LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Articulate the relationship between multinational strategy and structure
2. Understand how institutions and resources affect structure, learning, and
innovation
3. Outline the challenges associated with learning, innovation, and knowledge
management
4. Participate in two leading debates on multinational structure, learning, and
innovation
5. Draw implications for action

PRESSURES FOR COST REDUCTIONS

AND LOCAL RESPONSIVENESS

integration-responsiveness framework - means by

which MNEs primarily confront two sets of pressures:

cost reductions

local responsiveness

local responsiveness - unique consumer preferences and

host country demands on cost reductions

STRATEGIC CHOICES
home replication strategy emphasizes international
replication of home country-based competencies such as
production scales, distribution efficiencies, and brand power

localization (multidomestic) strategy focuses on a

number of foreign countries/regions, each of which is regarded as a
stand-alone local market worthy of significant attention and
adaptation

global standardization strategy - relies on development

and distribution of standardized products worldwide to reap
maximum benefits from low-cost advantages

STRATEGIC CHOICES
center of excellence - MNE subsidiary explicitly recognized
as a source of important capabilities, with the intention that these
capabilities be leveraged by and/or disseminated to other
subsidiaries

worldwide (or global) mandate - charter to be responsible

for one MNE function throughout the world

transnational strategy - attempt by an MNE to

be cost efficient and locally responsive

ORGANIZATIONAL STRUCTURES
international division - typically set up when firms initially
expand abroad, often engaging in a home replication strategy

geographic area structure - organizing according to

different geographic areas (countries and regions)

country or regional manager - business leader of a

specific geographic area or region

global product division - treats each product

division as a stand-alone entity with full worldwide
as opposed to domesticresponsibilities

FORMAL AND INFORMAL EXTERNAL

INSTITUTIONS

formal institutional frameworks erected by

various home and host country
governments:
to protect domestic employment, the British government taxes
British MNEs foreign earnings at a higher rate than their domestic
earnings
political reasons discourage or ban MNEs from structuring certain
operations in sensitive countries
host country governments often attract, encourage, or coerce
MNEs into undertaking activities that they may otherwise abdicate

FORMAL AND INFORMAL EXTERNAL

INSTITUTIONS
informal institutional frameworks erected by various
home and host country governments:
managers contemplating such moves have to weigh the vocal
backlash against such activities that often result in domestic job
losses
sourcing decisions are guided by the informal norm of reciprocity,
i.e. one countrys suppliers are involved with Boeing, airlines based
in that country are more likely to buy Boeing aircraft

Formal and Informal INTERNAL Institutions

MNEs are governed internally by various formal and informal rules
of the game:
systems of evaluation, reward, and punishment in place based on
formal rules
home country national as the head of a subsidiary (such as an
American for a subsidiary of a US-headquartered MNE in India)
host country national (such as an Indian for the same subsidiary)
third country national (such as an Australian for the same
subsidiary)

Formal and informal INTERNAL Institutions

Staffing approaches may reflect strategic differences:
home country nationals, especially long-time employees of the
same MNE at home, are more likely to have developed a better
understanding of the informal workings of the firm
appointing host and third country nationals is indicative of an
MNEs preference for a localization strategy
formal internal rules on how the MNE is governed may reflect
conscientious strategic choices
informal internal rules are often taken for granted and are deeply
embedded in administrative heritages, thus making them difficult to
change

RESOURCE BASED CONSIDERATIONS

VRIO framework

value - does the new structure (such as matrix) adds

concrete value?
innovation crucial difference between an
innovator and a profitable innovator

rarity - to improve global coordination, many MNEs

spend millions to equip themselves with
resource planning (ERP) packages

enterprise

imitability - formal structures are easier to observe and

imitate than informal structures

organization - building an informal, flexible, invisible

matrix) is more likely to outperform
rivals

KNOWLEDGE MANAGMENT
explicit knowledge - codifiable (that is, can be written down
and transferred with little loss of its richness)

tacit knowledge

- noncodifiable and its acquisition and transfer

require hands-on practice

R&D - an especially crucial arena for knowledge management

global virtual teams - do not meet face to face to transfer
knowledge

decentralized R&D - performed by different locations and

teams around the world virtually guarantees persistent heterogeneity
in the solutions generated

KNOWLEDGE MANAGEMENT PROBLEMS AND

SOLUTIONS
many MNEs prefer to invent everything internally
open innovation relies on more collaborative
research among various internal units, external firms,
and university labs
not invented here syndrome - causes some
managers to resist accepting ideas from other units
limited absorptive capacity - ability to recognize value
of new information, assimilate, and apply it