I Introduction to Strategic International Management

Multinational Corporations as Networks

The complexity of Multinational Corporations (MNCs) regarding multiple geographical markets and the dispersed activities within the company often renders centralised management models ineffective and inefficient. Knowledging the increased relevance of foreign subsidiaries and the observation that some subsidiaries assume strategic roles within the MNC lead to a conceptualisation of the MNC as a network. In this Chapter, the network perspective of the MNC is explained, nodes and linkages in the network are described and the contribution of this perspective to understanding the modern MNC is demonstrated.

From Centralised Hubs to Integrated Networks

From the early 1980s, the limitations of hierarchical models of the company with regard to their capability to manage the complexity of a Multinational Corporation (MNC) became obvious in the course of increasing internationalisation, the emergence of more and more MNCs, and the constantly rising relevance of foreign subsidiaries. Studies by scholars such as Prahalad, Doz, Bartlett and various others revealed that top management in the home country had more and more problems in effectively and efficiently processing and understanding the vast amount of information necessary to coordinate the MNC.

MNC management is confronted with the challenge of designing systems that allow flexible responses to the very heterogeneous context in which the different subsidiaries have to compete. It is also necessary to sense the diverse opportunities and demands that the MNC faces, and to simultaneously ensure the necessary coherence to act as one company, to achieve global scale effects by specialising their subsidiaries' activities and to exploiting synergy potential. In a sophisticated and differentiated configuration of specialised assets and responsibilities, the interdependence of worldwide units increases, and an integrated network structure becomes necessary to coordinate the dispersed activities. In this network model, management regards each of the worldwide units as a potential source of ideas, skills, capabilities, and knowledge that can be used to benefit the entire organisation. Efficient local plants may be converted into production sites with worldwide responsibility, and innovative organisational units may become the MNC's centres of competence for a particular product or process (Bartlett/Beamish 2014, pp. 284-285).

Figure 1.1 Many Network Models To understand this modern type of network model better, Figure 1.1 contrasts it with two alternative models, the centralised hub, a traditional model in which the foreign subsidiaries merely implement central decisions and have no autonomy, and the decentralised federation, a multinational model with great autonomy of the subsidiaries, but only weak linkages within the MNC, which acts mainly as a holding company. While national subsidiaries in decentralised federations enjoy considerable independence from the headquarters, those in centralised hubs remain strongly dependent on the parent company. Integrated networks are interdependent organisations, with dispersed, and specialised, but coordinated interrelationships between the units. Such networks result in a so-called decentralised centralisation, i.e., the activities are globally integrated and aligned. Subsidiaries are not necessarily coordinated by the headquarters but in some cases and for some products, by another foreign subsidiary (Birkinshaw/Morrison 1995, p. 734).

From the 1980s onwards, more and more scholars started to model the MNC as a network. The “transnational organisation” (Bartlett/Ghoshal 1989), the “heterarchy” (Hedlund 1986), and the “differentiated network“ (Nohria/Ghoshal 1997) are just a few examples. While there are many differences in detail, all these models recommend organising the MNC as an integrated network of dispersed organisational units.

Networks consist of nodes (in this case mainly foreign subsidiaries) and linkages between those nodes (like coordination relationships, product flows, communication, etc.). Some of the nodes, i.e. of the foreign subsidiaries, achieve – due to unique resources, capabilities and competences, for example – a crucial influence on the decisions of the MNC and foreign subsidiaries can assume “strategic roles” (see Chapter 3). Competitive advantages of the MNC are not necessarily developed in the home country any longer and then transferred and exploited in foreign countries, but can be established by single foreign subsidiaries or through cooperation in the whole MNC network. Learning becomes necessary to create and diffuse knowledge quickly within the MNC (Schmid/Kutschker 2003, pp. 163-164).

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