Strategy, structure and management of the MNE
Exam (50%)
Closed book, oral exam of 10 minutes, 5 minutes preparation
3 open questions across all course sessions and topics
o Why is the geocentric firm the “ideal” MNE?
o What are possible barriers to exiting an international market?
o Why is the activity of state-owned enterprises seen with skepticism among Western
governments?
o What are spheres of influence according to the competitive dynamics model?
Group work (40%)
Presentation (15%)
Paper (look at session 1; 20%) & peer review (5%)
Test in class (10%)
1) MNE nature
Essence, role and types of MNC
MNE = multinational enterprise
= a business firm that sets strategy and manages operations for the development and
utilization of income-generating assets in more than one country in the pursuit of
profits over time.
= a business firm that has productive activities in two or more countries, managed
from a home base.
Core characteristics:
Home base & host country
Liability of foreignness = the MNE that steps out of its home country enters a foreign
market which gives us a liability; not being custom to how things work in that country
(what are the competitors, what do the customers like, what are the unwritten rules
to being successful)
Geographical spread of own operations and inter-organizational relations
Multimarket contact = multimarket competitors (competitors across products &
markets/countries) have different options to attack and retaliate which leads to
certain behaviour in the market. The overall assumption is that the intensity of
competition between firms would be lower if they were not multimarket competitors
because of the potential of retaliation.
HQ & subsidiaries
Centralized control vs. local management (internal pressures)
Local adaptation vs. global scale (external pressures)
Normative types of MNEs (ideal)
Heterarchy ( hierarchy)
Multicentral (mix of different centers), brain metaphor (different departments in the
, firm that are competent to make decisions), holographic orientation, lateral
communication (not only bottom-up reporting), indirect and normative coordination
mechanisms, coalitions with other organizations. The MNE is actively seeking
advantages originating in the global spread of the firm.
Diversified Multinational Corporation
Characterized by multidimensionality and heterogeneity, some characteristics:
internal differentiation, integrative optimization, information intensity, latent
linkages, networked organization/fuzzy boundaries, learning and continuity
Horizontal organization ( vertical)
Lateral decision processes, horizontal network ( hierarchy), common ground for
decision making (values and norms)
Network idea = multiple centers and lateral linkages, HQ with moderating role.
Classical types of MNEs
Types are based on 2 criteria:
Top management attitudes and management philosophy: EPG Model
Strategic orientation as response to industry forces: Barlett & Ghoshal typology
EP(R)G typology
HQ = headquarter; SS = subsidiary/subsidiaries
Organizatio Enthnocentric Polycentric Geocentric
n Design
Complexity of Complex in home Varied and Increasingly complex
organization country, simple in SS independent and interdependent
Authority: High in HQ Relatively low in Aim for a collaborative
decision making HQ, give a lot of approach between HQ
authority to the SS and SS
Evaluation & Home standards Determined locally Find standards which
control applied for people & are universal and local
performance
Rewards & High in HQ, low in SS Wide variation; International and local
punishments; (low adaptation) high or low executives rewarded for
incentives rewards for SS reaching local and
performance worldwide objectives
, Communication; High volume to SS Little to and from Both ways and between
information orders, commands, HQ, little between SS. Heads of SS is part of
flow advice SS management team
Identification Nationality of owner Nationality of host Truly international
country company but identifying
with national interests
Perpetuation Recruit and develop Develop people of Develop best men
(recruiting, people of home local nationality everywhere in the world
staffing, country for key for key positions in for key positions
development) positions everywhere their own country everywhere in the world
in the world
Orientation Home-country Host-country World
Illustration
Forces towards geocentrism:
Environmental forces:
o Technological and managerial know-how increasing in availability in different
countries
o International customers
o Local customers’ demand for best product at fair price
o Host country’s desire to increase balance of payments
o Growing world markets
o Global competition among international firms for scarce human and material
resources
o Major advances in integration of international transport & telecom
o Regional supranational economic & political communities
Inter-organizational forces:
o Desire to use human vs material resources optimally
o Observed lowering of morale in affiliates of an ethnocentric company
o Evidence of waste and duplication in polycentrism
o Increasing awareness & respect for good men of other than home nationality
o Risk diversification; worldwide production and distribution structure
o Need for recruitment of good men on a worldwide basis
o Need for worldwide information system
o Worldwide appeal of products
o Senior management LT commitment to geocentrism as related to survival and
growth
Obstacles towards geocentrism:
Environmental obstacles:
o Economic nationalism in home and host countries
o Political nationalism in home and host countries
o Military secrecy associated with research in home country
o Distrust of big international firms by host country political leaders
, o Lack of international monetary system
o Growing differences between the rich and poor countries
o Host country belief that home countries get disproportionate benefits of Int.
firm’s profit
o Home country political leaders’ attempts to control firm policy
Inter-organizational obstacles:
o Management inexperience in overseas markets
o Nation-centered reward and punishment structure
o Mutual distrust between home country people and foreign executives
o Resistance to letting foreigners into the power structure
o Anticipated costs and risks of geocentrism
o Nationalistic tendencies in staff
o Increasing immobility of staff
o Linguistic problems and different cultural backgrounds
o Centralization tendencies in HQ
Barlett & Ghoshal typology
Forces depend on the type of industry.
Multinational organization: consumer goods (toothpaste, toilet paper etc.) & fast-
moving consumer goods (P&G, Unilever), the products, packaging and how they are
brought to us differ depending on the country/region.
Close to the polycentric firm.
Global organization: try to benefit from the different factor advantages (cost,
expertise etc.) and centralize the activities in few locations. You can scale up
operation without adaptation.
Close to the geocentric firm.
Transnational organization: we want national differentiation (every country that
we’re in to have a different product and a customized offering), but also high
pressure for efficiency (centralize and standardize as much as possible) => conflict.
Solution: hybrid, find an organizational structure that brings in decision making that
reflects local interests with the production interests.
Close to the network idea.
Depending on the position, the strategy will differ.
