9. Multinational corporations: structural, cultural and strategic issues

Learning objectives understand the factors leading to the existence of multinational corporations (MNCs) reflect on the stages of development and foreign market entry modes of MNCs recognize the influence on MNCs of pressures to adapt to local circumstances and to integrate activities worldwide critically assess the ‘transnational form’ as a response to these conflicting pressures identify the mechanisms of coordination and control that are used in MNCs.

Chapter Outline (1) 9.1 Introduction 9.2 The internationalization processes of MNCs Why do MNCs exist? Internationalization as a learning process Stages of development of MNC organization structures Transnational management Complex realities 9.3 Coordination and control within MNCs Coordination and control mechanisms Headquarters–subsidiary relationships 9.4 Knowledge management in the MNC Exploitative and explorative learning in the MNC The costs of transnational management

Chapter Outline (2) 9.5 The MNC, culture and institutions The country-of-origin effect on MNCs How do MNCs respond to cultural and institutional diversity? 9.6 Strategy of the MNC MNC strategy and internationalization MNC foreign market entry modes 9.7 Conclusions Study questions Further reading Case: The evolving international structure of Heineken Case: Integration of the operations of the London branch of a German bank Note References

Figure 9.1 Evolution of organizational macro structures of MNCs (Source: Stopford and Wells, 1972)

Figure 9.2 Organizational macro structures of MNCs and the relative importance of foreign production (Source: Egelhoff, 1988: 12)

Figure 9.3 Bartlett and Ghoshal’s typology of MNC strategies and structures (Source: Bartlett and Ghoshal, 2000)

Figure 9.4 Four categories of coordination and control mechanisms (Source: Harzing, 1999: 21)

Table 9.1 Roles of MNC subsidiaries (Source: Adapted from Birkinshaw and Morrison, 1995: 748)

Figure 9.5 Patterns of structuring of headquarters–subsidiary relationships (Source: Ghoshal and Nohria, 1993: 31)

Figure 9.6 Thompson’s types of interdependencies (Source: Based on Thompson, 1967)

Figure 9.7 The smile of value creation (Source: Mudambi, 2008: 709)

Study questions (1) 1 Discuss the three conditions leading to the existence of multinational corporations (MNCs). Why is there no need for an MNC to arise if one of the conditions is not present? 2 MNCs historically have tended to develop through a number of stages. Describe these stages, and explain the factors influencing an MNC’s progress through successive stages. 3 Describe the types of MNCs that arise under varying combinations of weak/strong pressures for local adaptation and for global integration. 4 Describe and critically discuss the ‘transnational form’ of MNCs. 5 Describe the main mechanisms of coordination and control used in MNCs.

Study questions (2) 6 Discuss possible roles of subsidiaries in MNCs, in relation to the learning capabilities of the MNC. 7 Discuss how MNCs are influenced by culture and institutions. 8 Make clear how the international dimension impacts upon the strategy of MNCs. 9 Describe the different foreign market entry modes, and explain which factors influence the choice of an MNC for a particular mode.