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Introduction The rapid globalization of business in the last two decades has prompted an increasing number of firms to develop

strategies to enter and expand into markets outside their home locations (Blomstermo and Sharma, 2005). Dynamic, emerging markets in Asia, especially in Japan, now attract both small and large companies from around the world (Taylor et al., 2001). The globalization of markets, the lowering of trade barriers and the emergence of modern communication and information technologies have contributed significantly to the internationalization of service firms (Javalgi and White, 2002). When expanding globally, MNEs are likely to achieve higher performance than domestic firms (Florin and Alphonso, 2004). It is further argued that these benefits are by no means guaranteed; however, MNEs also face the "liability of foreignness" (Stonehouse,2004). This results in greater costs arising from unfamiliarity with cultural, political, and economic dimensions of the environment. Furthermore, Tayeb (2000) argued that the necessity to coordinate business at a distance can also be expensive The purpose of this paper is to critically analyze and evaluate international strategies of Merrill Lynch in Japan. The paper is organized in three parts. The first part will investigate the entry mode alternatives of Merrill lynch in Japan and will suggest a suitable entry mode. The second part will go on to evaluate the host country risks arising from possible international acquisition and joint ventures in Japan. This section will entail political, economical and socio-cultural factors in greater depth. The third part will review the international structure literature and suggest a viable future management structure for Merrill lynch provided it continues to expand in the Japanese market. Brief company overview- Merrill Lynch Merrill Lynch is one of the world's leading wealth management, capital markets and advisory companies with offices in 37 countries and territories and total client assets of approximately $1.6 trillion. As an investment bank, it is a leading global trader and underwriter of securities and derivatives across a broad range of asset classes and serves as a strategic advisor to corporations, governments, institutions and individuals worldwide. Merrill Lynch owns approximately half of BlackRock, one of the world's largest publicly traded investment management companies with more than $1 trillion in assets under management. Merrill Lynch Japan Securities Co., Ltd. (MLJS), incorporated in Japan, is a wholly-owned subsidiary of Merrill Lynch International Incorporated, which is a wholly-owned subsidiary of Merrill Lynch & Co., Inc. (www.merrilllynch.com) Research Methods This paper entails research solely based on secondary data made available from texts and online academic journals from library resources. Most data included in this paper are upto-date, resourced from academic journals ranging between 2000 and 2007 as an assessment requirement of the module.

Part A. Answer to Question No. 1 Suggested Entry Mode for Merrill Lynch in

An entry mode is an institutional arrangement that a firm uses to market its product or services in a foreign market (Wide et al., 2006). A range of factors influence the choice of entry mode; in particular, the costs, risks and control are of paramount consideration (Stonehouse, 2004). Ekeledo and Sivakumar (2004) argued that the selection of an appropriate entry mode in a foreign market can have significant and far-reaching consequences on a firms performance and survival. For example, an inappropriate entry mode may block opportunities and substantially limit the range of strategic options open to the firm. It may result in substantial financial losses to the firm, including exit from the foreign market, as Merrill Lynch failed in its first attempt to enter the private client services market in Japan in the 1980s largely because of using a mode of entry, which was at odds with the restrictive regulations in Japan (Hill, 2001). Definitions and types of entry mode Firms entering new foreign markets choose from a variety of different forms of entry, ranging from licensing and franchising, through exporting (directly or through independent channels) to foreign direct investment (FDI) viz. joint ventures, acquisitions, mergers, and wholly owned new ventures Jung (2004) maintains that entry modes vary in the degree of control the firm exercises over invested tangible and intangible resources and the transactions costs associated with that resource commitment It is worth defining and classifying alternative entry modes before recommending an appropriate entry strategy for Merrill Lynch provided the opportunity of Yamaichi Securities had not arisen: There are three broad categories of international entry mode available for firms: 1. Exporting/Importing 2. contracts 3. and Foreign Direct Investment (FDI) Exporting involves a company selling its physical products or services which are manufactured outside the target country to the host country (Wild et al., 2006). Licensing and franchising arrangement are non-equity associations between an international company and a firm in a host country in which technology or management systems are transferred to the host party (Taylor, 2001). A joint venture is an arrangement whereby the firm is required to share equity and control of the venture with a partner from the host country (Kirca, 2005). An additional entry is full-ownership whereby the firm takes 100 stakes in the venture in a host country either through acquiring or by building a new site from scratch (Taylor, 2001). These definitions clarify financial and managerial involvement and control while crafting a foreign entry strategy.

Options for Merrill Lynch Service firms, such as Merrill Lynch, may enter foreign markets using a variety of entry modes, for example, joint ventures or establishing a subsidiary abroad by either acquiring or building it from scratch, which is termed green field site in the literature. (Blomstermo and Sharma, 2006). They further argue that the choice of foreign market entry mode is critical and related to control. Control refers to level of authority a firm may exercise over systems, methods, and decisions of the foreign affiliate (Ekeledo and Sivakumar, 2004). Control is crucial as it ensures achievement of the ultimate purpose of the organization (Carty, 2007). Some entry mode, such as exporting and licensing has low level of control. Conversely, entry mode such as joint ventures and full ownership of facilities provides more control, but involves more additional risks at the host country, which have been discussed later in part B of this paper. The suitable entry mode for Merrill Lynch in Japan, therefore, poses question as to what extent Merrill Lynch wants to exercise control and exert managerial influences in strategic decision making process. It is implicit in the case that top executives wished to exercise greater control by ensuring a firm strategic position by entrancing itself as a major player in the Japanese market. At the same time, they hesitated to commit resources fully to go down this road due the high level of costs and risk involved. As a result, it is quite difficult to ascertain the intention of Merrill Lynch from the case itself. An exploration of existing body of entry strategy theories will be helpful to come to an agreement as no direct hint is available from the case. Literature review: Theoretical perspectives of entry mode Entry mode literature commonly exposes the following theories in support of market entry by a firm seeking to enter into a foreign market: 1. Transaction cost theory 3. Eclectic model 2. Bargaining power theory 4. Resource-based view

Entry involves two interdependent decisionslocation and mode of control (Rasheed, 2005). Transaction costs theory views each choice of entry mode as an individual transaction that involves a trade-off between control and resource commitment (Kirca, 2005). Whereas Merrill Lynch demands more control on its strategic position, its available resources, huge cost and country risks constrained its desired entry mode. Sun (1999) argued that an MNC tends to choose an entry mode that minimizes transaction costs. While TCA appears to be the most widely used framework for entry strategy analysis, Taylor et al. (2000) questioned the appropriateness of TCA for East Asian cultures including Japan because of its focus on institutional structure and their impact on transaction cost.

Society like Japan has different institutional structure than Western Nations. One good example of institutional different is Keiretsu in Japan, in which member of a network attempt to work closely. Hill (1995) has directly questioned the applicability of TCA in Japan based on the notion that Japanese culture, including collectivism, group identification, loyalty and reciprocal obligation reduce the cost of transaction. Merrill Lynchs high propensity to acquisitions in Western countries does not necessarily warrant similar actions in Japan as the culture and business practices considerably differ. Taylor et al. (2001) argue that bargaining power theory views entry mode choice as an outcome of negotiations between the firm and the government of the host country. Taylor et al. (2000) believe that BP theory does not conflict with Japanese culture. BP assumes that both parties seek their long-run best interests (Hill, 2001). BP asserts that the entry mode selection remains largely dependent on the relative bargaining power of the firm and the government (Taylor et al., 2000). It is argued that much of the bargaining power of MNCs emanate from its ability to employ local people and contribute to the community, whereas the government exercises power at market access. Earlier government restrictions on selling financial products to Japanese investor made it very difficult for Merrill Lynch to succeed and ultimately forced it out of the market (Hill, 2007). The bankruptcy of Yamaichi securities, combined with a financial breakdown in the economy, forced the government to invite more relaxed FDI, as it would increase the countrys employment, financial know-how and trigger further competition. Eclectic theory propagates that firms undertake FDI basically a location becomes appealing due to its ownership and internationalization (Tahir and Larimo, 2004). Eclectic discussions posit a wide variety of factors, such as firm size, multinational experience and the ability to differentiate products to influence entry-mode. The case study reveals the attractiveness of Japan as a location for FDI as the market was argued to be huge, amounting Y 1, 220 trillion yen, of which only 3 percent were invested in mutual funds. This shows the huge market potential for Merrill Lynch. Finally, resourcebased view sees an organization entry strategy based on its resources and capabilities to exploit such opportunities (Grant, 2001). Merrill Lynch management considered building a firm strategic position in Japanese market by building a subsidiary rather than a joint venture. However, the high cost of resources and huge financial risks constrained this choice. This confusion created a complexity of a suitable entry mode for Merrill Lynch in Japan. However, in practice in the recent years, Merrill Lynch has undertaken a number of joint venture movements in Japan. Recently in 2005, Merrill Lynch formed a 50:50 joint ventures in its private client business with Mitsubishi Tokyo Financial Group, the Bank of Tokyo-Mitsubishi, and Mitsubishi Securities Co., Ltd. In 2006, Merrill Lynched entered another 50:50 joint venture partnership with Mitsubishi UFJ Financial Group (MUFG). (http://www.japan.ml.com/main.asp)

Suggested Entry mode for Merrill Lynch: FDI (Acquisition via Joint venture) The earlier definitions of entry mode would justify that exporting is not a viable choice as Merrill Lynch provides services where its presence in Japan is necessary. Contractual relationship is also not a suitable option as Merrill Lynch provides financial services and advice directly to its clients. As a result, foreign direct investment (FDI) remains a reasonable foreign market servicing choice for Merrill Lynch to enter Japanese market. It can either be a Joint venture or a wholly owned subsidiary. Considering Merrill Lynchs long-term objectives, its resources and capabilities and the external environment, and above all, its previous hard experiences of entry strategy in Japan in 1980s as well as its recent moves in the direction towards joint ventures in Japan, an initial joint venture is suggested. If successful in building a firm grip into the market and a strong possible foothold in the distribution, it can then establish a wholly-owned subsidiary either by acquiring its venture partner or building a new site independently. The arguments why an initial joint venture should be undertaken are as follows: In a substantial research by Jung (2004), he argued that US firms preferred Joint venture to acquisitions with Asian countries when the host country is culturally more distant from the US where the parent firm finds it difficult to operate alone. Hitt et al. (2001) pointed out that a joint venture may be seen as a bridging between cultural gaps. Joint venture serves the purpose of assigning a difficult task to a local partner, who is more knowledgeable and better able to tackle problems with and preference of local employees, suppliers, customers and government in terms of cultural differences (Perks and Sanderson, 2000). Cultural differences are a vital factor for entry mode (Tahir and Larimo, 2004). Storehouse (2004) posits that FDI and direct involvement is more likely where there are cultural similarities, rather than dissimilarities. Although management desired a wholly owned subsidiary with a long-term strategic outlook, Japan, being very dissimilar in culture and many business practices, a joint venture can be argued to be more appropriate to offset some of the heightened economic and cultural risks, at least initially. An initial joint venture will give Merrill Lynch the experience, know-how and cultural understanding and reduced risks from uncertainty and to finally tap into the market on its own once it finds its firm ground in Japanese market. These suggestions are made provided such an opportunity of Yamaichi had not arisen by fluke in the right time for Merrill Lynch. Jung (2004) further argued that Joint venture is preferred to acquisition when the host country risk is higher. It is argued widely in the international literature that there exits a negative relationship between risk and control. The higher the country risk, the lower the control that firms wants to hold (Tayeb, 2000). Although Japan appears to be a fairly stable political and economic nation (Wild et al., 2004), there is huge difference in managerial practices ensuing from cultural differences (this is discussed in the next section). There exists a high potential of clash of US individualism and Japanese collectivism, according to Hofstede (1989). However, a joint venture can potentially reduce this problem as local managers will be more familiar to its local culture. Managers from parent company may also learn from partner by knowledge sharing. Therefore, an initial joint venture can well be suggested.

Part B. Answer to Question No 2. Risks of Intl acquisition and JV in Japan

Definitions of acquisition and joint venture have been provided in Part A earlier. This section considers the associated risks of internationalizing of firms through acquisition and joint venture. The focus here remains largely on the external environments. However, it takes into account the socio-cultural differences and difficulties that Multinational or global firms confront especially when seeking to enter a market with enormously dissimilar cultural background. The key risks identified from literature review are culture, host country politics and legal system, and host country economic conditions, which impact the firms entry mode as well as overall performance. Tayeb (2000) classifies risks of international firms into three broad categories- (1) country risks, (2) Business risks and (3) Financial risks. It will be useful to use this framework to discuss risks that are associated with international acquisition and joint venture in Japan. Country risks Increasing globalization of business has heightened the opportunities for, and the pressure to engage in, cross boarder merger and acquisition (Hitt and Pisano, 2004). Takeovers and buyouts are becoming common, if not always welcome, feature of business landscape in Japan; numbers of mergers involving Japanese companies quadrupled in decade, to 2,775 deals in 2006 from 621 in 1996 (Fackler, 2007). Regardless of the opportunities presented by, and pressure for, cross boarder acquisition, a 1999 KPMG study revealed that only 17 per cent of such venture adds value (Perks and Sanderson, 2000). These authors argued that cross boarder acquisition and joint ventures are highly complex strategic transactions with many challenges and risks for managers to overcome. Miroshnik (2002) contended that understanding the role of environment of multinationals, both external and internal, is very important. Quer et al. (2007) add that when the time comes to reflect on the possibility of entering a foreign country, the firm must take into account that countrys social, legal, economic and political framework Political and legal risks: Wild et al. (2006) contend that the political risk and the uncertainty associated with foreign ownership are precisely some of the possible costs that will be assumed in case of internalization. Due to conditions of political instability and uncertainty, foreign enterprises will be reluctant to commit many resources through FDIs (Pak and Park, 2004). Wild et al. (2006) further argue that that all companies doing business internationally confront some forms of political risks- the likelihood that the government or society will undergo political changes that might affect the host country performance. Although Japan is argued to be very low political risk country (Wild et al. 2006), firms such as Merrill Lynch was affected in Japan by a government restriction on selling US financial instruments to its Japanese clients, which hindered Merrril Lynchs operation in Japan in 1980s and forced it out of the market (Hill, 2007). Later, when the government liberalized and relaxed such restriction, Merrill Lynch made a profitable comeback (Hill, 2007). This example provides evidence that even when the country is demonstrated as low politically risk country, firms when considering entering Japanese market through an acquisition or Joint venture must consider the associated political risks.

Economic Risk The market for mergers and acquisitions in Japan grew by almost 50% in the first nine months of 2003 (BBC News, 2003). The biggest driver for the renewed growth was interests from overseas, especially from the US, with cross-border deals rising more than 60% to $11bn (Quer et al., 2007). However, with slight recovery from a decade of continuing economic downturn, Japan is still in an economic recession. The value of the yen is falling and unemployment is rising (Yip and Yao, 2006). There is empirical evidence that FDIs may be hindered by the foreign investors perceived exchange rate risk in the host country (Yip and Yao, 2006). The currencies and financial markets of Southeast Asian countries, which have been the high-growth area, have been in turmoil, and adverse impact on the Japanese economy has been anticipated (Matsushita, 2007). Furthermore, there may be economic risk of transactions from of currency conversion (Stonehouse, 2004). This can worsen when there are any political or legal imposition on fund transfer between parent and subsidiaries. In addition, recent successive failures of large Japanese financial institutions have once again aroused concerns about the stability of Japan's financial system in Japan and abroad (Yip and Yao, 2006) Thus, it is not easy to judge where the Japanese economy is headed. Such uncertainties in the economy pose major challenges and financial risks for an acquisition of or a joint venture with a Japanese firm by a foreign firm. Socio-Cultural risks Seymen (2006) argue that cultural environment (communications, religion, values and ideologies, social structure) has paramount importance in multinational businesses. Culture in international business literature is defined as acquired knowledge people use to interpret experiences and guide their behaviours (Kessapidou and Versakelis; 2002). Hofstede (1991) defines culture as the collective programming of the mind, which distinguishes the members of one group from another. This definition can be interrelated with international organization where a group of employees of one company- the acquirer or joint venture partner will be distinguished in their values and behaviour from the acquired or another JV partner. Piero (1998) contended that the greater the cultural distance or dissimilarity, such as between the organizations, the greater the risk that a cultural clash will spell the failure of an acquisition. Cultural clashes are likely to be more prominent in cross-national acquisition than domestic ones (Pablo et al., 2004). More often than not, M&A as well as cross-boarder Joint ventures may generate substantial change in organization structure and/or culture (Kessapidou and Versakelis; 2002). These changes often spark off uncertainty and instability, which, in turn, may result in cultural clashes. Different cultural environments require different managerial behaviours (Liu, 2004). Strategies, structure and technologies that are appropriate in one culture may be inappropriate in another (Stonehouse et al., 2004). Many US and Australian managers believe that an organization with fewer layers can work better, where they see superiors as colleges rather than bosses. In contrast, 52% Japanese surveyed believe that the purpose of the hierarchy is to know who have the authority to make decision (Seymen, 2006). Thus, one of the major risks associated with a cross boarder acquisition or joint venture is identified as cultural differences.

Culture, again, can be defined and sub-grouped as national culture, organizational or group (Kessapidou and Versakelis, 2002). Cross-cultural business interactions such as cross-boarder joint venture and acquisition comprise both national and organizational culture, interwoven. This is often referred to as doubled-layered acculturation (Pablo et al., 2004, p.24). That is, acculturating, or merging two culture synergistically is not only highly difficult, it often turns out to be catastrophic in many strategic cross-board joints ventures and acquisitions. Elashmawi (1998) probably correctly commented that the issue of cultural classes, or a failure of cultural synergy, can make or break an expensive joint venture. In addition, social institutions- whether they are a business, political institution, family or social class- influence the behaviour of managers. Miroshink (2002) argued that managers do bring their ethnicity to the organization. For example, a US manager must recognize that Japanese social institutions favour a paternalistic leadership style and decision making. This interprets Japanese value of collectivism and group identification. Hofstedes works on national culture and four cultural dimensions are invaluable in understanding such behaviour. Hofstede (1983) found that national culture explains 50 per cent of the differences of the employee attitude and behaviours. Hofstedes research on 40 countries reveals that the Japanese culture sharply differs from that of US in terms of the four dimensions. Japanese scores 54 in power distance against 40 of US. This means that Japanese accept power distance more than the US managers. Seniority is a cultural value which is important even in Japanese organization. Similarly, Japanese score 92 on uncertainty avoidance. That is, Japanese managers look towards their bosses for key decisions. This, in turn, supports hierarchy and centralization. Conversely, US score 46 in uncertainty avoidance, which supports risk taking and empowerment in decision making by US managers. Similarly, whereas Americans are highly individualistic (91), Japanese are highly collective (as opposed to 46 in individualism). The Americans and Japanese also differ in masculinity. These differences in cultural values pose a significant risk for acquisition and joint-venture where they try to communicate and integrate business strategies and managerial practices. The values and behaviour of customers in the society bears significant importance for multinationals contemplating an acquisition or joint venture (Miroshnic, 2002). For example, Japanese like to buy shampoo which uses a beautiful Japanese girl in its advertisement, rather than some beautiful European or American models. Cultural diversity also creates problems in the communication (Papadakis, 2005). Language, for example, is one of the major barriers for effective communication between cross-boarder management. For instance, Japanese managers never say No. It is impolite in Japanese culture. It does not mean they agree. They will rather say Yes, we absolutely disagree, whereas a Yes may be a time for celebration for many US and European managers (Mead, 1996). Communication is one of the risks that joint-venture partners and acquisitions organization may substantially face.

Business/Operation Risk Cultural diversity and Managerial Risk Elashmawi (1998) quite sarcastically remarked, Japanese and American management is 95% the same and differs in all important respects! It is further argued that entering foreign market through direct investment either via an acquisition or a joint venture poses new management problems (Young et al, 1989). Liu (2004) contended that management thought and practices differ across continents, if not countries. Many researchers reported on the dominant role of national culture in determining the managerial practices, strategies in the cross-boarder investment (Kessapidou and Versakelis, 2002). For example, style of managing differs in the Arab world from the Indian subcontinent and again from Japan or China. Effective reporting relationships need to be established between subsidiary and parent company and this may even require changes in the formal organizational structure, rule and procedures of the firm (Toyeb, 2000). Conflicts may arise regarding the decision-making authority, especially in the functional areas such as R&D, marketing, finance, production and so on (Hitt, 2004). Furthermore, to a varying degree, organization making direct investment may re-allocate key personnel between home and host country, which, in turn, may create complexities in international human resource management (Morley and Collings, 2004). Organization may be exposed to confusion among expatriate mangers especially ensuing from differing cultural values and managerial practices developed from home culture. Kessapidou and Versakelis (2002) pointed out that differences in national culture influence only the entry mode, but also perceived difficulty surrounding the integration of foreign personnel into the organization. Technological risks When forming a Joint-venture with Japanese organization, the acquirer may run the risk of revealing the key technology and managerial expertise to the partner (Doherty, 1999). Similarly, organization which has a distinct or core competency in a field such as financial management, sharing the knowledge and management know-how will further be vulnerable to imitation and exploitation by the venture partner. A high degree of control is necessary to maintain such proprietary knowledge. However, these risks are reduced in the cases of acquisitions where management gain high control on the technology. Financial risk The financial risks can be argued to exist in all international investments. However, the market risks emanate from varying degree of volatility in the exchange, interest and equity market risks. Legal risks ensue from uncertainty in the enforceability of the contractual relationship with the venture partner in the host country. To sum up, cross-boarder acquisition or a joint venture effort of a global organization such as Merrill Lynch exposes many risks; however, some of the most prominent were identified as country risks, business risks and financial risks in a broad context.

Part C. Answer to Question No 3. Recommended international structure

International strategy literature exposes a long-lasting debate about the relationship between structure and strategy (Tayab, 2000). It is not agreed whether the structure follows organizational strategy or strategy emanates from structure. The process perspective suggests that an organizations strategy is conditioned by its internal structure (Stonehouse, 2004). In this view, managers are constrained in their decision-making process by how the firm is organized; due to the fact that an organizational structure is a lot less dynamic than its strategy. Conversely, the contingency perspective suggests that structure follows strategy and that no single strategy is universally better than others, but rather, performance outcomes will depend on the structure used to implement the choice of strategy (Roth & Morrison; 1990, Ozsomer and Prussia, 2000). Tayeb (2000) pointed out that it is not useful to look at organizational structure in isolation. This section, therefore, explores the literature to find a solution that can determine what structure can best fit Merrill Lynch supposing it continues to expand in the Japanese market. However, it is worth discussing the international strategies of multinational firms such as Merrill Lynch, which is then argued to determine a corresponding structure for expansion. Literature Review In all organizations, managers have to establish structures that provide a basis of control and co-ordination, and one of the most significant issues for MNEs is the relationship between corporate centre and host-country subsidiary (Florin and Alphonso, 2004). Kidger (2002) argued that structure and control should be consistent with strategy. Bartlett and Ghoshal (1989) distinguished for strategies for firms to compete in the international environment; an international strategy, multi-domestic strategy, a global strategy and a trans-national strategy. Multidomestic strategy emphasizes local responsiveness with a structure that gives a great deal of autonomy to local subsidiaries (Kidger, 2002). The arguments favoured that differences in high communication barriers in early decades and differences in consumer preferences led to a decentralization of decision making. Tayeb (2000) mentioned decentralized federation where he argued that decentralized federation is organized by area; that is, by geographic region. In such forms, decision-making is decentralized to functional self-contained overseas subsidiaries and the need for co-ordination between sub-units is low (Hill, 2001). Firms pursuing a global strategy focus on efficiency rather than local responsiveness and require a structure that provides varying degrees of policies and co-ordination (Kidger, 2002). Levitt (1983) contended that consumer preferences are increasingly becoming homogeneous. However, the choice will be strongly influenced by the firms industry; still, the effect of globalization may strengthen the need for integration.

In a global organization, assets, resources and responsibilities are centralized (Tayab, 2000). The role of subsidiaries is often limited with less freedom of strategic decisions. In general, global firms are more centralized than most multi-national firms. It is argued to be a centralized form where head-quarters typically maintain ultimate control over most operating decisions. Firms pursuing international strategy attempt to create value by transferring core competencies and/or specialized technological know-how from home country to host-country subsidiaries (Hill, 2001). Local subsidiaries do have some degree of freedom to adopt new products or strategies, but co-ordination and control by headquarter is more important. Firms following transnational strategy focus simultaneously on local responsiveness and cost containment from experience curve economies. Although multinationals are seeking global economies, they are equally being forced to be locally responsive (Kidger, 2002). Ohmae (1994), quoted by Ozsomer and Prussia (2000), proposed global localization in which firms have both global and local orientation. Barlett and Ghoshal (1987) suggested transnational solution where they argue that MNEs need to follow all three strategies simultaneously. They felt that transnational firms should have a fluid structure where they find a right balance between local responsiveness and central co-ordination. They further referred to creating a matrix structure where both product division and area focus have significant influence. This type of structure, however, gives rise to arguments against its complexities that arise from reporting relationship and accountability as there are two bosses who control in such a structure. Theoretical perspectives of control and structure in multinational organization The agency theory would be useful to explain the relationship between the principle (parent company) and its agents (subsidiaries in host country). Cultural and geographical distance between the home country of Merrill Lynch in the US and the host country in Japan may increase the uncertainty of head office management (the principal) about whether the local managers (the agents) decision will be appropriated and for the interests of the corporate organization. However, the degree of control may not be the same for each subsidiary considering their individual establishment and competence. Mintzberg et al. (1998) supported two approaches to the formation of structure of an organization. Contingency theory, being the first approach, maintains that organization structure of a firm will depend (Stonehouse, 2004). It may rely on factors like nature and scope, size and geographic span, age and history, the external environment and so on. Configuration theory, on the other hand, considers factors like span of control, need for formalization, centralization or decentralization, planning and system into the structural design (Stonehouse, 2004). Peters and Waterman (1982) argued that excellent organizational performance depends on strategy, as argued earlier, systems, culture, skills, leadership, stuff and structure. Therefore, it can be argued that there is an interrelationship of strategy, structure and culture as argued so far in this section.

Suggested international structure for Merrill Lynch in Japan From the foregoing overview of literature and theories, matrix structure appears to be too complicated. Although it provides both local responsiveness and central co-ordination and integration along the same line for Merrill Lynch, reporting to two bosses just make it complex. Furthermore, it could best suit firms such as Unilever or P&G as they have too many products and geographic areas to control and co-ordinate. Many US firms previously adopted an international structure or international divisional structure as this allowed Americans greater control and co-ordination of foreign operation by their very nature. With increasing globalization many firms gradually followed a global structure. However, this was rare among US firms and more visible among European firms (Stonehouse, 2004). Global organization along functional lines allows tight control over specific functions worldwide (Stonehouse, 2004). Like matrix structure, subsidiaries may need to report many different functional divisions. Furthermore, this structure is argued to be unsuitable for geographically dispersed organization (Tayeb, 2000). As a result, most international companies have incorporated functional responsibilities within global divisions based on geographic lines. The problems associated with the lack of regional co-ordination can be thus overcome by adopting global regional/geographic structure. Merrill Lynch is therefore suggested to adopt a geographically/regionally based structure. Under such structure, subsidiaries in Japan will report directly to corporate executives responsible for a particular geographical area manager in Japan. Each area division will then both have product line and functional responsibilities for operations within Japan. Many US companies, for example, have established separate regional headquarters based in Europe, Asia or Australasia. It is thus suggested that Merrill Lynch follow this structure and build its regional headquarter in Japan if they continue expansion by either joint venture or acquisition or building green field sites. The reasons why such structure is suggested are as follows: Pooling of local human resources: the provision of local specialist human resources to support operations based on more-in-depth cultural knowledge and local practices. Production rationalization the management of product integration on a Japanese basis Flatter reporting structure to reduce the number of subsidiaries in Japan directly reporting to parent company in the US. Day-to-day control to exert greater operating control over subsidiaries than is possible from a distant parent company. Management development the regional headquarter will be responsible to develop a cadre of highly trained managers with global orientation. Additionally, this structure is particularly suited to Merrill Lynch as it has a narrow product lines such as mutual funds, private client service, financial advice and a few more. The structure, as suggested here, also allows Merrill Lynch to co-ordinate and integrates activities within Japan.

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