Flows in the MNC Network

The network perspective of the MNC illustrates it as a combination of nodes and linkages. Those linkages include potential superordination and subordination in the headquarters-subsidiary relations and coordination relationships that might be more or less centralised. Sometimes, coordination might not be achieved through the corporate headquarters in the home country, but rather from a superordinate subsidiary that acts as the regional headquarters.

Linkages in the network also encompass a number of different transactions among units located in different countries. Hence, the MNC can also be thought of as a network of capital, product, and knowledge flows between organisational units (Gupta/Govindarajan 1991, p. 770). In the network perspective, it becomes evident that, instead of unidirectional flows of products, components and know-how from the headquarters to the foreign subsidiaries, there are bidirectional and reciprocal flows and interdependencies. Not only are there vertical linkages between the headquarters and each subsidiary, but increasingly, there are horizontal relations between the subsidiaries, concerning both product flows and employees and knowledge exchange.

For example, a French sales subsidiary of the German car manufacturer BMW mainly receives product inflows, while the German factories exporting to other countries are a source for product outflows. The US factory of BMW which sells its vehicles to Mexico demonstrates horizontal product flows. In cross-border production processes (see Chapter 19), components are produced in different countries and often transported to a subsidiary that assembles the finished products. Similarly, dispersed R&D activities and innovation processes are only possible through substantial vertical and/or horizontal knowledge flows (see Chapter 20).

Generally, these flows within the MNC may have different magnitudes and different directions, and the transactional perspective increases the number of potentially heterogeneous characteristics of MNC subsidiaries, since substantial differences across subsidiaries within the same MNC will exist. The role typologies (see Chapter 3) attempt to capture some of these differences systematically.

Intraand Inter-organisational Networks

As mentioned in the introductory section, MNCs comprise entities in two or more countries, regardless of the legal forms and fields of activity of those entities. It is not relevant what legal form the entity has, but only that “active, coordinated management of operations in different countries, as the key differentiating characteristic of a MNE” (Bartlett/Beamish 2014, p. 3) is possible. An MNC must own or control value-adding activities in more than one country (Dunning 1993). Given that subsidiary is defined “as any operational unit controlled by the MNC and situated outside the home country“ (Birkinshaw/Hood/Jonsson 1998, p. 224), foreign subsidiaries are not necessarily wholly-owned. The enormous relevance of cooperative operation modes (see Part IV of this book), like licensing, joint ventures, franchising, etc., necessitates the inclusion of these internationalisation modes in the conceptualisation of an MNC.

Figure 1.2

Source: Adapted from Schmid/Kutschker 2003, p. 165.

As an example of the potential complexity, Figure 1.2 illustrates the MNC network, consisting of wholly-owned subsidiaries and other foreign activities that are closely linked to the company, by partial ownership, contracts or otherwise.

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