Value Chain Analyis

Flexible Footprints:
RECONFIGURING MNCS FOR NEW VALUE OPPORTUNITIES
Elizabeth Maitland Andre Sammartino
Powerful technological, regulatory, and economic forces compel the senior executives of multinational corporations (MNCs) to repeatedly re-evaluate and reconfigure value chains in the search for ongoing competitive advantage. However, releasing assets from existing activities and redeploying them to new opportunities is a challenging and poorly understood task. In particular, the standard strategic management concepts of use- and firm- flexibility overlook the crucial international dimension of location. Utilizing examples from GM, Qantas, and a mining MNC, this article argues that strategic flexibility should be consciously measured along all three dimensions. By using the decision tool set out in this article, MNC executives can map their worldwide footprint of strategic roadblocks and opportunities to expand into new markets, divest redundant businesses, and build flexibility to adapt to future challenges. (Keywords: International business, Decision making, Strategic planning, Multinational corporations, Corporate strategy, Reorganization, Foreign investment, Foreign subsidiaries)
uch is made of the flexibility and reach of multinational corporations (MNCs). These organizations are often portrayed as footloose, nimble operators that can easily jump from one economic hotspot to another. Evidence in recent years suggests such imagery is misleading. As General Motors discovered in the wake of the Global Financial Crisis, legacy effects of existing asset, location, and activity commitments often constrain where, how, and how quickly the MNCs footprint can be altered. For GM executives, it proved exceptionally difficult to release capital for the failing home operations, while simultaneously mollifying multiple vested interests. Embroiled in negotiations with a host of governments, financiers, and potential buyers, GM executives spent much of 2009 struggling to separate assembly plants and supplier relationships from product platforms and supply chains shared across multiple brands and locations. Intended sales of the Opel and Hummer businesses ultimately failed, while Saab suitors came and went before a last-gasp deal in early 2010.
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Flexible Footprints: Reconfiguring MNCs for New Value Opportunities
The experiences of GM are not uncommon. For MNCs, releasing assets from existing activities and redeploying them to new opportunities is a challenging and poorly understood task, for which the standard strategic management tools are inadequate. To address this shortcoming, we present a decision tool to understand the value and the limitationsin short, the strategic flexibilityof an MNCs assets. To reconfigure an MNC, executives need to understand not only what assets the firm possesses (i.e., what assets have I got?), but also the opportunities and constraints these assets represent (what can I do with the assets?), and the implications for future directions (what strategically will I be able to do?).
Elizabeth Maitland is a Senior Lecturer in Strategy and International Business at the Australian School of Business, University of New South Wales (Sydney, Australia) and a Visiting Professor at Nanjing University (Peoples Republic of China). <e.maitland@unsw.edu.au>
In developing this decision tool, we draw on Ghemawat and del Sols concepts of firm- and usespecificity for assets, and we introduce a crucial third dimension of location.1 Ghemawat and del Sol argue that for a strategy to provide a sustainable competitive advantage, it must be based on assets that are specific, or unique, to the firm. The catch? The more Andr Sammartino is a Senior Lecturer in specific the firms assets are to its current activities, Strategy and International Business in the Department of Management & Marketing, the less easily the firm can adapt to change, be it a University of Melbourne (Melbourne, financial crisis, technological innovation, or new Australia). <samma@unimelb.edu.au> competitor. Strategic choices involve commitment: realigning past commitments to new and potential opportunities can be challenging. At any point in time, the configuration of an MNCs worldwide set of value chains reflects its previous strategic choices: decisions to pursue advantages from economies of scale and scope, to build distinct country-specific endowments (inputs and skill sets), and to adapt to pressures from consumers, governments, and other stakeholders in different environments. We argue that a crucial determinant of the speed and cost with which MNC strategies can be adapted are these location factorsthe local brand loyalties, supplier and government relationships, locally tailored process technologies, and human resource practices that have built up through years of engagement in a particular country or region. Only through understanding the full flexibility-specificity profile of its global assets can an MNC strategically plan for the future. Our framework builds from a set of core questions about the firm, use and location dimensions of assets to construct flexibility profiles for individual assets or groups of assets within the MNC. These individual profiles reflect the speed and cost at which an asset can be transformed or transferred to alternative applications and/ or owners. We present decision trees for creating inventories or asset maps that enable cross-business and cross-country comparisons of the MNCs value chain activities. The objective is to determine the need and scope for changes to support current and future value creation, including building in flexibility to adapt to unknown future events. Opportunities lying latent in the firms current web of activities may be revealed, opening up previously unrecognized strategic directions. We discuss three specific types of strategic decisions faced by MNCs and how they are affected by the location dimension. We explore GMs attempts to divest the Opel and Saab businesses as examples of reconfiguration decisions hampered by assets subject to significant firm-, use-, and/or location-specificity. The second case of Australian airline Qantas illustrates how our framework can be used to identify
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existing assets that can be leveraged into new applications, while pre-empting specificity constraints on future strategic decisions. In our third example, an MNC pursues international growth, triggering analysis of the location-flexibility of its existing assets, and the firm- and use- flexibility of assets held by potential acquisition targets. This example is based on our interviews with the executive team and board directors of a mining MNC and the decision-making process they followed during a billion dollar acquisition of a company with significant assets in West Africa. This case provides insight into how MNC managers think about strategic flexibility and the influential role of individuals international work and decision-making experience for understanding the strategic implications of asset location. To help executives effectively employ our framework, we identify common information constraints, and set out mechanisms for minimizing the impact of these constraints. As our mining example illustrates, international experience provides strategists with an innate and largely implicit understanding of asset flexibility across locations. However, these understandings are imperfect due to limitations on executives decision processes, data availability, and the level of uncertainty when reconfiguring multi-locational and multi-divisional operations. We propose a more systematic and formalized utilization of our tool to address these issues. By using the concepts of three-dimensional asset flexibility and the decision tool set out in this article, MNC executives can map their worldwide footprint of strategic roadblocks and opportunities to expand into new markets, divest redundant businesses, and build flexibility to adapt to future challenges.
The Pursuit of Strategic Flexibility

From the late-1990s, business scholars and consultants have been calling for more strategically nimble organizations. Citing the rise of globalization, Hitt, Keats, and DeMarie warn that with the changed dynamics in the new competitive landscape, firms face multiple discontinuities that often occur simultaneously and are not easily predicted.2 Firms have been urged to seek out strategically flexible combinations of activities and assets, so as to build the capacity to pre-empt and react to changing competitive conditions.3 Examples of the prescribed strategic initiatives include the outsourcing of some activities (and the corollary of focusing on certain core functions), the use of contingent workers and consultants, and the development of more modularized production designs and assembly lines. These calls have accompanied large-scale technological, regulatory, and economic changes over the last decade that have pushed MNC executives to significantly re-evaluate and reconfigure value chains. Advances in information technologies have facilitated the geographic separation of tasks, enabling MNCs to finely segment their value chains and send labor- and technology-intensive tasks to countries with skilled, low-cost workforces. Offshoring has also been aided by the re-opening of India, China, and the former Soviet Bloc countries to foreign companies, and the lowering of trade and regulatory barriers in countries around the world. More recently, the financial crisis has forced significant alterations to many MNC portfolios, as companies have sought to rapidly divest assets to shore-up other parts of liquiditystrapped operations.
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However, firms face a classic strategy trade-off when taking such steps. Ghemawat and del Sol identified the trade-off between the flexibility and specificity of assets. Flexibility here refers to the scope to adapt assets to alternative valueadding activities, whereas specificity denotes situations where assets have considerably lower value outside their current application. The more flexible an asset is, the greater the opportunities the firm has to alter its role and position within any new strategic direction. Yet, insufficiently specific assets have limited potential to create unique and ongoing value, as any cost or product differentiation advantage will be fleeting due to the ease of imitation by competitors. Take, for example, the rapid rates of imitation that have beset cellular phone manufacturers. For the original innovators, their inability to create very firm-specific, rather than use-specific technologies, limited their ability to capture sustainable market shares. By contrast, Apples bundling of the iPod, iPhone, and iPad, with its proprietary (firm-specific) iTunes platform has enabled it to capture significant market share for the sales of devices and digital downloads. A less well understood element of the flexibility-specificity trade-off is that specificity refers not only to the owner of the asset, but also to the use of the asset. Determining the flexibility-specificity profile of an asset involves not only asking whether there is someone else who can, or believes they can, extract value from an asset, but also if there is the potential to use the asset in a radically different application. As one board director we interviewed for this project observed of his earlier involvement in the sale of an underperforming smelter:
I got a check for 107 million dollars in my hand and I just kind of grabbed it . . . we were just amazed that we managed to get that. I think they spent several times that before they finally closed the thing down . . . while the smelter cost them a fortune in closing it down, they actually sold the real estate eventually . . . they got some value out of it after all.
Firm and Use: Two Dimensions of Flexibility

Ghemawat and del Sol present a framework for examining this asset flexibilityspecificity trade-off based on firm and use.4 Table 1 sets out examples to clarify the distinctions between these two dimensions, as well as our additional dimension of location.
TABLE 1. Examples of Asset Specificity/Flexibility

Dimension
Firm
Specific
Facilities in Disney theme park Team of employees extensively trained in firm methods Gas station (pumps, forecourt, underground tanks) License to brew beer Buried cabling Locally adapted technologies Culturally specific brand
cf
Flexible
Generic office buildings Casually-hired labor Warehouse facility Right to trade under a brand name Relocatable plant and machinery Universally accepted components Globally/regionally understood brands
Use
Location
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A firm-specific asset has greater value to the firm than to any other organization. Such assets may rely upon knowledge that is tightly held within the firm, be tailored to particular processes unique to the firm, or be difficult to extract from a chain of sequential activities within the firm. In contrast, firm-flexible assets can be readily sold, with buyers able to extract similar (if not greater) value from their deployment, with little to no modification costs incurred. To illustrate, consider office buildings. Frequently, they require little adaptation by incoming owners, beyond cosmetic changes to fit-out. Conversely, the facilities in Disney resort parks around the world are highly specific to the Disney Corporation, given the overall tailoring of most rides and activities to particular Disney brands, logos, characters, and films. While the parks could be sold to alternative operators, once divorced from the suite of assets controlled by Disney (i.e., Buzz Lightyear, the Disney Princesses, Mickey Mouse, and Nemo), they would have considerably lower value. Similarly, a team of employees with extensive training in the routines and processes of a given firm are much more firm-specific than a pool of casually hired labor performing common business tasks. Removing the former from their organizational context would reduce their value considerably more than changing the employer of the latter. Shifting to greater utilization of contingent workers may offer a firm strategic flexibility in the short-term, but as Hitt et al. argue, dynamic flexibility (i.e., the ability to persistently adapt) may be lost, as using significant numbers of contingent employees may actually reduce rather than build their skill set and knowledge base, necessities to survive in the new competitive landscape.5 A use-specific asset cannot be readily adapted to another application, or only at substantial cost. If the firm sought to undertake a different activity, these assets would have little to no value within the firm and their external market would be confined to buyers with similar use needs. A license to produce or sell certain goods (such as alcohol) or to offer services (such as tax advice or medical assistance) is only valuable to buyers seeking to offer the same and, in some instances, may prevent the license holder from certain diversification paths. However, the right to operate as an incorporated business or trade under a certain brand name (or to simply operate a business) may be useful to a wide range of potential buyers across a variety of industries and would not bind the current asset-holder to one strategic direction. As noted, these two dimensionsof firm and useare well-explained and examined by Ghemawat and del Sol. They recognize that assets vary across both dimensions and, therefore, fall into one of four quadrants of a 2x2 matrix (firmflexibility/specificity by use-flexibility/specificity, as reproduced in Table 2). An asset, such as money or off-the-shelf IT hardware, may be both firm- and use-flexible. Owning such assets does not lock a firm onto any particular strategic path, but likewise their presence makes no contribution to sustainable competitive advantage. At the other extreme, technological breakthroughs (such as Nucors ultra thin-slab steel casting plants or Gillettes investments in the Sensor blade technologies) are presented as both firm- and use-specific. The assets associated with such technology are much more valuable within the firm: they have the scope to provide considerable advantage, and they reflect significant ongoing commitments to the current strategic direction. Use-specific, firm-flexible assets (such as taxicab medallions and mining leases) are necessary requirements to operate in their respective industries, but, with
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TABLE 2. Mixes of Specificity/Flexibility across Two Dimensions of Firm and Use*

Firm-Specific
Use-Specific Use-Flexible Nucors thin-slab steel casting plants Gilettes Sensor blade technology Disneys brand name Guanxi relationships
Firm-Flexible
Taxicab medallions Mining Leases Money Off-the-shelf IT
* Based on Figure 2, p. 29, P. Ghemawat and P. del Sol, Commitment versus Flexibility, California Management Review, 40/4 (1998): 26-42.
ready markets for exchange, they are not sufficient for strategic success. Firmspecific, use-flexible resources (such as the Disney brand name or guanxi relationships of East Asian conglomerates) offer the firms in question scope to pursue advantages in a variety of strategic directions. Ghemawat and del Sols matrix in Table 2 enables identification of the constraints and opportunities that have been traded off (and will continue to require balancing) in the pursuit of advantage. More flexible assets will leave the firm with many options for action, but limited scope to build sustainable advantages. More specific assets will confer greater advantage, but will constrain the choice set about direction, and may hamper attempts to respond to environmental change and new opportunities. By having a well-established understanding of the flexibility profiles of the firms assets, managers can clearly evaluate how new opportunities fit with existing asset and activity configurations. As one board director noted regarding scanning for prospective acquisitions,
Its having an active list that someone is looking at on a weekly basis of who is doing what and where the bit of extra value is in company x: theyve just announced something, does that really make a difference, is this the time to go for them before anybody else realizes, or does this mean we drop them down the list?
However, for managers of MNCs, a piece of the strategic flexibility puzzle is still missingthe role of asset location.
Location-Flexibility: The Missing Dimension

An MNCs profile of cross-country assets is a complex mix of facilities, knowhow, and technologies. Some assets are highly mobile and suited to applications in multiple settings, while others may be irrevocably bound to the existing location. This may arise from some physical or legal constraints on its mobility, such as licenses for a certain jurisdiction or employees who are ineligible for working visas in other countries. Assets can be entwined with other value chain activities or components that are themselves bound to the location: processing plants tailored to inputs from the vicinity (such as aluminum smelters to bauxite mines); or ordering systems designed for particular distribution relationships or retail infrastructure. Brands can have cache in a given cultural milieu, but be meaningless or even offensive elsewhere.6
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By contrast, location-flexible assets can be easily moved. Returning to the case of Disney, its brands are well-known in many countries and have facilitated the worldwide spread of its theme parks, films, television programs, and childrens toys. Production processes and patented technologies can also be transferable: the rapid spread and adoption of IT technologies is illustrative of this type of location-flexibility, with language, culture, and skill providing few constraints. While it is tempting to view this as a simple distinction between immobile physical assets and easily transferable intangible assets, this ignores the complexity of the location dimension. Many knowledge-based intangible assets are highly context specific and of little value elsewhere, such as investments in brand names and relationships with local buyers and suppliers. Meanwhile, large physical assets, such as individual pieces of machinery and even whole plants, can be transportable across borders. When Nanjing Auto acquired beleaguered British car maker MG Rover in 2005, several production lines and the entire power-train plant were shipped to China.7 Location effects also spring from government attempts to influence MNC decisions: e.g., their use of subsidies, tax rebates, and preferential procurement arrangements to attract and retain technological knowhow and employmentintensive value-adding activities. As many MNCs have also discovered, governments can resort to threats and penalties to forestall exit. Throughout the 1970s and 1980s, Philips famously struggled to shift its European operations from a collection of dispersed country-focused affiliates to an integrated network of production and distribution platforms suited to the emerging common market. Shutting down plants proved politically difficult and economically costly.8 More recently, the strategic maneuvering by General Motors in the period preceding and following its filing for Chapter 11 bankruptcy protection in June 2009 highlight the difficulties of untangling and pricing geographically dispersed assets, while balancing stakeholder demands. GMs operations in its second- and thirdlargest country markets of China and Brazil, in particular, illustrate the complexity of its footprint of global assets and value chains. In China, GM was engaged in a series of joint ventures producing the Buick Regal, Chevrolet Captiva, and Chevrolet Cruze, based on models or bodies from its European Opel/Vauxhall division; and small vehicles based on the Matiz design from its Korean affiliate, Daewoo. By contrast in Brazil, most GM vehicles bore the U.S. Chevrolet brand, but the product and process technologies again came from Opel, as they largely had done since GMs 1968 market entry. This maze of relationships, technology flows, and brands were themselves the product of GMs decade-long attempt to build a single GM global automotive unit that placed the pursuit of scale advantages over local customization.9 The standalone brand of Saab added to the confusion. Originally purchased to diversify GMs product line to compete head-on with the luxury European manufacturers (e.g., BMW), it had been a perennial underperformer.10 At the core of its post-Chapter 11 strategy, GM sought to rebuild its operations around four parent brands (Chevrolet, Cadillac, GMC, and Buick), while divesting majority or full ownership in the Hummer, Saturn, Saab, and Opel/Vauxhall brands and operations. Although potential buyers for all four brands were found, only the Saab deal was successfully concluded. In its home European region, Opel operated
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12 production plants in eight countries, servicing demand in 34 national markets. The German government was particularly vigilant to changes in GMs operations, as it hosted Opels headquarters, Technical Development Center, and four major production centers. Our framework allows us to distinguish the various constraints upon GM. The embeddedness of many Opel assets within multiple value chains across the GM business rendered them firm-specific. With only a proposed minority stake in Opel, the ongoing supply of product platforms, drive trains, and engines to GM affiliates in China, Brazil, Argentina, Australia, South Korea, Mexico, and South Africa appeared highly problematic. Most of Opels valuable assets also had limited use-flexibility. The design, engineering, machinery, product and process knowledge, as well as the brands relationships were tailored to the auto industry. This reduced the number of potential acquirers considerably, especially given the dire condition of GMs U.S. auto counterparts. Location served to shrink this pool even further. EU competition law restricted many of the other global carmakers from lifting their European holdings. Additionally, there was significant pressure to retain the assets within the EU. For example, the German government provided crucial financial support to one of the preferred bidders, conditional on the business staying in situ. These examples demonstrate the greater complexity or noisiness of strategic decisions involving activities across multiple countries. Following is a decision tool that informs the reconfiguration choice sets for MNC executives. For each dimension of use-, firm-, and location-flexibility, there are questions executives need to ask to systematically examine how the fit and value of the MNCs assets facilitate or constrain MNC reconfiguration.
Examining the Three Dimensions of Flexibility-Specificity Trade-offs

To begin re-thinking an assets (or group of assets) contribution to the MNCs current and potential strategies, Box 1 provides a series of discrete questions for each dimension of firm-, use- and location-flexibility.
BOX 1. Assessing your Assets

Each asset (or bundle of assets) in the MNC can be assessed in terms of its likely value: within the firm; in its current use; and in its current location, relative to other opportunities. To begin this assessment, consider the following questions: Firm: Do we utilize this asset in a fashion that our competitors might not? Does it incorporate technologies, processes, assumed knowledge that a potential buyer might lack (and which we would not be willing or able to share with them)?
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Is it in (or crucial to) firm-specific supply chain links? Would moving it outside the firm considerably limit our future opportunities to operate certain activities? Use: Do we currently use this asset for a range of tasks? Could we use this asset elsewhere in our value chain? Would that require significant adaptations to this asset or others? Could firms outside our industry or at different stages in the product value chain utilize this asset? Does it rely on current inputs to be productive? Location: Is the asset physically constrained to its current location? Is it adapted to address specific cultural or institutional requirements within its current location? Is it reliant on (or crucial to) location-specific supply chain links? Would moving it offshore considerably limit our future opportunities to operate within this location (and/or nearby locations)?
The challenge lies in integrating the dimensions. Evaluating the current and potential strategic value of an asset requires understanding: the assets profile along each dimension; and the interactions between the dimensions. The objective is to determine the MNCs overall strategic flexibility (or the extent to which one or more dimensions constrains this flexibility). The fundamental overarching questions are: What role does the asset currently play in the firm? What role would we most like it to play in the future? Question one builds on the data gathered by the Box 1 checklist, delving deeper into the value generated by the asset in its current context. It leads to further analysis exploring the interactions between the three dimensions. For example: Does the asset rely upon technology in this location and/or elsewhere in the MNC (which is an aspect of the location specificity-flexibility dimension)? If in this location (or elsewhere), is it inside or outside the MNC (that is, is the asset location-specific, firm-specific, or firm-flexible)? Is this technology restricted to the current value chain (use-specific), or present across multiple value chains (use-flexible)? Could we source similar/better technology elsewhere (location-specific or location-flexible)?
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These same questions could be adjusted to replace technology with inputs, distribution channels, or project team. A further set of questions explore the role of scale (and similarly learning or knowledge): Does the asset benefit from scale generated across the MNC (firm-specific)? And across multiple product lines (use-flexible)? Or, just in this location (location-specific)? As can be seen in Table 3, adding location (i.e., the international dimension) generates a three-way (2x2x2) variation on Ghemawat and del Sols original 2x2 matrix. The eight cells represent the different combinations of the three measures of flexibility, and each includes the resultant redeployment options. These are the constraints imposed on MNCs by an assets characteristics. We have located several of Ghemawat and del Sols two-dimensional examples into the new matrix to demonstrate the discriminatory effects of location. For example, Nucors plants (labeled earlier as firm- and use-specific) are constrained to their physical locations, adapted to the peculiarities of U.S. labor relations, and reliant on geographically distinct value chain relationships with suppliers, distributors, and customers. In contrast, Gillettes blade technologies (firm- and use-specific) are much more locationflexible, able to be rolled out to affiliates and markets across the MNC. Similarly, Disneys brands (firm-specific and use-flexible) are also location-flexible, while guanxi relationships of East Asian conglomerates (also firm-specific and use-flexible) are likely to be constrained to those specific countries in which such firms operate.11
Building Decision Trees and Asset Maps

Using Table 3, we can now see the interactivity of the three dimensions on an assets flexibility. Assets that fall into the top right hand corner of the table
TABLE 3. Mixes of Specificity/Flexibility across the Three Dimensions of Location, Firm, and Use
Location-Specific Firm-Specific
Use-Specific Can only be used in-house, in current application and in-situ e.g., Nucors plants
Location-Flexible Firm-Specific
Scope to redeploy elsewhere, but in-house and only in current use e.g., Gillettes blade technology
Firm-Flexible
Can only be sold in-situ to local firms with same use needs e.g., Taxicab medallions, mining leases
Firm-Flexible
Scope to redeploy elsewhere, and to sell to other firms with same use needs e.g., Product designs using common technologies, such as Systems on a Chip (SoC) integrated circuits Scope to redeploy elsewhere in various uses, and to sell to other firms e.g., Money, IT hardware
Use-Flexible
Can only be used in-house, in various applications and in-situ e.g., Guanxi
Can only be sold in- Scope to redeploy situ to local firms with elsewhere in various various applications uses, but only in-house e.g., Warehouses e.g., Disneys brand
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(specific along all three dimensions) cannot be reconfigured into alternative applications without considerable adaptation and expense. Assets that fall into the bottom left hand cell of the table are extremely flexible, but, by definition, provide little sustainable competitive advantage to the MNC. Decision trees provide a systematic procedure for determining the overall flexibility of an asset or groups of assets along the three dimensions. Figure 1 frames
FIGURE 1. A Decision Tree for MNC Managers Assessing the Value of Assets and
Scope for Reconfiguration from a Location Perspective
Can we move the asset around? (Location)
Does the asset have multiple uses? (Use)
Is it equally valuable to other firms? (Firm)
YES (LF, UF) Many buyers across many locations
YES (LF, UF, FF) Able to sell into many markets across many locations (or redeploy in-house)
NO (LF, UF, FS) Able to redeploy in-house across MNC YES (LF) Scope to move YES (LF, US, FF) Able to sell into same markets across many locations (or redeploy in-house)
NO (LF, US) Fewer buyers across many locations
NO (LF, US, FS) Able to redeploy in-house within function across MNC
YES (LS, UF) Many buyers in current location
YES (LS, UF, FF) Able to sell into many markets in current location (or redeploy in-house)
NO (LS, UF, FS) Able to redeploy in-house within local affiliate NO (LS) Constrained to current locale YES (LS, US, FF) Able to sell into one market in current location (or redeploy in-house)
NO (LS, US) Fewer buyers in current location
NO (LS, US, FS) Only valuable in-house in current role and current location
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the questions set out above in terms of a decision tree built around a core question for each dimension that an MNC executive might ask of an asset or bundle of assets: Can it be moved? Does it have multiple uses? Is it equally valuable (or more so) to other firms? Given we are particularly interested in key MNC strategic decisions, this decision tree starts from the perspective of location.12 As the GM example amply demonstrates, location may well be the most difficult dimension for executives to assess. It involves considering the decision making and behavior of many stakeholders customers, governments, suppliers, competitors, not-for-profits, and activist groups across multiple cultural, economic, and political divides. The value of operating in a given location is hard to price. Assets transplanted into new markets and distinctive from local host-market competitors are often an MNCs prime source of competitive advantage. For example, McDonalds and Starbucks transfer valuable routines and offerings into each new market, helping to build their brand with consumers. Over time, these assets are adapted to better suit local conditions. New flavors are added to menus, employment practices are adapted to local industrial relations requirements, and new supply relationships are built within the host country (or region). Each of these adjustments embeds the assets more deeply within the local environment. This may have a multiplicative effect on the interplay between firm- and location-specificity. In this new location, there may be few firms similar to the MNC in terms of their asset mix, culture, structure, or practices, reducing the scope to find host-country buyers for unwanted assets. Adaptation to local factors may also reduce the scope or attractiveness of within-MNC asset transfer. Ideally, an MNC would use such decision trees to dynamically map and remap its operations in terms of its assets, linkages between these assets, and jointly utilized technologies, routines, and knowledge. Figure 2 charts a hypothetical reconfiguration scenario (i.e., showing the Now and projecting a Future) for an MNC operating in six countries with three product lines. Hard circles represent country boundaries; the various shapes represent bundles of assets owned by the firm as dedicated to various activities, such as manufacturing and assembly of several products, distribution, R&D, data and service support, repairs, and corporate HQ. The lines reflect value-chain connections. Assets may stretch across a border, as between Countries A, B, and D with respect to corporate HQ functions (for example, shared finance and currency trading functions). Others may be linked by an international value chain, such as the service center/repairs linkage between Countries E and F in the Firm (Now) illustration. These linking relationships are just as important as the particular location of the assets in question, as they are key determinants of the assets firm- and use-flexibility. This hypothetical MNC has a relatively simple configuration. Nevertheless, the Now and Future maps capture a range of reconfiguration moves, from divestments to consolidations, new market entries, and relocation of R&D activities. The footprints of many MNCs will be substantially more complex than Figure 2, as here assets are aggregated into functional domains (the shapes), and missing are more intangible shared technologies and corporate brands, such as Sony and Apple, that are applied across multiple countries and products. Equally, maps
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FIGURE 2. The Reconfiguration of a Multinational Corporation (MNC)

Firm (Now) C A E D B F G B F D A E Firm (Future)
Component manufacturing and assembly (Product X) Component manufacturing and assembly (Product Y) Component manufacturing and assembly (Product Z)
Call/service centre Data warehousing Corporate HQ
Retail Repairs R&D
Warehousing & Distribution
can be constructed at multiple layers of analysis: product groups and divisions, individual value chains, individual countries or regions, as well as for the MNC as a whole. At each level of analysis, the maps can be used as inventories of assets, each with a score for flexibility/specificity. Such scores would allow the firm to ask a range of different strategic questions: Should we remain in country H? If we entered country J, what assets would we transfer, acquire, share, divest, or write-off? Is Country K better than Country L for activity X? Should we continue to manufacture product N? Which functions should we still undertake in doing so? The primacy of a given question or perceived choice set will determine the nature of the inventories and scoring. An executive focused on product choices will be assessing assets on the basis of their contribution to the value chain of the given product, while conscious of the shared elements of the value chain (or contingent scores of particular assetse.g., due to economies of scope, this asset is more valuable when three value chains are in operation, less so otherwise). For example, Figure 3 outlines the evaluation process for an MNC contemplating diversification or product market strategy, for which the primary consideration will be use-flexibility. For firms considering outsourcing questions or divestment of whole divisions, the relevant decision tree would start with firm-flexibility.
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FIGURE 3. A Decision Tree for MNC Managers Assessing the Value of Assets and
Scope for Reconfiguration from a Use Perspective
Does the asset have multiple uses? (Use)
Is it equally valuable to other firms? (Firm)
Can we move the asset around? (Location)
YES (UF, FF) Many buyers across industries
YES (UF, FF, LF) Able to sell into many markets across many locations (or redeploy in-house)
YES (UF) Scope to redeploy in a different function
NO (UF, FF, LS) Able to sell into many markets in current location (or redeploy in-house)
YES (UF, FS, LF) Able to redeploy in-house across MNC NO (UF, FS) Able to redeploy in-house NO (UF, FS, LS) Able to redeploy in-house within local affiliate
YES (US, FF) Buyers with same use requirements
YES (US, FF, LF) Able to sell into same markets across many locations (or redeploy in-house)
NO (US) Constrained to current function
NO (US, FF, LS) Able to sell into same market in current location (or redeploy in-house)
YES (US, FS, LF) Able to redeploy in-house within function across MNC NO (US, FS) Only valuable in current role and in-house NO (US, FS, LS) Only valuable in-house in current role and current location
Utilizing the concepts and tools outlined above, an MNC manager can track where assets are located, their links to other assets within and outside the firm, and their scope for alternative uses. More importantly, by focusing on the interactions between the three dimensions, strategic flexibility will remain in the front of the managers mind. The manager can better assess what the firm can and cannot
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do in light of its current asset mix. This is more than merely understanding whether, in the next quarter, production levels can be varied, inputs sourced from an alternative supplier, or the channel mix altered. Rather, pursuing strategic flexibility means retaining or increasing the MNCs ability to change the medium- to long-term direction of the firm. Following are three recent examples of MNCs facing tough and farreaching strategic decisions. In each instance, flexibility (or lack thereof) was a key constraint, driver, and/or goal in the decision-making process.
Applying Decision Trees

Divesting Saab
To illustrate how the logic of decision trees can be used to evaluate reconfiguration options, Tables 4 and 5 apply our framework to GMs Saab business. Table 4 sets out three potential reconfigurations. GM initially pursued option 3 (sale as a going concern) as the easiest mechanism to release capital and end its relationship to an underperforming affiliate.13 As a wholly owned and relatively free-standing, bolton operation, Saab was an obvious candidate for divestment. The independence of the brand and the minimal number of value chain linkagesin which other GM operations were buyers, rather than suppliers of know-how, components, or technologies (GM supplied the power-train assemblies and the 9-4x crossover model had Cadillac underpinnings)meant it was a far easier unit to separate from the corporate parent than the much larger Opel business discussed earlier.
TABLE 4. Divestment Options for Saab as Free-Standing, Bolt-On Operation

Option 1: Mothballing of Option 2: Sale of Some Production Assets
Shut down Saab production but retain the Saab brand Leaves open the opportunity for GM to revive the Saab brand at a later date May include selling some assets while retaining the brand, service and repair of Saab vehicles (potential overlap with Option 2) Sell individual assets to multiple firms Possible since many assets are firmflexible (FF) Broadens market of buyers (e.g., production facilities may be sold to a non-automotive buyer in the same locale, while production technologies may be sold to an automotive manufacturer located elsewhere, or re-deployed in-house)
Option 3: Sale of Business as Going Concern

Sell group of assets to a single firm Possible since many assets are firmflexible (FF) Market limited to automotive companies in the same locale since some assets are use-specific and location-specific
Demonstrative Deals: GM finalized the individual sale of production technologies for Saab models 9-3 and 9-5 to Beijing Automotive Industry Holdings in November, 2009 GM announces sale of remaining Saab assets to Dutch specialist sports car manufacturer Spyker in January, 2010. GM attempt to sell Saab to Koenigsegg, a Swedish sports car manufacturer collapsed in Nov, 2009.
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TABLE 5. Summary of Assets Associated with Saab Sweden

Assets
Brand (60 year history) Production Facilities (land, warehouses, office space, factories) Production Technologies (equipment, machinery, blueprints, patents, etc.) Employees (approximately 3,000-4,000) Supplier Relationships Dealer Network (e.g., 80 dealers in the UK)
Firm Use
FF FF FF FF*** FF FF US UF US US US** US
Location
LF* LS LF LS LS** LS
* This is somewhat uncertain as customers may have a strong attachment to the Swedish connections/connotations of the brand. ** Saab is located in a company town and as such, suppliers are location-specific. Suppliers are also use-specific since their output is targeted to the automotive industry. *** FF if sale of business as a going-concern, otherwise employees are primarily FS.
However, applying the Box 1 checklist, many of these assets (such as warehouses, land, production plant) were location-specific (see Table 5), particularly given that most of the production assets were in a small Swedish town away from major industrial centers. This location-specificity of Saabs core assets counterbalanced its stand-alone organizational structure. While the Swedish Government was willing to support GMs efforts to sell the business as a going-concern, there were few local firms able, and few MNCs willing, to acquire it. Put differently, GMs asset map indicated Saab should have been easy to decouple from the MNCs other assets. The challenge was finding a suitor, who saw strategic value in bolting these assets onto their map. The effect of location-specificity became clear in the protracted efforts to find new owners. A deal for full sale (i.e., Option 3) with Swedish carmaker Koenigsegg collapsed after months of negotiations. Facing the unpalatable choice of winding down the business, GM sold some of the firm- and location-flexible technology and production equipment for Saabs 9-5 and 9-3 models to the Beijing Automotive Industry Holdings Corporation of China (i.e., Option 2).14 A last-minute sale in early 2010 of the remaining assets (including the brand) to the small Dutch specialist sports car manufacturer, Spyker, brought GM about $74 million in cash, $100 million of Saabs operating capital and a tranche of preference shares. GMs experiences with Saab underline the influence of location-specificity in determining the value of MNC assets and its often constraining influence on otherwise firm-flexible assets. GMs struggles to reconfigure its worldwide value chains demonstrate the complexity of the task that confronts managers in large, multilocational and multi-divisional corporations. GM was one of several car-makers that had long espoused a global rhetoric, yet its efforts to configure globally efficient value chains and minimize costly local variations had not engendered the hoped for level of strategic flexibility.
Reconfiguring Qantas to Compete with Low-Cost Carriers

Operating in a service industry, Australian airline Qantas faced a less complex set of value chains than GM, but still found its asset mix strategically constraining. After decades of stable competition and regulation, by the early 2000s, the fullservice airline faced an uncertain and rapidly changing environment. The success
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of Southwest Airlines in the U.S., Ryanair and EasyJet in Europe, and Air Asia in Southeast Asia had demonstrated the viability of the no frills model. Qantas executives felt it was likely an existing overseas carrier would enter the Australian market and challenge their highly profitable domestic and international businesses.15 Meanwhile, the rise of budget travel in neighboring Southeast Asia (and the longerterm prospects of China and India) was an enticing source of significant potential growth. Counterbalancing this attraction were the well-publicized failure of Continentals budget brand Continental Lite and KLMs similarly disastrous foray with Buzz.16 Qantas faced a two-fold strategic issue: how to compete domestically against a well-funded budget competitor, while also tapping into fast-growing international routes not viable with a full-service model. While Qantas had successfully used short-term pricing tactics to see off several no frills domestic start-ups, this was not sustainable internationally. Hamstrung by relatively high home-country wages, restrictive industrial relations, and Qantass existing full-service business model, one alternative was to build a low-cost affiliate. Ideally, this business would target the budget customer, be scalable across rapidly growing regional markets, footloose geographically, and able to be spun-off to other airlines or via an IPO. Qantas faced a risk trade-off. On one hand, its valuable full-service brand could be damaged by a cheap offshoot with an uncertain future. Yet, without a viable product offering, Qantas risked considerable loss of market share to new competitors both domestically and throughout Asia. While the nature of the industry meant use-flexibility was effectively fixed for most assets, substantially boosting firm- and location-flexibility was possible. As shown in Figure 4, five asset groups demonstrate this approach. The brand needed to be new, and culturally neutral, with a simple and easily produced logo and visual identity. The cost of the air fleet could be held down with limited livery and painting, rendering them more firm-flexible, while the IT platform and maintenance arrangements needed to be simple and scalable. Human resources could be contracted via franchise master agreements. In 2004, Qantas launched the Jetstar business to a receptive domestic market. Jetstars business model started from the basis of minimizing crew and facilities cost. While the Qantas fleet was dispersed around the country every evening to ensure all major cities had early morning business flights, the Jetstar fleet returned to central facilities, minimizing the costs of storing fuel, maintenance, hangar facilities, and accommodating and scheduling crew. The Jetstar business focused on budget travelers, who were less time-fixated and willing to forgo in-flight meals, video entertainment, and on-ground facilities. Fast turn-around times were ensured by enforcing no check-in within 30 minutes of departure and reducing luggage allowances. Jetstars terminal facilities, staff uniforms, and low-cost advertising campaign adopted a simple three color-scheme of orange, black, and a prominent white star. The Jetstar business was distinct from the parent in its positioning, branding, and identity. As shown in Figure 4, the firm- and location-specificity of its assets were minimized to ensure that it could be spun-off as a separate entity and scaled into overseas markets with minimal adaptation. This maximization of flexibility was significant, particularly when compared with the alternative strategy of branding
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FIGURE 4. The Qantas-Jetstar Decision

Qantas faced a decision between launching: an in-house brand (e.g., Qantas Lite) using predominantly existing assets; or a distinct entity. Consider the implications for specificity-flexibility of five key asset groups: i. In-House Brand (e.g., Qantas Lite) Assets Brand Fleet HR Maintenance IT systems legacy of prior government ownership and national carrier status restricts route access aging, owned from delivery, parent branded unionized unionized, central to parent safety reputation legacy systems* Firm FS FS FS FS FS Use US UF US US US Location LS LF LS LS LS
* Individual IT system components are clearly separable, but the overall network is highly tailored to the firm, its processes and the industry requirements.
ii. Distinct Entity (e.g., Jetstar) Assets Brand Fleet HR Maintenance IT systems new, no Australian link unpainted, standard lowly unionized, multi-skilled, partially off-shored lowly unionized, partially off-shored stand alone Firm FF FF FF FF FF Use UF UF US US US Location LF LF LF LF LF
the new business on a variant of the parent brand, with its established reputation for reliability and safety. Jetstar was soon flying on a variety of international routes, in several instances replacing previously marginal Qantas runs. Achieving the scalability goal, the Jetstar Asia business subsequently added numerous within-Asia routes inaccessible to an Australia-based airline, due to reciprocal air-service agreements between regional governments. Being vigilant of the strategic flexibility implications of each asset configuration choice granted Qantas a nimbleness many of its fellow, entrenched international carriers lack. Building location- and firm-flexibility allowed Qantas to respond to load changes in booming (but volatile) Asian markets, without encroaching on or diminishing the value of the parent brand and business model.17 This example illustrates how our framework can identify existing assets that can be leveraged into new business models, while pre-empting specificity constraints
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on future strategic decisions. Only by investing in new and less location-specific assets was Qantas able to pursue new markets with a new product and break the shackles that have held back many other full service carriers. Qantas utilized its relatively flexible relationships with suppliers (e.g., terminal operators, aircraft manufacturers) and regulators, its operating knowledge, and marketing infrastructure to build the Jetstar model and business. Qantas also identified where its existing assets were constrained by one or more specificity dimensions and sought to avoid such encrustments in the new business. Utilizing the Box 1 checklist, Jetstars key assets have degrees of firm-flexibility. As Jetstars relatively hands-off parent, Qantas has developed an asset map that grants the MNC substantially greater strategic flexibility within the budget and Asian markets. It is free to negotiate joint ventures, engage in an IPO, and/or sell-off to foreign parties, unconstrained by the parents legacy status as a formerly government-owned Australian icon.
Building Assets in a New Location

While the Qantas example highlights how executives can minimize known location-specificity issues, this is more challenging when moving into new and highly uncertain environments. Our final example looks at strategic flexibility considerations in an MNC expanding into a politically volatile but potentially high-return emerging economy. Through in-depth interviews with the decision-making team (executives and Board directors), we observed their identification of assets that could be flexibly leveraged in a new locale.18 An acquisition opportunity was also evaluated through the lens of the strategic flexibility of the targets key assets and the advantages of building certain types of location-specific assets to seize early mover advantages. In early 2008, Mineralco was the 9th largest producer globally in its mineral class (due to confidentiality constraints, we employ pseudonyms for the acquiring and target firms). Its principal operation was a very large mine, located in Papua New Guinea (PNG). For Mineralcos specific sector, exploitable ore deposits are restricted to a handful of locations worldwide, with mines and reserves in politically stable locations attracting significant price premiums. Players in the industry engage in frequent portfolio adjustments, buying junior explorers for development pipelines or spinning-off mines generating insufficient output to justify retention. Both exploration and extraction occur in situ, and rely on formal licenses from local authorities and de facto licenses from local communities. Much of the technology and physical asset base is firm-flexible, but use-specific. Infrastructure and capital equipment built and utilized at mine sites typically becomes location-specific due to the impracticality and cost of relocation. For capital equipment life to be extended, new deposits need to be physically nearby. Otherwise, the costs of transporting unprocessed material become prohibitively expensive. Correspondingly, the bulk of the competitive advantage from being in-country comes from developing location-specific human capital and processes for dealing with the national government and local communities. The location-specificity of Mineralcos PNG operations motivated the search for expansion options, as the firm feared its level of exposure to single country risk:
We were in the market for acquisitions, geographic diversification, spreading of sovereign risk.Board Chair, worked in 13 countries, 5+ FDI decisions19
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The Mineralco team went through a process of assessing their capacity to leverage existing assets into new locations, and identifying the assets gaps within the firms portfolio:
[We] look[ed] to say well, what assets do we want that fit us? Ive sold assets as well, as I said, and you look to, well who would make logical sense? Who would want to buy these assets?Board Director, 5 countries, 6 FDI decisions
The key results of these deliberations are summarized in Table 6. Mineralco was a very effective low-cost producer, with the PNG mine in the lowest quartile globally for costs-to-output. The firm was also well-respected for its efforts in avoiding community conflict in recent years, in a country notorious for its difficult relations with foreign MNCs.20 In describing the value of these assets, the managers identified key characteristics in line with the questions in Box 1. For example, good relations with local stakeholders were crucial to the supply-chain of Mineralco (for renewal of its mining leases, and ensuring access to key infrastructure and inputs, such as roads, ports, and labor):
Our whole right to operate comes from the locals, notwithstanding that, at the end of the day, the government puts a stamp on a piece of paper for you. That doesnt count for anything if you have the locals offside.CFO, 7 countries, 6 FDI decisions
Mineralcos management and board particularly focused on the scope to utilize its PNG community relations practices elsewhere. While these were identified as firm-specific (reliant on knowledge and learning other firms may lack) and use-specific assets, Mineralco identified the scope for location-flexibility:
The tools that they use for interaction with the local people, the community type issues, I think, are eminently transferable. There may be some differences at the margin, because of the different responses they might get to various initiatives . . . In terms of technical skills, they are almost without exception 100 per cent transferable. Director, 16 countries, 18 FDI decisions
As Mineralco was keen to expand quickly, they focused on acquiring an operational mine (or close to), with strong exploration potential. Again, the analysis centered on the available suites of assets:
First and foremost, [we looked for] strategic fit: What does it do for us? Whats the combination of assets? What are the assets? Where are they located? Does it give us a step change in terms of pursuing that diversification strategy? Are we taking on
TABLE 6. Summary of Three Key Assets in Mineralcos acquisition of Petcib

Assets
Mineralcos community relations management in PNG Petcibs exploration rights within West Africa Petcibs government relationships within West Africa
Firm
FS
Use
US
Location
LF LS LS
Strategic Implication
Can be leveraged into West Africa Acquire, then leverage in future to build advantage in West Africa Acquire and work hard to retain
FF (now) US FS (future) FS US
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assets that are well developed and mature, or risky and wrong end of that development pipeline?CFO
A friendly approach from a small miner, Petcib, brought a set of assets into play, but complicated by their location in a highly risky and unfamiliar part of West Africa. As the Board chair observed, in West Africa if anything goes wrong you are right out on your own on the edge of the Atlantic Ocean and the French couldnt give a bugger. Two key sets of assetsexploration rights and government relations dominated much of the assessment process. Petcib had identified a viable seam of ore and their medium-sized mine was about to commence operations. For the Mineralco team, the most valuable assets were the targets extensive exploration rights over large tracts of land within a few hundred miles of the mine site. While clearly location-specific, these rights were recognized as firm-flexible, with Mineralcos geologists able to quickly engage in surveys and test drilling.21 Petcib assets, combined with Mineralcos expertise in low-cost mining and community relations, represented the potential to build a large presence in this under-developed region. Once in place, Mineralcos initial mine and supply chain infrastructure would give it a firm- and location-specific suite of assets that later entrants would lack. Being physically close to the numerous junior exploration companies testing the areas geology would also give Mineralco a head-start on identifying, negotiating with, and acquiring (or at least partnering) successful prospects. The logic of Box 1 was evident here, with recognition that the assets of such local targets would be more valuable to Mineralco, given its unique local supply chain, than potential competitors:
[We can expand] either by discovering more ore or alternatively finding one or two little operations that we can operate in the vicinity and leverage off the assets including the people that we have at [the acquired mine site] so that its worth more to Mineralco than it is to anyone else.Director, 16 countries, 18 FDI decisions
The Mineralco decision makers also paid close attention to Petcibs government relations. In such an unfamiliar political environment, it was crucial that Mineralco retain the key Petcib employee, a location-specific asset, with a history of positive dealings with local officials:
Now we have one key person there who seems to be well in with the current rulers, whether they be from the bureaucracy or the political set upyou have to keep that skill in these countries.Director, 13 countries, 15 FDI decisions
Mineralco management recognized that assessing the substance and integrity of these relationships from a distance was difficult. Retaining the employee could be a challenge, given the relative firm- and use-flexibility of his connections. Considerable effort was exerted to observe the interactions in person, including several executives and board directors travelling to West Africa to meet the individual, government ministers, and bureaucrats. It became apparent that Petcib had built a reputable brand with government officials over its decade in the country, amassing considerable goodwill by continuing to operate during the civil war. This goodwill appeared to extend beyond the specific employee, reducing concerns about possible loss of value through his exit. Overall, these good relations could serve an important strategic purpose for Mineralco, facilitating future
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in-country expansion, including the development of supply chain infrastructure and exploration options that competitors would lack. Mineralcos deliberations highlight the dynamics of balancing the three dimensions of flexibility and specificity. Mineralco saw value in acquiring Petcibs location-specific but firm-flexible exploration rights, because their location-flexible community relations capabilities from PNG plus Petcibs location-specific government relations in West Africa would combine to add considerable value. Overtime, it was hoped that these synergies would translate into firm- and location-specific advantages that later entrants would find difficult to replicate.
Implementing Asset Mapping

Changes to MNC value chains rest on the ability of executives to renegotiate external and internal relationships, as well as to identify the constraints and opportunities to realize new value creation opportunities. Reconfiguring value chains frequently creates winners and losers. Research has highlighted the scope for affiliate managers to massage information fed to parent executives through formal and informal channels.22 For example, a decision to consolidate component manufacturing or service support may be good for the overall MNC, but, for the affiliates and units that lose value-adding activities, the change is dramatic. Reduced activity entails lower levels of managerial responsibility and prestige, workforce reductions, and possible market share losses, as tailored local output gives way to standardized product. Meanwhile, other subsidiaries and regional divisions may reap greater rewards, scale, and status by securing global product mandates, project leads, and support roles. Affiliate and unit-level managers face strong incentives to lobby parent executives and engage in information distortion to sway such decision making.23 One mechanism to mediate the effect of information filtering is the development of specialist templates and teams. Research we conducted with colleagues on new foreign market entries revealed the highly formalized processes employed by some leading MNCs. Template documents specify the type and source of information for collection. The completed documents are then analyzed and compared against competing growth options by a specialist market investigation unit in the parent HQ, and then presented to the senior executive and board of directors for final determination. Similar teams, information templates, and boundary or envelope conditions can be developed that are MNC-specific to guide re-appraisals of its global, regional, country, or product-specific footprint. While the initial mapping of the MNCs footprint may be time-consuming, once established, routine audits and updates can be used to separate data collection from the decision processes and negotiations parent executives must engage in to reconfigure an asset, a value-chain, or an affiliates role. These audits, which may be undertaken by specialist teams tasked with maintaining asset inventories or maps, would then limit the ability of affiliates to filter information and engage in political game plays. Development of these capabilities should also help to limit the impact of individual biasesbe it of an affiliate head, divisional director, or even fellow parent executivein determining the type and quality of information collected.
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Decision makers mental models, or the cognitive frameworks they use to seek and analyze information, can lead to distortions. These constraints reflect both the limited bandwidth of individuals to accurately forecast all possible scenarios, and the biases (or pre-dispositions) that executives bring to decisions.24 Allocating attention to current operational demands and to medium to longterm strategic decisions is a tough balancing act. The attention of MNC executives is a particularly scarce resource and the sheer volume of information confronting them can overwhelm and force short-cuts in decision making. Executives who have spent time in a particular subsidiary, or have been closely involved in the development of major new markets, potentially bring rich insights into the ongoing value proposition of these activities. However, they may also be clouded by loyalty to former colleagues or fear damage to their reputation, if a project or business is scaled down or spun-off.25 As one of the Mineralco directors observed:
I saw the destruction when you dont manage your portfolio actively. Everybody is so excited about acquiring something, but people are just not this ready to put down the ones that really ought to be good to go.
As the Mineralco executives and directors sought to determine the suitability of the West Africa investment, our analysis consistently revealed that executives and directors with extensive breadth and depth of international experience were keenly attuned to both the nuances of location-specificity and to the interactivity of firm, use, and location dimensions.26 For example, a highly experienced director (worked in 13 countries, 15 FDI decisions) observed:
This [misunderstanding] happens across a lot of developing countries, in particular, where on face value there seems to be a structure you can recognize. But its sort of a very thin sliver over the top of something that is far more complex and when you delve down into itthe typical thing you say to people operating in these countries is, you ask a question three waysquite different questions and if you get similar answers back then youve probably understood the issue.
In contrast, one of the executives, who had worked at an operational and functional level in mines in 11 countries, but had no executive-level experience with foreign investment decisions, commented:
I guess I took it pretty well as read that we would operate in a certain manner, just like we operate in PNG in a certain manner, and that Petcib hadnt operated in a manner that was contrary to how we would operate, and therefore it was all okay. I was unprepared, probably naively so, for the amount of interrogation [from the Board] that I got on that aspect.
For those with at least medium international work and strategic decisionmaking experience, the importance of maintaining an awareness of and sensitivity to these cross-country nuances was clear:
Even in our board recently I heard people saying . . . this is so great because now we can just be in Senegal, be in Guinea, be in Mali, be in Burkina Faso. Every one of these countries is different . . . people make the mistake of thinking that all West Africas homogenous . . . well get some synergies of the management weve got over there but each one will have to stand on its own merits.Director, 5 countries, 6 FDI decisions
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MNCs that are able to develop processes and expertise in mapping their assets and value chains will be able to quickly respond to changing external conditionsbe it a global change to economic conditions, new technological opportunities, or failure of a location-specific competitor. Similarly, decision-making groups, with greater levels of international experience and cultural backgrounds, should also be better placed than more homogenous teams to understand markets beyond home borders, seek appropriate information sets, and formulate new global footprints.27
Conclusion
MNCs operate in dynamic, uncertain, and challenging settings. Allocating executive attention to current operational demands and to longer-term growth decisions is a tough balancing act. Parent executives in multi-business and multi-location companies are responsible for determining the set of businesses that will comprise the corporate portfolio and for coordinating these businesses to ensure they create more value under common ownership than as stand-alone operations. Encrustments from prior investment decisions may constrain the ability to expand or shrink an MNCs global footprint. Recognizing the limitations of current business models and configurations can be an important step in building new businesses that strike a better flexibility-specificity trade-off or enable expansion into different markets. The addition of location to Ghemawat and del Sols dimensions of use and firm-specificity explicitly extends the concept of strategic flexibility to the decisions faced by MNCs. Without close scrutiny and recognition of the MNCs asset portfolio along all three dimensions, there is a danger that strategic choices made today will hamstring future options. While significant advantage may rest on adapting to the needs of local customers and tapping into valuable differences in resource availability across locations, MNC strategists must remain mindful of the flexibility implications of any such choices. Our three cases highlight the complexity of international business decisions. While automakers grapple with the intricacies of globally distributed supply chains and multiple product lines, airlines face a world of shifting consumer behavior and more open skies. Other MNCs, such as miners, chase location-bound inputs in unfamiliar environments. International business research has long understood the trade-off of local and global advantages. Our framework and analysis reveal the importance of honing in on the asset level when pursuing strategic flexibility and competitive advantage in international markets. Notes
1. P. Ghemawat and P. del Sol, Commitment vs. Flexibility, California Management Review, 40/4 (Summer 1998): 26-42. A firm-specific asset would have lower value to another firm. A usespecific asset would have lower value in any other use. A location-specific asset would have lower value in any other locale. 2. M.A. Hitt, B.W. Keats, and S.M. DeMarie, Navigating in the New Competitive Landscape: Building Strategic Flexibility and Competitive Advantage in the 21st Century, Academy of Management Executive, 12/4 (November 1998): 22-42, at p. 22. Other prominent contributions to the strategic flexibility discussion include H.W. Volberda, Building the Flexible Firm: How to Remain Competitive (Oxford: Oxford University Press, 1999); M.A. Hitt and K. Shimizu, Strategic Flexibility: Organi-
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3.
4.
5. 6.
7. 8.
9. 10.
11. 12.
13.
14. 15. 16.
17.
zational Preparedness to Reverse Ineffective Strategic Decisions, Academy of Management Executive, 18/4 (November 2004): 44-59. Calls for organizational ambidexterity argue very similar points. See M.L. Tushman and C.A. OReilly, Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change, California Management Review, 38/4 (Summer 1996): 8-30; C.B. Gibson and J. Birkinshaw, The Antecedents, Consequences, and Mediating Role of Organizational Ambidexterity, Academy of Management Journal, 47/2 (April 2004): 209-226. There is an intersecting literature, mainly in operations management, which distinguishes strategic, tactical, and operational flexibility. The distinctions typically lie in the speed, frequency, locus, and substantiveness of the flexibility. Strategic flexibility is thus defined by Upton, as the ability to make one-way, long-term changes that involve significant change, commitment or capital and which occur infrequently, say every few years or so. Tactical flexibility often occurs at the product or plant level, is more reversible, faster and more frequent. Operational flexibility is the ability to change day to day, or within a day as a matter of course . . . [for example] a flexible transfer line on which changeover time is minimal. See D.M. Upton, The Management of Manufacturing Flexibility, California Management Review, 36/2 (Winter 1994): 72-89, at p. 79. This work represents an attempt to delineate further the flexibility arguments initially put forward by Ansoff and by Aaker and Mascarenhas. See H.I. Ansoff, Corporate Strategy (New York, NY: McGraw Hill, 1965); D.A. Aaker and B. Mascarenhas, The Need for Strategic Flexibility, Journal of Business Strategy, 5/2 (Fall 1984): 74-82. We view operational and tactical flexibility as precursors or subsets of strategic flexibility. An MNCs capacity to act in a strategically flexible fashion will build upon its capacity to also make operational and tactical decisions. Ghemawat and del Sol refer to resources, but use the term in the sense of an asset, encompassing both resources and capabilities. Decisions around retaining, reconfiguring, and/or jettisoning assets are inherently questions of strategic flexibility, as they tend to be one-way and infrequent with long-term impacts. Ghemawat and del Sol, op. cit. Hitt, Keats, and DeMarie, op. cit., p. 30. These elements of location-specificity are discussed at length in the international business literature, yet typically overlooked in discussions of strategic flexibility. See J.J. Boddewyn, M.B. Halbrich, and A.C. Perry, Service Multinationals: Conceptualization, Measurement and Theory, Journal of International Business Studies, 17/3 (Fall 1986): 41-57; J.H. Dunning, Internationalizing Porters Diamond, Management International Review, 33/2 (1993): 7-15; A.M. Rugman and A. Verbeke, A Note on the Transnational Solution and the Transaction Cost Theory of Multinational Strategic Management, Journal of International Business Studies, 23/4 (1992): 761-771. D. Bailey, S. Koyabashi, and S. MacNeill, Rover and Out? Globalisation, the West Midlands Auto Cluster, and the End of MG Rover, Policy Studies, 29/3 (September 2008): 267-279. See, for example, L.G. Franko, The European Multinationals (Stamford, CT: Greylock, 1976); S. Humes, Managing the Multinational: Confronting the Global-Local Dilemma (New York, NY: Prentice Hall, 1993). As quoted in That Sinking Feeling, The Economist, November 21, 2005. Saab had been unprofitable since 2001 and accounted for less than one percent of GMs production output. See V. Fuhrmans, GM to Shut Saab Unit, Quirky Icon of the Road, Wall Street Journal, December 19, 2009. This may extend to countries with influential communities of East Asian migrants. These decision trees and questions could be considered as simple (yet powerful) strategic rules, in a similar vein to those identified by K.M. Eisenhardt and D.N. Sull, Strategy as Simple Rules, Harvard Business Review, 79/1 (January 2001): 106-116. In 1989, GM paid $600 million for 50% of Saab Automobile AB, but only needed to pay a further $125 million to purchase the remaining shares in 2000. By 2002, GM had lost $4 billion on the venture. See P. trach and A.M. Everett, Brand Corrosion: Mass-Marketings Threat to Luxury Automobile Brands after Merger and Acquisition, Journal of Product & Brand Management, 15/2-3 (2006): 106-120. Mothballing (i.e., Option 1) was not practical for GM in its perilous financial condition. This information comes from authors discussion with a then member of Qantas executive team. For more on Continental Lite, see R. Doganis, The Airline Business, 2nd edition (New York, NY: Routledge, 2006), p. 156. The Dutch carrier KLMs failed Buzz off-shoot is discussed in P. Ormerod, Why Most Things Fail: Evolution, Extinction and Economics (London: Faber & Faber, 2005), pp. 27-28. As a separate entity, Jetstar could more easily enter joint ventures in host countries, such as Vietnam. Such strategic choices were unavailable to Qantas given its location-specific roots as an Australian Government-owned carrier. It also allowed Qantas to distance itself from potentially damaging reputation effects if and when relationships soured.
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18. Within months of a significant international acquisition, we conducted multiple interviews with the entire executive team and the Board directors. We also obtained extensive data on each executive and directors prior work experience and education, including the number, location, and type of overseas assignments and prior involvement in international investment decisions. Each semi-structured interview was conducted from one and a half to two hours. As selfreported information can be subject to a number of biases, we sought to confirm the internal and construct validity of the data through triangulation with the board papers, press releases, and media reporting. While the board papers remained confidential, a sample set was triangulated with the transcripts, confirming the accuracy of both the timing of decisions and recollections of discussions. 19. In Mineralcos home country, the positions of Board Chair and Chief Executive Officer were separate positions. 20. Violence and militia activity forced the mining giant Rio Tinto to abandon its copper operations in Bougainville in 1989, while BHP was embroiled in years of legal dispute with the PNG Government over its Ok Tedi operations. C. Ballard and G. Banks, Resource Wars: The Anthropology of Mining, Annual Review of Anthropology, 32 (2003): 287-313. 21. The rights were fairly use-specific, in that they pertained to exploration for minerals. Discovery of deposits of other minerals beyond their specialty could potentially be on-sold to other miners. 22. C. Bouquet, Building Global Mindsets: An Attention Perspective (London: Palgrave, 2005); C. Bouquet and J. Birkinshaw, Weight versus Voice: How Foreign Subsidiaries Gain Attention from Corporate Headquarters, Academy of Management Journal, 51/3 (June 2008): 577-601; J. Birkinshaw, C. Bouquet, and T.C. Ambos, Managing Executive Attention in the Global Company, MIT Sloan Management Review, 48/4 (Summer 2007): 39-45. 23. In addition to the references in the above note, see G.R. Benito, Divestment and International Business Strategy, Journal of Economic Geography, 5/2 (April 2005): 235-251; J. Birkinshaw, How Multinational Subsidiary Mandates are Gained and Lost, Journal of International Business Studies, 27/3 (1996): 467-495; R. Mudambi and P. Navarra, Is Knowledge Power? Knowledge Flows, Subsidiary Power and Rent-Seeking within MNCs, Journal of International Business Studies 35/5 (September 2004): 385-406. 24. Decision processes and outcomes necessarily reflect the experiences and thought patterns of the individuals involved. Myopic decision making can include the classic managerial traps of focusing on the short- over the long-term and near events to those at a distance; see, D. Levinthal and J. March, The Myopia of Learning, Strategic Management Journal, 14 (Special Issue, Winter 1993): 95-112; W.K. Smith and M.L. Tushman, Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams, Organization Science, 16/5 (September/ October 2005): 522-536. Studies have shown that MNC managers typically struggle to break free of geography, tending to favor the home market to all others, followed by markets closest to home, largest in size, and most popular with competitors. See, T.P. Murtha, S.A. Lenway, and R.P. Bagozzi, Global Mind-Sets and Cognitive Shift in a Complex Multinational Corporation, Strategic Management Journal, 19/2 (February 1998): 97-114. 25. See, for example, B.M. Staw and H. Hoang, Sunk Costs in the NBA: Why Draft Order Affects Playing Time and Survival in Professional Basketball, Administrative Science Quarterly, 40/3 (September 1995): 474-494; C. Camerer and D. Lovallo, Overconfidence and Excess Entry: An Experimental Approach, American Economic Review, 89/1 (March 1999): 306-318; R.G. McGrath, Falling Forward: Real Options Reasoning and Entrepreneurial Failure, Academy of Management Review, 24/1 (January 1999): 13-30. 26. We used various count measures to distinguish depth of experience (years working overseas), breadth (the number of countries the individual had worked in), diversity (the standard deviation in a political risk index of each country they had worked in), and specific FDI decision experience (number of decisions they had been directly involved in). We have provided the breadth and decision data when identifying quotes from interviewees. On either counts, we regard 9 or more as highly experienced, 4-8 medium, and less than 4 low. 27. See, for example, T.P. Murtha, S.A. Lenway, and R.P. Bagozzi, op. cit.; M.A. Carpenter and J.W. Fredrickson, Top Management Teams, Global Strategic Posture, and the Moderating Role of Uncertainty, Academy of Management Journal, 44/3 (June 2001): 533-545. California Management Review, Vol. 54, No. 2, pp. 92117. ISSN 0008-1256, eISSN 2162-8564. 2012 by The Regents of the University of California. All rights reserved. Request permission to photocopy or reproduce article content at the University of California Presss Rights and Permissions website at http://www.ucpressjournals.com/reprintinfo.asp. DOI: 10.1525/cmr.2012.54.2.92.
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Flexible Footprints:

RECONFIGURING MNCS FOR NEW VALUE OPPORTUNITIES

Elizabeth Maitland Andre Sammartino

UNIVERSITY OF CALIFORNIA, BERKELEY

VOL. 54, NO. 2

WINTER 2012 CMR.BERKELEY.EDU

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

CALIFORNIA MANAGEMENT REVIEW

VOL. 54, NO. 2

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

The Pursuit of Strategic Flexibility

UNIVERSITY OF CALIFORNIA, BERKELEY

VOL. 54, NO. 2

WINTER 2012 CMR.BERKELEY.EDU

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

Firm and Use: Two Dimensions of Flexibility

TABLE 1. Examples of Asset Specificity/Flexibility

CALIFORNIA MANAGEMENT REVIEW

VOL. 54, NO. 2

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

UNIVERSITY OF CALIFORNIA, BERKELEY

VOL. 54, NO. 2

WINTER 2012 CMR.BERKELEY.EDU

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

TABLE 2. Mixes of Specificity/Flexibility across Two Dimensions of Firm and Use*

Location-Flexibility: The Missing Dimension

CALIFORNIA MANAGEMENT REVIEW

VOL. 54, NO. 2

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

UNIVERSITY OF CALIFORNIA, BERKELEY

VOL. 54, NO. 2

WINTER 2012 CMR.BERKELEY.EDU

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

Examining the Three Dimensions of Flexibility-Specificity Trade-offs

BOX 1. Assessing your Assets

CALIFORNIA MANAGEMENT REVIEW

VOL. 54, NO. 2

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

UNIVERSITY OF CALIFORNIA, BERKELEY

VOL. 54, NO. 2

WINTER 2012 CMR.BERKELEY.EDU

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

Building Decision Trees and Asset Maps

CALIFORNIA MANAGEMENT REVIEW VOL. 54, NO. 2

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

Can we move the asset around? (Location)

Does the asset have multiple uses? (Use)

Is it equally valuable to other firms? (Firm)

YES (LF, UF) Many buyers across many locations

NO (LF, US) Fewer buyers across many locations

YES (LS, UF) Many buyers in current location

NO (LS, US) Fewer buyers in current location

UNIVERSITY OF CALIFORNIA, BERKELEY

VOL. 54, NO. 2

WINTER 2012 CMR.BERKELEY.EDU

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities

FIGURE 2. The Reconfiguration of a Multinational Corporation (MNC)

Call/service centre Data warehousing Corporate HQ

Retail Repairs R&D

Warehousing & Distribution

UNIVERSITY OF CALIFORNIA, BERKELEY

VOL. 54, NO. 2