Principles of multinational organisation
Some of the key variables that MNEs must consider before deciding upon a given type of organisation are strategic in nature. Others have more to do with the sociology of organisations — which plays out in a particular way where international business is concerned.
As aforementioned, certain strategic considerations necessarily argue in favour of certain MNE organisations. It would make no sense, for instance, to create, disseminate and exploit knowledge within divisions defined by geographic differentiation when an MNE offers a very narrow product range where the key factor of success is not diversity but instead the ability to enhance functional performance. Nor would it be logical to organise a company by products when the range it offers is so wide that knowledge about one product line could not possibly enhance the performance of another. In international like any other kind of business, coherence between strategy and structure is indispensable.
At times, this coherence relates to more objective factors. One such concept, often called “the institution-based view”, refers to how well the MNE copes with whatever new socially embedded systems of rules it has encountered during its forays abroad. This can also be extended to its responses to changes in domestic or international political circumstances — one example being the way many European MNEs transitioned, following the 1993 implementation of the EU Single Market Rules, from multi-domestic approaches or geographic organisations highlighting market specificities to product or matrix organisations better able to integrate the diversity of the wider European national markets to which companies now had access. A second concept, called the “resource-based view” (RBV) — and particularly its VRIO (Value, Rarity, Imitability, Organisation) framework— zZfocuses on the value specifically generated by organisational decision-making. This is exemplified, for instance, by an MNE’s locating a research centre in one country as opposed to another due to the former’s special endowment in human capital, business networks and national innovation. Otherwise, RBV also envisions MNE organisation as having the ability to create rarity value which becomes another form of international competitive advantage — one example being when subsidiaries’ approach to knowledge management causes them to develop particularly effective resource planning systems that differentiate them from rivals. Indeed, under RBV competitive advantage resides in MNEs’ ability to create strong organisational structures juggling straightforward formal structures (policies, schemes, organisational charts) with more complex and less imitable informal ones (culture, ethics, teamwork, knowledge management systems). Where the MNE in question is large in size — hence hampered by flexibility constraints — but succeeds in applying these manoeuvres its competitive advantage will be commensurate to its organisational adjustments.
On other occasions, MNEs’ organisational coherence involves more subjective factors rooted in their culture, self-image and history.
One case in point relates to the lessons that a company has drawn from its own history, whether its initial experiences in its home market or else its internationalisation trajectory (how fast it grew, its risk attitudes and confidence in its ability to run foreign subsidiaries). Another variable is managers’ adaptability, meaning their capacity for coping in different kinds of organisations as well as their willingness to cede part of their power and authority if need be..
These latter variables speak to the latent human forces at work in MNEs like any business or social entity. It is one thing to explicitly publicise departmental boundaries and hierarchical relationships — it is another to analyse the fit with the people actually working at the company. Individuals are not robots. They will always bring their personal mindsets and affinities to the workplace. Conflict is inevitable and can be especially hard to manage in an international environment where employee values and notions of self-interest (see Chapter 4) are particularly divergent. Hence the enormous efforts most MNEs make to maximise employees’ adherence to their corporate culture (see Chapter 5) — an effort requiring sociological understanding of how organisational roles interact.
Sociology of (multinational) organisations
The overriding principles driving organisational decision-making often reflect international business studies’ linkage of theoretical and practical concerns.
This refers to the extent to which an MNE’s head office shares power with subsidiaries. Professionals will have a natural interest in monopolising knowledge (hence power) but quickly learn that keeping colleagues out of the loop can de-motivate them and make them perform less well. This raises a broader question whether employees are satisfied with the particular role they have been assigned within the MNE — and whether they therefore accept the amount of power their superiors have captured or require that more be shared.
This principle is rooted in the recognition of authority. MNE reporting lines are often confusing. Where workers in a domestic company usually work near their boss and are therefore clear about expectations, MNE employees often have two bosses: the local country manager; and the person in charge of their product or functional area. Things can get complicated when the latter works in another time zone — especially if the two bosses have different business philosophies (regarding, for instance, pricing, product adaptation, or customer segmentation).
This is one solution to the confusion over people’s multiple roles within an MNE. Defining narrow missions is not always possible, however, especially in SMEs where, by definition, fewer people are work, meaning that each has several roles to fulfil. Large MNEs do have the advantage of being able to specialise staff so that everyone gains greater expertise in a particular area of competency. The problem is that this can create a silo mentality and tunnel vision hampering employees’ willingness to share useful knowledge outside of their own department.
The more specialised employees’ missions are within an organisation, the harder it is to coordinate them. A good way to visualise this is by imagining that each employee has a “territory” to manage. This can be defined along functional lines (one stage in the value chain) but also in terms of products or geography. The company needs to ensure that all these territories fit together in a way that avoids duplication while maximising performance.
Territorial conflicts are frequent in MNEs, often because one team has the ambition of taking over another’s business. It may be in the company’s interest for both teams to coordinate. But if they have separate bonus pools — as is frequently the case in fragmented multinational organisations - they are likely to see things differently.
Companies spend considerable resources on controlling performance. In widely dispersed MNEs where managers work far from their teams, getting feedback can be difficult, however. Visits to foreign colleagues are often advisable in this case, but they are expensive and generally only occur sporadically. Hence the global (or at least regional) reporting systems that MNEs develop to compensate for this deficiency. It remains that information transmitted over long distances does not always paint a full picture of what is happening in far off subsidiaries. Country managers have a vested interest in protecting their teams from head office interference and may not communicate all relevant facts. And head office executives suffering from information overload may not have the time to cope
Multinational organisations and paradigms 87 with anything more than short and necessarily incomplete reports. One constant in international business today is that people are incredibly busy. The ensuing need for abbreviated communications undermines managers’ overall control, however.
Bartlett, C. and Ghoshal, S. (1989), Managing across Borders: The Transnational Solution, Harvard Business School Press.
Buckley, P. (2010), “Stephen Hymer: Three Phases, One Approach?”, in Foreign Direct Investment: China and the World Economy, Palgrave Macmillan.
Levitt, T. (1983), “The Globalization of Markets”, Harvard Business Review, https://hbr.org/1983/05/the-globalization-of-markets
UNCTAD (update continuously), Transnationality Index, http://unctad.org/en/ Pages/DIAE/World Investment Report/Largest-TNCs.aspx
World Bank (update annually), Doing Business, https://www.doingbusiness.org
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