international business and finance
rishabbiyani
WEEK5LECTURESLIDE.pptWeek 5
Structuring and Controlling International Operations
Section 1. Principles of Organisation
Section II. Multinational Configurations
Interactions between structures/mindsets
- Actors set up structures in line with their worldviews
- In return, their worldviews are shaped by the structures within which they operate. Risk of silo thinking
- Human organisations are living bodies that interact with the outside environment – success depends on coherency both internally and externally
Basis of MNE organisation
Where should power be located within the firm?
Range of replies has generally included:
At a national level (subsidiaries with absolute autonomy)
At a global level (headquarters with absolute power)
Mixed system
Dominant organisational paradigms have shifted
over time – there is no one right answer
Early theorist: Stephen Hymer
MNE organisational history divided into 3 stages:
- Stage I: Most firms began with few key managers working on single product out of single location. First moves abroad would be run out of an ‘international division’. Very rare nowadays.
- c.f. Hymer, main driver behind internationalisation is to achieve ‘monopoly advantages’ through value chain management
- Search for international vertical integration division-based structure known as Unitary U-form = Stage II for MNEs
Hymer’s ‘U-form’ MNE
- Simplest form = Functional organisation where HQ (the centre) controls all functions in subsidiaries (the periphery) who simply obey instructions. Still applicable in firms with narrow product ranges/little need for differentiation
Executive
Production Marketing Finance HRM
Hymer’s multidivisional ‘M-form’ MNE
- Stage 3: response to global consumers’ differentiated demands: need for greater flexibility
- Version 1: Product organisation. Divisions as independent profit centres due to lack of product overlaps (conglomerates)
Group Headquarters (Corporate functions)
Product Division A Product Division B
Area 1 Area 2 Area 1 Area 2
Hymer’s multidivisional ‘M-form’ MNE (cont.)
- Version 2: Geographic organisation: highlights responsiveness to local circumstances/empowers subsidiaries
Group Headquarters (Corporate functions)
Area A Area B
Product 1 Product 2 Product 1 Product 2
Multi-domestic logic: adapted but expensive (duplications), lack of
global vision search for more coordinated structure
1980s buzzword: ‘global organisations
- Notion of global convergence greater sense of need to service global customers/achieve economies of scale
- Reduction in barriers to trade (GATT etc.) = possibility of more intra-firm trade increased specialisation of units
- Requires more direction by centre = reassertion of HQ power over subsidiaries
Shortcomings of the global approach
- By 21st century, criticisms of global paradigm:
- Less independent thinking by subsidiary managers
Resentment/de-motivation/de-skilling/confusion
Knowledge transmitted only vertically, not from sub to sub
Search for organisational compromise:
Centralize some functions (R&D / manufacturing/finance?)
Decentralize others (Design / sales / HRM?)
Between global and national MNEs
REGIONAL FIRMS
- Most MNEs’ region of origin > 70% of total revenues
- MNEs have regionalized more than they have globalized:
- ‘Clustering’ / ‘nearsourcing’ of manufacturing activities
- (Regional) ‘home bias’
– managers more comfortable with familiar environments
- customers more comfortable with familiar brands
Yet global scale remains relevant
i.e. Rise of BRICs (cost advantages/dynamic markets)
Thus efforts to develop a hybrid MNE configuration:
the Transational firm (c.f. Bartlett 1986)
- Rejection of excess devotion to any one organisation – managerial mindsets are more important, must be capable of both global integration/local adaptation.
- Promote two-way flows between HQ/subs and subs/subs
- Glocalisation: but managers might find this confusing
Organisational dilemma
Where a contradiction exists between the missions that an
organisation asks employees to fulfil
Confusion re: reporting lines / responsibilities / rewards
1980s/90s Matrix Organisation maximizing info exchanges
Product 1 Product 2 Function 1 Function 2
Area 1 Area 2
Problem: information overload. Has lost popularity
Alternative MNE organising principles
- Hedlund (1986): ‘heterarchy’ organisation combining diverse and equal power bases
- Burkinshaw (2000): in some MNEs it is in everyone’s interest to empower HQ or subs. Need for more balanced relationships
- Ghemawat (2007): ‘semi-globalisation’
- MNEs might be viewed as ‘federative organisations’ organized by ‘internal markets’. Question then is which mission is assigned to each unit. Fight over charters.
COASE(1935)/WILLIAMSON (1976):
TRANSACTION COST THEORY
HQ-sub relations: major topic in IB research
c.f. Hoenen, and Kostova (2015),“Key unresolved issues in HQ–Sub relations include closing the gap between headquarters’ expectations and subsidiary performance, managing the nested hierarchical relationships across multiple organizational layers, and aligning these relationships across diverse subunits embedded in different social contexts”
c.f. Haas and Cummings (2015), “Position-based (i.e., geographic and structural) differences created greater barriers than those that are person-based (i.e. nationality and demographic) differences”
c.f. Haag and Gavronski (2017), “Identify contingencies where the headquarters should grant greater autonomy to certain subsidiaries”
Managing people across borders
Main principles of organisational sociology
- Centralisation: location of power – Strengthening the centre? The periphery? Or a mixture?
- Hierarchy: problem in IB with dual reporting lines
- Specialisation: especially difficult in SMEs (‘tunnel vision’?)
- Coordination: but some managers try to extend their fiefdom
- Control (organisational performance): feedback/reward
- Learning: sharing knowledge across borders
c.f. Bordia and Bordia (2015) – LANGUAGE?
Push vs. pull paradigms
- Similar to ‘integration vs. responsiveness’ dilemma (Prahalad and Doz 1987)
- ‘Push’: international efforts driven by MNE’s own identity, emphasis on standardisation rather than adaptation. Often highlight upstream capabilities. Can be ethnocentric.
- ‘Pull’: international efforts driven by MNE’s perception of customers, emphasis on adaptation. Focus on downstream activities. Can be polycentric.
Push vs. pull paradigms (cont.)
- ‘Push’ MNE driven by own idea (innovation?). Less competition but less sure of success. Higher returns but higher potential reward – first mover advantage
- ‘Pull’ MNE driven by customer signals so sure to offer desirable product/service but competition also hears same signals so unable to demand premium pricing. Less risk but less reward.
- Appropriateness of each paradigm depends on sector in question (hi-tech vs. culturally based consumer good) and on corporate culture
