsection is added that reflects an emerging and growing area of research on the regional solution, i.e., a focus on regional headquarters as a way of organizing and coordinating modern MNCs.

  • Birkinshaw, J., and N. Hood, eds. Multinational Corporate Evolution and Subsidiary Development. London: Macmillan, 1998.

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    Discusses the subsidiary development process, which refers to multinational enterprises’ subsidiaries development of their resources and capabilities. It shows the importance of this process to the overall evolution of the corporation, and illustrates the trend toward greater international dispersion of value-added activities.

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  • Chandler, A. “The Functions of the Headquarters Unit in the Multibusiness Firm.” Strategic Management Journal 12.1 (1991): 31–50.

    DOI: 10.1002/smj.4250121004Save Citation »Export Citation » Share Citation »

    Discusses two basic functions of an MNC’s headquarters, namely the entrepreneurial function and the administrative function. It discusses the role of industry influences in shaping the firm’s development and implementation of these functions. Finally, it discusses the importance of these functions for the firm’s ability to sustain its growth and success.

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  • Collis, D., D. Young, and M. Goold. “The Size, Structure, and Performance of Corporate Headquarters.” Strategic Management Journal 28.4 (2007): 383–405.

    DOI: 10.1002/smj.595Save Citation »Export Citation » Share Citation »

    Relies on a cross-country survey effort to examine the unique functions of corporate headquarters in diversified firms. It finds that structure and staffing procedures are contingent on size of the company, corporate strategy, and governance system.

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  • Foss, N. “On the Rationales of Corporate Headquarters.” Industrial and Corporate Change 6.2 (1997): 313–338.

    DOI: 10.1093/icc/6.2.313Save Citation »Export Citation » Share Citation »

    Draws on the capabilities view of the firm to investigate the rationales of corporate headquarters. It suggests that an important part of these rationales lies in the firm’s ability to use, blend, and direct the initial knowledge endowments of input owners and to exploit the flexibility of incomplete contracts.

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Typology of Subsidiary Roles

The first typology proposed by Bartlett and Ghoshal 1986 is based on two dimensions—importance of a particular market and strategic capabilities of a subsidiary. Accordingly, the four types are: “strategic leaders,” “contributors,” “local implementers,” and “black holes.” Some other widely used categorizations include “world mandate,” “specialized contributor,” and “local implementer” (as discussed in Birkinshaw and Morrison 1995); and “sensors” (scanning local environments), “magnets” (i.e., centers of excellence), and “producers” (efficiency and scale oriented producing units), as discussed in Doz, et al. 2001. Roth and Morrison 1992 studies subsidiaries with global mandates. Morrison and Roth 1992 identifies four types of business unit strategies: “domestic product niche,” “exporting high quality offerings,” “international product innovation,” and “quasi-global combination.” These typologies have been said to be important, as they inform resource allocation decisions, control approaches, knowledge flows, and innovation activities. Several scholars have tried to explain what leads to different subsidiaries having different roles. For example, Jarillo and Martinez 1990 studies the influence of country environments and social context on subsidiary roles. A stream of research by Birkinshaw and colleagues has taken this work further. Some topics discussed include the co-evolution of subsidiaries’ capabilities and charters (Birkinshaw and Hood 1998), internal competition between business units or project teams within MNCs (Birkinshaw 2001), and others.

  • Bartlett, C., and S. Ghoshal. “Tap Your Subsidiaries for Global Reach.” Harvard Business Review 64.6 (November–December 1986): 87–94.

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    Illustrates the importance of local subsidiaries for the overall multinational enterprise’s ability to develop new products and strategies that will sustain its global competitive advantage.

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  • Birkinshaw, J. “Strategies for Managing Internal Competition.” California Management Review 44.1 (2001): 21–38.

    DOI: 10.2307/41166109Save Citation »Export Citation » Share Citation »

    Based on extensive field research, this article develops a strategic framework to manage international competition, defined as the parallel or overlapping activities inside the boundaries of the firm. Its central point is that business units or project teams within the MNC compete for the rights to a particular technology or product charter and not just for access to financial resources.

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  • Birkinshaw, J., and N. Hood. “Multinational Subsidiary Evolution: Capability and Charter Change in Foreign-Owned Subsidiary Companies.” Academy of Management Review 23.4 (1998): 773–795.

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    Develops a model of subsidiary evolution to explain the processes that drive changes in a subsidiary’s activities and underlying capabilities. Drawing on the resource-based view of the firm, it defines subsidiary evolution in terms of capability and charter change and theorizes about five generic evolution processes.

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  • Birkinshaw, J., and A. Morrison. “Configuration of Strategy and Structure in Subsidiaries of Multinational Corporations.” Journal of International Business Studies 26.4 (1995): 729–753.

    DOI: 10.1057/palgrave.jibs.8490818Save Citation »Export Citation » Share Citation »

    The authors induce a three-fold typology of subsidiary roles (world mandate, specialized contributor, local implementer) from the literature and test its empirical validity.

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  • Doz, Y., J. Santos, and P. Williamson. From Global to Metanational: How Companies Win in the Knowledge Economy. Boston: HBS, 2001.

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    Introduces the metanational company concept, which refers to a firm defined by three core capabilities: being the first to identify and capture new knowledge emerging all over the world; leveraging this globally dispersed knowledge to out-innovate competitors; and turning this innovation into value. The authors outline the steps managers can take to build their companies’ metanational advantage.

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  • Jarillo, J.-C., and J. Martinez. “Different Roles for Subsidiaries: The Case of Multinational Corporations in Spain.” Strategic Management Journal 11.7 (1990): 501–512.

    DOI: 10.1002/smj.4250110702Save Citation »Export Citation » Share Citation »

    Presents a novel framework of the different roles of multinational enterprises’ subsidiaries and apply it to a sample of Spanish firms.

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  • Morrison, A., and K. Roth. “A Taxonomy of Business Level Strategies.” Strategic Management Journal 13.6 (1992): 399–417.

    DOI: 10.1002/smj.4250130602Save Citation »Export Citation » Share Citation »

    Presents a taxonomy of business-level strategies in global industries. Drawing on rich empirical data, the authors identify four broad strategies: domestic product niche, exporting high-quality offerings, international product innovation, and quasi-global combination.

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  • Roth, K., and A. Morrison. “Implementing Global Strategy: Characteristics of Global Subsidiary Mandates.” Journal of International Business Studies 23.4 (1992): 715–735.

    DOI: 10.1057/palgrave.jibs.8490285Save Citation »Export Citation » Share Citation »

    Identifies subsidiary characteristics that are associated with receiving a global mandate to manage specific products or product lines. It shows that global mandates require subsidiaries endowed with strategic flexibility.

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Implications of Subsidiary Roles

Consistent with the overarching network view, out of which the subsidiary focus in research emerged, subsidiary roles have been linked to innovation and knowledge activities in firms. Birkinshaw 1997 examines entrepreneurial initiatives at the subsidiary level and introduces four distinct types—global, local, internal, and global-internal hybrid. He shows that entrepreneurship at the subsidiary level has the potential to enhance local responsiveness, worldwide learning, and global integration: this is a much broader role than previously envisioned. Andersson, et al. 2007 discusses the tension between subsidiaries and headquarters: specifically that, on the one hand, external embeddedness of subsidiaries in their local contexts provides access to a variety of competencies, but on the other hand, it may reduce the subsidiaries’ interest in contributing to the overall performance of the MNC. Also finds that such tension could be alleviated by headquarters’ knowledge of the business environment. Cantwell and Mudambi 2005 shows that research and development (R&D) behavior and the extent of investment in R&D differs depending on the subsidiary’s mandate; those with competence-creating output mandates have higher R&D intensity. A slightly different picture is presented in Mudambi and Navarra 2004, which studies the power implications of knowledge for subsidiaries in MNCs. They find that subsidiaries occupying powerful positions based on their knowledge roles (in particular with regard to local market knowledge) can abuse such positions for their own interests. Kappen 2011 examines subsidiary technological evolution in the context of an addition of an acquired unit in the same location. Ciabuschi, et al. 2011 applies a business network perspective to investigate the effects of internal embeddedness and headquarters’ involvement on subsidiaries’ innovation-related competencies, and on the perceived importance of innovation in multinational enterprises.

  • Andersson, U., M. Forsgren, and U. Holm. “Balancing Subsidiary Influence in the Federative MNC: A Business Network View.” Journal of International Business Studies 38.5 (2007): 802–818.

    DOI: 10.1057/palgrave.jibs.8400292Save Citation »Export Citation » Share Citation »

    Empirically conceptualizes the MNC as a federation, in which headquarters and subsidiaries are involved in perpetual bargaining. Findings suggest that the strength and influence of a subsidiary’s local business network are determined by the extent to which it provides technology within the MNC, and that headquarters’ in-depth knowledge of subsidiaries’ business networks helps balance the influence of strong subsidiaries.

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  • Birkinshaw, J. “Entrepreneurship in Multinational Corporations: The Characteristics of Subsidiary Initiatives.” Strategic Management Journal 18.3 (1997): 207–229.

    DOI: 10.1002/(SICI)1097-0266(199703)18:3%3C207::AID-SMJ864%3E3.0.CO;2-QSave Citation »Export Citation » Share Citation »

    Examines entrepreneurship at the subsidiary level and shows its importance for the corporation’s overall degree of local responsiveness, worldwide learning, and global integration. It also illustrates the importance of acknowledging subsidiaries’ internal differentiation in order to effectively stimulate their entrepreneurial initiatives.

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  • Cantwell, J., and R. Mudambi. “MNE Competence-Creating Subsidiary Mandates.” Strategic Management Journal 26.12 (2005): 1109–1128.

    DOI: 10.1002/smj.497Save Citation »Export Citation » Share Citation »

    Explores the differing drivers of R&D intensity among an MNC’s subsidiaries. It shows that the R&D investments of subsidiaries with competence-creating mandates differ from those of firms without such mandates.

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  • Ciabuschi, F., H. Dellestrand, and O. Martin. “Internal Embeddedness, Headquarters Involvement, and Innovation Importance in Multinational Enterprises.” Journal of Management Studies 48.7 (2011): 1612–1639.

    DOI: 10.1111/j.1467-6486.2011.01014.xSave Citation »Export Citation » Share Citation »

    Draws on the business network perspective. The empirical tests illustrate that headquarters involvement in the innovation development process improves subsidiary competencies while internal embeddedness does not. Headquarters involvement, driven by subsidiary internal embeddedness, enhances the innovation impact on the subsidiary, which in turn influences innovation importance at corporate level.

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  • Kappen, P. “Competence-Creating Overlaps and Subsidiary Technological Evolution in the Multinational Corporation.” Research Policy 40.5 (2011): 673–686.

    DOI: 10.1016/j.respol.2011.02.002Save Citation »Export Citation » Share Citation »

    Examines the overlapping competence-creating activities within the boundaries of the MNC by exploring how so-called greenfield subsidiaries’ technological evolution is affected by role overlaps in their local markets. It finds that competence creating overlaps influence first-comer greenfield subsidiaries significantly.

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  • Mudambi, R., and P. Navarra. “Is Knowledge Power? Knowledge Flows, Subsidiary Power, and Rent-Seeking within MNCs.” Journal of International Business Studies 35.5 (2004): 385–406.

    DOI: 10.1057/palgrave.jibs.8400093Save Citation »Export Citation » Share Citation »

    Examines the link between subsidiary independence, knowledge, and the relationships with headquarters. It finds that intra-MNC knowledge flows are a key determinant of subsidiary bargaining power and that subsidiary managers can exploit such power to pursue their own interests. While subsidiaries’ strategic independence enhances their access to local resources, market knowledge, and learning, it also allows subsidiary self-interested rent seeking.

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Regional Headquarters

In addition to examining the subsidiary level, MNC scholars have recently focused their attention to yet another intra-organizational level—that of regional structures manifested in the establishment and operation of regional headquarters. This work builds on current research in MNC organization and is also motivated by the regional focus in international business research such as seen in Rugman 2005, which has provided a strong intellectual foundation. Ambos and Schlegelmilch 2010 also exemplifies this stream. The authors suggest that due to the significant interregional differences in MNCs environments, strategies and structures tend to be developed at the regional level. Instead of discussing strategy and structure at the extremes—either globally centralized and standardized, or localized and decentralized at the country/subsidiary level, the authors suggest exploring the midrange: i.e., the regions. Complex regional strategies, structures, and coordination and control processes better reflect the complex MNC organizations. Rugman and Verbeke 2005 directs attention to the fact that due to transaction costs and capabilities, most MNCs have regional rather than global strategies, which necessitates fresh theoretical attention in the field. Similarly Rugman and Verbeke 2008 provides evidence for a much stronger regional than transnational or global focus of MNC strategies and structures. Lasserre 1996 provides a very detailed discussion of various functions of regional HQs including business development, strategic stimulation, signaling commitment, coordination, and pooling resources. Similarly, Enright 2005 identifies empirically four types of MNC regional management centers depending on firm and location-specific attributes: coordination and support, full functional, peripheral, and marketing and service centers. In addition, Piekkari, et al. 2010 proposes a conceptualization of regional management as a system of differentiated centers and shows that the role of such centers evolves over time based on information processing requirements.

  • Ambos, B., and B. Schlegelmilch. The New Role of Regional Management. New York: Palgrave Macmillan, 2010.

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    Illustrates the importance of the regional level of analysis for MNCs and describes regional strategies and structures, particularly the establishment and functioning of regional headquarters.

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  • Enright, M. “Regional Management Centers in the Asia Pacific.” Management International Review 45.1 (2005): 59–82.

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    Based on a survey of MNC managers in Asia-Pacific, this paper identifies four types of MNC regional management centers depending on firm and location-specific attributes, namely coordination and support centers, full functional centers, peripheral centers, and marketing and service centers.

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  • Lasserre, P. “Regional Headquarters: The Spearhead for Asia Pacific Markets.” Long Range Planning 29.1 (1996): 30–37.

    DOI: 10.1016/0024-6301(95)00063-1Save Citation »Export Citation » Share Citation »

    Suggests that regional units have a number of functions, including business development, strategic stimulation, signaling commitment, coordination, and pooling resources. Based on data from Asia Pacific, he proposes a lifecycle model on regional headquarters role evolution (entry-development-consolidation-administration).

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  • Piekkari, R., P. Nell, and P. Ghauri. “Regional Management as a System: A Longitudinal Case Study.” Management International Review 50 (2010): 513–532.

    DOI: 10.1007/s11575-010-0044-1Save Citation »Export Citation » Share Citation »

    Presents a longitudinal case study using information-processing theory to investigate the evolution of regional management. The authors conceptualize regional management as a system of differentiated centers. They challenge the notion that headquarters are located in a single location and propose the view that headquarters’ activities are spatially distributed within a system, which adapts over time to changing information processing requirements.

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  • Rugman, A. The Regional Multinationals: MNEs and Global Strategic Management. Cambridge, UK: Cambridge University Press, 2005.

    DOI: 10.1017/CBO9780511614071Save Citation »Export Citation » Share Citation »

    The author argues that few MNEs are truly global and that most firms operate on a regional level instead. Firms are classified as home-region oriented, bi-regional, host regional, or global, depending on the distribution of their sales. Several conceptual frameworks are presented and additional analysis takes place in the form of industry studies and case studies of prominent MNEs.

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  • Rugman, A., and A. Verbeke. “Towards a Theory of Regional Multinationals.” Management International Review 45.1 (2005): 51–57.

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    Empirical data show that disproportionate international activity of MNCs occurs at the regional, not global, level. The authors use transaction cost economics to explain this phenomenon and argue that a new theory of international management is needed to explain this important finding.

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  • Rugman, A., and A. Verbeke. “A Regional Solution to the Strategy and Structure of Multinationals.” European Management Journal 26.5 (2008): 305–313.

    DOI: 10.1016/j.emj.2008.04.004Save Citation »Export Citation » Share Citation »

    Based on data of the world’s largest five hundred multinationals, the authors provide evidence for a much stronger regional than transnational or global focus of MNC strategies and structures. They suggest that the “transnational” solution has very limited applicability.

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Headquarters-Subsidiary Relationships and Control

A core function of organization design is the control and coordination of the subunits necessary for the effective execution of the organization’s strategy. While control is difficult in any company, the MNC case highlights extreme challenges in securing control of foreign subsidiaries due to various reasons such as geographic dispersion, cultural and language barriers, different interests, strategies, competences, and mandates of the subsidiaries, power struggles, and others. The question of effective control and coordination, its determinants, and consequences has thus occupied a central role in MNC organizational research. Issues of control and coordination have been linked to the models of MNCs (e.g., transnational), MNC structures, context, knowledge flows, and others. The articles listed below illustrate the main topics and findings in this area of research. They are grouped in two subsections: one on the nature of control and different approaches to control in MNCs, and another on organizational outcomes linked to control strategies.

Control Strategies in Multinational Companies

Scholars have acknowledged the use of diverse approaches to controlling foreign operations in MNCs. Many different terms, typologies, and classifications have been proposed based on a number of dimensions, and some would argue that this diversity of terminology is somewhat confusing. The foundational work has been focused on control of employees in organizations but has been applied to the level of the subsidiary in subsequent research. Perhaps the most notable early work in this area has been Eisenhardt 1985 and Ouchi 1979 who specified different types of control strategies and activities depending on what is controlled (outcome, process, culture), and how (directly or indirectly, and through formal structures and mechanisms or informally through people and social context). In the MNC context, Doz and Prahalad 1984 identifies some of the challenges associated with the relationship between headquarters and subsidiaries, and it suggests a number of tools to support such coordination. Relatedly, Schotter and Beamish 2011 examines the role of boundary spanners in headquarters-subsidiary conflict. Summarizing previous work, Harzing 1999 suggests three basic types of control. Outcome/output control specifies desired outcome of employee/subsidiary behavior and uses hard data, reporting and performance evaluation, and incentives to ensure such outcomes. Process/behavior control specifies the processes by which employees should achieve the desired outcomes and monitors the process itself, i.e., the activities in which employees engage. “Clan” control (a term coined by Ouchi 1979) relies on sharedness of values, beliefs, and understandings and is achieved through socialization and normative integration mechanisms such as meetings, groups, and other social activities. MNC management scholars have built on these classifications to apply such ideas to the MNC context, although sometimes they have used different terms. Bartlett and Ghoshal 1989 (cited under Original I-R Model) discusses the need for multiple informal systems and mechanisms such as lateral decision making, normative integration, and others. Although not specifically focused on MNCs, the recent book Sitkin, et al. 2010 provides an excellent contemporary review of the work on control in organizations.

  • Doz, Y., and C. K. Prahalad. “Patterns of Strategic Control within Multinational Corporations.” Journal of International Business Studies 15.2 (1984): 55–72.

    DOI: 10.1057/palgrave.jibs.8490482Save Citation »Export Citation » Share Citation »

    Examines how various MNCs have approached the issue of headquarters control over subsidiary activity and the systems and procedures used to this end.

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  • Eisenhardt, K. M. “Control: Organizational and Economic Approaches.” Management Science 31.2 (1985): 134–149.

    DOI: 10.1287/mnsc.31.2.134Save Citation »Export Citation » Share Citation »

    Integrates organization and economics theory to explain the importance of control variables (e.g., reward structures, task characteristics, and information systems) for organizational design. It presents and tests a model linking task characteristics, information systems, and business uncertainty to behavior-versus outcome-based control strategy.

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  • Harzing, A.-W. Managing the Multinationals: An International Study of Control Mechanisms. Cheltenham, UK: Edward Elgar, 1999.

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    Presents an in-depth analysis of the control mechanisms used by multinationals. It examines, among other issues, the structure and strategy of multinationals; the role of expatriates in controlling subsidiaries; the international transfer of managers; and human resource management.

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  • Ouchi, W. G. “A Conceptual Framework for the Design of Organizational Control Mechanisms.” Management Science 25.9 (1979): 833–849.

    DOI: 10.1287/mnsc.25.9.833Save Citation »Export Citation » Share Citation »

    Describes three mechanisms companies can use to cope with the issues of evaluation and control: markets, bureaucracies, and clans. Markets deal with control through their ability to precisely measure and reward individual contributions; bureaucracies rely upon close evaluation and norms; and clans rely upon a relatively complete socialization process that eliminates goal incongruence between individuals.

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  • Schotter, A., and P. Beamish. “Performance Effects of MNC Headquarters-Subsidiary Conflict and the Role of Boundary Spanners: The Case of Headquarter Initiative Rejection.” Journal of International Management 17.3 (2011): 243–259.

    DOI: 10.1016/j.intman.2011.05.006Save Citation »Export Citation » Share Citation »

    Discusses the issue of headquarters-subsidiary conflict. An important finding is that boundary spanners reduce the likelihood of dysfunctional conflict and positively impact organizational performance for both the subsidiary and the MNC as a whole. Further, boundary-spanning ability varies across organizations, and it is only partly formalizable.

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  • Sitkin, S. B., L. B. Cardinal, and K. Bijlsma-Frankema. Organizational Control. Cambridge, UK: Cambridge University Press, 2010.

    DOI: 10.1017/CBO9780511777899Save Citation »Export Citation » Share Citation »

    This edited volume summarizes diverse yet complementary streams of control research and provides important directions for future research.

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Determinants of Control

Another stream of research has tried to explain the contingent nature of control and why control varies across subsidiaries. Scholars have identified a number of factors that influence the type and degree of control that MNCs will exert. Ghoshal and Nohria 1989 focuses on the subsidiary’s context. The authors classify different conditions in subsidiaries’ contexts into four generic situations and suggest that each combination of conditions leads to a different combination of structural elements such as centralization of authority, formalization of rules and systems, and normative integration of members. They refer to these as hierarchical, federative, clan, and integrative. Gupta and Govindarajan 1991 shows that subsidiary control depends on the participation of the subsidiary in organizational knowledge flows. Hill, et al. 1992 links the need for more competitive versus more cooperative organizational solutions (i.e., type of control) to firm diversification strategy (unrelated versus related). Mudambi 2011 presents an even more macro explanation of the level of control of subsidiaries (in the context of subsidiary roles) in light of the rising importance of emerging markets and MNC subunits from emerging markets, suggesting that MNCs need to move from headquarters-dominated hierarchy to multimodal solutions. In addition, research has looked into the dynamics of control over time. Control also depends on organizational complexity. As complexity increases, much like the case of the MNC, formal control mechanisms are not sufficient and need to be supplemented by informal mechanisms (e.g., Martinez and Jarillo 1989). Edstrom and Galbraith 1977 shows the importance of the social dimension of control exemplified by transfer of managers within MNCs. The critical role of informal and social mechanisms is also illustrated in O’Donnell 2000. Similarly, Roth and Nigh 1992 shows the benefits of personal integrating mechanisms on the effectiveness of headquarters-subsidiary relationships. Research also emphasizes that both formal and informal (or structural and social) mechanisms are necessary for achieving best outcomes (Nohria and Ghoshal 1994).

  • Edstrom, A., and J. Galbraith. “Transfer of Managers as a Coordination and Control Strategy in Multinational Organizations.” Administrative Science Quarterly 22.2 (1977): 248–263.

    DOI: 10.2307/2391959Save Citation »Export Citation » Share Citation »

    Argues that some multinational organizations rely on the transfer of managers to develop a process of control based on socialization. This type of transfer differs from the transfer of personnel to fill positions and is hypothesized to socialize managers and create international, verbal information networks. These combined elements permit greater decentralization than the impersonal bureaucratic strategy.

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  • Ghoshal, S., and N. Nohria. “Internal Differentiation within Multinational Corporations.” Strategic Management Journal 10.4 (1989): 323–337.

    DOI: 10.1002/smj.4250100403Save Citation »Export Citation » Share Citation »

    This empirical article suggests that the internal structure of complex, multi-unit organizations such as the MNC is not homogeneous but systematically differentiated in order to fit the unique contingencies faced by local subsidiaries. It identifies four types of fit structures that MNC subsidiaries adopt to adequately address local conditions (i.e., hierarchical, federative, clan, and integrative).

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  • Gupta, A. K., and V. Govindarajan. “Knowledge Flows and the Structure of Control within Multinational Corporations.” Academy of Management Review 16.4 (1991): 768–792.

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    Takes a subsidiary-level approach to control in MNCs. Employing a contingency perspective, it advances propositions explaining how subsidiary control varies as a result of two dimensions—extent to which it is a user of knowledge from the rest of the corporation, and extent to which it is a provider of such knowledge to the rest of the corporation.

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  • Hill, C., M. Hitt, and R. Hoskisson. “Cooperative versus Competitive Structures in Related and Unrelated Diversified Firms.” Organization Science 3.4 (1992): 501–521.

    DOI: 10.1287/orsc.3.4.501Save Citation »Export Citation » Share Citation »

    Applies the strategy-structure contingency and examines the organizational implications of two strategies—related and unrelated diversification. Different organizational arrangements are necessary to achieve potential benefits. Unrelated diversification requires arrangements that facilitate cooperation between units, while related diversification requires governance arrangements stressing competition. Results indicate that an appropriate fit among strategy, structure, and control systems leads to superior performance.

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  • Martinez, J., and J. Jarillo. “The Evolution of Research on Coordination Mechanisms in Multinational Corporations.” Journal of International Business Studies 20.3 (1989): 489–514.

    DOI: 10.1057/palgrave.jibs.8490370Save Citation »Export Citation » Share Citation »

    Presents a nice literature review of the mechanisms of coordination used by MNCs. The authors find a shift in research attention from a unidimensional focus on structural issues to more subtle and informal mechanisms.

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  • Mudambi, R. “Hierarchy, Coordination and Innovation in the Multinational Enterprise.” Global Strategy Journal 1 (2011): 317–323.

    DOI: 10.1002/gsj.32Save Citation »Export Citation » Share Citation »

    Discusses the evolution of hierarchy and subsidiary autonomy due to changes in the global economy. In addition to shifting from hub-and-spoke to networked organizations, MNCs need to accommodate the rising role of emerging markets. Subsidiaries there are often elevated as important players in global R&D networks, centers for development of new business models, and sources of groundbreaking innovations.

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  • Nohria, N., and S. Ghoshal. “Differentiated Fit and Shared Values: Alternatives for Managing Headquarters-Subsidiary Relations.” Strategic Management Journal 15.6 (1994): 491–502.

    DOI: 10.1002/smj.4250150606Save Citation »Export Citation » Share Citation »

    Finds that overall MNC performance is positively impacted by both the extent to which an MNC differentiates the formal structure of its headquarters-subsidiary relations to fit the contexts of its subsidiaries, and the degree to which there are shared values among headquarters and subsidiaries. The two approaches are not mutually exclusive and should be applied simultaneously.

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  • O’Donnell, S. “Managing Foreign Subsidiaries: Agents of Headquarters, or an Interdependent Network?” Strategic Management Journal 21.5 (2000): 525–548.

    DOI: 10.1002/(SICI)1097-0266(200005)21:5%3C525::AID-SMJ104%3E3.0.CO;2-QSave Citation »Export Citation » Share Citation »

    Finds that the use of monitoring mechanisms and incentive compensation are insufficient for managing subsidiaries characterized by high levels of intra-firm international interdependence. Social control mechanisms are required as well.

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  • Roth, K., and D. Nigh. “The Effectiveness of Headquarters-Subsidiary Relationships: The Role of Coordination, Control, and Conflict.” Journal of Business Research 25.4 (1992): 277–301.

    DOI: 10.1016/0148-2963(92)90025-7Save Citation »Export Citation » Share Citation »

    Finds that the effectiveness of the headquarters-subsidiary relationship is related negatively to the level of conflict and positively to the coordination of primary activities and personal integrating mechanisms.

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Organization Design and Knowledge in Multinational Companies

MNC organizational characteristics have been linked to important constructs such as knowledge and innovation. On the one hand, knowledge and its characteristics have been found to impact organizational structures and even define the boundaries of the firm. On the other hand, structures and other organizational arrangements have been found to influence various knowledge-related processes such as developing knowledge capabilities and innovation, and transfer of knowledge and knowledge sharing among MNC units. This stream of work has been extended beyond the boundaries of the firm to include interorganizational relationships in the context of international alliances and joint ventures. Some research also explores knowledge issues in the context of mergers and acquisitions. The references below, although intertwined, are grouped into three subsections—knowledge transfer and sharing, social structures and social capital, and boundaries of the firm.

Knowledge Transfer and Knowledge Sharing

In light of the critical importance of knowledge transfer and sharing for MNCs, researchers have put a lot of effort into studying factors that facilitate these activities. In particular, and related to the topic of the review, is work that links organizational structures and mechanisms to important knowledge processes. Initially, the emphasis was on creating formal structures that would facilitate innovation, knowledge transfer, and diffusion. Organization design is the dependent variable in Birkinshaw, et al. 2002, a study of knowledge characteristics of R&D units as antecedents to organizational parameters such as autonomy and inter-unit integration of the unit. Szulanski 1996 is the reverse—the dependent variable is intrafirm knowledge transfer, and some factors linked to organization are the explanatory variables. Tsai 2001 introduces the network perspective to examine another aspect of organization—the network position of a unit within a firm. The study shows the importance of a unit’s network position for innovation and performance. Kostova and Roth 2002 explains adoption of organizational practices by foreign subunits of MNCs by factors including organization variables such as a unit’s dependence on the parent company. Interestingly, they find that dependence facilitates formal implementation but might lead to ceremonial adoption lacking commitment to the new practice. True adoption also requires good social relationships between the sender and receiver of the practice. Martin and Salomon 2003 explores the conditions under which tacit knowledge constrains entry mode selection. They examine how tacitness influences the transmission of knowledge-based advantages to new locations, and how firms’ abilities to transfer knowledge efficiently shape the relative suitability of various entry modes.

  • Birkinshaw, J., R. Nobel, and J. Ridderstrale. “Knowledge as a Contingency Variable: Do the Characteristics of Knowledge Predict Organization Structure?” Organization Science 13.3 (2002): 274–289.

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    Shows how the knowledge characteristics of observability and system embeddedness affect the level of unit autonomy and inter-unit integration in an international network of R&D units. It supports the contingency logic suggesting that organization design has to take into account the underlying characteristics of the firm’s knowledge base. The authors introduce four generic forms that a firm’s knowledge might take—integrated, isolated, opaque, and transparent.

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  • Kostova, T., and K. Roth. “Adoption of an Organizational Practice by the Subsidiaries of the MNC.” Academy of Management Journal 45.1 (2002): 215–233.

    DOI: 10.2307/3069293Save Citation »Export Citation » Share Citation »

    Provides an empirical examination of a sophisticated multi-level model of practice transfer. Support is found for the importance of dependence and social capital between subsidiaries and headquarters. Social capital facilitates true and full implementation while dependence may result in the so-called ceremonial adoption of the practice in the subsidiary.

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  • Martin, X., and R. Salomon. “Knowledge Transfer Capacity and Its Implications for the Theory of the Multinational Corporation.” Journal of International Business Studies 34.4 (2003): 356–373.

    DOI: 10.1057/palgrave.jibs.8400037Save Citation »Export Citation » Share Citation »

    Examines how knowledge tacitness affects the relative suitability of four archetypal entry modes: exporting, licensing, establishing an alliance, and wholly owned entry. It also discusses and develops a seldom-studied firm characteristic (knowledge transfer capacity) and distinguishes between the transfer capacity of the organization that develops knowledge (source transfer capacity) and that of the organization that seeks to access that knowledge (recipient transfer capacity).

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  • Szulanski, G. “Exploring Internal Stickiness: Impediments to the Transfer of Best Practice within the Firm.” Strategic Management Journal 17 (1996): 27–43.

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    Examines internal transfer of organizational practices and shows that the major barriers are knowledge-related factors such as the recipient’s lack of absorptive capacity, causal ambiguity, and an arduous relationship between the source and the recipient.

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  • Tsai, W. “Knowledge Transfer in Intraorganizational Networks: Effects of Network Position and Absorptive Capacity on Business Unit Innovation and Performance.” Academy of Management Journal 44.5 (2001): 996–1004.

    DOI: 10.2307/3069443Save Citation »Export Citation » Share Citation »

    Presents support for the positive effect of a unit’s position in the intra-organizational network on that unit’s innovation activity. Units that occupy central network positions have access to new knowledge developed by other units, which enhances their innovation abilities and improves their performance. The relationship is moderated by the unit’s absorptive capacity (i.e., ability to successfully replicate new knowledge).

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Social Structures and Social Capital

There has been a growing recognition in the literature that formal structures and mechanisms have limited effectiveness in large, diverse, and dispersed organizations such as MNCs, especially for tasks that require extensive collaboration across country and organizational borders. Thus, research has focused a lot of attention on informal social structures that complement the formal arrangements and are often not only more effective but even necessary and critical in the processes of knowledge transfer and diffusion. Strong research focus on social capital in MNCs has emerged, studying the quality of relationships between MNC units, based on trust, reciprocity, and mutual commitment. Results are unequivocal—study after study confirms that social structures in MNCs are beneficial and necessary for positive outcomes. Tsai and Ghoshal 1998 and Tsai 2002 provide evidence on the critical role that social networks play in collaborative knowledge-related activities. Informal relationships complement formal structures to facilitate innovation and knowledge exchange. Kostova and Roth 2002 (cited under Knowledge Transfer and Knowledge Sharing) find that trust, commitment, and identification of a foreign subunit with the parent company positively impact adoption of headquarters-originated practices in that unit. Noorderhaven and Harzing 2009 and Reiche, et al. 2009 provide further evidence of the effects of social networks and social capital on knowledge sharing and creation. Van Wijk, et al. 2008 offers a meta-analysis showing that certain types of networks facilitate knowledge transfer. Finally, the paramount importance of social capital in MNCs as an organizational mechanism has even motivated international management scholars to go a step further and make it the subject of study—theorizing on its forms, and the way it is built in MNCs. Kostova and Roth 2003 offers a model of social capital formation specifically in MNCs.

  • Kostova, T., and K. Roth. “Adoption of Organizational Practices by the Subsidiaries of the MNC.” Academy of Management Journal 45.1 (2002): 215–233.

    DOI: 10.2307/3069293Save Citation »Export Citation » Share Citation »

    Presents empirical evidence for the positive role of social capital between the headquarters (sender of the practice) and the subsidiary (receiver of the practice). Social capital is operationalized as trust, commitment, and identity of the subsidiary with the parent company.

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  • Kostova, T., and K. Roth. “Social Capital in Multinational Corporations and a Micro-Macro Model of Its Formation.” Academy of Management Review 28.2 (2003): 297–317.

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    Argues that the form and level of social capital at the subsidiary-headquarters level depends on the degree of interdependence, which in turn is determined by the particular MNC model. For example, the transnational requires high levels of public (versus private) social capital. Social capital formation is explained at two levels—individual boundary spanners and units.

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  • Noorderhaven, N., and A.-W. Harzing. “Knowledge Sharing and Social Interaction within MNEs.” Journal of International Business Studies 40 (2009): 719–741.

    DOI: 10.1057/jibs.2008.106Save Citation »Export Citation » Share Citation »

    Tests a set of hypotheses about the role of social interaction among MNC managers. It shows that social interaction affects all intra-MNE knowledge flows, confirming the expectations based on the social learning model.

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  • Reiche, B., A.-W. Harzing, and M. Kraimer. “The Role of International Assignees’ Social Capital in Creating Inter-Unit Intellectual Capital: A Cross-Level Model.” Journal of International Business Studies 40 (2009): 509–526.

    DOI: 10.1057/jibs.2008.86Save Citation »Export Citation » Share Citation »

    Conceptualizes international assignees as informational boundary spanners between multinational enterprise units and develops a cross-level model that explores how assignees’ social capital translates into inter-unit intellectual capital. As knowledge brokers, assignees enable cross-unit access to previously unconnected knowledge resources. As knowledge transmitters, assignees’ host-unit social capital facilitates their creation of individual intellectual capital, which generates inter-unit intellectual capital.

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  • Tsai, W. “Social Structure of ‘Cooperation’ within a Multiunit Organization: Coordination, Competition, and Intraorganizational Knowledge Sharing.” Organization Science 13.2 (2002): 179–190.

    DOI: 10.1287/orsc.13.2.179.536Save Citation »Export Citation » Share Citation »

    Shows that internal knowledge sharing within a multiunit organization is influenced by both formal hierarchical structure and informal lateral relations as coordination mechanisms. Formal hierarchical structure, in the form of centralization, has a significant negative effect on knowledge sharing, and informal lateral relations, in the form of social interaction, have a significant positive effect on knowledge sharing.

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  • Tsai, W., and S. Ghoshal. “Social Capital and Value Creation: The Role of Intrafirm Networks.” Academy of Management Journal 41.4 (1998): 464–476.

    DOI: 10.2307/257085Save Citation »Export Citation » Share Citation »

    Examines the effects of structural, relational, and cognitive dimensions of inter-unit social capital on the patterns of resource exchange and product innovation within the company. Social interaction (structural) and trust (relational) affect resource exchange, which in turn positively impacts product innovation.

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  • van Wijk, R., J. Jansen, and M. Lyles. “Inter- and Intra-organizational Knowledge Transfer: A Meta-analytic Review and Assessment of Its Antecedents and Consequences.” Journal of Management Studies 45.4 (2008): 830–853.

    DOI: 10.1111/j.1467-6486.2008.00771.xSave Citation »Export Citation » Share Citation »

    Relies on a meta-analytic technique to examine how knowledge, organization, and network-level antecedents differentially impact organizational knowledge transfer. Consistent with prior research, it shows that relational and cognitive capital are crucial network-level determinants for transferring knowledge, as they create closure.

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Boundaries of the Firm

A stream of research has advanced the idea that knowledge is the essence that explains the existence of the firm. As an alternative to the transaction cost economics explanation of why firms exist and what determines their boundaries (Williamson 1975), management scholars have advanced the so-called knowledge-based view (e.g., Kogut and Zander 1992, Zander and Kogut 1995, Kogut and Zander 1996). Although not explicitly developed for MNCs, these ideas were motivated by the MNC case, which highlights the organizational importance of the knowledge of the firm. Conner and Prahalad 1996 similarly shows that the knowledge perspective provides differential explanation of the boundaries of the firm, above and beyond transaction cost economics. Schilling and Steensma 2002 integrates multiple perspectives to explain the choice of governance mode—licensing agreement versus outright acquisition of the firm that possesses the desired know-how—and finds support for the importance of technology and knowledge.

  • Conner, K., and C. K. Prahalad. “A Resource-Based Theory of the Firm: Knowledge versus Opportunism.” Organization Science 7.5 (1996): 477–501.

    DOI: 10.1287/orsc.7.5.477Save Citation »Export Citation » Share Citation »

    Develops a resource-based/knowledge-based theory of the firm. It compares the transaction cost with the resource-based views in predicting organizational modes (organization versus market contracting) and examines which mode will lead to more valuable knowledge applied to business activities. While it shows that knowledge-based considerations can outweigh opportunism-based considerations, the two views are presented as complementary.

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  • Kogut, B., and U. Zander. “Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology.” Organization Science 3.3 (1992): 383–397.

    DOI: 10.1287/orsc.3.3.383Save Citation »Export Citation » Share Citation »

    As an alternative to transaction cost economics, the authors argue that firms exist because they are better than markets at sharing and transferring knowledge. Knowledge is embedded in the organizing principles by which people cooperate within organizations. Firms learn by recombining existing capabilities, and this, in turn, affects firm growth. Thus, firm boundaries are explained by knowledge stocks and processes instead of opportunism-based transaction costs.

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  • Kogut, B., and U. Zander. “What Firms Do? Coordination, Identity, and Learning.” Organization Science 7.5 (1996): 502–518.

    DOI: 10.1287/orsc.7.5.502Save Citation »Export Citation » Share Citation »

    Firm boundaries are based on identity—firms are superior to markets in satisfying social and identity needs. A firm’s knowledge has economic value over market transactions when identity leads to social knowledge that supports coordination and communication. Firms are distinct from markets “because coordination, communication, and learning are situated not only physically in locality, but also mentally in an identity” (p. 502).

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  • Schilling, M., and H. Steensma. “Disentangling the Theories of Firm Boundaries: A Path Model and Empirical Test.” Organization Science 13.4 (2002): 387–401.

    DOI: 10.1287/orsc.13.4.387.2950Save Citation »Export Citation » Share Citation »

    Contributes to research on firm boundaries. It integrates multiple perspectives (transaction cost economics, resource-based view, options theory), to explain the choice of governance mode (use of licensing agreement versus outright acquisition of the firm that possesses the desired know-how) based on the technology characteristics, which impact the perceived threat of opportunism and the potential for sustainable advantage.

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  • Williamson, O. Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press, 1975.

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    Presents an in-depth discussion of organizations and markets as two alternative modes of organizing transactions and conducting exchanges among business entities. It proposes that markets are efficient as long as the necessary information that both parties need is available and transparent. When this is not so and exchange parties need to rely on trust, “hierarchy” is preferred.

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  • Zander, U., and B. Kogut. “Knowledge and the Speed of the Transfer and Imitation of Organizational Capabilities: An Empirical Test.” Organization Science 6.1 (1995): 76–92.

    DOI: 10.1287/orsc.6.1.76Save Citation »Export Citation » Share Citation »

    Presents a very sophisticated explanation of the links between the knowledge of the firm and its organizing principles with an emphasis on the social aspect of the organization. Firms’ capabilities lie primarily in the way individual and functional expertise is structured, coordinated, and communicated. An evolutionary theory of the firm is proposed based on the ideas of transfer and recombination of organizational capabilities.

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Interorganizational Relationships

Consistent with the view of the modern MNC as strategically positioned in external networks, and also reflecting the practice of global business of increasing but often unsuccessful use of collaborative arrangements between firms, a lot of research has focused on the study of interorganizational networks, including international alliances and joint ventures. Much of this research revolves around the concepts of knowledge and learning, as these are viewed as one of the main motives for forming cross-border alliances and joint ventures. Mirroring the intra-organizational research, support has been found for the importance of both formal structures and informal factors such as social capital for interfirm collaboration and integration. For presentation purposes, the work in this area could be divided into two streams: one emphasizing knowledge and learning and their impact on the longevity of the collaboration, and another one focusing on integration as a key factor of success.

Knowledge in Interfirm Organizational Arrangements

The primary research objectives in this work have been to explain the motivation for forming such cross-border collaborative organizational arrangements and to study success factors and survival. Hamel 1991 emphasizes learning between partners as the main motive and showed the limitations of formal structures in securing effective learning. Inkpen and colleagues have made a notable contribution with a series of studies. Inkpen and Dinur 1998 explains the knowledge motive for forming international joint ventures (JVs). Inkpen and Beamish 1997 shows that knowledge and learning can be not only a motivator for forming an international JV, but also a reason for its instability, as partners acquire the knowledge they need from the other party and loose interest in maintaining the partnership. Inkpen and Tsang 2005 provides a broader explanation of social capital impact on knowledge sharing at different levels of collaboration—within corporations, between alliance partners, and between industrial districts. The emphasis is on the benefits of social relations. Tallman and Chacar 2011 goes deeper in explaining various knowledge processes within an alliance framework both externally and internally and also at the level of the subunit and the whole MNC.

  • Hamel, G. “Competition for Competence and Interpartner Learning within International Strategic Alliances.” Strategic Management Journal 12.S1 (Summer 1991): 83–103.

    DOI: 10.1002/smj.4250120908Save Citation »Export Citation » Share Citation »

    Based on the idea that a main benefit of international alliances is the learning that occurs between the partners. It finds that interpartner learning is influenced much more by organizational processes than organizational structure. There is also support for the importance of knowledge asymmetry and learning for the relative bargaining power of the partners and the longevity of the alliance.

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  • Inkpen, A. C., and P. Beamish. “Knowledge, Bargaining Power, and the Instability of International Joint Ventures.” Academy of Management Review 22.1 (1997): 177–202.

    DOI: 10.5465/AMR.1997.9707180263Save Citation »Export Citation » Share Citation »

    A model explains international JV instability based on the shifts in partner bargaining power and dependence. This occurs when foreign partners acquire sufficient local knowledge and skills so that they can eliminate a partner dependency and make the international joint venture bargain obsolete.

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  • Inkpen, A. C., and A. Dinur. “Knowledge Management Processes and International Joint Ventures.” Organization Science 9.4 (1998): 454–468.

    DOI: 10.1287/orsc.9.4.454Save Citation »Export Citation » Share Citation »

    Builds on the premise that international JVs are increasingly important as effective arrangements aimed at creating knowledge interorganizationally. It examines how JVs can be integrated into a firm’s dynamic system of knowledge creation.

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  • Inkpen, A. C., and E. Tsang. “Social Capital, Networks, and Knowledge Transfer.” Academy of Management Review 30.1 (2005): 146–165.

    DOI: 10.5465/AMR.2005.15281445Save Citation »Export Citation » Share Citation »

    Presents a model of the effects of social capital dimensions on knowledge transfer between network partners. It discusses conditions under which the structural, cognitive, and relational dimensions influence knowledge transfer in different type of network: intracorporate networks, strategic alliances, and industrial districts.

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  • Tallman, S., and A. Chacar. “Communities, Alliances, Networks and Knowledge in Multinational Firms: A Micro-analytic Framework.” Journal of International Management 17.3 (2011): 201–210.

    DOI: 10.1016/j.intman.2011.05.003Save Citation »Export Citation » Share Citation »

    Presents a model that explains processes of knowledge acquisition, dissemination, and application in alliance networks. It discusses two levels: acquisition of knowledge from local partners by subunits, and leveraging this knowledge throughout the firm via an internal network of alliances. It uses the concept of communities of practice as sources of highly tacit know-how.

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Integration in Interfirm Organizational Arrangements

Much research has studied integration between partners in organizational collaborative formations. While some level of integration has been found to be instrumental in all such arrangements, obviously integration is most critical in mergers and acquisitions. In a controlled experimental setting, Weber and Camerer 2003 shows that conflicting organizational cultures lead to merger failure. At a different level, Salk and Shenkar 2001 suggests that national differences between the joint venture partners reflected in the social identity of the actors mediates the success of integration. However, not all alliances require the same level of integration and control. As shown by Gulati and Singh 1998, this depends on the anticipated coordination costs and by expected appropriation concerns. The mechanisms of coordination and integration vary as well. Scholars have identified several types of integration based on what aspects of the organizations are being integrated (e.g., structural, technological, social, etc.), and have studied their complementarity and relative effectiveness. Overall, it has been found that integration is best achieved through a portfolio of social and structural mechanisms. Birkinshaw, et al. 2000 shows that human integration and task integration are both important, but human integration has to precede task integration to prepare the social context. Similarly looking at the dynamics of the relationships in international JVs, Inkpen and Currall 2004 shows that trust, control, and learning take time to develop. Addressing the question of effectiveness of different integration mechanisms, Puranam, et al. 2009 finds that structural integration is not always necessary as coordination may be better achieved through social integration mechanisms. Consistent with the emphasis on social integration, people related issues have also been studied. For example, Shenkar and Zeira 1987 discusses common human resource management problems in international JVs. Brannen and Peterson 2009 proposes several integration interventions at the individual level necessary for achieving the strategic and financial goals of the merger strategy.

  • Birkinshaw, J., H. Bresman, and L. Hakanson. “Managing the Post-Acquisition Integration Process: How the Human Integration and Task Integration Processes Interact to Foster Value Creation.” Journal of Management Studies 37.3 (2000): 395–426.

    DOI: 10.1111/1467-6486.00186Save Citation »Export Citation » Share Citation »

    In a study of post-acquisition integration, the authors find that effective integration is achieved through a two-phase process that includes both task and human integration. Human integration is paramount for the subsequent task integration based on higher interdependencies between acquired and acquiring units.

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  • Brannen, M. Y., and M. Peterson. “Merging Without Alienating: Interventions Promoting Cross-Cultural Organizational Integration and Their Limitations.” Journal of International Business Studies 40 (2009): 468–489.

    DOI: 10.1057/jibs.2008.80Save Citation »Export Citation » Share Citation »

    Discusses the importance of post-merger integration as a prerequisite for successful technology transfer, knowledge-sharing, and the general realization of global growth. In particular, issues at the individual level such as cross-cultural adjustment and synergistic learning, or work alienation are examined as they impact the integration success. The paper suggests a number of interventions that help to promote successful post-merger integration.

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  • Gulati, R., and H. Singh. “The Architecture of Cooperation: Managing Coordination Costs and Appropriation Concerns in Strategic Alliances.” Administrative Science Quarterly 43.4 (1998): 781–794.

    DOI: 10.2307/2393616Save Citation »Export Citation » Share Citation »

    Explains why firms choose different governance structures across their alliances. The findings suggest that the magnitude of hierarchical controls in contractual relationships such as alliances is influenced by the anticipated coordination costs and by expected appropriation concerns.

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  • Inkpen, A. C., and S. Currall. “The Co-evolution of Trust, Control, and Learning in Joint Ventures.” Organization Science 15.5 (2004): 586–599.

    DOI: 10.1287/orsc.1040.0079Save Citation »Export Citation » Share Citation »

    Explains how initial joint venture conditions change over time as partners develop an understanding of each other and adjust the collaborative process in the joint venture. The model links trust, control, partner collaborative objectives, and learning to explain this dynamic and its impact on joint venture processes. Again, the need for both formal structures and social relationships is emphasized.

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  • Puranam, P., H. Singh, and S. Chaudhuri. “Integrating Acquired Capabilities: When Structural Integration Is (Un)necessary.” Organization Science 20.2 (2009): 313–328.

    DOI: 10.1287/orsc.1090.0422Save Citation »Export Citation » Share Citation »

    The case of acquisition of small technology-based firms that have been acquired for their technological capabilities is examined. Structural integration of the acquired firm can have both positive and negative effects. It facilitates coordination, which is key; however, it is not necessary when the firms already have preexisting common ground. Such social mechanisms of coordination can be less disruptive and more effective.

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  • Salk, J., and O. Shenkar. “Social Identities in an International Joint Venture: An Exploratory Case Study.” Organization Science 12.2 (2001): 161–178.

    DOI: 10.1287/orsc.12.2.161.10111Save Citation »Export Citation » Share Citation »

    Finds that national social identities are the dominant sense-making vehicle used by team members in a shared management international joint venture. Social identity enactments mediate the relationship of contextual variables, both environmental and structural, as well as with group and organizational outcomes.

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  • Shenkar, O., and Y. Zeira. “Human Resources Management in International Joint Ventures: Directions for Research.” Academy of Management Review 12.3 (1987): 546–557.

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    Classifies the structural characteristics of international joint ventures and summarizes common personnel problems in such organizational entities. A classification of different employee groups in the context of international joint ventures is advanced.

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  • Weber, R., and C. Camerer. “Cultural Conflict and Merger Failure: An Experimental Approach.” Management Science 49.4 (2003): 400–415.

    DOI: 10.1287/mnsc.49.4.400.14430Save Citation »Export Citation » Share Citation »

    Laboratory experiments are used to explore merger failure due to conflicting organizational cultures. Results show a decrease in performance following the merging of firms, which participants attribute to the members of the other firm rather than to situational difficulties created by conflicting culture.

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Context and Multinational Companies Organization

The literature on contextual embeddedness of MNCs is vast. It has produced a lot of evidence that organizations from different countries follow different organizing principles, structures, and practices, because of the influences of the respective institutional and sociocultural environments. In addition to comparative studies documenting such country differences, international management scholars have recognized that such conditions create additional challenges for MNCs, which face multiple environments and are confronted therefore with very different and sometimes conflicting sets of pressures and expectations of how they should organize their operations. This also creates significant difficulties in transferring and diffusing organizational solutions across the different locations of the MNC. Studying contextual embeddedness of MNCs has motivated work in two major ways: first, scholars have developed different approaches to capture context; and second, many international management researchers have examined the impact of various contextual parameters on a multitude of organizational outcomes. These two foci serve to organize some exemplary references below.

Conceptualizing and Measuring Context

Scholars have proposed new constructs such as country profiles and cross-country distances in order to capture contextual influences both theoretically and empirically. Initially, the attention was on the subjective, perceived similarity between countries reflected in the notion of psychic distance. Johanson and Vahlne 1977 introduces this term in the context of their model of internationalization. For an examination of the antecedents of psychic distance, see Hakanson and Ambos 2010. Since then, there has been a shift toward more objective measures of differences based on various country dimensions. Profiles reflect the characteristics of a national environment and distances—the difference or similarity between two national environments: for example host and home country. Given the wide variety of dimensions on which a country can be evaluated, scholars have introduced different types of measures. Following the traditional interest in international management research in national culture, the majority of contextual work uses cultural profiles and cultural distance. The most widely used cultural profile approach is Hofstede’s. Hofstede 1980 introduces four (and later five) cultural value dimensions that capture national cultural characteristics in a parsimonious way, including individualism/collectivism, power distance, uncertainty avoidance, masculinity/femininity, and later long-term orientation. Based on that framework, Kogut and Singh 1988 constructs a measure of cultural distance, which has been very widely used. Shenkar 2001 criticizes some of the limitations in the use of the cultural distance construct. Kostova 1997 proposes an alternative conceptualization of national context and cross-country distances by focusing on the institutional instead of cultural environment, introducing country institutional profile and institutional distance. They have been used since in a wide range of applications. Phillips, et al. 2009 presents a conceptual extension of the construct of institutional distance. Finally, Ghemawat 2001 proposes a different framework called “CAGE” that captures four different aspects—cultural, administrative, geographic, and economic. The work on distance has proliferated with various scholars using all types of country level measures such as language, history, education, industrial systems, and many others. This is partly due to the growing interest in context and its effects on MNCs, and partly the result of the convenience of widely available secondary data on various country indicators.

  • Ghemawat, P. “Distance Still Matters: The Hard Reality of Global Expansion.” Harvard Business Review 79.8 (2001): 137–147.

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    Presents the cultural, administrative, geographic, and economic (CAGE) distance framework to help measure the types of cross-country differences influencing cross-border economic activities.

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  • Hakanson, L., and B. Ambos. “The Antecedents of Psychic Distance.” Journal of International Management 16.3 (2010): 195–210.

    DOI: 10.1016/j.intman.2010.06.001Save Citation »Export Citation » Share Citation »

    Empirically examines the antecedents of psychic distance. It shows that these perceptions are influenced by a range of cultural, geographic, political, and economic factors. The authors also suggest that when used in isolation, “cultural distance”—as measured by the so-called Kogut and Singh index—is a poor predictor of such perceptions.

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  • Hofstede, G. Culture’s Consequences: International Differences in Work-Related Values. Beverly Hills, CA: SAGE, 1980.

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    In the original version of this highly influential study, Hofstede introduces four dimensions on which the differences among national cultures can be understood: individualism, power distance, uncertainty avoidance, and masculinity.

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  • Johanson, J., and J.-E. Vahlne. “The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitments.” Journal of International Business Studies 8.1 (1977): 25–34.

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    Presents a model of firm internationalization, focusing on the increasing acquisition, integration and use of knowledge about foreign markets and operations, and on the progressively increasing commitment to foreign markets.

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  • Kogut, B., and H. Singh. “The Effect of National Culture on the Choice of Entry Mode.” Journal of International Business Studies 19 (1988): 411–432.

    DOI: 10.1057/palgrave.jibs.8490394Save Citation »Export Citation » Share Citation »

    Finds empirical support for the hypothesis that national culture influences firms’ choices of entry mode.

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  • Kostova, T. “Country Institutional Profiles: Concept and Measurement.” Proceedings of the Academy of Management (1997): 180–184.

    DOI: 10.5465/AMBPP.1997.4981338Save Citation »Export Citation » Share Citation »

    Furthers the application of institutional theory to the MNC context by introducing the concept of country institutional profile, which captures the salient characteristics of a country’s institutional environment that influence organizational behavior.

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  • Phillips, N., P. Tracey, and N. Karra. “Rethinking Institutional Distance: Strengthening the Tie between New Institutional Theory and International Management.” Strategic Organization 7.3 (2009): 339–348.

    DOI: 10.1177/1476127009337439Save Citation »Export Citation » Share Citation »

    Evaluates institutional distance along a continuum and emphasizes the need to develop a multi-level analysis of the construct, incorporating subnational, national, and supranational institutional differences. It also offers a discussion of the concept of institutional entrepreneurship.

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  • Shenkar, O. “Cultural Distance Revisited: Towards a More Rigorous Conceptualization and Measurement of Cultural Differences.” Journal of International Business Studies 32.3 (2001): 519–535.

    DOI: 10.1057/palgrave.jibs.8490982Save Citation »Export Citation » Share Citation »

    Presents a critical review of the cultural distance construct, develops a comprehensive framework for the treatment of the construct, and suggests concrete steps aimed at enhancing rigor.

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Impact of Context

Although it is beyond the scope of this chapter to present a full account of this vast research, below are several illustrative references that show how different types of contexts have been examined with regard to organization structures (Schollhammer 1971), control (Harzing and Sorge 2003), corporate governance (Fukao 1995, Pedersen and Thomsen 1997), governance of interfirm alliances (Oxley 1997), organizational practices (Rosenzweig and Nohria 1994), and cross-border transfer of management practices (Kostova 1999). Meyer, et al. 2011 discusses in particular the complexity of contextual embeddedness in MNCs examining two levels: the MNC as a whole and the MNC subunit.

  • Fukao, M. Financial Integration, Corporate Governance, and the Performance of Multinational Companies. Washington, DC: The Brookings Institution, 1995.

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    Presents a very comprehensive international comparison of corporate governance structures in MNCs against the backdrop of global integration. Strong persistent national variation is found with regard to all aspects of corporate governance that govern the relationships between management, stockholders, creditors, customers, employees, and suppliers.

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  • Harzing, A.-W., and A. Sorge. “The Relative Impact of Country of Origin and Universal Contingencies on Internationalization Strategies and Corporate Control in Multinational Enterprises: Worldwide and European Perspectives.” Organization Studies 24.2 (2003): 187–214.

    DOI: 10.1177/0170840603024002343Save Citation »Export Citation » Share Citation »

    The results here confirm a strong country-of-origin effect. Organizational control and coordination practices at the international level are explained mostly by the home country of the MNC, in particular its institutional arrangements and culture. Thus, significant differences are found between MNCs from several European countries, the United States, and Japan.

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  • Kostova, T. “Transnational Transfer of Strategic Organizational Practices: A Contextual Perspective.” Academy of Management Review 24.2 (1999): 308–324.

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    A model of cross-border practice transfer is proposed for MNCs. Transfer success depends on several sets of factors reflecting the embeddedness of the transfer process in various contexts including institutional environment of the home and host countries, organizational level, and individual level contexts. Organization design factors such as dependence and quality of relationships between subsidiaries and parent are considered.

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  • Meyer, K., R. Mudambi, and R. Narula. “Multinational Enterprises and Local Contexts: The Opportunities and Challenges of Multiple Embeddedness.” Journal of Management Studies 48.2 (2011): 235–252.

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    Part of a special issue, this paper presents an argument for the continuing differences in MNC organizing principles across countries despite increased globalization. The authors develop the idea of “multiple embeddedness” and discuss how MNCs must manage it at two levels: the MNC as a whole and the subunit. Balancing the subsidiary’s strategic role within the MNE with its local identity and its domestic linkages requires trade-offs.

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  • Oxley, J. “Institutional Environment and the Mechanisms of Governance: The Impact of Intellectual Property Protection on the Structure of Inter-Firm Alliances.” Journal of Economic Behavior and Organization 38.3 (1997): 283–309.

    DOI: 10.1016/S0167-2681(99)00011-6Save Citation »Export Citation » Share Citation »

    Examines governance of interfirm alliances (choice between equity and contractual alliance forms) under different regimes of intellectual property protection and other national institutional characteristics. Support for the impact of institutional context is found: firms adopt more hierarchical governance modes when intellectual property regimes are weak.

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  • Pedersen, T., and S. Thomsen. “European Patterns of Corporate Ownership: A Twelve-Country Study.” Journal of International Business Studies 28.4 (1997): 759–778.

    DOI: 10.1057/palgrave.jibs.8490118Save Citation »Export Citation » Share Citation »

    Presents a quantitative analysis of ownership structures among the 100 largest companies in twelve European countries. The study confirms the existence of a strong nation effect, partly explained by institutional differences.

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  • Rosenzweig, P., and N. Nohria. “Influences on Human Resource Management Practices in Multinational Corporations.” Journal of International Business Studies 25.2 (1994): 229–251.

    DOI: 10.1057/palgrave.jibs.8490199Save Citation »Export Citation » Share Citation »

    A study of human resource management (HRM) practices of foreign firms in the United States shows that practices in the affiliates resemble local practices. The degree of local isomorphism is influenced by the method of founding, the dependence on local inputs, the presence of expatriates, and the extent of communication with the parent. Significant differences are noted between affiliates of Canadian, Japanese, and European MNCs, which suggests strong country effects.

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  • Schollhammer, H. “Organization Structure of Multinational Corporations.” Academy of Management Journal 14.3 (September 1971): 345–365.

    DOI: 10.2307/255079Save Citation »Export Citation » Share Citation »

    Presents similarities and differences in the organization structures of multinational corporations based in the United States and four European countries. After comparing five dimensions of structure (basic organizational orientation, structure of the relationships between headquarters and subsidiaries, centralization/decentralization, standardization of procedures, and organizational flexibility), the authors point out that there are far more differences than similarities between firms with different national origins.

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