Term Project

A. CENTRAL and LOCAL INNOVATION

Note: MNEs cannot acquire world-class knowledge and expertise by focusing only on their domestic environments or modifying their domestic products.

1. Types of Innovation Models

a. Center-for-global innovation (Central)

i. Innovation developed in home country

ii. New product/process created using centralized resources (e.g. using main R&D center)

iii. Subsidiaries’ role: introduce new product/process to the local market.

iv. Typical of global and international industries

b. Local-for-local innovation (Local)

i. New products developed by subsidiary based on local opportunities

ii. Subsidiaries use their own resources to develop products

2. Making Central Innovations Effective

a. Gain subsidiary input – create linkages between centralized operations (e.g. headquarters) and subsidiaries to reduce market insensitivity of HQ.

b. Create “market mechanisms” – to enable managers of centralized functions (e.g. R&D) to relate to problems faced by subsidiary managers.

c. Manage the transfer of responsibility – enable cross-functional integration by transferring personnel

3. Making Local Innovations Efficient – see next page

3. Making Local Innovations Efficient

a. Empower local management – increase autonomy of foreign subsidiaries

b. Link local managers to corporate decision making – necessary to enable local-for-local (or locally leveraged) innovations to effective throughout the company

c. Integrate subsidiary functions – use cross-functional integration/coordination (e.g. joint product/marketing committee).

B. TRANSNATIONAL INNOVATION MODELS

1. Locally leveraged – innovation developed by local unit is made available to all units worldwide

2. Globally linked – resources and capabilities of several subsidiary units are pooled together to develop products which become available to all units

C. MAKING TRANSNATIONAL PROCESSES FEASIBLE

1. Assumptions/Factors leading to lack of Transnationality

a. Symmetry of organizational units’ roles – i.e. different business units treated/managed the same

b. HQ-subsidiary relationships based on either dependence or independence

c. HQ/Corporate decision-making and control must be uniform.

2. Solutions

a. Manage using differentiation instead of symmetry - e.g. in product management, functions (marketing, etc.), geography

b. Establish interdependence instead of dependence/independence.

i. Problems with dependence and independence:

· “Independent” subsidiaries susceptible to competition from MNEs

· Dependent subsidiaries may not be able to respond to local changes or local challenges

b. Establish interdependence instead of dependence/independence (continued)

ii. Create interdependence by

· Having organization that is neither centralized nor decentralized

· Increase inter-unit cooperation

c. Use differentiated coordination instead of simple, unidimensional control.

Three “flows” critical to effective coordination in a transnational corporation:

i. Flow of goods – (i.e. raw materials, supplies, equipment, etc).

· Coordination best achieved through formalization of management processes, especially at lower levels of the organization.

ii. Flow of resources (i.e. human, financial, technological)

· Coordination best achieved through centralization due to scarcity of resources

iii. Flow of information and knowledge (how to share knowledge/information throughout the organization)

· Best achieved through socialization through

· Personnel transfers

· Organizational forums to exchange ideas (e.g., conferences)