Transnational firms and glocalisation
The risk with any of these paradigms (multi-domestic, global or regional) is that they imprison MNEs in rigid structures of their own making. This has led to the argument, materialised in a seminal 1989 work published by international business researchers Christopher Bartlett and Sumantra Ghoshal (Managing across Borders: A Transnational Solution) that employee mindsets are just as crucial to an MNE’s success as
Figure 7.2 The integration-responsiveness framework.
official reporting lines. The idea here is that it does not matter whether strategies and innovation start in MNE headquarters or subsidiaries. The important thing is that staff be trained to apply global and/or local approaches (i.e. to “glocalise”) as needs be — a hybrid approach that the authors called the “integration-responsiveness” (IR.) paradigm, encapsulated in a four-side matrix that has over the years become one of the most famous and widely applied tools in all of international business (see Figure 7.2).
It is the hopefulness conveyed by IR. that explains its popularity — the idea that MNE organisation and human capital can be used to overcome the fundamental contradiction at the heart of international business. By maximising both vertical (hierarchical) and horizontal (geographical) exchanges between all MNE units — a principle embodied in the “matrix organisation” that became popular in the 1990s — it spreads a gospel of flexibility that is very much in line with the contemporary Zeitgeist. The idea here is that irrespective of people’s unit of origin, there are many occasions when they should be temporarily allocated to an ad hoc team created to fulfil a specific task. The hope is that by encouraging multiple reporting lines and developing forums for information sharing, new synergies will arise, benefiting all product, function and geographic divisions. By itself, this has the potential for solving MNEs’ permanent need to get useful information to the right people at the right time (see Figure 7.3).
Figure 7.3 Power, strategy and information flows in different MNE paradigms.
At the same time, there is no doubt that the transnational paradigm also creates a serious organisational dilemma. Having to accumulate both global and local knowledge is both costly and time-consuming. Otherwise, some managers will struggle to combine cost efficiency with local responsiveness, especially when the value chain function they occupy relies predominantly on one of these factors and very little on the other. On top of this, asking staff to assume leadership roles in some situations but not in others raises questions about the permanence of MNE structures and the possibility for conflicting group us subsidiary interests. Other problems are more cross-cultural in nature. Flexible structures are difficult to implement in the absence of flexible mindsets. With its multiple reporting lines and potential for information overload, a matrix organisation is often confusing and requires that staff work as organisational traffic controllers, identifying and redirecting colleagues’ competencies. This is no easy task: the knowledge that a company holds is often very compartmentalised; and given the lack of trust that might reign between colleagues, especially from different locations, there may not be much enthusiasm for sharing. The uncertainty associated with matrix organisations and the transnational paradigm means that they are somewhat less widespread today than two decades ago.
MNEs as alliances of equals
In the end, the key to international success today may be a more balanced relationship between head offices and subsidiaries. What headquarters provide is overview and coordination. What subsidiaries offer is market awareness and, depending on their size, implementation capabilities. Moreover, because subsidiaries are in constant touch with suppliers and customers, their managers can be fertile sources of information, hence change drivers.
By hypothesizing that a firm is just as likely to accumulate advantage abroad as at home, the transnational paradigm is at odds with transaction cost theory, which assumes that most firm-specific advantages derive from an MNE’s home country. It also contradicts resource-based theories rooted in the idea that resources and capabilities develop at the level of the firm as a whole. What it recognises instead is that different units contribute in different ways to overall performance — and that MNEs can be best understood as what UK academic Julian Birkinshaw has referred to as an “alliance of equals”.
If MNE subsidiaries can create both power and knowledge, the real aim must be to ensure that these are disseminated through the company’s “internal markets”, being the succession of inhouse strategic business units that trade with one another up and down the value chain. In turn, this raises the question of which mission should be assigned to which unit. Things can get complicated if subsidiaries seeking to demonstrate their usefulness undermine fellow units. In this case, the centre’s main authority over the periphery is to ensure fair competition among subsidiary managers. The human element, especially insofar as the management of knowledge is concerned, remains a key construct in MNE organisations.