Chapter 2

Strategy and Structure of

Multinational Companies
 Differences b/w Domestic and
Multinational Firms

 Multiculturalism
 Geographic Dispersion
(Adler, 1983)
 Differences Between Domestic And
Multinational Firms (Adler, 1983)
Multiculturalism
– the presence of people from two or more cultural
backgrounds within an organization
Geographic dispersion
– the location of various subunits of the parent firm in
different countries
Both are significant, but both create increased
complexity in organizations
Integration and Differentiation
Needs for Variety of Tasks
Potential benefits of multiculturalism
and geographic dispersion
Increased creativity and innovation
More sensitivity in dealing with foreign
customers
Being able to get best personnel from
everywhere
Taking a global perspective
Greater flexibility within the organization
Sources of competitive advantage and
strategic objectives
Sources of competitive advantage (the
means)
Strategic objectives (the ends)
– Global efficiency
– Multinational flexibility
– Worldwide learning
 Linking means and ends: four different
strategies for multinational companies
Table 2.1 Sources of competitive advantage
Strategic National Scale Scope
Objectives Differences Economies Economies
Sharing of
Exploiting Expanding and
investments and
Global differences in factor exploiting potential
costs across
Efficiency costs and national scale economies in
markets and
preference each activity
businesses
Portfolio
Managing risks and Balancing scale with
diversification of
Multinational opportunities strategic and
risk and creation of
Flexibility arising from operational
options and side
national differences flexibility
bets
Shared learning
Learning from
across
societal differences Benefiting from
organizational
Worldwide in organizational experience – cost
components in
Learning and managerial reduction and
different products,
processes and innovation
markets, or
systems
businesses
Pressures for local responsiveness
and costs reduction
Pressures for local responsiveness
and costs reduction
Characteristics of the four
organizational models
 Structuring
Multinational Companies
Strategy and Structure
Chandler (1962) proclaimed a deterministic
relationship between strategy and structure
Chandler distinguished four growth strategies
– Expansion of volume
– Geographic dispersion
– Vertical integration
– Product diversification
“STRUCTURE FOLLOWS STRATEGY”
 International Strategy
An international The primary goal of
strategy is based on the strategy is
diffusion and worldwide exploitation
adaptation of the of the parent firm’s
parent company’s knowledge and
knowledge and capabilities.
expertise to foreign
markets.
Strengths and Limitations of
International strategies
Global Strategy

Competitive strategy
is centralized and
controlled largely by
corporate office
Emphasizes
economies of scale
Strengths and Limitations of Global
Strategies
 Multi-domestic Strategy
Emphasis is differentiating products and
services to adapt to local markets
Authority is more decentralized
Strengths and Limitations of
Multi-domestic Strategies
 Transnational Strategy
Optimization of tradeoffs associated with
efficiency, local adaptation, and learning
Firm’s assets and capabilities are
dispersed according to the most beneficial
location for a specific activity

7-19
Strengths and Limitations of
Transnational Strategies
Human Resource Management
in MNC’s
Perlmutter (1969) distinguished three states of
mind or attitude of international executives
Ethnocentric (home-country oriented)
Polycentric (host-country oriented)
Geocentric (world-oriented)
– Three states of mind and implications for
management styles
 The transfer of HRM practices
across borders
One of the central question in MNC and HRM
literature is the extent to which subsidiaries
adopt their local or parent company practices
– Local isomorphism (firms behave locally) vs.
– internal consistency (firms resembles their parent
company)
 The transfer of HRM practices
across borders
Taylor et al. (1996) distinguishes three orientations
Adaptive: design local integrative HRM system
(high local isomorphism, low internal consistency)
Exportive: MNCs transfer their parent HRM
system (low local isomorphism, high internal
consistency)
Integrative: combines internal consistency with
allowance for some local isomorphism