Course: Strategy, structure and management of the multinational enterprise
Teacher: Sascha Albers
In my personal summary, you will find all the theory to know, including further clarification and examples. In addition, the use of color makes it easier to study! The guest lectures are also inclu...
structure and management of the multinational enterprise
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Universiteit Antwerpen (UA)
TEW
SSMNE (2107TEWEIO)
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Intro
A multinational enterprise is a firm that owns or controls productive assets in at
least three countries. One is its home country, the others are its host countries.
Often, MNEs operate in many host countries with a network of subsidiaries, are
entrenched in a multitude of product markets and hence, value chains that
connect them with a diverse set of suppliers and alliance partners; face a variety
of local competitors as well as some familiar MNE rivals, have to deal with
multiple governments, regulations and a diverse set of societal expectations.
Phenomenologically, MNEs themselves have developed a diverse set of
operational models and structures, and new forms of MNEs have emerged
(emerging market MNE, born globals) to co-exist with the traditional, western
style industrial MNEs. Conceptually, our understanding of MNEs has developed,
too; orthodoxies of MNEs as either a neo-imperialist agent of economic progress
and wealth, or an evolving dark power threatening democracy and freedom,
have been diversified and complemented with more differentiated conceptions.
This course focuses on core characteristics of MNEs and resulting management
challenges in the multifaceted spectrum that these firms face.
The course seeks to provide understanding on the evolving nature of MNEs by
looking at theories and models that explain their nature, organization and
behavior. It builds on foundational knowledge on international business, strategy
and organization theory to explore core issues in the domain of MNEs, such as
issues of headquarter-subsidiary relations, managing international research and
development, coordinating global value chains, international strategic alliances
and networks, global competitive dynamics and social responsibility and
sustainability. Small case studies and guest speakers will help to illustrate the
material at hand.
1
, Part I: MNE Nature
1. Essence, Role, and Types of MNC
Objectives
1. Discuss the core features of a MNE that sets it apart from purely domestic firms
2. Critically discuss the role of MNEs in contemporary societies
3. Get to know variations of the classical MNE mode
1.1 What is a multinational enterprise?
Multinational enterprise (MNE) = a business firm that owns income-generating
assets in two or more countries, controlled from a home base.
- “A multinational enterprise (MNE) is a business firm that sets strategy and
manages operations for the development and utilization of income-
generating assets in more than one country in the pursuit of profits over
time.” (Teece, 2014: 8)
- “Corporations which have their home in one country but which operate and
live under the laws and customs of other countries as well” (Lilienthal,
1960: 119)
Are there still company’s who are not MNE? Yes, there are but less than before
1.2 With core characteristics
- Home base or home country: more emotional, often historical based and is
often the place where the company is mostly integrated + management.
- “Liability of foreignness”
• = term describing the additional costs that firms operating outside
their home countries experience above those incurred by local firms.
▪ A disadvantage because the company doesn’t know the
market as the local firms. (e.g government relation, customer
need, cultural needs)
- Geographical spread of own operations and inter-organizational relations
• HQ-subsidiary relations: due to international expansion, MNE have
more need to additional relations between the headquarters (HQ)
and subsidiaries e.g logistic players, local manufacturer, agents
• Supplier/customer/government relations
• Multimarket contact (synonym: Multi point competition) =
Multimarket contact occurs when firms compete with the same
rivals in multiple markets. When firms compete with each other in
more than one market, their competitive behavior may differ from
that of single-market rivals.
2
, ▪ Same industry, different multinational -> For Example: Pepsi
and Coca Cola who operate and compete in same countries
and are meeting in same markets
▪ When you meet a rival in many different places, then you
have a history of competition. So, you know how it will react
- Diversity of pressures
• Internal (management): centralized control vs. local management
▪ Centralized control: all control in HQ and subsidiaries have to
follow
▪ Local management = a lot of autonomy in subsidiaries
• External (marketneeds): Local adaptation vs. global scale
▪ Local adaption = provide specific items for each country
(adapt product range)
▪ Global scale = same products everywhere & scale economies
1.3 Single “normative” types of MNEs
Normative is a very strict view at types, following this philosophy they think if
you are not following this way of structure, you will not success. In 1.4 there will
be an other approach which state that the structure need to be adjusted at the
environment and criteria.
- Heterarchy (Hedlund) = Multicentral organization -> form of
management or rule in which any unit can govern or be
governed by others, depending on circumstances, and,
hence, no one unit dominates the rest. Authority within a
heterarchy is distributed..
- Diversified Multinational Corporation (Doz & Prahalad) -> Characterized by
multidimensionality and heterogeneity which lead to seven distinct
characteristics:
• (1) structural indeterminacy, • (5) latent linkages,
• (2) internal differentiation, • (6) networked organization/
• (3) integrative optimization, fuzzy boundaries,
• (4) information intensity, • (7) learning and continuity
- Horizontal organization (White & Poynter)
-> Lateral decision processes, horizontal
network (as opposed to hierarchy),
common ground for decision making
(values and norms). -> niet vanbuiten
kennen:
3
, 1.4 Classical typologies of MNEs -> MNE types based on criteria:
MNE types based on criteria:
- Top management attitudes and management philosophy: EPG Model
(Perlmutter 1960, Heenan/Perlmutter 1979)
- Strategic orientation as response to industry forces: International, local,
global, transnational (“glocal”) (Bartlett/Ghoshal 1989)
1.4.1 Classical typology 1: EP(R)G model
- EP(R)G Model: Type Illustration
• The ethnocentric firm = dominated by home firm
▪ Headquarter and subsidiaries, where there is only a line that
comes out of headquarter.
▪ Home market/ what headquarter says is correct, and is
determinate for elsewhere (in the subsidiaries)
• The geocentric firm
▪ Arrows running around everywhere. There is a center and
subsidiaries, but there is a lot of exchange and mélange.
▪ Input from both sides, and even between subsidiaries!
• The polycentric firm
▪ Subsidiaries are structured, managed according to
recommendations/ assessments/ evaluations of subsidiaries
management -> local management
▪ Looser relation from headquarter to subsidiaries
4
, - Geocentrism/
global Forces
- What is the “R” between E(R)PG-model -> is the modern interpretation
R centric = clusters of subsidiaries, that are coordination closely & report to HQ
1.4.2 Classical typology 2: The Bartlett & Ghoshal Typology
Depending on the forces in the market MNE’s need to choose their strategic
approach based on 2 forces:
1) forces which encourage global
integration (efficiency)
2) forces which encourage local
differentation.
-> X & Y axis: Responsiveness doesn’t
go well with efficiency.
Extra: you could also ignore the forces but if
the market expects high efficieny, than you
need a strong brand to make sure they still
buy it. So best not ignore.
Different types of MNE’s:
- International organization: there are low differentiation forces and low
efficiency forces which request integration. This is actually the best
situation since there are no need for customization or to be efficient.
• E.g. design luxury which has low forces for efficiency (limited
production and high prices) and the fashion is wildly the same.
- Multinational organization: there are high differentiation forces but low
efficiency forces which request integration. This requires a local approach.
• E.g Danone faces high local differentation needs (consumer in EU
have other tastes as US), they also faces low efficiency forces since
everyone needs to eat and there is a high demand.
• Link with polycentric firm: need of subsidaries that interact with the
local market to get an idea of the custom needs. Every market
needs a mini value chain
5
, - Global organization: there are low differentiation forces but high efficiency
forces which request integration. This is requiring a standarized approach.
• E.g global aircraft industry (Boeing) faces low local differentation
needs (all airplines are the same beside the logo) but also faces
efficiency forces since it is very expensive to make an airplane.
• Link with ethnocentric firm: where efficiency and a clear value chain
is needed
- Transnational organization (GLOCAL): there are high differentiation forces
and high efficiency forces which request integration. This is requiring a
network approach.
• E.g R&D company division which need to an expert in a specific
product but the devision also need to sell this goods to different
markets worldwide. This is verry difficult due to local differentiation.
• Link with geocentric firm: a wide network is needed to be able to be
efficient and adapt at local level at the same time.
1.5 Why do MNC internationalize? MNC internationzalisation and firm
advantages. (MNC = MNE)
Firm specific advantages:
- location bounds = linked to location advantages, such as a certain market
or a network, which are immobile.
- non-location bound = these are mobile
A model that illustrates the advantages of home country and host country:
- Advantages of home country: these parts illustrate the different
advantages which can be obtained by internationalisation.
- Advantages of host country: If a company decide to go invest in a host
country, the following things happens:
Test: Identify the home country location advantages and firm- specific advantages of a firm
6
, 1.6 MNE’s strategy based on FSA/CSA
Opportunistic Internationalization: Both weak,
thus no advantage you can take with you into
country and you don’t get home specific
advantages. There was an opportunity for
Walmart to expand, they did it but failed in
Germany
1) FSA = firm specific advantages =
non-location bound
2) CSA = (host-) country specific
advantages = location bound
1.7 The MNE role: positives
Advantages of MNE:
- Job creation - Facilitation of learning
- Higher wages - Mitigating intellectual property
- Easy interchange of personnel concerns
- Know-how and expertise - Driver for economic
transfer development
Critics: The problem is that MNE also operate, like many firms and this also have
negative factors with a link to colonialism and tax avoidance
- Threat to national sovereignty?
• Ethical less bonded since management is not in the same are as the
operations -> e.g Shell killing people in their manufacturing in Africa
- Link with colonialism
- Tax avoidance: trying to move profit to country’s with tax advantages.
1.8 Born globals
= “Business organizations that, from or near their founding, seek superior
international business performance from the application of knowledge-based
resources to the sale of outputs in multiple countries” e.g: Airbnb, Netflix,
Spotify, Uber..
- Time from founding till market entry often 3 years or less
- First emerged in countries with small domestic markets BUT enters the
worldwide markets rapidly -> universally dispersed
=> Driven by globalisation & technological advancements + PLUS:
- Lacking tangible resources older firms tend to rely on, born globals
leverage a collection of
- intangible knowledge-based capabilities
7
, - Importance of innovative culture
1.9 Emerging markets MNE: A New Type?
Interesting paper about the “new MNE’s”vs the traditional -> different approach:
Emerging MNE’s: they entry different markets at a high space without a strong
brand or advantage, but entering they can adapt and learn more about the
needed resources etc. Knowledge is gained often by partners (acquisition). They
often come from political unstable environments.
Extra info founded on the internet (not in class)
EM-MNEs initially expanded gradually step-by-step, first in countries close to home and then to
more distant countries. For example, Nigerian companies first expanded to other West African
countries (especially English-speaking and culturally close Ghana) before expanding to more
distant countries.
After having learned and gained the needed resources, information and experience the
internationalisation process takes a fastet pace. For example, China’s Haier first expanded to
Indonesia, Philippines, and Malaysia. But, within just two years, Haier felt that it had gained
enough knowledge about international markets that it decided to expand to a sophisticated distant
market – the United States. To give you an idea: the Japanese company Matsushita waited for
almost thirty years between the start of international exports and the establishment of an overseas
plant.
1.9.1 Emerging market MNEs have a different approach to internationalization
(here: M&A)
They have clearly a different strategy, goal:
8
, 1.10 Expansion paths of EMNE
EMNE want to increase actif markets,
customer bases BUT there is a balance
needed with “extent of capability
upgrading”
-> when both are in balance there will
be a balances growth pad!
Conclusion: there is no “best” structure of MNE, it depends on the environment
and decisions that need to be made!
Objectives:
- Understand MNEs as organizations spanning home and host countries that are
conceptualized as core-periphery arrangements
- Get to know different models of HQ- subsidiary relations of MNE
- Discuss the strengths and weaknesses of alternative HQ-subsidiary models for
understanding MNE activity and performance
2.1 Reminder: the MNE
“The MNE must simultaneously adapt to and operate within multiple societies
and, hence, multiple environments… Their central management is confronted
with the challenge of designing systems that retain sufficient unity and
coherence to operate as a common enterprise and, at the same time, to allow
sufficient latitude and flexibility to adapt to greatly varying circumstances.”
-> Image illustrates the fact that we try to combine
different working styles/ values in organizations
-> important to still function as one enterprise but
there also need to go attention to local culture and uses
2.1.1 MNE International Activity: HQ-Subsidiary relations
- How does the way an MNE is structured affect the implementation of its
strategy?
- Which different relationships are there between the headquarter and
subsidiaries within an MNE?
2.1.2 Evolution of thinking
- First one is the traditional one with the relationship between subsidiary
and HQ. (-> rise of use and research about this since the 90’s)
- Second one, we look at subsidiary role (=Every subsidiary can or should
fulfill a certain role in strategy of organization). Roles are not limited and
can be across the whole organization (but can also be limited).
- Last one, pro-actively change of role finds that subsidiaries their function
can change over time. They develop to where value can be added.
10
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