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WEEK 4Alignment of strategy and structure in international firms: An
empirical examination (2011)
Birgitte Grøgaard
Since international strategies rely on different types of firm-specific
advantages (FSAs) to achieve competitive advantage (Verbeke, 2009),
organizational structures enabling FSA development and exploitation will
also differ. The importance of aligning strategy and organizational
structure is long established in strategic management literature where
internal alignment of the two is generally believed to influence
performance positively.
The aim of this study is to examine if there are indeed aggregate patterns
of internal alignment in MNCs.
International strategies and corresponding organizational
characteristics
The integration-responsiveness (IR) framework has persisted as the
dominant and commonly accepted framework for examining international
strategies (largely attributed to the importance given global and local
pressures facing the MNC).
The IR framework
identifies four
international strategies:
o Global Strategy
o Multidomestic
Strategy
o Transnational
Strategy
o International
strategy.
Global and Multidomestic
strategies are most
commonly accepted. They
also reflect characteristics
related to the two key strategic dimensions of the IR framework: global
integration and local responsiveness.
Global Integration requires the development and exploitation of
transferable (non-location-bound, ex. specific know-how or technology,
organizational capabilities, routines to develop a successful marketing roll-
out) FSAs. Firms pursuing Local Responsiveness rely on non-transferable
(location-bound, ex. specific market knowledge, strong external relations
to key local stakeholders) FSAs to succeed.
For organizations pursuing global integration, competitive advantage is
achieved by transferring FSAs across borders through measures such as
higher levels of headquarter control, standardization and coordination of
value activities. Foreign subsidiaries in MNCs emphasizing global
, integration have to be highly integrated to support internal
interdependencies, common processes, and internal coordination. MNCs
emphasizing local responsiveness thus compete through more
autonomous or self-sufficient local subsidiaries that respond and cater to
specific local market. Locally responsive MNCs find limited value in
transferring FSAs across national and geographical borders, resulting in
low incentives and payoffs for common processes or centralized decision-
making.
Alignment of international strategies and organizational
structures
There is increasing recognition of the differentiated multinational:
foreign subsidiaries require different strategy–structure relationships to
reflect differences across the foreign subsidiaries’ external contexts. The
recognition of internal differentiation in MNCs highlights the importance
that strategy and structure cannot be seen in isolation from the MNCs
external environments. External pressures are likely to vary across foreign
subsidiaries, necessitating internal differences in headquarter–subsidiary
relationships. The success of MNCs emphasizing global integration
particularly relies on structural characteristics enabling the internal
transfer of FSAs across a significant part of the organization (Verbeke,
2009). While internal differentiation may reduce the value of transferrable
FSAs to specific foreign contexts, many other parts of the MNC are still
highly dependent on internal integration to access and exploit the FSAs
generating competitive advantage.
Hypothesis
Through the development and testing of the IR framework, as discussed
above, specific characteristics of integration and responsiveness are
identified. Formalization, centralization, and normative integration have
been identified as central for firms seeking global integration.
Formalization is defined as the use of systematic common rules
and procedures to guide behaviour internally in the MNC. Formal
management and control processes enable integration of
organizational units and transfer of FSAs.
Centralization implies strategic decision-making authority at
headquarters rather than the foreign subsidiaries. MNCs focusing on
global integration are expected to centralize more of their strategic
decision- making. The existence of local contexts where the value of
transferrable FSAs is lower should not directly eliminate the overall
need for more centralized decision making as headquarter
involvement may still be necessary to successfully deploy and
exploit transferrable FSAs elsewhere in the organization (Verbeke,
2009).
Normative Integration; socialization through shared goals and
managerial values creates internal cohesion. Hence, control is also
exercised in informal ways. Developing a set of shared values in the
organization ensures convergence of interests across the business
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