This chapter opens by an extensive overview of the literature on integration. The point
of departure is a definition and an un-bundling of the term .integration.. Following from
this, integration rationales and drivers are reviewed from an .external. environmental
contingency perspective and an .internal. strategic choice perspective. Based on this
overview, integration challenges are identified across a number of different areas before
reviewing relevant integration capabilities. The primary focus is on integration in the
multinational corporation. However, the review also draws on literature regarding
corporate parenting in multi-business firms, post-merger integration and international
joint ventures and strategic alliances where such literatures are relevant to the study of
cross-border integration in MNCs. To distinguish the contributions, the terms
.headquarters. and .subsidiaries. are used when reviewing integration literature from the
international business field and .parent. and .strategic business unit. (SBU) are used in
relation to general multi-business literature. This distinction will hopefully provide an
element of transparency.
The chapter continues by discussing the extant literature on MNC subsidiary
management. The focus is specifically on the way that subsidiary managers. actions and
agency have been conceptualised in different strands of the literature.
Based on this overview of literatures on integration and subsidiary management, the
knowledge gap is identified through a conceptual framework that outlines the level of
analysis at which the different theoretical contributions are positioned. To achieve this,
contributions both from within and outside the international business literature are
mapped against the different levels of analysis: to the industry, company, headquarters,
subsidiary and managerial levels. From this meta-categorisation, I argue that we have a
lack of knowledge regarding integration at the managerial level of analysis within the
international business literature concerned with cross-border integration. This framing
of the knowledge gap leads into a discussion of the specific research questions
addressed by this dissertation.
At the end of the chapter, the two perspectives of sensemaking, and strategy-as-practice
and micropolitics are introduced as these literatures contain valuable points of departure
from which to initiate research concerning integration from the subsidiary management
perspective.
2.1 Defining and un-bundling integration
Given that this dissertation concerns cross-border integration, and that .integration. is
used in a variety of different meanings in management literature, it would be hazardous
to proceed before arriving at a definition of the construct.
It is helpful to start by defining the opposite of integration. In an MNC context, this
dissertation defines the opposite of integration as local autonomy. That is, when
operations in different parts of the MNC are run on an independent basis and local
decisions are made without coordination with other units within the MNC. An
alternative candidate for the opposite of integration would be local responsiveness.
However, given that several scholars have argued that it is possible to simultaneously
have high degrees of integration and responsiveness (Bartlett, 1986; Bartlett & Ghoshal,
1989; Prahalad & Doz, 1987), this dissertation argues that integration and autonomy are
more appropriate labels for the different ends of the spectrum.
Having defined the opposite of .integration., our attention now turns to the definition of
the term itself. It is important to note that there is no clear and universally accepted
definition of .integration. in the management literature. The two quotes below from the
post-merger integration literature acknowledge this fact and the statements would be
just as appropriate in relation to literature on cross-border integration within MNCs.
Integration clearly means different things to different people. Most importantly, it
means different things in different situations (Haspeslagh & Jemison, 1991:138).
Surprisingly, very little literature directly defines integration. Although most authors
acknowledge that integration involves some form of combining the assets and people of
the buyer and the target, in general, the term is used quite loosely (Schweiger & Goulet,
2000:63).
It is also important to relate .integration. to .coordination.. Mintzberg (1983b) has
argued that coordination is one of the most fundamental requirements of management:
Every organized human activity – from the making of pots to the placing of a man on
the moon – gives rise to two fundamental and opposing requirements: the division of
labor into various tasks to be performed, and the coordination of these tasks to
accomplish the activity (1983b:2, italics in original).
In this context, it is worth noting that while integration is sometimes considered as a
synonym for coordination, other authors maintain a distinct separation between the two
terms. The first position is taken by authors like Martinez and Jarillo (1989) who state
that they use the terms .mechanisms of coordination. and .mechanisms of integration.
as synonyms for the same underlying phenomenon. This is also evidenced in their
definition of coordination mechanisms as: .any administrative tool for achieving
integration among different units within an organization. (Martinez & Jarillo,
1989:490). The second position is maintained by authors like Kobrin (1991) who
propose a clear distinction between integration and coordination when it comes to
global strategies:
.Transnational integration, as opposed to the cross-border coordination of activities,
involves rationalization that may entail standardization of product, centralization of
technological development, or the vertical or horizontal integration of manufacturing.
(1991:19).
The above indicates that integration can be viewed as a process of change aimed at
combining, concentrating, centralising or standardising activities. From this perspective,
integration implies that activities will be done differently and that the integration
process will have a start and a finish. In contrast, coordination refers to ongoing efforts
to achieve alignment between different organisational units to ensure that required tasks
are completed.
Given the above distinction between integration and coordination, it is useful to
consider the difference between a process and an end-state. From a process perspective,
integration would thus mean a change process that transforms the organisation from
independence or autonomy towards integration in selected areas. However, coordination
would simply be about ongoing alignment and would not require any change
component, and coordination would not necessarily be distinguished by any specific
start and finish. This can be illustrated using a specific example such as manufacturing.
Using the above definition, there would be a distinct difference between integration of
manufacturing and coordination of manufacturing. Integration of manufacturing would
imply a process of change that results in a different end-state for the manufacturing
function. It would be meaningful to compare manufacturing ex ante and ex post of
integration efforts. Integration can thus be viewed as a change process that results in a
different end-state for affected functions or business areas. This is in sharp contrast to
coordination, which simply refers to ongoing alignment efforts without any specific
objective to drive change and alter the end-state of the function being coordinated. From
this perspective, manufacturing could be coordinated on an ongoing basis to ensure that
input materials are delivered on time, that products are being produced according to
required volumes and specifications, and that finished products are delivered to sales
locations. While there may be significant efforts required to ensure effective
coordination of manufacturing, the end-state of the manufacturing function would not
be altered by ongoing coordination efforts.
The desire to achieve integration may further require the creation of coordination
mechanisms to ensure ongoing alignment. This becomes clear if we consider
Mintzberg.s (1983a) six coordination mechanisms: mutual adjustment, direct
supervision, standardisation of work processes, standardisation of outputs,
standardisation of skills and standardisation of norms. This illustrates that stronger
coordination in the form of different types of standardisation may be required to align
.integrated. organisational units given the higher degree of interdependence compared
with independent, autonomous operations.
Integration is clearly not limited to the domains of multinational or multi-business
corporations. Thus, when it comes to integration within an organisation, such efforts can
involve: 1) organisational units belonging to the same strategic business unit in a single
country, 2) organisational units belonging to different strategic business units within the
same country, 3) between organisational units at headquarters (parent) and in
subsidiaries (SBUs) located in different countries, as well as 4) directly between
subsidiaries (SBUs). The last two cases are labelled cross-border integration in order to
provide clarity in this dissertation.
Integration can also be used to refer to the value creating activities of the corporate
headquarters. In this context, Burgelman and Doz (1996) have argued that .strategic
integration. ultimately is concerned with how corporate management creates value over
and beyond the sum of the parts of the separate businesses within a company. With this
definition, strategic integration thus provides the rationale for the existence of
headquarters and for grouping a set of businesses under one owner. There are clear
parallels here with Goold, Campbell and Alexander.s (1994) discussion of corporate
parenting and the conditions under which the corporate parent creates value in the
multi-business firm.
Integration takes on yet a wider meaning if we also consider integration of units within
the organisation with other units outside of the organisation. This would be the case for
a diverse range of cooperation efforts including joint ventures, strategic alliances,
participation in industry organisations and standard-setting forums, providing
specifications to vendors and aligning sales and marketing activities with distribution
partners. A specific transition case would be post-merger integration that would
combine units inside the organisation with unit(s) previously located on the outside. In
addition to this, integration is sometimes also used in the context of systems integration,
meaning the integration of different technical systems.
Based on the above review, integration researched in this dissertation is limited to
.cross-border integration. between organisational units within the same multinational
corporation (e.g. headquarters and subsidiaries) located in different countries. Given
this, we turn our attention to various forms of integration of particular relevance for
MNCs.
2.1.1 Value chain configuration and coordination
In the MNC strategy literature, .integration. is sometimes referred to as a singular
construct, often contrasted with .responsiveness. as in the integration-responsiveness
(IR) grid (Bartlett, 1986; Bartlett & Ghoshal, 1987a; Bartlett & Ghoshal, 1987b; Bartlett
& Ghoshal, 1988; Bartlett & Ghoshal, 1989; Prahalad & Doz, 1987). However,
Prahalad and Doz (1987) argue that .integration. is in fact composed of two building
blocks. The first element, .global integration of activities., refers to centralised
management of dispersed activities on an ongoing basis to reduce costs and optimise
investments. The second element, .global strategic coordination., instead refers to
coordination of resource commitments and strategic decisions across organisational
units in different countries. In contrast to global integration of activities, strategic
coordination can be selective and non-routine. But as they assume a high degree of
interdependence between .global integration of activities. and .global strategic
coordination., Prahalad and Doz decided to collapse the two dimensions in the IR
matrix and only refer to integration as a single dimension.
Porter.s value chain (1985) can also be used to analyse the integration of activities
between organisational units in a MNC. Porter (1986; 1998) has distinguished between
configuration and coordination of value chain activities. Configuration refers to spatial
decisions regarding the location of sites and the number of sites within the
multinational. This is also referred to as the concentration-dispersion perspective (Lim,
Acito, & Rusetski, 2006). In the post-merger integration literature, the term
consolidation has instead been used regarding such decisions (Schweiger, 2002).
Coordination refers to the nature and extent dispersed activities are coordinated versus
remaining autonomous (Porter, 1998:7). This has also been called the integration-
independence perspective (Lim et al., 2006) or just .coordination., in the post-merger
integration literature (Schweiger, 2002).
The elements of value chain integration are primarily internally oriented with a focus on
how the company can configure and coordinate its business activities including
sourcing, production, marketing, distribution, service and support activities across
borders.
2.1.2 Marketing standardisation
The focus of the international marketing literature is instead clearly oriented towards the
degree to which the customer experience is standardised or adapted across subsidiaries
operating in different countries. While the strategy literature tends to be internally
focused on the .business activity. as the unit of analysis, the international marketing
literature is instead externally oriented and concerned with elements of the .marketing
mix.. The literature defines marketing standardisation as the degree to which a
multinational company has standardised elements of the marketing mix (e.g. brand,
products, price, promotions, advertising, distribution) across subsidiaries in different
countries (Jain, 1989; Sorenson & Wiechmann, 1975; Yip, 1997). The degree of
marketing mix standardisation will thus have a significant impact on the similarity of
customer experience offered in different countries.
In light of the discussion of the terminology introduced by Prahalad and Doz (1987)
above, it is worth noting that while standardisation requires some form of strategic
coordination across borders, there is no requirement for physical integration.
In the post-merger integration literature, Schweiger (2002) has argued that all forms of
functions and activities can be standardised, not just marketing activities. Thus, the
primary focus in Schweiger.s work is on consolidation, standardisation and
coordination of functions and activities rather than a specific focus on the customer
experience.
The above thus relates to standardisation of work processes and outputs in the language
of Mintzberg.s (1983a) coordination mechanisms.
2.1.3 Defining integration
Following from the above discussion, this dissertation is limited to cross-border
integration which is defined as: .efforts to standardise the marketing mix, and physical
integration or strategic coordination of value chain activities across organisational
units, located in different countries, within the same multinational corporation’. It is
further acknowledged that integration can be viewed both as an outcome and as a
process.
This definition is based on the review of how .integration. is used in strategic
management, international marketing and post-merger integration literature as outlined
above. Multinational .value chain configuration and coordination., a concern addressed
in the strategy literature, appears to be at least partially treated in isolation from
.marketing standardisation. in the international marketing literature. This is unfortunate
as these dimensions of international strategy clearly complement each other. The
definition above seeks to bridge this gap and un-bundle integration into an external
dimension, focused on standardising elements of the customer experience across
borders, and an internal dimension, focused on coordination of business activities. This
distinction is also helpful in shedding light on the classic debate regarding whether
.structure follows strategy. or .strategy follows structure. (Burgelman, 1983b;
Chandler, 1962). Decisions to standardise marketing mix elements can result in
structural adjustments as the value chain is integrated as a result of marketing mix
standardisation. This would thus be a classic case of .structure follows strategy.. At the
same time, decisions regarding .back-end. or .upstream. integration may necessitate a
standardisation of marketing mix elements that may or may not have been contemplated
initially. This would then be a case of .strategy follows structure.. There is thus a clear
interrelationship between decisions to standardise marketing mix elements, and
decisions to integrate value chain activities that appears not to have been explored
sufficiently in literature.
An organising framework of different forms of integration can be created by
distinguishing between the integration type and the integration scope. Integration type
refers to whether integration efforts consists of ‘one-off’ strategic change, as a result of
a changed strategy-structure configuration, post-merger integration or other forms of
restructuring, or ongoing strategic coordination of business activities within an existing
strategy-structure configuration. Integration scope refers to whether integration efforts
are directed towards standardising the external customer experience or towards aligning
internal value chain activities.
Figure 2-2
Different forms of integration
In the top-left box we find change efforts that affect value chain activities. Examples of
such efforts include the centralisation of procurement, appointing a group-wide logistics
partner and developing a uniform financial reporting system.
ChangeIntegrationas .one-off
strategicchangeAlignmentIntegrationas ongoing
strategiccoordinationExternalcustomer experience/
marketing mixInternalValue chainactivitiesIntegration TypeIntegration ScopeBusiness as usual integrationwithin existingstrategy-structure configurationIntegration as change due toshifting strategy-structure configuration,
post-merger integrationor restructuringChangeIntegrationas .one-off
strategicchangeAlignmentIntegrationas ongoing
strategiccoordinationExternalcustomer experience/
marketing mixInternalValue chainactivitiesIntegration TypeIntegration ScopeBusiness as usual integrationwithin existingstrategy-structure configurationIntegration as change due toshifting strategy-structure configuration,
post-merger integrationor restructuring
In the top-right box, we have changes that affect the customer experience. This could
include standardising customer experience elements such as products, advertising,
customer service, retail shop design and pricing structures.
The bottom-left box includes ongoing efforts to coordinate value chain activities. This
might include the monthly consolidation of sales forecasts from multiple subsidiaries to
purchase input materials under group framework agreements or to produce production
targets for manufacturing units within the MNC.
Finally, the bottom-right corner consists of ongoing efforts to coordinate the customer
experience. This could include agreeing on joint advertising campaigns, coordinating
prices across countries to avoid .gray. trade with the MNC.s products and group-wide
sponsorships of specific sport events (e.g. World Cup, Olympics) or movie releases (e.g.
James Bond, Lord of the Rings).
All forms of integration above are seen as distinctly different from local autonomy. A
completely autonomous subsidiary or business unit would have freedom to decide both
marketing mix as well as value chain activities. It follows from this that the different
forms of integration act to restrict the local autonomy of subsidiary managers.
Integration thus affects the level of managerial discretion of subsidiary managers,
defined as .latitude of managerial action. (Hambrick & Finkelstein, 1987: 370). Un-
bundling integration into external marketing mix elements and internal value chain
activities is useful in order to determine which business areas are affected by integration
and to understand the domains over which subsidiary managers have managerial
discretion. Un-bundling integration into either strategic change or ongoing alignment
provides insights into the nature and magnitude of possible changes to the business as a
result of integration efforts.
2.2 Integration rationale
Having defined cross-border integration for the purposes of this research, we can now
turn our attention to the rationale behind cross-border integration decisions. There
appear to be two main perspectives regarding integration rationale, which are here
labelled the .environmental contingency perspective. and the .strategic choice
perspective.. These distinctions, while theoretical, are useful as they highlight whether
the literature views integration as driven by primarily .external. environmental/industry
forces or .internal. strategic choices based on firm-specific capabilities. The integration
literature is thus characterised by the same debate as in mainstream strategic
management literature between environmental determinism versus strategic choice
(Astley & Van de Ven, 1983; Child, 1972; Hannan & Freeman, 1977; Hrebiniak &
Joyce, 1985). This is also reflective of the debate between, on the one hand,
.positioning. oriented perspectives (e.g. Porter, 1980; Porter, 1985) and, on the other,
the resource-based view (Barney, 1991; Penrose, 1959; Wernerfelt, 1984) and dynamic
capabilities perspectives (Eisenhardt & Martin, 2000; Teece, Pisano, & Shuen, 1997).
While advocates of these two perspectives (outside in versus inside out) appear to put
forward quite different arguments, it is worth noting that these views nevertheless
reflect two sides of the same coin. Resources can only be valuable if they align in some
way to the imperatives of the market. In viewing integration through a particular
theoretical lens, one will inevitably emphasise some aspects of the phenomenon under
study at the expense of others. While offering powerful insights, a particular way of
seeing can thus become a way of not seeing (Morgan, 1997). We thus need to be
informed by both perspectives in order to gain a holistic understanding of integration.
2.2.1 Environmental contingency perspective
The fundamental argument advocated by scholars writing from the environmental
contingency perspective (e.g. Hout, Porter, & Rudden, 1982; Bartlett, 1986; Bartlett &
Ghoshal, 1989; Prahalad & Doz, 1987) is that industries differ in their globalisation
potential. The role of the strategist is to understand the characteristics of the industry,
and how it is evolving, and then to select an appropriate strategy that matches the
industry requirements. From this perspective, there are largely generic industry types
and corresponding generic strategy recipes that lead to superior performance. The core
of the argument is thus a form of contingency theory (Galbraith, 1973; Lawrence &
Lorsch, 1967; Thompson, 1967) based on realising congruence, or co-alignment,
between the environment the firm is operating in and the strategy and structure
configuration of the firm. In what follows, the history and pedigree of a number of
typologies of strategies for multinational corporations are reviewed, paying particular
attention to the emergence of the complex configuration labelled transnational (Bartlett,
1986; Bartlett & Ghoshal, 1987b; Bartlett & Ghoshal, 1987a; Bartlett & Ghoshal, 1988;
Bartlett & Ghoshal, 1989), multifocal (Prahalad & Doz, 1987) or heterarchical
(Hedlund, 1986).
This section takes its starting point in the literatures on international marketing and
multinational strategy to identify the evolution of typologies of multinational
corporations. In this context, it is interesting to note that the marketing literature is using
the term .international. marketing while the strategy literature is more often referring to
.global. strategy as the overall label for the genre. This is problematic as these terms are
used both in a general .cross-border. sense and also to distinguish specific
environmental contexts or generic strategies in some typologies, as we will see below.
MNC typologies
An intense debate between scholars, largely within the international marketing area, has
argued the extent to which markets are becoming increasingly homogeneous. From a
contingency perspective, this is an important debate as congruence between the
environment and the strategy/structure configuration of the MNC is considered essential
to organisational performance.
In a seminal contribution, Levitt (1983) argued for the globalisation of markets based on
technological drivers. Levitt.s prescribed strategy is based on standardised products that
will both take advantage of, and further reinforce increasingly homogeneous customer
preferences on a global scale. Douglas and Wind (1987) agree that changes in the global
business environment necessitate a global perspective on strategy but conclude that
Levitt.s thesis of global standardisation is both na.ve and over simplistic and may result
in major strategic blunders for multinationals who follow Levitt.s prescriptions. In
contrast to Levitt.s (1983) prescription of .standardisation. as the one best way, Douglas
& Wind (1987) advocate a contingency approach based on mixed strategies with some
standardised and some differentiated components. Thus, rather than going exclusively
for standardisation or adaptation, certain elements of the marketing mix are instead
standardised across regions or clusters of markets, or customer segments. Ohmae
(1989) advocates a similar contingency solution when he concludes that the quest for
universal products in general is a false allure but that Levitt.s prescribed global
standardisation makes sense for certain segments and certain product categories.
The strategy typologies presented below, with the exception of Perlmutter (1969), reject
the simplicity of Levitt.s thesis in favour of contingency arguments. However, as we
shall see, environmental and industry determinism are the primary drivers behind these
typologies.
Perlmutter.s (1969) classification of ethnocentric, polycentric and geocentric
organisations has had a significant influence on subsequent research. A characteristic of
this work was that Perlmutter believed in an evolutionary path for multinationals from
ethnocentric to polycentric and finally to geocentric. Another noteworthy feature was
that Perlmutter was primarily focusing on managerial mindsets rather than on strategy
and structure configurations. Limitations thus include the lack of influence of industry
or type of business as well as the possibility that different functions within the business
may be managed differently (Chng & Pangarkar, 2000).
In an early MNC typology paper, Doz (1980) outlined three different strategies:
worldwide integration strategy, national responsiveness strategy and administrative
coordination strategy based on popularising the integration-responsiveness dimensions.
While not citing Perlmutter, there are clear similarities between the two classifications.
Doz.s early work is also important as it introduces an antecedent to the transnational
concept. He argues for an administrative coordination strategy seeking to leverage
structural and administrative adjustments to reap the benefits of both worldwide
integration and national responsiveness.
The work of Hout, Porter and Rudden (1982) shifted the level of analysis from that of
strategy alone to industry, by arguing that there are only two types of industries in
which multinationals compete: multidomestic and global. Industry determinism is a
clear feature in this work and the authors argue that the nature of the industry or
industry segment should drive the selection of a global or multidomestic strategy.
Bartlett (1986) was the first to explicitly introduce the transnational model of the
multinational. Bartlett outlined global, multinational and transnational strategies with
reference to the integration-responsiveness grid. A reference in the notes section in the
book chapter, states that the I-R grid is derived from the integration-differentiation
concepts developed by Lawrence and Lorsch (1967) and that the framework had
originally been adapted by Prahalad in his Harvard DBA dissertation from 1975.
Bartlett argues that the forces for both integration and responsiveness are becoming
more important in many industries, putting pressure on companies to transition towards
the transnational model.
Citing works by both Perlmutter and Bartlett, Hedlund (1986) proposed the term
heterarchy for .hypermodern MNCs. that are organised as non-hierarchical networks
and seek to simultaneously achieve both integration and responsiveness. This idea of
characterising the MNC as a network was later extended by Bartlett and Ghoshal (1990)
with their model of the MNC as an interdependent network and by Nohria and Ghoshal
(1994; 1997) in their discussion of the differentiated network.
An alternative framework for multinational strategy is proposed by Porter (1986) based
on the two axes of coordination and configuration of activities. Using this framework,
Porter arrives at four different strategies: 1) purest global strategy, 2) export-based
strategy, 3) high foreign investment with extensive coordination among subsidiaries and
4) country centred strategy. In relation to Bartlett.s (1986) classification above, it is
clear that Porter.s country-centred strategy is most closely aligned with the
multinational, the purest global strategy and the export-based strategy are variations of
the global strategy and the high-foreign investment with extensive coordination among
subsidiaries is closest to the transnational given the high level of coordination together
with a geographic dispersion of activities.
The work of Prahalad and Doz (1987) also built on the integration-responsiveness grid
and produced similar strategies labelled global, locally responsive and multifocal. The
authors further provided one of the most frequently quoted lists of factors pushing for
integration and responsiveness. The pressures for global integration are: 1) importance
of multinational customers, 2) presence of multinational competitors, 3) investment
intensity, 4) technology intensity, 5) pressure for cost reduction, 6) universal needs and
7) access to raw materials and energy. In contrast, the identified pressures for local
responsiveness are: 1) differences in customer needs, 2) differences in distribution
channels, 3) availability of substitutes and the need to adapt, 4) market structure and 5)
host government demands.
Bartlett and Ghoshal (1989) built on Bartlett.s (1986) earlier work but also introduced
the international type based on exploiting parent company knowledge and capabilities.
The transnational was also explicitly extended as an organisation seeking to
simultaneously pursue global efficiency, local responsiveness and worldwide learning.
Table 2-2 below presents an organising framework for the different classifications of
strategies of multinational companies, with the exception of the international strategy
which only appears in Bartlett and Ghoshal.s work. The table is organised based on the
importance placed on global standardisation/ integration versus local
adaptation/responsiveness. The third category presents the .transnational. approach
seeking to balance standardisation/integration with adaptation/responsiveness. There is
thus a clear parallel between the marketing literature and the literature about strategic
and international management. The organising dimensions below can be used to classify
a substantial amount of prior research.
Table 2-2
An Organising Framework of MNC Typologies
Year
Global
standardisation/
integration
Local
adaptation/
responsiveness
Balancing integration
and responsiveness
Perlmutter
1969
Ethnocentric
Polycentric
Geocentric
Doz
1980
Worldwide
integration
strategy
National
responsiveness
strategy
Administrative
coordination strategy
Hout, Porter,
Rudden
1982
Global
Multidomestic
n/a
Bartlett
1986
Global
Multinational
Transnational
Hedlund
1986
n/a
n/a
Heterarchy
Porter
1986
1) Purest global
strategy and
2) Export based
strategy
Country-centred
strategy
High foreign
investment with
extensive coordination
among subsidiaries
Prahalad & Doz
1987
Global
Locally
responsive
Multifocal
Bartlett & Ghoshal
1989
Global
Multinational
Transnational
The influence of Harvard Business School has been significant in this field as a number
of scholars who have contributed seminal work received doctoral degrees from Harvard
between 1973 and 1986 (i.e. Bartlett, Doz, Ghoshal, Porter and Prahalad).
Bartlett and Ghoshal.s work has had the most widespread impact on subsequent
research and several quantitative studies have tested and empirically validated their
typology (Roth & Morrison, 1990; Leong & Tan, 1993; Harzing, 2000). This research
programme also adopts Bartlett and Ghoshal.s terminology but following Harzing
(1998), the terms multidomestic, global and transnational will be used while
multinational will instead be reserved as the generic term for a company operating in
different countries.
Overview of configurations
Following from the table above, this section provides a short summary of the key
features of the three key configurations: multidomestic, global and transnational based
on Bartlett (1986) and Bartlett and Ghoshal (1987a; 1987b; 1988; 1989). In this context,
it is important to remember that the configurations are ideal type theoretical
propositions rather than corresponding to actual organisations. The discussion does
however help to focus attention on some of the differences between what cross-border
integration means in different strategy and structure configurations of MNCs.
The multidomestic (multinational) configuration is characterised by a high degree of
autonomy for subsidiary units and decentralised decision-making. Subsidiaries are
nationally self-sufficient which means that there are more or less complete stand-alone
value chains in each country. Headquarters tends to manage multidomestic subsidiaries
as a portfolio of independent businesses, and subsidiaries are typically measured using
output control such as financial performance measures. In addition there is a layer of
informal personal relationships between managers at headquarters and trusted
expatriates. Multidomestic subsidiaries are thus fairly independent and separate
businesses operating with relatively little involvement from the parent company.
Knowledge is primarily developed locally and resides in the subsidiary rather than
being dispersed across the multinational. The primary flow between headquarters and
subsidiary is in terms of financial resources. The consequence is a high degree of local
responsiveness but only limited integration.
The global configuration is in many ways diametrically opposed to the dispersed logic
of the multidomestic configuration. Rather than replicating the value chain on a
country-by-country basis, organisational units and activities are instead tightly
integrated across the MNC. As a result, there is typically a high degree of centralisation
for most strategic resources, including R&D and knowledge. Overseas subsidiaries are
often performing specific functions such as extraction of raw materials or sales and
customer service rather than being independent businesses capable of stand-alone
operations. Global subsidiaries would thus typically not be able to function as stand-
alone operations without headquarters involvement. Given this, centralisation is a key
control mechanism and there is correspondingly tight control from the centre and low
levels of innovation and development in the periphery. The primary flow between
organisational units is in terms of products. As a result, companies following a global
strategy have a high degree of integration but lower levels of national responsiveness.
The objective of the transnational configuration is to create an organisation that is
simultaneously capable of local responsiveness, global integration and worldwide
learning. This requires strategic and organisational capabilities of an ambidextrous
nature, defined as the ability to pursue disparate and often conflicting demands at the
same time (Birkinshaw & Gibson, 2004; Duncan, 1976; Gibson & Birkinshaw, 2004;
O’Reilly & Tushman, 2004; Tushman & O’Reilly, 1996). The image that best describes
the transnational is that of an interdependent and differentiated network (Nohria &
Ghoshal, 1997). This means a much higher degree of integration compared to the stand
alone operations in the multidomestic model while more responsiveness compared with
the global configuration. As a result, value chain activities are physically integrated or
strategically coordinated as activities are performed where it makes most sense within
the multinational.s network. Subsidiaries are thus playing orchestrated roles in the
multinational as a whole rather than simply maximising local opportunities. Knowledge
creation is a much more dispersed activity and the objective is to share knowledge
across the multinational. With the change towards interdependence and integration,
control cannot be achieved through simple output measures any longer. Instead
socialisation emerges as an important mechanism to achieve normative control
throughout an increasingly complex organisation. This would thus be standardisation of
norms in Mintzberg.s (1983a) terminology. The transnational is further characterised
by a flow of resources, products and knowledge between different organisational units.
Given the need to balance responsiveness, integration and learning, the transnational
inevitably needs a matrix mindset which leads to complex organisational forms. While
Bartlett and Ghoshal identified a number of organisations as fitting the other MNC
configurations, the transnational was proffered as an ideal-type prescription for how to
respond to the conflicting challenges of responsiveness, integration and learning.
The above discussion has highlighted some of the key differences between a number of
the mostly commonly referenced strategy-structure configurations of multinational
corporations. It is clear that both forms of integration, the ongoing coordination of
activities, and the .one off. physical transformation of activities are involved in these
configurations to different degrees. Integration as ongoing strategic coordination
appears to be far more critical to the global and transnational configurations compared
with multidomestic firms. In instances where the MNC has made the transition from
global to transnational, or multidomestic to transnational or global, it would also appear
that integration as strategic change has been important.
2.2.2 Strategic choice perspective
Ghoshal (1987) concluded at the time that industry determinism had become a dominant
feature in multinational strategy but that while industry is important, it is only one of
many influences on strategy. This serves as a good introduction to the strategic choice
perspective of integration. In contrast to the external orientation of the environmental
contingency perspective, scholars researching integration from the strategic choice
perspective instead look within the firm to find the rationale for integration. This
naturally leads to a focus on resources, processes and capabilities.
This section will review the literature on strategic integration and corporate parenting
which both turn our attention to the capabilities of the multinational firm.
Strategic integration
Burgelman and Doz (1996) have argued that strategic integration, from a broad
perspective, is concerned with how corporate management creates value over and
beyond the sum of the parts of the separate businesses within a company. They have
also advocated that .strategic integration has to do with the assembly and cultivation of
resources, including tangible assets and the integration capabilities themselves, over
time and their coordinated deployment toward opportunities that not only confer
competitive advantage but also drive the further sharpening and deepening of these
tangible and intangible assets. (1996: 6). There are thus similarities between strategic
integration and corporate parenting, which we will focus on in the next section. There is
also a clear link to the resource based view (Barney, 1991; Penrose, 1959; Wernerfelt,
1984) and the dynamic capabilities perspective (Eisenhardt & Martin, 2000; Teece et
al., 1997) which both seek to understand how competitive advantage is achieved from
within the firm and how it is sustained over time. Strategic integration can thus be
viewed as a dynamic capability, based on specific strategic and organisational routines
(Eisenhardt & Martin, 2000; Teece et al., 1997).
The strategic integration capability is especially important when managers wish to
transition between one configuration to another, given the differences in resources,
strategy and structure between configurations. The capability is also critical if managers
want to move from weak to strong execution of a given configuration. Tying this
together with the previous definition of integration, would suggest that different
combinations of marketing standardisation and value chain integration correspond to
specific configurations (Miller, 1986; Mintzberg, 1983b) of strategy and structure in
multinational corporations. As previously noted, it is likely that integration as a strategic
change process could result in the creation of coordination mechanisms such as
standardisation of work processes or outputs.
Parenting theory
Researchers at the Ashridge Strategic Management Centre (Goold, 1996a; Goold,
1996b; Goold & Campbell, 1991; Goold & Campbell, 2002; Goold et al., 1994; Goold,
Campbell, & Alexander, 1998) have explored the conditions under which corporate
parents add value (rather than destroy value) in multi-business contexts. The language
of these publications does not refer directly to multinational corporations, to integration
or to dynamic capabilities. However, it is clear from the content of the writings that the
focus is on interventions by the corporate parent that affect SBUs, and that there is
relevance to the discussion about integration in MNCs. Given that the autonomy of
subsidiary units becomes restricted as a result of integration, the role of the corporate
parent or headquarters becomes critical in MNCs.
Goold, Campbell and Alexander (1994) have identified four ways in which parent
companies can create value. First, through stand-alone influence whereby the parent
influences the strategy and performance of otherwise stand-alone businesses. This might
be achieved in part through the standardisation of outputs (Mintzberg, 1983a); in this
case the parent company might use quality parameters or financial ratios as targets for
SBUs. Second, through linkage influences including synergies and transfer of best
practices. This could be achieved by standardising work processes or alternatively
through training to standardise worker skills or through the standardisation of norms
(Mintzberg, 1983a). Third, through the cost-efficient provisioning of central functions
and services to business units. This would correspond to integration as strategic change
rather than as ongoing coordination. Fourth, through corporate development activities
that alter the composition of the corporate portfolio by acquiring or divesting
operations. This would be a form of corporate restructuring, which would be closer to
integration as strategic change than ongoing coordination. The last form of parent
influence provides a link to the literature on mergers and acquisitions that discuss post-
merger integration (Schweiger, 2002).
Bowman and Ambrosini (2003) have also explored the conditions under which the
corporate centre is valuable to the organisation. In their discussion of how resource-
based and dynamic capability views of the firm can inform corporate level strategy, they
reach the conclusion that the corporate centre has to either be a resource or alternatively
have processes that create resources in SBUs in order to be valuable.
Goold, Campbell and Alexander (1994) have also outlined three different parent styles
which characterise how the parent relates to its business units. The financial control
style is characterised by a high degree of decentralisation of decision-making to
business units and a correspondingly small organisation in the parent company.
Business units are given a high degree of autonomy and are primarily measured in terms
of output control through the setting of budgets and performance targets. We can clearly
see how the financial control style would fit locally oriented MNC strategies described
as multidomestic (Hout et al., 1982), multinational (Bartlett, 1986) or locally responsive
(Prahalad & Doz, 1987).
At the other end of the spectrum, we find the strategic planning style. Parent companies
following this style typically have large and influential staffs that are closely involved
with a large number of functional areas across all areas of the business. As a result, the
level of autonomy for business units is fairly limited. There are thus clear parallels
between the strategic planning style and the centrally coordinated MNC strategies
labelled global (Bartlett, 1986; Bartlett & Ghoshal, 1989; Hout et al., 1982; Prahalad &
Doz, 1987) and purest global (Porter, 1986).
In between these two extremes above, we find the strategic control style. This style is
characterised by a balanced view between top-down planning driven by the parent and
bottom-up actions taken by the business units. Parent companies do this by balancing
the importance placed on financial objectives in the financial control style with the
focus on strategic milestones and objectives in the strategic planning style. The strategic
planning style is seen as gaining in popularity despite the fact that there are considerable
challenges to make the style work well. There are thus at least some similarities
between the strategic control style and the complex configurations labelled heterarchical
(Hedlund, 1986), multifocal (Prahalad & Doz, 1987) and transnational (Bartlett, 1986;
Bartlett & Ghoshal, 1989).
Goold and Campbell (2002) have further argued that .corporate parents inevitably
destroy some value by incurring overhead costs, slowing down decisions, and making
some ill-judged interventions, and that many corporate parents do not add enough value
to compensate. (2002:219). Given this, Goold, Campell and Alexander (1998) have
concluded that corporate parents .should avoid intervening in businesses unless they
have specific reasons for believing that their influence will be positive. (1998:309-310).
Goold, Campbell and Alexander (1998) have further proposed that three conditions
must be satisfied in order for the parent to add value:
Value creation only occurs under three conditions:
. The parent sees an opportunity for a business to improve performance and a role for
the parent in helping to grasp the opportunity
. The parent has the skills, resources and other characteristics needed to fulfil the
required role
. The parent has sufficient understanding of the business and sufficient discipline to
avoid other value destroying interventions (1998:310)
The parenting theory discussion is informative in that it highlights the conditions that
must be present in order for the parent to create value in the organisation. This literature
thus acknowledges the fact that not all activities of the headquarters necessarily add
value in multi-business corporations.
2.3 Integration challenges
This section reviews challenges to achieving successful integration. The challenges are
categorised as primarily relating to either headquarters or subsidiaries.
This section draws on literature relating to corporate parenting, MNC strategy and
mergers and acquisitions. Schweiger, Csiszar and Napier (1993) have argued that
mergers and acquisitions typically involve eliminating or shutting down units,
combining units and creating new interrelationships between units. To the extent that
cross-border integration efforts result in such strategic changes within the MNC, it
would be reasonable to assume that the implementation challenges would also be
similar. This provides the rationale for including literature on post-merger integration.
2.3.1 Headquarters related challenges
A number of integration challenges that primarily relate to the headquarters are outlined
below.
Ensuring value creation from integration
It is widely argued that the overriding rationale for integration within a company, as
well as for acquiring another company, should be that it creates more value than it
destroys. As stated by Goold (1996b) .[t]he purpose of any corporate parent should be
to add value to its businesses. In other words, the businesses should perform better as a
result of the parent than they would as independent entities…[however]…We have
found that unless the corporate parent is able to identify and focus on specific parenting
opportunities in its businesses, it is liable to damage, rather than enhance, the
performance of its businesses. (1996b:359). The same value creation logic is also
advocated from within the mergers and acquisition literature (Schweiger, 2002).
Ghoshal and Nohria (1993) have argued that integration is costly, and if a high degree
of integration is not fundamental to competitive advantage, a strategy based on strong
integration may destroy rather than create value. There must thus be a sound
justification for an organisation to adopt a more complex strategy configuration such as
the transnational.
Avoiding misguided headquarters intervention
The corporate parenting literature has identified that misguided intervention from the
parent can have negative effects. Goold and Campbell (2002) have argued that .[h]ands
on parenting can add high value, but it can also destroy it. If hands-on parents have
insufficient skills or poor staff support, they may blunder about rather than help the
business. If they are too prone to interfere, they may inhibit the initiatives of unit
managers and take on tasks for which they are ill-suited…Misguided hands-on
parenting is even more damaging than misguided hands-off parenting. (2002:226-227).
Goold, Campbell and Alexander (1998) have also proposed that successful parent
companies limit their attention to a few key opportunity areas rather than seeking to
intervene broadly right across the business. This allows the parent company to develop
distinctive skills rather than spread their efforts across areas where their intervention
would have low or negative value.
The potential for misguided interventions from the parent has also been identified in the
mergers and acquisitions literature. Jemison and Sitkin (1986b) have argued that
arrogant and defensive behaviour from parent company managers can lead to a rather
heavy-handed imposition of parent company practices in the subsidiary and sometimes
even the elemination of subsidiary-level capabilities that initially motivated the
acquisition. Several authors have further argued that post-merger integration efforts
should be limited only to areas where integration can capture most value (Carr, Elton,
Rovit, & Vestring, 2004; Schweiger et al., 1993; Vestring, Rouse, & Rovit, 2004).
Schweiger, Csiszar and Napier (1993) have labelled this the .principle of minimum
intervention. (1993:58). Vestring, Rouse and Rovit (2004) argue that many acquirers
surprisingly .often destroy value not as a result of inattention to detail but through
excessive zeal in their integration efforts…The reality is that too much integration can
block companies from realizing the benefits of a merger just as easily as too little can.
And, in some cases, over-integrating can do far more damage. (2004:15). This is similar
to the conclusion in the parenting literature that corporate parents should limit their
attention to a few areas with significant opportunities (Goold et al., 1994).
In general, there appears to be a realisation from within both the corporate parenting
literature (Goold & Campbell, 1998; Goold et al., 1994; Goold et al., 1998) and the
mergers and acquisition literature (Schweiger, 2002; Schweiger et al., 1993) that parent
company managers tend to overestimate the potential synergies from integration, while
implementation challenges are usually underestimated.
Ensuring quality of headquarter staff and execution
The role of parent level managers is significantly more complex in integrated
configurations compared with the situation where the parent operates closer to a
financial holding company, like in the financial control style (Goold et al., 1994)
expected in configurations described as locally responsive (Prahalad & Doz, 1987),
multidomestic (Hout et al., 1982) or multinational (Bartlett, 1986; Bartlett & Ghoshal,
1989).
This places requirements on the quality of staff within the parent and highlights whether
or not they have relevant strategic and operational experience. Goold and Campbell
(2002) have argued that .since upper level management have more demanding
responsibilities in complex structures, the issue of whether they have the necessary
skills is especially important. If they do not, value destruction by the parent is a very
real risk…A realistic assessment of value destruction by upper levels, and how it can be
minimised, continues to be a highly worthwhile discipline, with powerful practical
implications for management. (2002:241).
Bartlett and Ghoshal (1989) have commented that increased complexity in strategy
places requirements on headquarters employees to implement a multidimensional
organisation with differentiated roles for subsidiaries and leveraging flexible forms of
coordination. Prahalad and Doz (1987) have similarly argued that headquarter managers
need increased analytical sophistication and that successful managers will need to be
.half yogis, and half commissars. (1987:272).
Goold, Campbell and Alexander (1998) have also stated that .the skills of the
individuals involved and the organisational heritage in which they operate can make
essentially the .same. process effective or ineffective. (1998:311). This point to the
essential role of high quality execution; the .practices. themselves may matter less than
how they are actually .practiced..
Avoiding multiple parenting levels
In large companies, there may be more than one level of management within the parent.
Goold and Campbell (2002) have argued that .[e]very extra level of parent management
brings with it the danger of duplication, redundancy, extra overheads and contradictory
parenting influences. A series of levels, each of which repeats the work of lower levels,
but with progressively less detailed knowledge, is a sure recipe for parenting value
destruction and should be avoided. (2002:233).
Managing divided and dotted-line reporting
Both Bartlett and Ghoshal (1989) and Prahalad and Doz (1987) have argued that simple
organisational structures are unlikely to be appropriate for complex integrated
strategies. A consequence of complex structures is that subsidiary/SBU managers often
need to report in some form of divided or dotted-line reporting relationships, like in a
matrix organisation. Goold and Campbell (2002) have argued that .[d]ivided reporting
is not easy. To work well, it requires clear agreement about who is responsible for what,
and a process for reaching a collective view on parenting responsibilities that are shared
between the bosses. Such agreements may be possible in principle, but are always liable
to break down in the face of specific issues and crises…Divided reporting also causes
potential conflict for operating unit managers. It is harder to respond to two bosses, each
with separate agendas and sometimes pulling in different directions. (2002:236-237).
Prahalad and Doz (1987) argue that most of the difficulties that managers experience in
matrix organisations are due to managers still relying on concepts and mental
frameworks used to manage simpler organisational forms.
Avoiding empire building at headquarters
Goold and Campbell (2002) have proposed that .[u]pper levels of management have
essentially two roles to play. The first concerns the minimum obligatory tasks needed to
manage and maintain the existence of the corporate entity. The second concerns adding
value to the operating units. (2002:220). However, it is far from clear that these two
.legitimate. rationales are the actual drivers behind the dimensioning of the parent.s
organisational structure and reasons for interventions undertaken by parent level
managers. This may especially be the case with regards to intermediate parent levels. As
argued by Goold and Campbell (2002) .groups and divisions are often created for
reasons that have little to do with the parenting needs of the units within them. Power,
politics, personal ambitions, management succession, location, or accidents of history
can all influence the formation of groups. (2002:233).
Taken together, the above acknowledges that not all interventions by a corporate parent
or headquarters actually add value.
2.3.2 Subsidiary related challenges
A number of challenges related to the subsidiary level were also identified which are
presented below.
Strategic and organisational fit
The issue of fit is typically not directly discussed in the MNC strategy literature in
relation to cross-border integration. However, Bartlett and Ghoshal (1989) have argued
that a firm.s administrative heritage is formidably difficult to change. This indicates that
integration between organisational units that have different administrative heritages
would not be easy, such as the integration of a previously autonomous subsidiary that
has evolved characteristics that are distinctly different from the parent.
The mergers and acquisition literature further informs us that acquisitions are likely to
be more successful if there is a high degree of both strategic and organisational fit
between the target and parent firms (Jemison & Sitkin, 1986a; Jemison & Sitkin,
1986b). Jemison and Sitkin (1986b) have defined strategic fit as .the degree to which
the target firm augments or complements the parent.s strategy and thus makes
identifiable contributions to the financial and non-financial goals of the parent., while
organisational fit is defined as .the match between administrative practices, cultural
practices, and personnel characteristics of the target and parent firms and may directly
affect how the firms can be integrated with respect to day-to-day operations once an
acquisition has been made. (1986b: 146-147). Olie (1994) has further argued that a
stronger degree of operational integration requires reasonably compatible styles across
all aspects of the acquirer and target including personnel policies, decision-making
styles and the focus of authority and responsibility. One manifestation of lack of
organisational fit would be a .culture clash. (Carleton, 1997) or .culture collision.
(Buono, Bowditch, & Lewis, 1985) based on differing opinions or practices across a
wide range of areas. We can infer from this that cross-border integration is also likely to
be more difficult in situations where there are low levels of strategic and organisational
fit between headquarters and subsidiaries.
Opportunistic subsidiary managers
The relationship between managers at headquarters and subsidiaries could be viewed as
an agency theory problem based on Jensen and Meckling.s (1976) definition:
We define an agency relationship as a contract under which one or more persons (the
principal(s)) engage another person (the agent) to perform some service on their behalf
which involves delegating some decision making authority to the agent. If both parties
to the relationship are utility maximizers there is good reason to believe that the agent
will not always act in the best interests of the principal. The principal can limit
divergences from his interest by establishing appropriate incentives for the agent and by
incurring monitoring costs designed to limit the aberrant activities, of the agent
(1976:308).
From this perspective, managers at headquarters need to protect themselves against two
problems that Eisenhardt (1989a) has labelled the agency problem and the risk sharing
problem. The agency problem relates to the possibility of divergent objectives between
the principal and the agent and also to the fact that it may be difficult for the principal to
verify what the agent is really doing. The risk sharing problem occurs if the principal
and agent have different attitudes towards risk taking.
The agency theory perspective thus focuses our attention on the fact that subsidiary
managers may not always act in the best interests of headquarter managers due to either
opportunistic behaviour or different attitudes towards risk. Agency theory has however
come under heavy criticism as a theory based on a negative view of human behaviour
and as a theory that can actually stimulate the opportunistic behaviour it seeks to control
(Ghoshal, 2005; Ghoshal & Moran, 1996).
Securing subsidiary managers’ commitment
Ensuring compliance, and beyond that, commitment from subsidiary managers is likely
to have a substantial impact on the successful outcome of integration initiatives. Kim
and Mauborgne.s (1991; 1993b; 1993a; 1993c; 1995) research on procedural justice has
informed us that subsidiary managers are less likely to be committed to corporate
integration initiatives and mandates if they perceive the decision-making process as
unfair. This stream of research thus informs us that the degree of commitment from
subsidiary managers is important to the success of integration initiatives. However, in
contrast to agency theory research, the procedural justice literature suggests that
subsidiary managers. commitment can be reduced by perceptions that the integration
process is unfair.
In a general discussion regarding justice, Greenberg (1993) has argued that justice
comes in several different classes based on whether the category of justice is procedural
or distributive, and whether the focal determinants are structural and social. The first
category relates to a focus on justice in either the process itself or the outcome of the
process (distributive). The second category refers to justice in the structure of the
system versus perceived justice in interpersonal social relations. Managerial
commitment may thus be negatively affected as a result of perceived injustice at both
interpersonal and structural levels as well as from both the process itself and the
outcome of the process.
While the discussion of subsidiary managers. perceptions of cross-border integration is
rather limited in the MNC strategy literature, the mergers and acquisitions literature
offers a rich source of information including full volumes dedicated to the .human.
dimension of M&A (e.g. Buono & Bowditch, 1989; Cartwright & Cooper, 1996).
Jemison and Sitkin.s (1986b) review identified a number of people-related problems
including career uncertainty, concerns about geographic relocation and financial
security, feeling alienated and lack of trust in co-workers. Another review identified
additional human behaviour problems in the integration process: communications
breakdown, .we-they. communication dynamics and decreased commitment (Yu,
Engleman, & Van de Ven, 2005). Napier (1989) has also identified reactions such as
fear, .being sold out., loss of autonomy, anxiety and low morale. Marks (1997) has
further argued that .[s]igns of human stress are present in all combinations, even the
friendliest and best-managed ones. (1997:268). There are also those who have argued
that mergers and acquisitions often fail because the target company managers often feel
like stepchildren experiencing the same emotional challenges as in ordinary stepfamilies
including discrimination, feeling deficient, lacking clear guidelines of role definition,
experiencing anxiety and uncertainty and feeling helpless and rejected (Allred, Boal, &
Holstein, 2005; Fulmer & Gilkey, 1988). In instances where cross-border integration
involves large-scale strategic change, it would not be too much of a leap in faith to
assume that similar mechanisms may be triggered at a subsidiary management level.
2.4 Integration capabilities
Given the many challenges that must be overcome to realise successful integration, the
attention now turns towards some key organisational capabilities that appear relevant
for multinationals seeking integration.
2.4.1 Managing decision-making and implementation
The complexity of integration raises the question of how such strategies should be
developed and implemented. The area of procedural justice championed by Kim and
Mauborgne offers suitable suggestions for the complex and interdependent
multinational (Kim & Mauborgne, 1991; Kim & Mauborgne, 1993a; Kim &
Mauborgne, 1993c; Kim & Mauborgne, 1993b; Kim & Mauborgne, 1995; Kim &
Mauborgne, 1996; Taggart, 1997; Kim & Mauborgne, 1998; Ellis, 2000).
Procedural justice is defined as .the extent to which the dynamic of the multinational.s
strategy-making process for its subsidiary units are judged to be fair by subsidiary top
management. (Kim & Mauborgne, 1993a:422). A high level of perceived procedural
justice has been shown to lead to significantly greater compliance by subsidiary units
also in the situation when subsidiary managers disapprove of the decisions taken by the
corporate centre. The concept is thus essential as it will inevitably be difficult to please
all subsidiary units in an interdependent multinational yet some degree of compliance is
required to realise gains from strategic integration (Kim & Mauborgne, 1993a).
According to Kim and Mauborgne (1993c), there are five central pillars to procedural
justice in the context of multinational management. First, the existence of two-way
communication between the corporate centre and the subsidiary in strategic decision
making. Second, the ability for subsidiary managers to legitimately challenge the
strategic views of the corporate centre. Third, that the corporate centre is knowledgeable
about the local situation of subsidiaries. Fourth, that subsidiary managers are given an
account of the final strategic decisions by the corporate centre together with an
explanation of the rationale behind the final decision. Fifth, that the corporate centre is
consistent in decision making across subsidiaries.
Bartlett and Ghoshal (1988) have also looked at the need for the parent company to gain
subsidiary input into decision making, given that parent company managers need to
ensure both an understanding of market needs and secure the commitments of those
subsidiary managers who will be asked to implement decisions.
In the mergers and acquisition literature, it has also been argued that fairness during the
integration process, together with open and honest communication, are prerequisites for
success (Schweiger et al., 1993; Schweiger, 2002). The need for fairness and
communication are thus stressed across both the MNC strategy and post-merger
integration literatures. It would further appear that trust is a central component to make
both cross-border integration and post-merger integration work. In relation to this, it is
worth noting that trust is also viewed as a central component of successful international
joint ventures and strategic alliances (Currall & Inkpen, 2002; Inkpen, 2001; Inkpen &
Currall, 1998; Inkpen & Currall, 2004; Madhok, 1995; Svejenova, 2006; Yan & Gray,
1994). This thus indicates that trust and fairness may be of universal importance for
cross-border integration, post-merger integration and international joint ventures and
strategic alliances.
2.4.2 Managing structure
The complexity of integration often prevents the adoption of simple organisational
arrangements, given the need to manage multidirectional flows of capital, products and
knowledge. This points in the direction of some form of matrix arrangement which
recognises the need for geographic/country management for local responsiveness,
business/product management for global integration and efficiency and functional
management for worldwide learning (Bartlett & Ghoshal, 1992). Given the inherent
challenges of a formal matrix organisation, it has been argued that such a .transnational.
matrix is not simply a structure but a .decision-making culture. (Prahalad & Doz, 1987)
or a .frame of mind. (Bartlett & Ghoshal, 1990). Bartlett and Ghoshal recognised that
advances in strategy have moved out of pace with organisational and managerial
developments and that as a result: .corporations now commonly design strategies that
seem impossible to implement, for the simple reason that no one can effectively
implement third-generation strategies through second-generation organisations run by
first-generation managers. (1990:144-145). This raises the question of whether
challenges to make complex strategies such as the transnational work, primarily relate
to failures of formulation or failures of implementation? That is, if appropriate
implementation capabilities do not exist, and cannot be developed or acquired within a
realistic timeframe, sophisticated .third-generation. strategies might actually be flawed.
Numerous studies have reported on the many challenges of making matrix organisations
work (Prahalad, 1976). These include problems such as unclear roles and
responsibilities, ambiguous authority, difficulties in measuring performance, misaligned
goals, increased information and coordination costs, slower response time and excessive
overheads (Davis & Lawrence, 1978; Kolodny, 1981; Naylor, 1985; Larson & Gobeli,
1987; Ford & Randolph, 1992; Sy & D’Annunzio, 2005). However, despite the many
drawbacks of matrices no real alternative appears to have emerged to replace the matrix.
As argued by Naylor (1985) .the matrices are not the cause of the organisational
complexities. Rather matrices merely reflect the degree of complexity that already
pervades large multinational companies. (1985:18). Goold and Campbell (2003b;
2003a) have also studied the many problems with matrix structures and have also
advocated that the best way forward is to improve the way matrices work rather than
abandon them all together.
To avoid the negative reputation of matrix organisations, Goold and Campbell (2003b)
proposed the term .structured networks. to describe well designed matrices:
Structured networks avoid the problems of matrices by keeping the amount of structure,
process and central influence to a minimum. Units are defined so that they can be as
self-managing as possible. Collaboration is achieved primarily through self-managed
networking between units. Rules, influence and control from the centre are kept as lean
and unobtrusive as possible. In a structured network, the default position is
decentralisation, yet there is just enough structure to promote the right kind of self-
managed behaviour and there is just enough processes, rules and controls to ensure
success…Network structures are intended to achieve both the benefits of focus and
autonomy associated with SBU-based structures and the benefits of interdependence,
which are designed into matrix structures. The danger, of course, is that the network
ends up instead with the lack of co-operation of SBUs together with the excessive
complexity and ambiguity of the matrix. To fulfil its potential, a network must be
designed with enough structure to make the whole add up to more than the sum of its
parts, but not so much that it inhibits initiative and accountability (2003b:428-429).
It is evident from the above, that matrix-type organisational solutions should be viewed
as a way to manage complexity rather than a miracle cure.
In many cases, it would appear that the implementation of an integrated configuration
would require a fairly complex organisational arrangement. The management of
integration would thus need to include an ongoing review and adjustment of the
organisational structure.
2.4.3 Control and coordination mechanisms
In line with Martinez and Jarillo (1989) a coordination mechanism is defined as .any
administrative tool for achieving integration among different units within an
organisation. (1989:490). Martinez and Jarillo (1989) further argue that:
Mechanisms of coordination are not exclusive tools of multinational corporations
(MNCs). Indeed, by definition, all organizations have a certain degree of specialization
or differentiation among their parts, which calls for some sort of coordination effort
across them. Large and complex firms competing in multiple markets need coordination
among different dimensions. Thus, mechanisms of coordination are neither original to
nor exclusive of MNCs: they are common to all large firms. It is the especial
complexity of MNCs that makes their study of interest (1989:490).
The literature on coordination and control mechanisms offers some guidance regarding
how to achieve integration. The strategy pursued by the multinational as well as the role
of the subsidiary appears to determine the type of reporting relationship between the
management of the subsidiary and the corporate centre (Picard, 1980). A complex and
interdependent configuration is likely to require a greater degree of communication
between subsidiaries and the corporate centre compared with simpler strategy
configurations. Complex strategies thus require a substantial amount of coordination
using both structural and formal mechanisms as well as more informal and subtler
mechanisms. The more subsidiaries are integrated, the higher the need seems to be for
all of the above forms of coordination mechanisms (Martinez & Jarillo, 1991). There
also appears to have been a general shift towards increased use of subtler coordination
mechanisms (Martinez & Jarillo, 1989) and it has been argued that the role of top
management is changing from managing strategy, structure and systems towards the
management of purpose, process and people (Bartlett & Ghoshal, 1995).
Mintzberg (1983a) has argued that there are six coordination mechanisms that provide
the glue which hold organisations together: mutual adjustment, direct supervision,
standardisation of work processes, standardisation of outputs, standardisation of skills
and standardisation of norms. Mintzberg (1983b) further argues that .[a]s organizational
work becomes more complicated, the favored means of coordination seems to shift from
mutual adjustment to direct supervision to standardization, preferably of work
processes, otherwise of outputs, or else of skills, finally reverting back to mutual
adjustment. (1983b:7). The form of mutual adjustment that manifests in complex matrix
structures would include extensive meetings, cross-country boards, liaison roles and
global project teams. This leads to a contingency argument which matches the
appropriate coordination mechanisms with the type of work performed in different parts
of the organisation.
Bartlett and Ghoshal (1989) has distinguished between the use of centralisation,
formalisation and socialisation as means to achieve coordination in MNCs. It would
appear that formalisation corresponds to standardisation of work processes, outputs and
skills, while socialisation corresponds to standardisation of norms. As previously
mentioned, complex strategies appear to require a lot of coordination as well as the use
of a variety of different mechanisms.
It would appear that control mechanisms for complex and interdependent networks need
to evolve from simple output based financial performance measures for the subsidiaries
towards more balanced measures that take account of the role of the subsidiaries within
the overall network. This is likely to lead to increased use of behavioural and input
control mechanisms and a reduction in the exclusive use of output control mechanisms
(Muralidharan & Hamilton, 1999). Given the difficulties with using simple control
mechanisms, Gupta and Govindarajan (2001) have argued for the need to cultivate a
.global mindset. that simultaneously balances the needs for high integration and high
differentiation. This is similar to what Bartlett and Ghoshal have labelled the .mind
matrix. (1987a). The above would explain why Goold, Campbell and Alexander.s
(1994) financial control style would appear to be best suited for locally oriented MNC
strategies labelled multidomestic (Hout et al., 1982), multinational (Bartlett, 1986) or
locally responsive (Prahalad & Doz, 1987).
The use of expatriates (Edstr.m & Galbraith, 1977), global teams and task forces
(Harvey & Novicevic, 2002) can also play central coordination roles. In addition, Gupta
and Govindarajan have suggested that feedback-seeking behaviour by subsidiary
managers is particularly effective in an MNC context (Gupta, Govindarajan, &
Malhotra, 1996; Gupta, Govindarajan, & Malhotra, 1999). This mirrors Stewart.s
(1995) discussion of self-management and lends further support for the use of subtler
coordination mechanisms.
The above has informed us that complex strategies require a good deal of coordination
and that there has been a shift away from relying exclusively on structural and formal
control mechanisms towards subtler coordination mechanisms.
2.4.4 Managing strategic change
In many cases, it would appear that integration is closely intertwined with processes of
strategic change. Bartlett and Ghoshal.s (1987b; 1987a; 1988; 1989) research tracked
how a number of multinationals tried to transition from their previous multidomestic,
international or global forms towards the transnational, and they noted that:
In finding their way through the complex process of strategic change, all the companies
have learned one fundamental lesson: a company.s ability to build and manage new
strategic capabilities depends on its existing organizational attributes – its configuration
of assets and capabilities, built up over the decades; its distribution of managerial
responsibilities which cannot be shifted quickly; and an ongoing set of relationships that
endure long after any structural change. Collectively, these attributes shape what we
refer to as a company.s administrative heritage. While strategic plans can be redrawn or
scrapped overnight, it is more difficult to refocus a company.s organizational capability.
The administrative heritage can be one of the company.s greatest assets – the
underlying sources of its key competences – and also one of its most significant
liabilities, since it resists change and thereby prevents realignment and broadening of
strategic capabilities (1998:38).
Such substantial change can be characterised as a shift in strategy configuration (Miller,
1986; Mintzberg, 1983b), organisational archetype (Greenwood & Hinings, 1993),
institutional template (Greenwood & Hinings, 1996) or paradigm (Johnson, 1992). It
has been argued that such combinations of structures and systems are characterised by a
single interpretive scheme based on an underlying set of beliefs and values (Greenwood
& Hinings, 1993) and exhibit patterned regularity (Ranson, Hinings, & Greenwood,
1980). Large scale change thus departs from the established individual and collective
organisational schemas of managers (Labianca et al., 2000).
Proponents of the punctuated equilibrium view of strategic change (e.g. Miller &
Friesen, 1980; Romanelli & Tushman, 1994; Tushman & Romanelli, 1985; Tushman,
Newman, & Romanelli, 1986) argue that organisations are in stable equilibrium most of
the time and that major change occurs during short periods of intensive, discontinuous
bursts of activity. Tushman, Newman and Romanelli (1986) have distinguished
between, on the one hand, convergent or incremental change, and on the other,
discontinuous or frame-braking change. While convergent change is compatible with
the existing structure of the organisation, .[d]iscontinuous or “frame-breaking” change
involves simultaneous and sharp shifts in strategy, power, structure, and controls.
(1986:3). Romanelli and Tushman (1994) have argued that organisational resistance to
change is fundamental to punctuated equilibrium theory as it describes why small-scale
changes fail to take hold. In this regards, it is however worth noting that .resistance to
change. is a loaded term that probably reflects power and hierarchical relationships. The
term is thus likely to reflect a headquarters bias given that there may be situations when
subsidiary managers. resistance to change is appropriate given the inappropriateness of
the imposed change originating at headquarters.
In a related discussion, Greenwood and Hinings (1996) have proposed that convergent
change occurs within an existing archetype or template while radical change occurs as
organisations move from one archetype or template to another. Following from their
argument, a shift from one strategy configuration to another can be considered an
example of radical change while gradual integration initiatives within an existing
configuration can be considered convergent change. Greenwood and Hinings (1996)
have argued that radical change is problematic given the institutional embeddedness of
an existing archetype. In a similar vein, Johnson (1992) has argued that paradigm shifts
are often required in relation to major strategic changes and that those are the most
difficult to achieve. Greenwood and Hinings (1996) have further proposed that
.[r]evolutionary and evolutionary change are defined by the scale and pace of upheaval
and adjustment. Whereas evolutionary change occurs slowly and gradually,
revolutionary change happens swiftly and affects virtually all parts of the organization
simultaneously. (1996:1024). Greenwood and Hinings (1993) have argued that change
is affected by the degree of commitment that organisational members have towards an
existing interpretive scheme versus new alternatives. During this change period, we thus
have the coexistence of two different interpretive schemes or templates which compete
for legitimacy as the existing form becomes de-institutionalised while the new form
becomes institutionalised (Johnson, Smith, & Codling, 2000). Bartunek (1984) has
referred to this process as second-order change described as .a radical, discontinuous
shift in interpretive schemes: organizational paradigms are reframed, and norms and
worldviews are changed. (1984:356). Balogun and Jenkins (2003) have argued that
.[f]or change to occur in organisations, the routines and their associated meanings have
to evolve. This is consistent with evolving new shared tacit knowledge about the way
we do things around here, and how organisational activities are co-ordinated and
integrated. It is necessary to somehow surface and change the knowledge of embedded
social practices and behaviours. (2003:249). In relation to change in MNC subsidiaries
it would thus appear that subsidiary managers might resist imposed change if they hold
a different local schema compared with managers at headquarters.
In the mergers and acquisition literature, Schweiger (2002) has identified that the
acquirer has four choices in relation to the target company: continue autonomous
operations, forced assimilation, voluntary assimilation and innovation. In forced
assimilation, the target company is required to adopt the practices of the new parent
company. There is substantial potential for resistance given the forced nature of
integration. Voluntary assimilation is much softer in that the target company voluntarily
buys into change and adopts parent company practices. In innovation, also called
novation (Schweiger et al., 1993), an integration group decides to innovate and go for
new practices independent of those of either the target company or the parent. Such
practices might originate as a result of benchmarking efforts or from the use of
management consultants. This offers the potential of a new start without a feeling of
superiority or .win-lose situation. of either party but may incur additional costs and
slow down the integration process. Haspeslagh and Jemison (1991) have similarly
proposed that the acquirer has the options of preservation, absorption and symbiosis
with the target firm based on relative needs for strategic interdependence and
organisational autonomy. Another typology is provided by Marks and Mirvis (2001)
who propose the five options of preservation, reverse takeover, absorption,
transformation and .best of both. based on the degree of change in the acquirer and
target. In discussing organisational cultures in mergers and acquisitions, Nahavandi and
Malekzadeh (1988) have argued that the acquirer has a choice of integration, separation,
assimilation and deculturation. All of these different typologies indicate that the parent
has a choice regarding: 1) keeping the target more or less intact, 2) imposing parent
company standards, 3) taking target company standards, 4) combining elements from
the two, and 5) innovating to create a fresh start for both companies.
The above has illustrated that management of strategic change may be a significant
component in integration, especially if integration introduces a different way of
working. As previously argued, it is thus relevant to distinguish between integration as
an ongoing alignment process and integration as a process of strategic change. The
latter form of cross-border integration would likely share many of the features of post-
merger integration. In fact, it may even be impossible to disentangle cross-border
integration and post-merger integration in instances when a heavily integrated MNC
purchases a previously autonomous company located in another country and proceeds
with integration efforts.
As identified above, the management of integration as strategic change appears be a
critical capability for multinationals who seek to realise integration benefits during
times of transition from one strategy configuration to another. Radical and revolutionary
change together with very high ambiguity can create cognitive disorder and a fault line
in sensemaking (Balogun & Johnson, 2004). This provides an explanation for why it
can be so challenging to make the transition between configurations.
Bolman and Deal (1991) have recommended that the management of change needs to
be considered from four different frames: human resource, structural, political and
symbolic (see Table 2-3). Each of these perspectives highlights different dimensions
and needs arising from the change process and prevents managers from applying a one-
dimensional approach to a multidimensional challenge.
Table 2-3
Four perspectives on change
Human resource:
Change causes people to feel incompetent,
needy, and powerless. Developing new skills,
creating opportunities for involvement, and
providing psychological support are essential.
Structural:
Change alters the clarity and stability of roles
and responsibilities creating confusion and
chaos. This requires attention to realigning and
renegotiating formal patterns and policies.
Political:
Change generates conflict and creates winners
and losers. Avoiding or smoothing over those
issues drives conflict underground. Managing
change effectively requires the creation of
arenas where issues can be negotiated.
Symbolic:
Change creates loss of meaning and purpose.
People form attachments to symbols and
symbolic activity. When attachments are
severed, they experience difficulty in letting go.
Existential wounds require symbolic healing.
Source: Bolman and Deal (1991:377)
Bartlett and Ghoshal (1998) also recognise the need to manage change across different
dimensions and they have outlined two distinctly different sequences of change, based
on a biology analogy, reproduced in Table 2-4 below. While recognising exceptions,
they propose that the change process has a greater chance of success if companies
follow the emergent change process, based on first changing individual attitudes and
mentalities, before attempting large scale change to interpersonal relationships,
processes, structures and responsibilities. Connecting with Bolman and Deal.s (1991)
four frames of change above, it would appear that Bartlett and Ghoshal.s proposed
approach begins with symbolic change, continues with human resource and political
change and finally concludes with structural change.
Table 2-4
Two perspectives on managing strategic change
Traditional change process
Emerging change process
1. Change in formal structure and
responsibilities (Anatomy)
2. Change in interpersonal relationships and
process (Physiology)
3. Change in individual attitudes and
mentalities (Psychology)
1. Change in individual attitudes and
mentalities (Psychology)
2. Change in interpersonal relationships and
process (Physiology)
3. Change in formal structure and
responsibilities (Anatomy)
Source: Adapted from Bartlett and Ghoshal (1998:291-292)
In a study of post-merger integration, Birkinshaw, Bresman and H.kanson (2000) made
a separation between task-integration and human-integration. The authors found that
task-integration could only be achieved after human integration had first been realised.
This findings mirrors Bartlett and Ghoshal.s (1998) argumentation above and provides
further support for the need to focus on, and prioritise, the human side of integration.
Moving beyond the literature on major strategic change described above, it is also
interesting to note that Lervik (2005) found that change management has a significant
impact on the transfer of managerial practices within a multinational setting. Lervik.s
(2005) research was focused on the transfer of a performance management practice
within Norsk Hydro, a major Norwegian multinational. This suggests that the
management of strategic change is a critical capability both in order to implement major
shifts between strategy configurations as well as for ongoing efforts to transfer practices
between headquarters and subsidiaries.
2.5 Subsidiary management
Following from this overview of the integration literature, our attention now turns to the
way that subsidiary managers are conceptualised. Nohria and Ghoshal (1997) have
argued that there has historically been a headquarters bias in the literature about
headquarters-subsidiary relations. Birkinshaw, Hood and Jonsson (1998) have gone
further and stated that: .[t]aken as a whole, the body of literature on subsidiary
management had done a far better job at understanding aspects of subsidiary context
(how the subsidiary relates to its parent, its corporate network, its local environment)
than of understanding what actually happens inside the subsidiary. (1998:223).
Regarding how the actions and agency of subsidiary managers have been
conceptualised in literature, we find that there are four primary positions taken as
illustrated in Table 2-5 below.
Table 2-5
Conceptualisations of subsidiary managers
Conceptualisation of subsidiary managers
Illustrative examples
Not directly addressed
Porter (1980; 1985)
Instruments of headquarters
Johansson & Vahlne (1977)
Vernon (1966)
Socialised members of the multinational
Bartlett & Ghoshal (1989)
Nohria and Ghoshal (1994; 1997)
Active entrepreneurs
Burgelman (1983a; 1983b)
Birkinshaw & Hood (1998)
Birkinshaw et al. (1998)
First, we note that we have a fairly limited understanding, in general, of strategy
formation at the subsidiary or business unit level. In contrast, we know a great deal
about strategy from a corporate portfolio perspective or in terms of business strategy for
stand-alone companies. Many common text-book frameworks used to analyse and
develop strategy, including Porter.s five forces (1980) and value chain (1985), take their
starting point in independent operations where managers are implicitly assumed to have
significant managerial discretion and degrees of freedom when it comes to setting the
strategy. In this literature, the specifics of subsidiary management are thus typically not
directly addressed.
In the early international business literature, we find a hierarchical perspective in which
subsidiary managers are often treated as instruments of headquarters that are assumed
to merely implement a strategy which has originated at headquarters. This position is
evident in some early internationalisation theories, including the product life cycle
(Vernon, 1966) and the Uppsala internationalisation process (Johanson & Vahlne,
1977). Birkinshaw and Hood (1998) concluded that these two theories .work on the
assumption that the subsidiary is an instrument of the MNC and, consequently, that it
acts solely with regard to head-office-determined imperatives. (1998:775). As a
consequence, the agency of subsidiary managers is substantially restricted in this strand
of literature.
With the relaxation of assumptions of hierarchy, and the introduction of MNC
conceptualisations based on heterarchy (Hedlund, 1986) and the differentiated network
(Bartlett & Ghoshal, 1989; Nohria & Ghoshal, 1994; 1997), the attention shifted
towards viewing subsidiary managers as contributing members to the wider
multinational. Given the complexities of managing transnationals or multifocal firms,
these scholars argued that subsidiary managers needed to be socialised members of the
multinational capable of taking a wider view than the short-term requirements of the
particular subsidiary in which they are working at any specific point in time. This thus
shifts the focus away from the the top-down view in which subsidiary managers are
mere instruments of headquarters.
A similar stance is taken in the literature on autonomus strategic behaviour (Burgelman,
1983a; 1983b) and subsidiary initiatives (Birkinshaw & Hood, 1998; Birkinshaw et al.,
1998) which goes further by showing that subsidiary managers have the capability to act
as active entrepreneurs. This position is thus similar to the literature on middle
management which also points to the key strategic role played by managers at a lower
level in the organisation than corporate top management. This feature of the middle
management literature is well summarised by Bower and Gilbert (2007) who noted that
.[w]e have found in one research study after another that how business really gets done
has little connection to strategy developed at corporate headquarters. (2007:74, italics in
original). Floyd and Wooldridge (1990; 1994; 1997) have also focused our attention on
the critical role of middle managers both in terms of developing and implementing
strategies. Their findings indicate that involvement of middle managers in the strategy
formation process is associated with improved organisational performance (Woolridge
& Floyd, 1990). Boundary spanning middle managers were found to have especially
significant levels of strategic influence within their organisations, given that those
managers typically mediate between the organisation and its environment (Floyd &
Wooldridge, 1997). The above suggests that subsidiary managers of multinationals
share many of the characteristics commonly attributed to middle managers. It can thus
be argued that subsidiary managers play key roles as recipients and deployers of cross-
border integration initiatives. As such they share many of the key characteristics
described in the middle management literature even though they may be perceived as
top managers in a local subsidiary context.
The active agency of subsidiary managers is also important in relation to the literature
on execution. There has been recent interest in execution as evidenced by some best-
sellers in the popular management press. Bossidy, et al. (2002) argue that .[e]xecution is
the unaddressed issue in the business world today. Its absence is the single biggest
obstacle to success and the cause of most of the disappointments that are mistakenly
attributed to other causes. (2002:5, italics in original). In a similar vein, Covey (2004)
states that .[e]xecution is the great unaddressed issue in most organizations today. It is
one thing to have a clear strategy; it is quite another to actually implement and realize
the strategy, to execute. In fact, most leaders would agree that they.d be better off
having an average strategy with superb execution than a superb strategy with poor
execution. (2004:271-275, italics in original). These practitioner oriented sources thus
shift the focus away from the potential elegance of strategy formulation towards
actually getting things done. In this context, it would appear that how subsidiary
managers respond to corporate integration efforts has a significant impact on the quality
of execution. And the quality of execution, at the subsidiary level, has in turn a great
deal to do with how successful such integration initiatives will become.
2.6 Outlining the knowledge gap
This section seeks to outline the gap in extant knowledge based on the preceding review
of literature in relation to integration and subsidiary management. As the review
includes a wide range of literature, both from within and outside, the international
business domains, we need a general conceptual framework that allows us to synthesise
the various contributions in a format suitable to pinpoint the knowledge gap. Based on
numerous attempts at structuring the literature, I argue that a simple framework
mapping contributions against the level of analysis allows us to draw key insights. In
Figure 2-3 below, all major contributions reviewed in this chapter are mapped against
the following five levels of analysis: industry, company, headquarters/parent,
subsidiary/business unit and managerial levels. The purpose is to try to pinpoint the
level at which these literatures operate in order to inform our understanding of what we
know versus what we do not know about cross-border integration. To provide clarity,
contributions are classified into belonging to either the MNC strategy and management
domain or other literature.
Figure 2-3
Levels of analysis of literature
IndustryCompanyHeadquarters/
ParentSubsidiary/
Business UnitManagersMNC Strategy and Management LiteratureOther LiteratureMarketing mix standardisationValue chain analysis (I-O)
Corporate parentingStrategic integrationAutonomous strategicbehaviourPost-merger integration (M&A)
MNC strategy & structure(environmental determinism)
MNC control & coordinationSubsidiary initiativeProcedural justiceStrategic change
Starting at the top of Figure 2-3, we note that several strands of literature appear to
operate at the intersection of industry and company levels. Within the IB literature, this
is the case for much of the strategy and structure literature that derives a variety of
different configurations (e.g. multidomestic, global, transnational) based on
environmental determinism. Outside the IB field, we note that the literatures on
marketing mix standardisation and value chain analysis also appear to be located at this
level of analysis.
Moving down, we find a number of literatures that are concerned with issues relating to
the relationship between headquarters/parents and subsidiaries/strategic business units.
In the IB literature, this is especially the case regarding work relating to MNC control
and coordination mechanisms. In addition, we find the subsidiary initiative stream here
as it explores how the charters and mandates of subsidiary units can evolve over time.
Outside the IB field, we find relevant work relating to strategic integration and
corporate parenting at this level of analysis. Both of these strands explore value creation
or value destruction between the parent and business units. In addition, we find the
work on autonomous strategic behaviour here which has a close similarlity to the
subsidiary initiative stream in the MNC strategy and management literature.
In the lower half of the figure, as we move from macro towards micro, we find those
literatures that relate to the managerial dimension of relevance to cross-border
integration. Within the IB literature, the theory of procedural justice occupies a unique
position as the only identified stream of IB research that takes a distinct focus on
subsidiary managers and their perceptions regarding the fairness of the integration
process. Outside the IB literature, we find interesting work relating to post-merger
integration, including the dynamics between acquiring and acquired managers that does
not appear to be mirrored in the international business literature. We also find literature
relating to the managerial dimension of strategic change.
We are now in a position to draw several conclusions regarding the literature of
relevance to cross-border integration.
First, we can conclude that the literature on MNC cross-border integration in general is
biased towards the macro (industry) and meso (company) levels of analysis with very
limited micro level research, with the noteworthy exception of the procedural justice
literature.
Second, there is a clear lack of studies concerned with management practice and
strategy execution at the subsidiary level. While there is substantial discussion about
competing pressures for integration and responsiveness in the MNC strategy and
structure stream, there is a lack of understanding regarding how subsidiary managers
balance integration and responsiveness to cope with the institutional duality of
simultaneously being exposed to requirements from the home and host environments.
Third, given the lack of micro level studies, there is a shortage of managerial
prescriptions grounded in micro level research. Existing prescriptions are thus primarily
based on research conducted at the macro and meso levels without adequate attention
paid to research concerning the managerial dimension.
Fourth, looking beyond the level of analysis framework presented above, we also note
that the IB field is dominated by a positivist orientation with a bias towards quantitative
studies (Welch & Welch, 2004; Yang, Wang, & Su, 2006). As an example, Welch and
Welch (2004) found, in a review of articles published in the Journal of International
Business Studies between 1990-1999, that only 3% of published articles reported
qualitative research.
Based on the above, the overall research questions for this dissertation are .how do
MNC subsidiary managers interpret and respond to cross-border integration efforts
and what are the managerial implications for headquarters and subsidiary
managers?.
This focus of the dissertation seeks to contribute towards closing the knowledge gap
identified above by taking a micro rather than macro/meso orientation; by going inside
the .black box. of the multinational subsidiary; by deriving managerial prescriptions
grounded in micro level research; and by shifting the international business research
agenda towards qualitative research.
Following from the identification of the knowledge gap and the research questions, our
attention now turns to two additional literatures that can inform the study. The first
relates to managerial cognition and especially the sensemaking of managers. This
literature is important given the intention to research how subsidiary managers interpret
and respond to cross-border integration. The second area of literature concerns
emerging micro perspectives on strategy (i.e. strategy-as-practice) and micro-politics.
These latter areas are considered worth exploring given the objective to contribute
towards moving the IB literature from a macro/meso bias towards micro level research.
These two perspectives have not had a great deal of application within the international
business field given the focus on macro and meso levels of analysis, and the
documented bias towards positivist research. They thus offer the potential to enhance
our understanding of cross-border integration further.
=============================================================
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