This chapter opens by an extensive overview of the literature on integration. The point


of departure is a definition and an un-bundling of the term .integration.. Following from


this, integration rationales and drivers are reviewed from an .external. environmental


contingency perspective and an .internal. strategic choice perspective. Based on this


overview, integration challenges are identified across a number of different areas before


reviewing relevant integration capabilities. The primary focus is on integration in the


multinational corporation. However, the review also draws on literature regarding


corporate parenting in multi-business firms, post-merger integration and international


joint ventures and strategic alliances where such literatures are relevant to the study of


cross-border integration in MNCs. To distinguish the contributions, the terms


.headquarters. and .subsidiaries. are used when reviewing integration literature from the


international business field and .parent. and .strategic business unit. (SBU) are used in


relation to general multi-business literature. This distinction will hopefully provide an


element of transparency.


The chapter continues by discussing the extant literature on MNC subsidiary


management. The focus is specifically on the way that subsidiary managers. actions and


agency have been conceptualised in different strands of the literature.


Based on this overview of literatures on integration and subsidiary management, the


knowledge gap is identified through a conceptual framework that outlines the level of


analysis at which the different theoretical contributions are positioned. To achieve this,


contributions both from within and outside the international business literature are


mapped against the different levels of analysis: to the industry, company, headquarters,


subsidiary and managerial levels. From this meta-categorisation, I argue that we have a


lack of knowledge regarding integration at the managerial level of analysis within the


international business literature concerned with cross-border integration. This framing


of the knowledge gap leads into a discussion of the specific research questions


addressed by this dissertation.


At the end of the chapter, the two perspectives of sensemaking, and strategy-as-practice


and micropolitics are introduced as these literatures contain valuable points of departure


from which to initiate research concerning integration from the subsidiary management


perspective.


 


 


2.1 Defining and un-bundling integration


 


 


Given that this dissertation concerns cross-border integration, and that .integration. is


used in a variety of different meanings in management literature, it would be hazardous


to proceed before arriving at a definition of the construct.


 


 


It is helpful to start by defining the opposite of integration. In an MNC context, this


dissertation defines the opposite of integration as local autonomy. That is, when


operations in different parts of the MNC are run on an independent basis and local


decisions are made without coordination with other units within the MNC. An


alternative candidate for the opposite of integration would be local responsiveness.


However, given that several scholars have argued that it is possible to simultaneously


 



 


 


have high degrees of integration and responsiveness (Bartlett, 1986; Bartlett & Ghoshal,


1989; Prahalad & Doz, 1987), this dissertation argues that integration and autonomy are


more appropriate labels for the different ends of the spectrum.


Having defined the opposite of .integration., our attention now turns to the definition of


the term itself. It is important to note that there is no clear and universally accepted


definition of .integration. in the management literature. The two quotes below from the


post-merger integration literature acknowledge this fact and the statements would be


just as appropriate in relation to literature on cross-border integration within MNCs.


Integration clearly means different things to different people. Most importantly, it


means different things in different situations (Haspeslagh & Jemison, 1991:138).


Surprisingly, very little literature directly defines integration. Although most authors


acknowledge that integration involves some form of combining the assets and people of


the buyer and the target, in general, the term is used quite loosely (Schweiger & Goulet,


2000:63).


It is also important to relate .integration. to .coordination.. Mintzberg (1983b) has


argued that coordination is one of the most fundamental requirements of management:


Every organized human activity – from the making of pots to the placing of a man on


the moon – gives rise to two fundamental and opposing requirements: the division of


labor into various tasks to be performed, and the coordination of these tasks to


accomplish the activity (1983b:2, italics in original).


In this context, it is worth noting that while integration is sometimes considered as a


synonym for coordination, other authors maintain a distinct separation between the two


terms. The first position is taken by authors like Martinez and Jarillo (1989) who state


that they use the terms .mechanisms of coordination. and .mechanisms of integration.


as synonyms for the same underlying phenomenon. This is also evidenced in their


definition of coordination mechanisms as: .any administrative tool for achieving


integration among different units within an organization. (Martinez & Jarillo,


1989:490). The second position is maintained by authors like Kobrin (1991) who


propose a clear distinction between integration and coordination when it comes to


global strategies:


.Transnational integration, as opposed to the cross-border coordination of activities,


involves rationalization that may entail standardization of product, centralization of


technological development, or the vertical or horizontal integration of manufacturing.


(1991:19).


The above indicates that integration can be viewed as a process of change aimed at


combining, concentrating, centralising or standardising activities. From this perspective,


integration implies that activities will be done differently and that the integration


process will have a start and a finish. In contrast, coordination refers to ongoing efforts


to achieve alignment between different organisational units to ensure that required tasks


are completed.


 


 



 


 


Given the above distinction between integration and coordination, it is useful to


consider the difference between a process and an end-state. From a process perspective,


integration would thus mean a change process that transforms the organisation from


independence or autonomy towards integration in selected areas. However, coordination


would simply be about ongoing alignment and would not require any change


component, and coordination would not necessarily be distinguished by any specific


start and finish. This can be illustrated using a specific example such as manufacturing.


Using the above definition, there would be a distinct difference between integration of


manufacturing and coordination of manufacturing. Integration of manufacturing would


imply a process of change that results in a different end-state for the manufacturing


function. It would be meaningful to compare manufacturing ex ante and ex post of


integration efforts. Integration can thus be viewed as a change process that results in a


different end-state for affected functions or business areas. This is in sharp contrast to


coordination, which simply refers to ongoing alignment efforts without any specific


objective to drive change and alter the end-state of the function being coordinated. From


this perspective, manufacturing could be coordinated on an ongoing basis to ensure that


input materials are delivered on time, that products are being produced according to


required volumes and specifications, and that finished products are delivered to sales


locations. While there may be significant efforts required to ensure effective


coordination of manufacturing, the end-state of the manufacturing function would not


be altered by ongoing coordination efforts.


The desire to achieve integration may further require the creation of coordination


mechanisms to ensure ongoing alignment. This becomes clear if we consider


Mintzberg.s (1983a) six coordination mechanisms: mutual adjustment, direct


supervision, standardisation of work processes, standardisation of outputs,


standardisation of skills and standardisation of norms. This illustrates that stronger


coordination in the form of different types of standardisation may be required to align


.integrated. organisational units given the higher degree of interdependence compared


with independent, autonomous operations.


Integration is clearly not limited to the domains of multinational or multi-business


corporations. Thus, when it comes to integration within an organisation, such efforts can


involve: 1) organisational units belonging to the same strategic business unit in a single


country, 2) organisational units belonging to different strategic business units within the


same country, 3) between organisational units at headquarters (parent) and in


subsidiaries (SBUs) located in different countries, as well as 4) directly between


subsidiaries (SBUs). The last two cases are labelled cross-border integration in order to


provide clarity in this dissertation.


 


 


Integration can also be used to refer to the value creating activities of the corporate


headquarters. In this context, Burgelman and Doz (1996) have argued that .strategic


integration. ultimately is concerned with how corporate management creates value over


and beyond the sum of the parts of the separate businesses within a company. With this


definition, strategic integration thus provides the rationale for the existence of


headquarters and for grouping a set of businesses under one owner. There are clear


parallels here with Goold, Campbell and Alexander.s (1994) discussion of corporate


 



 


 


parenting and the conditions under which the corporate parent creates value in the


multi-business firm.


Integration takes on yet a wider meaning if we also consider integration of units within


the organisation with other units outside of the organisation. This would be the case for


a diverse range of cooperation efforts including joint ventures, strategic alliances,


participation in industry organisations and standard-setting forums, providing


specifications to vendors and aligning sales and marketing activities with distribution


partners. A specific transition case would be post-merger integration that would


combine units inside the organisation with unit(s) previously located on the outside. In


addition to this, integration is sometimes also used in the context of systems integration,


meaning the integration of different technical systems.


Based on the above review, integration researched in this dissertation is limited to


.cross-border integration. between organisational units within the same multinational


corporation (e.g. headquarters and subsidiaries) located in different countries. Given


this, we turn our attention to various forms of integration of particular relevance for


MNCs.


 


 


2.1.1 Value chain configuration and coordination


 


 


In the MNC strategy literature, .integration. is sometimes referred to as a singular


construct, often contrasted with .responsiveness. as in the integration-responsiveness


(IR) grid (Bartlett, 1986; Bartlett & Ghoshal, 1987a; Bartlett & Ghoshal, 1987b; Bartlett


& Ghoshal, 1988; Bartlett & Ghoshal, 1989; Prahalad & Doz, 1987). However,


Prahalad and Doz (1987) argue that .integration. is in fact composed of two building


blocks. The first element, .global integration of activities., refers to centralised


management of dispersed activities on an ongoing basis to reduce costs and optimise


investments. The second element, .global strategic coordination., instead refers to


coordination of resource commitments and strategic decisions across organisational


units in different countries. In contrast to global integration of activities, strategic


coordination can be selective and non-routine. But as they assume a high degree of


interdependence between .global integration of activities. and .global strategic


coordination., Prahalad and Doz decided to collapse the two dimensions in the IR


matrix and only refer to integration as a single dimension.


Porter.s value chain (1985) can also be used to analyse the integration of activities


between organisational units in a MNC. Porter (1986; 1998) has distinguished between


configuration and coordination of value chain activities. Configuration refers to spatial


decisions regarding the location of sites and the number of sites within the


multinational. This is also referred to as the concentration-dispersion perspective (Lim,


Acito, & Rusetski, 2006). In the post-merger integration literature, the term


consolidation has instead been used regarding such decisions (Schweiger, 2002).


Coordination refers to the nature and extent dispersed activities are coordinated versus


remaining autonomous (Porter, 1998:7). This has also been called the integration-


independence perspective (Lim et al., 2006) or just .coordination., in the post-merger


integration literature (Schweiger, 2002).


 


 



 


 


The elements of value chain integration are primarily internally oriented with a focus on


how the company can configure and coordinate its business activities including


sourcing, production, marketing, distribution, service and support activities across


borders.


 


 


2.1.2 Marketing standardisation


 


 


The focus of the international marketing literature is instead clearly oriented towards the


degree to which the customer experience is standardised or adapted across subsidiaries


operating in different countries. While the strategy literature tends to be internally


focused on the .business activity. as the unit of analysis, the international marketing


literature is instead externally oriented and concerned with elements of the .marketing


mix.. The literature defines marketing standardisation as the degree to which a


multinational company has standardised elements of the marketing mix (e.g. brand,


products, price, promotions, advertising, distribution) across subsidiaries in different


countries (Jain, 1989; Sorenson & Wiechmann, 1975; Yip, 1997). The degree of


marketing mix standardisation will thus have a significant impact on the similarity of


customer experience offered in different countries.


In light of the discussion of the terminology introduced by Prahalad and Doz (1987)


above, it is worth noting that while standardisation requires some form of strategic


coordination across borders, there is no requirement for physical integration.


In the post-merger integration literature, Schweiger (2002) has argued that all forms of


functions and activities can be standardised, not just marketing activities. Thus, the


primary focus in Schweiger.s work is on consolidation, standardisation and


coordination of functions and activities rather than a specific focus on the customer


experience.


The above thus relates to standardisation of work processes and outputs in the language


of Mintzberg.s (1983a) coordination mechanisms.


 


 


2.1.3 Defining integration


 


 


Following from the above discussion, this dissertation is limited to cross-border


integration which is defined as: .efforts to standardise the marketing mix, and physical


integration or strategic coordination of value chain activities across organisational


units, located in different countries, within the same multinational corporation’. It is


further acknowledged that integration can be viewed both as an outcome and as a


process.


 


 


This definition is based on the review of how .integration. is used in strategic


management, international marketing and post-merger integration literature as outlined


above. Multinational .value chain configuration and coordination., a concern addressed


in the strategy literature, appears to be at least partially treated in isolation from


.marketing standardisation. in the international marketing literature. This is unfortunate


as these dimensions of international strategy clearly complement each other. The


definition above seeks to bridge this gap and un-bundle integration into an external


 



 


 


dimension, focused on standardising elements of the customer experience across


borders, and an internal dimension, focused on coordination of business activities. This


distinction is also helpful in shedding light on the classic debate regarding whether


.structure follows strategy. or .strategy follows structure. (Burgelman, 1983b;


Chandler, 1962). Decisions to standardise marketing mix elements can result in


structural adjustments as the value chain is integrated as a result of marketing mix


standardisation. This would thus be a classic case of .structure follows strategy.. At the


same time, decisions regarding .back-end. or .upstream. integration may necessitate a


standardisation of marketing mix elements that may or may not have been contemplated


initially. This would then be a case of .strategy follows structure.. There is thus a clear


interrelationship between decisions to standardise marketing mix elements, and


decisions to integrate value chain activities that appears not to have been explored


sufficiently in literature.


An organising framework of different forms of integration can be created by


distinguishing between the integration type and the integration scope. Integration type


refers to whether integration efforts consists of ‘one-off’ strategic change, as a result of


a changed strategy-structure configuration, post-merger integration or other forms of


restructuring, or ongoing strategic coordination of business activities within an existing


strategy-structure configuration. Integration scope refers to whether integration efforts


are directed towards standardising the external customer experience or towards aligning


internal value chain activities.


 


 


Figure 2-2


Different forms of integration


 


 


In the top-left box we find change efforts that affect value chain activities. Examples of


such efforts include the centralisation of procurement, appointing a group-wide logistics


partner and developing a uniform financial reporting system.


 


ChangeIntegrationas .one-off


strategicchangeAlignmentIntegrationas ongoing


strategiccoordinationExternalcustomer experience/


marketing mixInternalValue chainactivitiesIntegration TypeIntegration ScopeBusiness as usual integrationwithin existingstrategy-structure configurationIntegration as change due toshifting strategy-structure configuration,


post-merger integrationor restructuringChangeIntegrationas .one-off


strategicchangeAlignmentIntegrationas ongoing


strategiccoordinationExternalcustomer experience/


marketing mixInternalValue chainactivitiesIntegration TypeIntegration ScopeBusiness as usual integrationwithin existingstrategy-structure configurationIntegration as change due toshifting strategy-structure configuration,


post-merger integrationor restructuring
 


 In the top-right box, we have changes that affect the customer experience. This could


include standardising customer experience elements such as products, advertising,


customer service, retail shop design and pricing structures.


The bottom-left box includes ongoing efforts to coordinate value chain activities. This


might include the monthly consolidation of sales forecasts from multiple subsidiaries to


purchase input materials under group framework agreements or to produce production


targets for manufacturing units within the MNC.


Finally, the bottom-right corner consists of ongoing efforts to coordinate the customer


experience. This could include agreeing on joint advertising campaigns, coordinating


prices across countries to avoid .gray. trade with the MNC.s products and group-wide


sponsorships of specific sport events (e.g. World Cup, Olympics) or movie releases (e.g.


James Bond, Lord of the Rings).


All forms of integration above are seen as distinctly different from local autonomy. A


completely autonomous subsidiary or business unit would have freedom to decide both


marketing mix as well as value chain activities. It follows from this that the different


forms of integration act to restrict the local autonomy of subsidiary managers.


Integration thus affects the level of managerial discretion of subsidiary managers,


defined as .latitude of managerial action. (Hambrick & Finkelstein, 1987: 370). Un-


bundling integration into external marketing mix elements and internal value chain


activities is useful in order to determine which business areas are affected by integration


and to understand the domains over which subsidiary managers have managerial


discretion. Un-bundling integration into either strategic change or ongoing alignment


provides insights into the nature and magnitude of possible changes to the business as a


result of integration efforts.


 


 


2.2 Integration rationale


 


 


 


Having defined cross-border integration for the purposes of this research, we can now


turn our attention to the rationale behind cross-border integration decisions. There


appear to be two main perspectives regarding integration rationale, which are here


labelled the .environmental contingency perspective. and the .strategic choice


perspective.. These distinctions, while theoretical, are useful as they highlight whether


the literature views integration as driven by primarily .external. environmental/industry


forces or .internal. strategic choices based on firm-specific capabilities. The integration


literature is thus characterised by the same debate as in mainstream strategic


management literature between environmental determinism versus strategic choice


(Astley & Van de Ven, 1983; Child, 1972; Hannan & Freeman, 1977; Hrebiniak &


Joyce, 1985). This is also reflective of the debate between, on the one hand,


.positioning. oriented perspectives (e.g. Porter, 1980; Porter, 1985) and, on the other,


the resource-based view (Barney, 1991; Penrose, 1959; Wernerfelt, 1984) and dynamic


capabilities perspectives (Eisenhardt & Martin, 2000; Teece, Pisano, & Shuen, 1997).


While advocates of these two perspectives (outside in versus inside out) appear to put


forward quite different arguments, it is worth noting that these views nevertheless


reflect two sides of the same coin. Resources can only be valuable if they align in some


 



 


 


way to the imperatives of the market. In viewing integration through a particular


theoretical lens, one will inevitably emphasise some aspects of the phenomenon under


study at the expense of others. While offering powerful insights, a particular way of


seeing can thus become a way of not seeing (Morgan, 1997). We thus need to be


informed by both perspectives in order to gain a holistic understanding of integration.


 


 


2.2.1 Environmental contingency perspective


 


 


The fundamental argument advocated by scholars writing from the environmental


contingency perspective (e.g. Hout, Porter, & Rudden, 1982; Bartlett, 1986; Bartlett &


Ghoshal, 1989; Prahalad & Doz, 1987) is that industries differ in their globalisation


potential. The role of the strategist is to understand the characteristics of the industry,


and how it is evolving, and then to select an appropriate strategy that matches the


industry requirements. From this perspective, there are largely generic industry types


and corresponding generic strategy recipes that lead to superior performance. The core


of the argument is thus a form of contingency theory (Galbraith, 1973; Lawrence &


Lorsch, 1967; Thompson, 1967) based on realising congruence, or co-alignment,


between the environment the firm is operating in and the strategy and structure


configuration of the firm. In what follows, the history and pedigree of a number of


typologies of strategies for multinational corporations are reviewed, paying particular


attention to the emergence of the complex configuration labelled transnational (Bartlett,


1986; Bartlett & Ghoshal, 1987b; Bartlett & Ghoshal, 1987a; Bartlett & Ghoshal, 1988;


Bartlett & Ghoshal, 1989), multifocal (Prahalad & Doz, 1987) or heterarchical


(Hedlund, 1986).


This section takes its starting point in the literatures on international marketing and


multinational strategy to identify the evolution of typologies of multinational


corporations. In this context, it is interesting to note that the marketing literature is using


the term .international. marketing while the strategy literature is more often referring to


.global. strategy as the overall label for the genre. This is problematic as these terms are


used both in a general .cross-border. sense and also to distinguish specific


environmental contexts or generic strategies in some typologies, as we will see below.


 


 


MNC typologies


 


 


An intense debate between scholars, largely within the international marketing area, has


argued the extent to which markets are becoming increasingly homogeneous. From a


contingency perspective, this is an important debate as congruence between the


environment and the strategy/structure configuration of the MNC is considered essential


to organisational performance.


 


 


In a seminal contribution, Levitt (1983) argued for the globalisation of markets based on


technological drivers. Levitt.s prescribed strategy is based on standardised products that


will both take advantage of, and further reinforce increasingly homogeneous customer


preferences on a global scale. Douglas and Wind (1987) agree that changes in the global


business environment necessitate a global perspective on strategy but conclude that


Levitt.s thesis of global standardisation is both na.ve and over simplistic and may result


 



 


 


in major strategic blunders for multinationals who follow Levitt.s prescriptions. In


contrast to Levitt.s (1983) prescription of .standardisation. as the one best way, Douglas


& Wind (1987) advocate a contingency approach based on mixed strategies with some


standardised and some differentiated components. Thus, rather than going exclusively


for standardisation or adaptation, certain elements of the marketing mix are instead


standardised across regions or clusters of markets, or customer segments. Ohmae


(1989) advocates a similar contingency solution when he concludes that the quest for


universal products in general is a false allure but that Levitt.s prescribed global


standardisation makes sense for certain segments and certain product categories.


The strategy typologies presented below, with the exception of Perlmutter (1969), reject


the simplicity of Levitt.s thesis in favour of contingency arguments. However, as we


shall see, environmental and industry determinism are the primary drivers behind these


typologies.


Perlmutter.s (1969) classification of ethnocentric, polycentric and geocentric


organisations has had a significant influence on subsequent research. A characteristic of


this work was that Perlmutter believed in an evolutionary path for multinationals from


ethnocentric to polycentric and finally to geocentric. Another noteworthy feature was


that Perlmutter was primarily focusing on managerial mindsets rather than on strategy


and structure configurations. Limitations thus include the lack of influence of industry


or type of business as well as the possibility that different functions within the business


may be managed differently (Chng & Pangarkar, 2000).


In an early MNC typology paper, Doz (1980) outlined three different strategies:


worldwide integration strategy, national responsiveness strategy and administrative


coordination strategy based on popularising the integration-responsiveness dimensions.


While not citing Perlmutter, there are clear similarities between the two classifications.


Doz.s early work is also important as it introduces an antecedent to the transnational


concept. He argues for an administrative coordination strategy seeking to leverage


structural and administrative adjustments to reap the benefits of both worldwide


integration and national responsiveness.


The work of Hout, Porter and Rudden (1982) shifted the level of analysis from that of


strategy alone to industry, by arguing that there are only two types of industries in


which multinationals compete: multidomestic and global. Industry determinism is a


clear feature in this work and the authors argue that the nature of the industry or


industry segment should drive the selection of a global or multidomestic strategy.


Bartlett (1986) was the first to explicitly introduce the transnational model of the


multinational. Bartlett outlined global, multinational and transnational strategies with


reference to the integration-responsiveness grid. A reference in the notes section in the


book chapter, states that the I-R grid is derived from the integration-differentiation


concepts developed by Lawrence and Lorsch (1967) and that the framework had


originally been adapted by Prahalad in his Harvard DBA dissertation from 1975.


Bartlett argues that the forces for both integration and responsiveness are becoming


more important in many industries, putting pressure on companies to transition towards


the transnational model.


 



 


 


 Citing works by both Perlmutter and Bartlett, Hedlund (1986) proposed the term


heterarchy for .hypermodern MNCs. that are organised as non-hierarchical networks


and seek to simultaneously achieve both integration and responsiveness. This idea of


characterising the MNC as a network was later extended by Bartlett and Ghoshal (1990)


with their model of the MNC as an interdependent network and by Nohria and Ghoshal


(1994; 1997) in their discussion of the differentiated network.


An alternative framework for multinational strategy is proposed by Porter (1986) based


on the two axes of coordination and configuration of activities. Using this framework,


Porter arrives at four different strategies: 1) purest global strategy, 2) export-based


strategy, 3) high foreign investment with extensive coordination among subsidiaries and


4) country centred strategy. In relation to Bartlett.s (1986) classification above, it is


clear that Porter.s country-centred strategy is most closely aligned with the


multinational, the purest global strategy and the export-based strategy are variations of


the global strategy and the high-foreign investment with extensive coordination among


subsidiaries is closest to the transnational given the high level of coordination together


with a geographic dispersion of activities.


The work of Prahalad and Doz (1987) also built on the integration-responsiveness grid


and produced similar strategies labelled global, locally responsive and multifocal. The


authors further provided one of the most frequently quoted lists of factors pushing for


integration and responsiveness. The pressures for global integration are: 1) importance


of multinational customers, 2) presence of multinational competitors, 3) investment


intensity, 4) technology intensity, 5) pressure for cost reduction, 6) universal needs and


7) access to raw materials and energy. In contrast, the identified pressures for local


responsiveness are: 1) differences in customer needs, 2) differences in distribution


channels, 3) availability of substitutes and the need to adapt, 4) market structure and 5)


host government demands.


Bartlett and Ghoshal (1989) built on Bartlett.s (1986) earlier work but also introduced


the international type based on exploiting parent company knowledge and capabilities.


The transnational was also explicitly extended as an organisation seeking to


simultaneously pursue global efficiency, local responsiveness and worldwide learning.


 


 


Table 2-2 below presents an organising framework for the different classifications of


strategies of multinational companies, with the exception of the international strategy


which only appears in Bartlett and Ghoshal.s work. The table is organised based on the


importance placed on global standardisation/ integration versus local


adaptation/responsiveness. The third category presents the .transnational. approach


seeking to balance standardisation/integration with adaptation/responsiveness. There is


thus a clear parallel between the marketing literature and the literature about strategic


and international management. The organising dimensions below can be used to classify


a substantial amount of prior research.


 


 



 


 


Table 2-2


An Organising Framework of MNC Typologies


 


 


 


Year


 


Global


standardisation/


integration


 


Local


adaptation/


responsiveness


 


Balancing integration


and responsiveness


 


Perlmutter


 


1969


 


Ethnocentric


 


Polycentric


 


Geocentric


 


Doz


 


1980


 


Worldwide


integration


strategy


 


National


responsiveness


strategy


 


Administrative


coordination strategy


 


Hout, Porter,


Rudden


 


1982


 


Global


 


Multidomestic


 


n/a


 


Bartlett


 


1986


 


Global


 


Multinational


 


Transnational


 


Hedlund


 


1986


 


n/a


 


n/a


 


Heterarchy


 


Porter


 


1986


 


1) Purest global


strategy and


2) Export based


strategy


 


Country-centred


strategy


 


High foreign


investment with


extensive coordination


among subsidiaries


 


Prahalad & Doz


 


1987


 


Global


 


Locally


responsive


 


Multifocal


 


Bartlett & Ghoshal


 


1989


 


Global


 


Multinational


 


Transnational


 


 


 


 


The influence of Harvard Business School has been significant in this field as a number


of scholars who have contributed seminal work received doctoral degrees from Harvard


between 1973 and 1986 (i.e. Bartlett, Doz, Ghoshal, Porter and Prahalad).


Bartlett and Ghoshal.s work has had the most widespread impact on subsequent


research and several quantitative studies have tested and empirically validated their


typology (Roth & Morrison, 1990; Leong & Tan, 1993; Harzing, 2000). This research


programme also adopts Bartlett and Ghoshal.s terminology but following Harzing


(1998), the terms multidomestic, global and transnational will be used while


multinational will instead be reserved as the generic term for a company operating in


different countries.


 


 


Overview of configurations


 


 


Following from the table above, this section provides a short summary of the key


features of the three key configurations: multidomestic, global and transnational based


on Bartlett (1986) and Bartlett and Ghoshal (1987a; 1987b; 1988; 1989). In this context,


it is important to remember that the configurations are ideal type theoretical


propositions rather than corresponding to actual organisations. The discussion does


however help to focus attention on some of the differences between what cross-border


integration means in different strategy and structure configurations of MNCs.


 


 


The multidomestic (multinational) configuration is characterised by a high degree of


autonomy for subsidiary units and decentralised decision-making. Subsidiaries are


nationally self-sufficient which means that there are more or less complete stand-alone


value chains in each country. Headquarters tends to manage multidomestic subsidiaries


as a portfolio of independent businesses, and subsidiaries are typically measured using


output control such as financial performance measures. In addition there is a layer of


 



 


 


informal personal relationships between managers at headquarters and trusted


expatriates. Multidomestic subsidiaries are thus fairly independent and separate


businesses operating with relatively little involvement from the parent company.


Knowledge is primarily developed locally and resides in the subsidiary rather than


being dispersed across the multinational. The primary flow between headquarters and


subsidiary is in terms of financial resources. The consequence is a high degree of local


responsiveness but only limited integration.


The global configuration is in many ways diametrically opposed to the dispersed logic


of the multidomestic configuration. Rather than replicating the value chain on a


country-by-country basis, organisational units and activities are instead tightly


integrated across the MNC. As a result, there is typically a high degree of centralisation


for most strategic resources, including R&D and knowledge. Overseas subsidiaries are


often performing specific functions such as extraction of raw materials or sales and


customer service rather than being independent businesses capable of stand-alone


operations. Global subsidiaries would thus typically not be able to function as stand-


alone operations without headquarters involvement. Given this, centralisation is a key


control mechanism and there is correspondingly tight control from the centre and low


levels of innovation and development in the periphery. The primary flow between


organisational units is in terms of products. As a result, companies following a global


strategy have a high degree of integration but lower levels of national responsiveness.


The objective of the transnational configuration is to create an organisation that is


simultaneously capable of local responsiveness, global integration and worldwide


learning. This requires strategic and organisational capabilities of an ambidextrous


nature, defined as the ability to pursue disparate and often conflicting demands at the


same time (Birkinshaw & Gibson, 2004; Duncan, 1976; Gibson & Birkinshaw, 2004;


O’Reilly & Tushman, 2004; Tushman & O’Reilly, 1996). The image that best describes


the transnational is that of an interdependent and differentiated network (Nohria &


Ghoshal, 1997). This means a much higher degree of integration compared to the stand


alone operations in the multidomestic model while more responsiveness compared with


the global configuration. As a result, value chain activities are physically integrated or


strategically coordinated as activities are performed where it makes most sense within


the multinational.s network. Subsidiaries are thus playing orchestrated roles in the


multinational as a whole rather than simply maximising local opportunities. Knowledge


creation is a much more dispersed activity and the objective is to share knowledge


across the multinational. With the change towards interdependence and integration,


control cannot be achieved through simple output measures any longer. Instead


socialisation emerges as an important mechanism to achieve normative control


throughout an increasingly complex organisation. This would thus be standardisation of


norms in Mintzberg.s (1983a) terminology. The transnational is further characterised


by a flow of resources, products and knowledge between different organisational units.


Given the need to balance responsiveness, integration and learning, the transnational


inevitably needs a matrix mindset which leads to complex organisational forms. While


Bartlett and Ghoshal identified a number of organisations as fitting the other MNC


configurations, the transnational was proffered as an ideal-type prescription for how to


respond to the conflicting challenges of responsiveness, integration and learning.


 


 



 


 


The above discussion has highlighted some of the key differences between a number of


the mostly commonly referenced strategy-structure configurations of multinational


corporations. It is clear that both forms of integration, the ongoing coordination of


activities, and the .one off. physical transformation of activities are involved in these


configurations to different degrees. Integration as ongoing strategic coordination


appears to be far more critical to the global and transnational configurations compared


with multidomestic firms. In instances where the MNC has made the transition from


global to transnational, or multidomestic to transnational or global, it would also appear


that integration as strategic change has been important.


 


 


2.2.2 Strategic choice perspective


 


 


Ghoshal (1987) concluded at the time that industry determinism had become a dominant


feature in multinational strategy but that while industry is important, it is only one of


many influences on strategy. This serves as a good introduction to the strategic choice


perspective of integration. In contrast to the external orientation of the environmental


contingency perspective, scholars researching integration from the strategic choice


perspective instead look within the firm to find the rationale for integration. This


naturally leads to a focus on resources, processes and capabilities.


This section will review the literature on strategic integration and corporate parenting


which both turn our attention to the capabilities of the multinational firm.


 


 


Strategic integration


 


 


Burgelman and Doz (1996) have argued that strategic integration, from a broad


perspective, is concerned with how corporate management creates value over and


beyond the sum of the parts of the separate businesses within a company. They have


also advocated that .strategic integration has to do with the assembly and cultivation of


resources, including tangible assets and the integration capabilities themselves, over


time and their coordinated deployment toward opportunities that not only confer


competitive advantage but also drive the further sharpening and deepening of these


tangible and intangible assets. (1996: 6). There are thus similarities between strategic


integration and corporate parenting, which we will focus on in the next section. There is


also a clear link to the resource based view (Barney, 1991; Penrose, 1959; Wernerfelt,


1984) and the dynamic capabilities perspective (Eisenhardt & Martin, 2000; Teece et


al., 1997) which both seek to understand how competitive advantage is achieved from


within the firm and how it is sustained over time. Strategic integration can thus be


viewed as a dynamic capability, based on specific strategic and organisational routines


(Eisenhardt & Martin, 2000; Teece et al., 1997).


 


 


The strategic integration capability is especially important when managers wish to


transition between one configuration to another, given the differences in resources,


strategy and structure between configurations. The capability is also critical if managers


want to move from weak to strong execution of a given configuration. Tying this


together with the previous definition of integration, would suggest that different


combinations of marketing standardisation and value chain integration correspond to


specific configurations (Miller, 1986; Mintzberg, 1983b) of strategy and structure in


 



 


 


multinational corporations. As previously noted, it is likely that integration as a strategic


change process could result in the creation of coordination mechanisms such as


standardisation of work processes or outputs.


 


 


Parenting theory


 


 


Researchers at the Ashridge Strategic Management Centre (Goold, 1996a; Goold,


1996b; Goold & Campbell, 1991; Goold & Campbell, 2002; Goold et al., 1994; Goold,


Campbell, & Alexander, 1998) have explored the conditions under which corporate


parents add value (rather than destroy value) in multi-business contexts. The language


of these publications does not refer directly to multinational corporations, to integration


or to dynamic capabilities. However, it is clear from the content of the writings that the


focus is on interventions by the corporate parent that affect SBUs, and that there is


relevance to the discussion about integration in MNCs. Given that the autonomy of


subsidiary units becomes restricted as a result of integration, the role of the corporate


parent or headquarters becomes critical in MNCs.


Goold, Campbell and Alexander (1994) have identified four ways in which parent


companies can create value. First, through stand-alone influence whereby the parent


influences the strategy and performance of otherwise stand-alone businesses. This might


be achieved in part through the standardisation of outputs (Mintzberg, 1983a); in this


case the parent company might use quality parameters or financial ratios as targets for


SBUs. Second, through linkage influences including synergies and transfer of best


practices. This could be achieved by standardising work processes or alternatively


through training to standardise worker skills or through the standardisation of norms


(Mintzberg, 1983a). Third, through the cost-efficient provisioning of central functions


and services to business units. This would correspond to integration as strategic change


rather than as ongoing coordination. Fourth, through corporate development activities


that alter the composition of the corporate portfolio by acquiring or divesting


operations. This would be a form of corporate restructuring, which would be closer to


integration as strategic change than ongoing coordination. The last form of parent


influence provides a link to the literature on mergers and acquisitions that discuss post-


merger integration (Schweiger, 2002).


Bowman and Ambrosini (2003) have also explored the conditions under which the


corporate centre is valuable to the organisation. In their discussion of how resource-


based and dynamic capability views of the firm can inform corporate level strategy, they


reach the conclusion that the corporate centre has to either be a resource or alternatively


have processes that create resources in SBUs in order to be valuable.


 


 


Goold, Campbell and Alexander (1994) have also outlined three different parent styles


which characterise how the parent relates to its business units. The financial control


style is characterised by a high degree of decentralisation of decision-making to


business units and a correspondingly small organisation in the parent company.


Business units are given a high degree of autonomy and are primarily measured in terms


of output control through the setting of budgets and performance targets. We can clearly


see how the financial control style would fit locally oriented MNC strategies described


 



 


 


as multidomestic (Hout et al., 1982), multinational (Bartlett, 1986) or locally responsive


(Prahalad & Doz, 1987).


At the other end of the spectrum, we find the strategic planning style. Parent companies


following this style typically have large and influential staffs that are closely involved


with a large number of functional areas across all areas of the business. As a result, the


level of autonomy for business units is fairly limited. There are thus clear parallels


between the strategic planning style and the centrally coordinated MNC strategies


labelled global (Bartlett, 1986; Bartlett & Ghoshal, 1989; Hout et al., 1982; Prahalad &


Doz, 1987) and purest global (Porter, 1986).


In between these two extremes above, we find the strategic control style. This style is


characterised by a balanced view between top-down planning driven by the parent and


bottom-up actions taken by the business units. Parent companies do this by balancing


the importance placed on financial objectives in the financial control style with the


focus on strategic milestones and objectives in the strategic planning style. The strategic


planning style is seen as gaining in popularity despite the fact that there are considerable


challenges to make the style work well. There are thus at least some similarities


between the strategic control style and the complex configurations labelled heterarchical


(Hedlund, 1986), multifocal (Prahalad & Doz, 1987) and transnational (Bartlett, 1986;


Bartlett & Ghoshal, 1989).


Goold and Campbell (2002) have further argued that .corporate parents inevitably


destroy some value by incurring overhead costs, slowing down decisions, and making


some ill-judged interventions, and that many corporate parents do not add enough value


to compensate. (2002:219). Given this, Goold, Campell and Alexander (1998) have


concluded that corporate parents .should avoid intervening in businesses unless they


have specific reasons for believing that their influence will be positive. (1998:309-310).


Goold, Campbell and Alexander (1998) have further proposed that three conditions


must be satisfied in order for the parent to add value:


Value creation only occurs under three conditions:


 


. The parent sees an opportunity for a business to improve performance and a role for


the parent in helping to grasp the opportunity


. The parent has the skills, resources and other characteristics needed to fulfil the


required role


. The parent has sufficient understanding of the business and sufficient discipline to


avoid other value destroying interventions (1998:310)


 


 


 


The parenting theory discussion is informative in that it highlights the conditions that


must be present in order for the parent to create value in the organisation. This literature


thus acknowledges the fact that not all activities of the headquarters necessarily add


value in multi-business corporations.


 


 


 


 



 


 


 


 


2.3 Integration challenges


 


 


This section reviews challenges to achieving successful integration. The challenges are


categorised as primarily relating to either headquarters or subsidiaries.


This section draws on literature relating to corporate parenting, MNC strategy and


mergers and acquisitions. Schweiger, Csiszar and Napier (1993) have argued that


mergers and acquisitions typically involve eliminating or shutting down units,


combining units and creating new interrelationships between units. To the extent that


cross-border integration efforts result in such strategic changes within the MNC, it


would be reasonable to assume that the implementation challenges would also be


similar. This provides the rationale for including literature on post-merger integration.


 


 


2.3.1 Headquarters related challenges


 


 


A number of integration challenges that primarily relate to the headquarters are outlined


below.


 


 


Ensuring value creation from integration


 


 


It is widely argued that the overriding rationale for integration within a company, as


well as for acquiring another company, should be that it creates more value than it


destroys. As stated by Goold (1996b) .[t]he purpose of any corporate parent should be


to add value to its businesses. In other words, the businesses should perform better as a


result of the parent than they would as independent entities…[however]…We have


found that unless the corporate parent is able to identify and focus on specific parenting


opportunities in its businesses, it is liable to damage, rather than enhance, the


performance of its businesses. (1996b:359). The same value creation logic is also


advocated from within the mergers and acquisition literature (Schweiger, 2002).


Ghoshal and Nohria (1993) have argued that integration is costly, and if a high degree


of integration is not fundamental to competitive advantage, a strategy based on strong


integration may destroy rather than create value. There must thus be a sound


justification for an organisation to adopt a more complex strategy configuration such as


the transnational.


 


 


Avoiding misguided headquarters intervention


 


 


The corporate parenting literature has identified that misguided intervention from the


parent can have negative effects. Goold and Campbell (2002) have argued that .[h]ands


on parenting can add high value, but it can also destroy it. If hands-on parents have


insufficient skills or poor staff support, they may blunder about rather than help the


business. If they are too prone to interfere, they may inhibit the initiatives of unit


managers and take on tasks for which they are ill-suited…Misguided hands-on


parenting is even more damaging than misguided hands-off parenting. (2002:226-227).


 


 



 


 


Goold, Campbell and Alexander (1998) have also proposed that successful parent


companies limit their attention to a few key opportunity areas rather than seeking to


intervene broadly right across the business. This allows the parent company to develop


distinctive skills rather than spread their efforts across areas where their intervention


would have low or negative value.


The potential for misguided interventions from the parent has also been identified in the


mergers and acquisitions literature. Jemison and Sitkin (1986b) have argued that


arrogant and defensive behaviour from parent company managers can lead to a rather


heavy-handed imposition of parent company practices in the subsidiary and sometimes


even the elemination of subsidiary-level capabilities that initially motivated the


acquisition. Several authors have further argued that post-merger integration efforts


should be limited only to areas where integration can capture most value (Carr, Elton,


Rovit, & Vestring, 2004; Schweiger et al., 1993; Vestring, Rouse, & Rovit, 2004).


Schweiger, Csiszar and Napier (1993) have labelled this the .principle of minimum


intervention. (1993:58). Vestring, Rouse and Rovit (2004) argue that many acquirers


surprisingly .often destroy value not as a result of inattention to detail but through


excessive zeal in their integration efforts…The reality is that too much integration can


block companies from realizing the benefits of a merger just as easily as too little can.


And, in some cases, over-integrating can do far more damage. (2004:15). This is similar


to the conclusion in the parenting literature that corporate parents should limit their


attention to a few areas with significant opportunities (Goold et al., 1994).


In general, there appears to be a realisation from within both the corporate parenting


literature (Goold & Campbell, 1998; Goold et al., 1994; Goold et al., 1998) and the


mergers and acquisition literature (Schweiger, 2002; Schweiger et al., 1993) that parent


company managers tend to overestimate the potential synergies from integration, while


implementation challenges are usually underestimated.


 


 


Ensuring quality of headquarter staff and execution


 


 


The role of parent level managers is significantly more complex in integrated


configurations compared with the situation where the parent operates closer to a


financial holding company, like in the financial control style (Goold et al., 1994)


expected in configurations described as locally responsive (Prahalad & Doz, 1987),


multidomestic (Hout et al., 1982) or multinational (Bartlett, 1986; Bartlett & Ghoshal,


1989).


This places requirements on the quality of staff within the parent and highlights whether


or not they have relevant strategic and operational experience. Goold and Campbell


(2002) have argued that .since upper level management have more demanding


responsibilities in complex structures, the issue of whether they have the necessary


skills is especially important. If they do not, value destruction by the parent is a very


real risk…A realistic assessment of value destruction by upper levels, and how it can be


minimised, continues to be a highly worthwhile discipline, with powerful practical


implications for management. (2002:241).


 


 



 


 


Bartlett and Ghoshal (1989) have commented that increased complexity in strategy


places requirements on headquarters employees to implement a multidimensional


organisation with differentiated roles for subsidiaries and leveraging flexible forms of


coordination. Prahalad and Doz (1987) have similarly argued that headquarter managers


need increased analytical sophistication and that successful managers will need to be


.half yogis, and half commissars. (1987:272).


Goold, Campbell and Alexander (1998) have also stated that .the skills of the


individuals involved and the organisational heritage in which they operate can make


essentially the .same. process effective or ineffective. (1998:311). This point to the


essential role of high quality execution; the .practices. themselves may matter less than


how they are actually .practiced..


 


 


Avoiding multiple parenting levels


 


 


In large companies, there may be more than one level of management within the parent.


Goold and Campbell (2002) have argued that .[e]very extra level of parent management


brings with it the danger of duplication, redundancy, extra overheads and contradictory


parenting influences. A series of levels, each of which repeats the work of lower levels,


but with progressively less detailed knowledge, is a sure recipe for parenting value


destruction and should be avoided. (2002:233).


 


 


Managing divided and dotted-line reporting


 


 


Both Bartlett and Ghoshal (1989) and Prahalad and Doz (1987) have argued that simple


organisational structures are unlikely to be appropriate for complex integrated


strategies. A consequence of complex structures is that subsidiary/SBU managers often


need to report in some form of divided or dotted-line reporting relationships, like in a


matrix organisation. Goold and Campbell (2002) have argued that .[d]ivided reporting


is not easy. To work well, it requires clear agreement about who is responsible for what,


and a process for reaching a collective view on parenting responsibilities that are shared


between the bosses. Such agreements may be possible in principle, but are always liable


to break down in the face of specific issues and crises…Divided reporting also causes


potential conflict for operating unit managers. It is harder to respond to two bosses, each


with separate agendas and sometimes pulling in different directions. (2002:236-237).


Prahalad and Doz (1987) argue that most of the difficulties that managers experience in


matrix organisations are due to managers still relying on concepts and mental


frameworks used to manage simpler organisational forms.


 


 


Avoiding empire building at headquarters


 


 


 


Goold and Campbell (2002) have proposed that .[u]pper levels of management have


essentially two roles to play. The first concerns the minimum obligatory tasks needed to


manage and maintain the existence of the corporate entity. The second concerns adding


value to the operating units. (2002:220). However, it is far from clear that these two


.legitimate. rationales are the actual drivers behind the dimensioning of the parent.s


organisational structure and reasons for interventions undertaken by parent level


 



 


 


managers. This may especially be the case with regards to intermediate parent levels. As


argued by Goold and Campbell (2002) .groups and divisions are often created for


reasons that have little to do with the parenting needs of the units within them. Power,


politics, personal ambitions, management succession, location, or accidents of history


can all influence the formation of groups. (2002:233).


Taken together, the above acknowledges that not all interventions by a corporate parent


or headquarters actually add value.


 


 


2.3.2 Subsidiary related challenges


 


 


 


A number of challenges related to the subsidiary level were also identified which are


presented below.


 


 


Strategic and organisational fit


 


 


The issue of fit is typically not directly discussed in the MNC strategy literature in


relation to cross-border integration. However, Bartlett and Ghoshal (1989) have argued


that a firm.s administrative heritage is formidably difficult to change. This indicates that


integration between organisational units that have different administrative heritages


would not be easy, such as the integration of a previously autonomous subsidiary that


has evolved characteristics that are distinctly different from the parent.


The mergers and acquisition literature further informs us that acquisitions are likely to


be more successful if there is a high degree of both strategic and organisational fit


between the target and parent firms (Jemison & Sitkin, 1986a; Jemison & Sitkin,


1986b). Jemison and Sitkin (1986b) have defined strategic fit as .the degree to which


the target firm augments or complements the parent.s strategy and thus makes


identifiable contributions to the financial and non-financial goals of the parent., while


organisational fit is defined as .the match between administrative practices, cultural


practices, and personnel characteristics of the target and parent firms and may directly


affect how the firms can be integrated with respect to day-to-day operations once an


acquisition has been made. (1986b: 146-147). Olie (1994) has further argued that a


stronger degree of operational integration requires reasonably compatible styles across


all aspects of the acquirer and target including personnel policies, decision-making


styles and the focus of authority and responsibility. One manifestation of lack of


organisational fit would be a .culture clash. (Carleton, 1997) or .culture collision.


(Buono, Bowditch, & Lewis, 1985) based on differing opinions or practices across a


wide range of areas. We can infer from this that cross-border integration is also likely to


be more difficult in situations where there are low levels of strategic and organisational


fit between headquarters and subsidiaries.


 


 


 


Opportunistic subsidiary managers


 


 


The relationship between managers at headquarters and subsidiaries could be viewed as


an agency theory problem based on Jensen and Meckling.s (1976) definition:


 


 



 


 


We define an agency relationship as a contract under which one or more persons (the


principal(s)) engage another person (the agent) to perform some service on their behalf


which involves delegating some decision making authority to the agent. If both parties


to the relationship are utility maximizers there is good reason to believe that the agent


will not always act in the best interests of the principal. The principal can limit


divergences from his interest by establishing appropriate incentives for the agent and by


incurring monitoring costs designed to limit the aberrant activities, of the agent


(1976:308).


From this perspective, managers at headquarters need to protect themselves against two


problems that Eisenhardt (1989a) has labelled the agency problem and the risk sharing


problem. The agency problem relates to the possibility of divergent objectives between


the principal and the agent and also to the fact that it may be difficult for the principal to


verify what the agent is really doing. The risk sharing problem occurs if the principal


and agent have different attitudes towards risk taking.


The agency theory perspective thus focuses our attention on the fact that subsidiary


managers may not always act in the best interests of headquarter managers due to either


opportunistic behaviour or different attitudes towards risk. Agency theory has however


come under heavy criticism as a theory based on a negative view of human behaviour


and as a theory that can actually stimulate the opportunistic behaviour it seeks to control


(Ghoshal, 2005; Ghoshal & Moran, 1996).


 


 


Securing subsidiary managers’ commitment


 


 


Ensuring compliance, and beyond that, commitment from subsidiary managers is likely


to have a substantial impact on the successful outcome of integration initiatives. Kim


and Mauborgne.s (1991; 1993b; 1993a; 1993c; 1995) research on procedural justice has


informed us that subsidiary managers are less likely to be committed to corporate


integration initiatives and mandates if they perceive the decision-making process as


unfair. This stream of research thus informs us that the degree of commitment from


subsidiary managers is important to the success of integration initiatives. However, in


contrast to agency theory research, the procedural justice literature suggests that


subsidiary managers. commitment can be reduced by perceptions that the integration


process is unfair.


In a general discussion regarding justice, Greenberg (1993) has argued that justice


comes in several different classes based on whether the category of justice is procedural


or distributive, and whether the focal determinants are structural and social. The first


category relates to a focus on justice in either the process itself or the outcome of the


process (distributive). The second category refers to justice in the structure of the


system versus perceived justice in interpersonal social relations. Managerial


commitment may thus be negatively affected as a result of perceived injustice at both


interpersonal and structural levels as well as from both the process itself and the


outcome of the process.


 


 


While the discussion of subsidiary managers. perceptions of cross-border integration is


rather limited in the MNC strategy literature, the mergers and acquisitions literature


offers a rich source of information including full volumes dedicated to the .human.


 



 


 


dimension of M&A (e.g. Buono & Bowditch, 1989; Cartwright & Cooper, 1996).


Jemison and Sitkin.s (1986b) review identified a number of people-related problems


including career uncertainty, concerns about geographic relocation and financial


security, feeling alienated and lack of trust in co-workers. Another review identified


additional human behaviour problems in the integration process: communications


breakdown, .we-they. communication dynamics and decreased commitment (Yu,


Engleman, & Van de Ven, 2005). Napier (1989) has also identified reactions such as


fear, .being sold out., loss of autonomy, anxiety and low morale. Marks (1997) has


further argued that .[s]igns of human stress are present in all combinations, even the


friendliest and best-managed ones. (1997:268). There are also those who have argued


that mergers and acquisitions often fail because the target company managers often feel


like stepchildren experiencing the same emotional challenges as in ordinary stepfamilies


including discrimination, feeling deficient, lacking clear guidelines of role definition,


experiencing anxiety and uncertainty and feeling helpless and rejected (Allred, Boal, &


Holstein, 2005; Fulmer & Gilkey, 1988). In instances where cross-border integration


involves large-scale strategic change, it would not be too much of a leap in faith to


assume that similar mechanisms may be triggered at a subsidiary management level.


 


 


2.4 Integration capabilities


 


 


Given the many challenges that must be overcome to realise successful integration, the


attention now turns towards some key organisational capabilities that appear relevant


for multinationals seeking integration.


 


 


2.4.1 Managing decision-making and implementation


 


 


The complexity of integration raises the question of how such strategies should be


developed and implemented. The area of procedural justice championed by Kim and


Mauborgne offers suitable suggestions for the complex and interdependent


multinational (Kim & Mauborgne, 1991; Kim & Mauborgne, 1993a; Kim &


Mauborgne, 1993c; Kim & Mauborgne, 1993b; Kim & Mauborgne, 1995; Kim &


Mauborgne, 1996; Taggart, 1997; Kim & Mauborgne, 1998; Ellis, 2000).


Procedural justice is defined as .the extent to which the dynamic of the multinational.s


strategy-making process for its subsidiary units are judged to be fair by subsidiary top


management. (Kim & Mauborgne, 1993a:422). A high level of perceived procedural


justice has been shown to lead to significantly greater compliance by subsidiary units


also in the situation when subsidiary managers disapprove of the decisions taken by the


corporate centre. The concept is thus essential as it will inevitably be difficult to please


all subsidiary units in an interdependent multinational yet some degree of compliance is


required to realise gains from strategic integration (Kim & Mauborgne, 1993a).


 


 


According to Kim and Mauborgne (1993c), there are five central pillars to procedural


justice in the context of multinational management. First, the existence of two-way


communication between the corporate centre and the subsidiary in strategic decision


making. Second, the ability for subsidiary managers to legitimately challenge the


strategic views of the corporate centre. Third, that the corporate centre is knowledgeable


about the local situation of subsidiaries. Fourth, that subsidiary managers are given an


 



 


 


account of the final strategic decisions by the corporate centre together with an


explanation of the rationale behind the final decision. Fifth, that the corporate centre is


consistent in decision making across subsidiaries.


Bartlett and Ghoshal (1988) have also looked at the need for the parent company to gain


subsidiary input into decision making, given that parent company managers need to


ensure both an understanding of market needs and secure the commitments of those


subsidiary managers who will be asked to implement decisions.


In the mergers and acquisition literature, it has also been argued that fairness during the


integration process, together with open and honest communication, are prerequisites for


success (Schweiger et al., 1993; Schweiger, 2002). The need for fairness and


communication are thus stressed across both the MNC strategy and post-merger


integration literatures. It would further appear that trust is a central component to make


both cross-border integration and post-merger integration work. In relation to this, it is


worth noting that trust is also viewed as a central component of successful international


joint ventures and strategic alliances (Currall & Inkpen, 2002; Inkpen, 2001; Inkpen &


Currall, 1998; Inkpen & Currall, 2004; Madhok, 1995; Svejenova, 2006; Yan & Gray,


1994). This thus indicates that trust and fairness may be of universal importance for


cross-border integration, post-merger integration and international joint ventures and


strategic alliances.


 


 


2.4.2 Managing structure


 


 


The complexity of integration often prevents the adoption of simple organisational


arrangements, given the need to manage multidirectional flows of capital, products and


knowledge. This points in the direction of some form of matrix arrangement which


recognises the need for geographic/country management for local responsiveness,


business/product management for global integration and efficiency and functional


management for worldwide learning (Bartlett & Ghoshal, 1992). Given the inherent


challenges of a formal matrix organisation, it has been argued that such a .transnational.


matrix is not simply a structure but a .decision-making culture. (Prahalad & Doz, 1987)


or a .frame of mind. (Bartlett & Ghoshal, 1990). Bartlett and Ghoshal recognised that


advances in strategy have moved out of pace with organisational and managerial


developments and that as a result: .corporations now commonly design strategies that


seem impossible to implement, for the simple reason that no one can effectively


implement third-generation strategies through second-generation organisations run by


first-generation managers. (1990:144-145). This raises the question of whether


challenges to make complex strategies such as the transnational work, primarily relate


to failures of formulation or failures of implementation? That is, if appropriate


implementation capabilities do not exist, and cannot be developed or acquired within a


realistic timeframe, sophisticated .third-generation. strategies might actually be flawed.


 


 


Numerous studies have reported on the many challenges of making matrix organisations


work (Prahalad, 1976). These include problems such as unclear roles and


responsibilities, ambiguous authority, difficulties in measuring performance, misaligned


goals, increased information and coordination costs, slower response time and excessive


overheads (Davis & Lawrence, 1978; Kolodny, 1981; Naylor, 1985; Larson & Gobeli,


 



 


 


1987; Ford & Randolph, 1992; Sy & D’Annunzio, 2005). However, despite the many


drawbacks of matrices no real alternative appears to have emerged to replace the matrix.


As argued by Naylor (1985) .the matrices are not the cause of the organisational


complexities. Rather matrices merely reflect the degree of complexity that already


pervades large multinational companies. (1985:18). Goold and Campbell (2003b;


2003a) have also studied the many problems with matrix structures and have also


advocated that the best way forward is to improve the way matrices work rather than


abandon them all together.


To avoid the negative reputation of matrix organisations, Goold and Campbell (2003b)


proposed the term .structured networks. to describe well designed matrices:


Structured networks avoid the problems of matrices by keeping the amount of structure,


process and central influence to a minimum. Units are defined so that they can be as


self-managing as possible. Collaboration is achieved primarily through self-managed


networking between units. Rules, influence and control from the centre are kept as lean


and unobtrusive as possible. In a structured network, the default position is


decentralisation, yet there is just enough structure to promote the right kind of self-


managed behaviour and there is just enough processes, rules and controls to ensure


success…Network structures are intended to achieve both the benefits of focus and


autonomy associated with SBU-based structures and the benefits of interdependence,


which are designed into matrix structures. The danger, of course, is that the network


ends up instead with the lack of co-operation of SBUs together with the excessive


complexity and ambiguity of the matrix. To fulfil its potential, a network must be


designed with enough structure to make the whole add up to more than the sum of its


parts, but not so much that it inhibits initiative and accountability (2003b:428-429).


It is evident from the above, that matrix-type organisational solutions should be viewed


as a way to manage complexity rather than a miracle cure.


In many cases, it would appear that the implementation of an integrated configuration


would require a fairly complex organisational arrangement. The management of


integration would thus need to include an ongoing review and adjustment of the


organisational structure.


 


 


2.4.3 Control and coordination mechanisms


 


 


In line with Martinez and Jarillo (1989) a coordination mechanism is defined as .any


administrative tool for achieving integration among different units within an


organisation. (1989:490). Martinez and Jarillo (1989) further argue that:


Mechanisms of coordination are not exclusive tools of multinational corporations


(MNCs). Indeed, by definition, all organizations have a certain degree of specialization


or differentiation among their parts, which calls for some sort of coordination effort


across them. Large and complex firms competing in multiple markets need coordination


among different dimensions. Thus, mechanisms of coordination are neither original to


nor exclusive of MNCs: they are common to all large firms. It is the especial


complexity of MNCs that makes their study of interest (1989:490).


 


 



 


 


The literature on coordination and control mechanisms offers some guidance regarding


how to achieve integration. The strategy pursued by the multinational as well as the role


of the subsidiary appears to determine the type of reporting relationship between the


management of the subsidiary and the corporate centre (Picard, 1980). A complex and


interdependent configuration is likely to require a greater degree of communication


between subsidiaries and the corporate centre compared with simpler strategy


configurations. Complex strategies thus require a substantial amount of coordination


using both structural and formal mechanisms as well as more informal and subtler


mechanisms. The more subsidiaries are integrated, the higher the need seems to be for


all of the above forms of coordination mechanisms (Martinez & Jarillo, 1991). There


also appears to have been a general shift towards increased use of subtler coordination


mechanisms (Martinez & Jarillo, 1989) and it has been argued that the role of top


management is changing from managing strategy, structure and systems towards the


management of purpose, process and people (Bartlett & Ghoshal, 1995).


Mintzberg (1983a) has argued that there are six coordination mechanisms that provide


the glue which hold organisations together: mutual adjustment, direct supervision,


standardisation of work processes, standardisation of outputs, standardisation of skills


and standardisation of norms. Mintzberg (1983b) further argues that .[a]s organizational


work becomes more complicated, the favored means of coordination seems to shift from


mutual adjustment to direct supervision to standardization, preferably of work


processes, otherwise of outputs, or else of skills, finally reverting back to mutual


adjustment. (1983b:7). The form of mutual adjustment that manifests in complex matrix


structures would include extensive meetings, cross-country boards, liaison roles and


global project teams. This leads to a contingency argument which matches the


appropriate coordination mechanisms with the type of work performed in different parts


of the organisation.


Bartlett and Ghoshal (1989) has distinguished between the use of centralisation,


formalisation and socialisation as means to achieve coordination in MNCs. It would


appear that formalisation corresponds to standardisation of work processes, outputs and


skills, while socialisation corresponds to standardisation of norms. As previously


mentioned, complex strategies appear to require a lot of coordination as well as the use


of a variety of different mechanisms.


It would appear that control mechanisms for complex and interdependent networks need


to evolve from simple output based financial performance measures for the subsidiaries


towards more balanced measures that take account of the role of the subsidiaries within


the overall network. This is likely to lead to increased use of behavioural and input


control mechanisms and a reduction in the exclusive use of output control mechanisms


(Muralidharan & Hamilton, 1999). Given the difficulties with using simple control


mechanisms, Gupta and Govindarajan (2001) have argued for the need to cultivate a


.global mindset. that simultaneously balances the needs for high integration and high


differentiation. This is similar to what Bartlett and Ghoshal have labelled the .mind


matrix. (1987a). The above would explain why Goold, Campbell and Alexander.s


(1994) financial control style would appear to be best suited for locally oriented MNC


strategies labelled multidomestic (Hout et al., 1982), multinational (Bartlett, 1986) or


locally responsive (Prahalad & Doz, 1987).


 



 


 


 The use of expatriates (Edstr.m & Galbraith, 1977), global teams and task forces


(Harvey & Novicevic, 2002) can also play central coordination roles. In addition, Gupta


and Govindarajan have suggested that feedback-seeking behaviour by subsidiary


managers is particularly effective in an MNC context (Gupta, Govindarajan, &


Malhotra, 1996; Gupta, Govindarajan, & Malhotra, 1999). This mirrors Stewart.s


(1995) discussion of self-management and lends further support for the use of subtler


coordination mechanisms.


The above has informed us that complex strategies require a good deal of coordination


and that there has been a shift away from relying exclusively on structural and formal


control mechanisms towards subtler coordination mechanisms.


 


 


2.4.4 Managing strategic change


 


 


In many cases, it would appear that integration is closely intertwined with processes of


strategic change. Bartlett and Ghoshal.s (1987b; 1987a; 1988; 1989) research tracked


how a number of multinationals tried to transition from their previous multidomestic,


international or global forms towards the transnational, and they noted that:


In finding their way through the complex process of strategic change, all the companies


have learned one fundamental lesson: a company.s ability to build and manage new


strategic capabilities depends on its existing organizational attributes – its configuration


of assets and capabilities, built up over the decades; its distribution of managerial


responsibilities which cannot be shifted quickly; and an ongoing set of relationships that


endure long after any structural change. Collectively, these attributes shape what we


refer to as a company.s administrative heritage. While strategic plans can be redrawn or


scrapped overnight, it is more difficult to refocus a company.s organizational capability.


The administrative heritage can be one of the company.s greatest assets – the


underlying sources of its key competences – and also one of its most significant


liabilities, since it resists change and thereby prevents realignment and broadening of


strategic capabilities (1998:38).


Such substantial change can be characterised as a shift in strategy configuration (Miller,


1986; Mintzberg, 1983b), organisational archetype (Greenwood & Hinings, 1993),


institutional template (Greenwood & Hinings, 1996) or paradigm (Johnson, 1992). It


has been argued that such combinations of structures and systems are characterised by a


single interpretive scheme based on an underlying set of beliefs and values (Greenwood


& Hinings, 1993) and exhibit patterned regularity (Ranson, Hinings, & Greenwood,


1980). Large scale change thus departs from the established individual and collective


organisational schemas of managers (Labianca et al., 2000).


 


 


Proponents of the punctuated equilibrium view of strategic change (e.g. Miller &


Friesen, 1980; Romanelli & Tushman, 1994; Tushman & Romanelli, 1985; Tushman,


Newman, & Romanelli, 1986) argue that organisations are in stable equilibrium most of


the time and that major change occurs during short periods of intensive, discontinuous


bursts of activity. Tushman, Newman and Romanelli (1986) have distinguished


between, on the one hand, convergent or incremental change, and on the other,


discontinuous or frame-braking change. While convergent change is compatible with


 



 


 


the existing structure of the organisation, .[d]iscontinuous or “frame-breaking” change


involves simultaneous and sharp shifts in strategy, power, structure, and controls.


(1986:3). Romanelli and Tushman (1994) have argued that organisational resistance to


change is fundamental to punctuated equilibrium theory as it describes why small-scale


changes fail to take hold. In this regards, it is however worth noting that .resistance to


change. is a loaded term that probably reflects power and hierarchical relationships. The


term is thus likely to reflect a headquarters bias given that there may be situations when


subsidiary managers. resistance to change is appropriate given the inappropriateness of


the imposed change originating at headquarters.


In a related discussion, Greenwood and Hinings (1996) have proposed that convergent


change occurs within an existing archetype or template while radical change occurs as


organisations move from one archetype or template to another. Following from their


argument, a shift from one strategy configuration to another can be considered an


example of radical change while gradual integration initiatives within an existing


configuration can be considered convergent change. Greenwood and Hinings (1996)


have argued that radical change is problematic given the institutional embeddedness of


an existing archetype. In a similar vein, Johnson (1992) has argued that paradigm shifts


are often required in relation to major strategic changes and that those are the most


difficult to achieve. Greenwood and Hinings (1996) have further proposed that


.[r]evolutionary and evolutionary change are defined by the scale and pace of upheaval


and adjustment. Whereas evolutionary change occurs slowly and gradually,


revolutionary change happens swiftly and affects virtually all parts of the organization


simultaneously. (1996:1024). Greenwood and Hinings (1993) have argued that change


is affected by the degree of commitment that organisational members have towards an


existing interpretive scheme versus new alternatives. During this change period, we thus


have the coexistence of two different interpretive schemes or templates which compete


for legitimacy as the existing form becomes de-institutionalised while the new form


becomes institutionalised (Johnson, Smith, & Codling, 2000). Bartunek (1984) has


referred to this process as second-order change described as .a radical, discontinuous


shift in interpretive schemes: organizational paradigms are reframed, and norms and


worldviews are changed. (1984:356). Balogun and Jenkins (2003) have argued that


.[f]or change to occur in organisations, the routines and their associated meanings have


to evolve. This is consistent with evolving new shared tacit knowledge about the way


we do things around here, and how organisational activities are co-ordinated and


integrated. It is necessary to somehow surface and change the knowledge of embedded


social practices and behaviours. (2003:249). In relation to change in MNC subsidiaries


it would thus appear that subsidiary managers might resist imposed change if they hold


a different local schema compared with managers at headquarters.


 


 


In the mergers and acquisition literature, Schweiger (2002) has identified that the


acquirer has four choices in relation to the target company: continue autonomous


operations, forced assimilation, voluntary assimilation and innovation. In forced


assimilation, the target company is required to adopt the practices of the new parent


company. There is substantial potential for resistance given the forced nature of


integration. Voluntary assimilation is much softer in that the target company voluntarily


buys into change and adopts parent company practices. In innovation, also called


novation (Schweiger et al., 1993), an integration group decides to innovate and go for


 



 


 


new practices independent of those of either the target company or the parent. Such


practices might originate as a result of benchmarking efforts or from the use of


management consultants. This offers the potential of a new start without a feeling of


superiority or .win-lose situation. of either party but may incur additional costs and


slow down the integration process. Haspeslagh and Jemison (1991) have similarly


proposed that the acquirer has the options of preservation, absorption and symbiosis


with the target firm based on relative needs for strategic interdependence and


organisational autonomy. Another typology is provided by Marks and Mirvis (2001)


who propose the five options of preservation, reverse takeover, absorption,


transformation and .best of both. based on the degree of change in the acquirer and


target. In discussing organisational cultures in mergers and acquisitions, Nahavandi and


Malekzadeh (1988) have argued that the acquirer has a choice of integration, separation,


assimilation and deculturation. All of these different typologies indicate that the parent


has a choice regarding: 1) keeping the target more or less intact, 2) imposing parent


company standards, 3) taking target company standards, 4) combining elements from


the two, and 5) innovating to create a fresh start for both companies.


The above has illustrated that management of strategic change may be a significant


component in integration, especially if integration introduces a different way of


working. As previously argued, it is thus relevant to distinguish between integration as


an ongoing alignment process and integration as a process of strategic change. The


latter form of cross-border integration would likely share many of the features of post-


merger integration. In fact, it may even be impossible to disentangle cross-border


integration and post-merger integration in instances when a heavily integrated MNC


purchases a previously autonomous company located in another country and proceeds


with integration efforts.


As identified above, the management of integration as strategic change appears be a


critical capability for multinationals who seek to realise integration benefits during


times of transition from one strategy configuration to another. Radical and revolutionary


change together with very high ambiguity can create cognitive disorder and a fault line


in sensemaking (Balogun & Johnson, 2004). This provides an explanation for why it


can be so challenging to make the transition between configurations.


Bolman and Deal (1991) have recommended that the management of change needs to


be considered from four different frames: human resource, structural, political and


symbolic (see Table 2-3). Each of these perspectives highlights different dimensions


and needs arising from the change process and prevents managers from applying a one-


dimensional approach to a multidimensional challenge.


 


 



 


 


Table 2-3


Four perspectives on change


 


Human resource:


Change causes people to feel incompetent,


needy, and powerless. Developing new skills,


creating opportunities for involvement, and


providing psychological support are essential.


 


Structural:


Change alters the clarity and stability of roles


and responsibilities creating confusion and


chaos. This requires attention to realigning and


renegotiating formal patterns and policies.


 


Political:


Change generates conflict and creates winners


and losers. Avoiding or smoothing over those


issues drives conflict underground. Managing


change effectively requires the creation of


arenas where issues can be negotiated.


 


Symbolic:


Change creates loss of meaning and purpose.


People form attachments to symbols and


symbolic activity. When attachments are


severed, they experience difficulty in letting go.


Existential wounds require symbolic healing.


 


 


 


Source: Bolman and Deal (1991:377)


Bartlett and Ghoshal (1998) also recognise the need to manage change across different


dimensions and they have outlined two distinctly different sequences of change, based


on a biology analogy, reproduced in Table 2-4 below. While recognising exceptions,


they propose that the change process has a greater chance of success if companies


follow the emergent change process, based on first changing individual attitudes and


mentalities, before attempting large scale change to interpersonal relationships,


processes, structures and responsibilities. Connecting with Bolman and Deal.s (1991)


four frames of change above, it would appear that Bartlett and Ghoshal.s proposed


approach begins with symbolic change, continues with human resource and political


change and finally concludes with structural change.


 


 


Table 2-4


Two perspectives on managing strategic change


 


Traditional change process


 


Emerging change process


 


1. Change in formal structure and


responsibilities (Anatomy)


2. Change in interpersonal relationships and


process (Physiology)


3. Change in individual attitudes and


mentalities (Psychology)


 


 


1. Change in individual attitudes and


mentalities (Psychology)


2. Change in interpersonal relationships and


process (Physiology)


3. Change in formal structure and


responsibilities (Anatomy)


 


 


 


 


Source: Adapted from Bartlett and Ghoshal (1998:291-292)


In a study of post-merger integration, Birkinshaw, Bresman and H.kanson (2000) made


a separation between task-integration and human-integration. The authors found that


task-integration could only be achieved after human integration had first been realised.


This findings mirrors Bartlett and Ghoshal.s (1998) argumentation above and provides


further support for the need to focus on, and prioritise, the human side of integration.


 


 


Moving beyond the literature on major strategic change described above, it is also


interesting to note that Lervik (2005) found that change management has a significant


impact on the transfer of managerial practices within a multinational setting. Lervik.s


(2005) research was focused on the transfer of a performance management practice


within Norsk Hydro, a major Norwegian multinational. This suggests that the


management of strategic change is a critical capability both in order to implement major


 



 


 


shifts between strategy configurations as well as for ongoing efforts to transfer practices


between headquarters and subsidiaries.


 


 


2.5 Subsidiary management


 


 


Following from this overview of the integration literature, our attention now turns to the


way that subsidiary managers are conceptualised. Nohria and Ghoshal (1997) have


argued that there has historically been a headquarters bias in the literature about


headquarters-subsidiary relations. Birkinshaw, Hood and Jonsson (1998) have gone


further and stated that: .[t]aken as a whole, the body of literature on subsidiary


management had done a far better job at understanding aspects of subsidiary context


(how the subsidiary relates to its parent, its corporate network, its local environment)


than of understanding what actually happens inside the subsidiary. (1998:223).


Regarding how the actions and agency of subsidiary managers have been


conceptualised in literature, we find that there are four primary positions taken as


illustrated in Table 2-5 below.


Table 2-5


Conceptualisations of subsidiary managers


 


 


Conceptualisation of subsidiary managers


 


Illustrative examples


 


Not directly addressed


 


Porter (1980; 1985)


 


Instruments of headquarters


 


Johansson & Vahlne (1977)


Vernon (1966)


 


Socialised members of the multinational


 


Bartlett & Ghoshal (1989)


Nohria and Ghoshal (1994; 1997)


 


Active entrepreneurs


 


Burgelman (1983a; 1983b)


Birkinshaw & Hood (1998)


Birkinshaw et al. (1998)


 


 


 


 


First, we note that we have a fairly limited understanding, in general, of strategy


formation at the subsidiary or business unit level. In contrast, we know a great deal


about strategy from a corporate portfolio perspective or in terms of business strategy for


stand-alone companies. Many common text-book frameworks used to analyse and


develop strategy, including Porter.s five forces (1980) and value chain (1985), take their


starting point in independent operations where managers are implicitly assumed to have


significant managerial discretion and degrees of freedom when it comes to setting the


strategy. In this literature, the specifics of subsidiary management are thus typically not


directly addressed.


 


 


In the early international business literature, we find a hierarchical perspective in which


subsidiary managers are often treated as instruments of headquarters that are assumed


to merely implement a strategy which has originated at headquarters. This position is


evident in some early internationalisation theories, including the product life cycle


(Vernon, 1966) and the Uppsala internationalisation process (Johanson & Vahlne,


1977). Birkinshaw and Hood (1998) concluded that these two theories .work on the


assumption that the subsidiary is an instrument of the MNC and, consequently, that it


acts solely with regard to head-office-determined imperatives. (1998:775). As a


 



 


 


consequence, the agency of subsidiary managers is substantially restricted in this strand


of literature.


With the relaxation of assumptions of hierarchy, and the introduction of MNC


conceptualisations based on heterarchy (Hedlund, 1986) and the differentiated network


(Bartlett & Ghoshal, 1989; Nohria & Ghoshal, 1994; 1997), the attention shifted


towards viewing subsidiary managers as contributing members to the wider


multinational. Given the complexities of managing transnationals or multifocal firms,


these scholars argued that subsidiary managers needed to be socialised members of the


multinational capable of taking a wider view than the short-term requirements of the


particular subsidiary in which they are working at any specific point in time. This thus


shifts the focus away from the the top-down view in which subsidiary managers are


mere instruments of headquarters.


A similar stance is taken in the literature on autonomus strategic behaviour (Burgelman,


1983a; 1983b) and subsidiary initiatives (Birkinshaw & Hood, 1998; Birkinshaw et al.,


1998) which goes further by showing that subsidiary managers have the capability to act


as active entrepreneurs. This position is thus similar to the literature on middle


management which also points to the key strategic role played by managers at a lower


level in the organisation than corporate top management. This feature of the middle


management literature is well summarised by Bower and Gilbert (2007) who noted that


.[w]e have found in one research study after another that how business really gets done


has little connection to strategy developed at corporate headquarters. (2007:74, italics in


original). Floyd and Wooldridge (1990; 1994; 1997) have also focused our attention on


the critical role of middle managers both in terms of developing and implementing


strategies. Their findings indicate that involvement of middle managers in the strategy


formation process is associated with improved organisational performance (Woolridge


& Floyd, 1990). Boundary spanning middle managers were found to have especially


significant levels of strategic influence within their organisations, given that those


managers typically mediate between the organisation and its environment (Floyd &


Wooldridge, 1997). The above suggests that subsidiary managers of multinationals


share many of the characteristics commonly attributed to middle managers. It can thus


be argued that subsidiary managers play key roles as recipients and deployers of cross-


border integration initiatives. As such they share many of the key characteristics


described in the middle management literature even though they may be perceived as


top managers in a local subsidiary context.


 


 


The active agency of subsidiary managers is also important in relation to the literature


on execution. There has been recent interest in execution as evidenced by some best-


sellers in the popular management press. Bossidy, et al. (2002) argue that .[e]xecution is


the unaddressed issue in the business world today. Its absence is the single biggest


obstacle to success and the cause of most of the disappointments that are mistakenly


attributed to other causes. (2002:5, italics in original). In a similar vein, Covey (2004)


states that .[e]xecution is the great unaddressed issue in most organizations today. It is


one thing to have a clear strategy; it is quite another to actually implement and realize


the strategy, to execute. In fact, most leaders would agree that they.d be better off


having an average strategy with superb execution than a superb strategy with poor


execution. (2004:271-275, italics in original). These practitioner oriented sources thus


 



 


 


shift the focus away from the potential elegance of strategy formulation towards


actually getting things done. In this context, it would appear that how subsidiary


managers respond to corporate integration efforts has a significant impact on the quality


of execution. And the quality of execution, at the subsidiary level, has in turn a great


deal to do with how successful such integration initiatives will become.


 


 


2.6 Outlining the knowledge gap


 


 


This section seeks to outline the gap in extant knowledge based on the preceding review


of literature in relation to integration and subsidiary management. As the review


includes a wide range of literature, both from within and outside, the international


business domains, we need a general conceptual framework that allows us to synthesise


the various contributions in a format suitable to pinpoint the knowledge gap. Based on


numerous attempts at structuring the literature, I argue that a simple framework


mapping contributions against the level of analysis allows us to draw key insights. In


Figure 2-3 below, all major contributions reviewed in this chapter are mapped against


the following five levels of analysis: industry, company, headquarters/parent,


subsidiary/business unit and managerial levels. The purpose is to try to pinpoint the


level at which these literatures operate in order to inform our understanding of what we


know versus what we do not know about cross-border integration. To provide clarity,


contributions are classified into belonging to either the MNC strategy and management


domain or other literature.


Figure 2-3


Levels of analysis of literature


IndustryCompanyHeadquarters/


ParentSubsidiary/


Business UnitManagersMNC Strategy and Management LiteratureOther LiteratureMarketing mix standardisationValue chain analysis (I-O)


Corporate parentingStrategic integrationAutonomous strategicbehaviourPost-merger integration (M&A)


MNC strategy & structure(environmental determinism)


MNC control & coordinationSubsidiary initiativeProcedural justiceStrategic change


 



 


 


Starting at the top of Figure 2-3, we note that several strands of literature appear to


operate at the intersection of industry and company levels. Within the IB literature, this


is the case for much of the strategy and structure literature that derives a variety of


different configurations (e.g. multidomestic, global, transnational) based on


environmental determinism. Outside the IB field, we note that the literatures on


marketing mix standardisation and value chain analysis also appear to be located at this


level of analysis.


Moving down, we find a number of literatures that are concerned with issues relating to


the relationship between headquarters/parents and subsidiaries/strategic business units.


In the IB literature, this is especially the case regarding work relating to MNC control


and coordination mechanisms. In addition, we find the subsidiary initiative stream here


as it explores how the charters and mandates of subsidiary units can evolve over time.


Outside the IB field, we find relevant work relating to strategic integration and


corporate parenting at this level of analysis. Both of these strands explore value creation


or value destruction between the parent and business units. In addition, we find the


work on autonomous strategic behaviour here which has a close similarlity to the


subsidiary initiative stream in the MNC strategy and management literature.


In the lower half of the figure, as we move from macro towards micro, we find those


literatures that relate to the managerial dimension of relevance to cross-border


integration. Within the IB literature, the theory of procedural justice occupies a unique


position as the only identified stream of IB research that takes a distinct focus on


subsidiary managers and their perceptions regarding the fairness of the integration


process. Outside the IB literature, we find interesting work relating to post-merger


integration, including the dynamics between acquiring and acquired managers that does


not appear to be mirrored in the international business literature. We also find literature


relating to the managerial dimension of strategic change.


We are now in a position to draw several conclusions regarding the literature of


relevance to cross-border integration.


First, we can conclude that the literature on MNC cross-border integration in general is


biased towards the macro (industry) and meso (company) levels of analysis with very


limited micro level research, with the noteworthy exception of the procedural justice


literature.


Second, there is a clear lack of studies concerned with management practice and


strategy execution at the subsidiary level. While there is substantial discussion about


competing pressures for integration and responsiveness in the MNC strategy and


structure stream, there is a lack of understanding regarding how subsidiary managers


balance integration and responsiveness to cope with the institutional duality of


simultaneously being exposed to requirements from the home and host environments.


Third, given the lack of micro level studies, there is a shortage of managerial


prescriptions grounded in micro level research. Existing prescriptions are thus primarily


based on research conducted at the macro and meso levels without adequate attention


paid to research concerning the managerial dimension.


 



 


 


 Fourth, looking beyond the level of analysis framework presented above, we also note


that the IB field is dominated by a positivist orientation with a bias towards quantitative


studies (Welch & Welch, 2004; Yang, Wang, & Su, 2006). As an example, Welch and


Welch (2004) found, in a review of articles published in the Journal of International


Business Studies between 1990-1999, that only 3% of published articles reported


qualitative research.


Based on the above, the overall research questions for this dissertation are .how do


MNC subsidiary managers interpret and respond to cross-border integration efforts


and what are the managerial implications for headquarters and subsidiary


managers?.


This focus of the dissertation seeks to contribute towards closing the knowledge gap


identified above by taking a micro rather than macro/meso orientation; by going inside


the .black box. of the multinational subsidiary; by deriving managerial prescriptions


grounded in micro level research; and by shifting the international business research


agenda towards qualitative research.


Following from the identification of the knowledge gap and the research questions, our


attention now turns to two additional literatures that can inform the study. The first


relates to managerial cognition and especially the sensemaking of managers. This


literature is important given the intention to research how subsidiary managers interpret


and respond to cross-border integration. The second area of literature concerns


emerging micro perspectives on strategy (i.e. strategy-as-practice) and micro-politics.


These latter areas are considered worth exploring given the objective to contribute


towards moving the IB literature from a macro/meso bias towards micro level research.


These two perspectives have not had a great deal of application within the international


business field given the focus on macro and meso levels of analysis, and the


documented bias towards positivist research. They thus offer the potential to enhance


our understanding of cross-border integration further.


 


=============================================================


 


 


 


 


 


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