Carla I. Koen. Comparative International Management

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Internationalization as a learning process

The reasons MNCs exist have been discussed above. Even if there are excellent rationales,

however, MNCs do not come about overnight. The main reason for this is the ‘liability of

foreignness’ problem, which can only be overcome by learning. On the basis of a study of

the internationalization process of four Swedish ﬁrms, Johanson and Wiedersheim-Paul

(1975) were the ﬁrst to stress that internationalization is often a gradual and incremental

process. From a purely domestic function with production and sales only in Sweden, these

companies ﬁrst moved into export through independent representatives, then at a certain

point in time they decided to set up their own sales subsidiaries in foreign countries, and

only after that they moved on to setting up production facilities overseas. This ‘establish-

ment chain’ shows a gradual increase in the commitment to foreign markets; as the ﬁrm

learns about these markets, the perceived uncertainty decreases and it commits more

resources to them (Johanson and Vahlne, 1977). Not only do companies gradually

increase their commitment to foreign markets, they also enter new foreign markets in an

incremental way. They start with countries that are similar to their home country in

terms of culture, language, institutions, political system, and so on, and only after having

successfully established in these countries move on to more dissimilar countries. In this

way, they minimize the ‘psychic distance’ that has to be bridged in their initial steps on the

internationalization path, and thus keep the uncertainty they have to deal with within

manageable bounds. The initial theory developed by Johanson and Wiedersheim-Paul

was based on only a very small number of observations, but later studies have, at least in

part, conﬁrmed the gradual stepwise internationalization process (Erramilli, 1991;

Hadjikani, 1997). Of course, this general description is not applicable to all ﬁrms in all

cases. By acquiring existing local ﬁrms, MNCs can accelerate their learning process.

MNCs can also transfer what is learned from experiences within in a particular country

to other units operating in the same country, or even to other units operating in other

countries. MNCs can sometimes also use their business contacts (buyers and suppliers) as

sources of information to expedite learning (Forsgren, 2002). Nevertheless, the interna-

tionalization process model helps to understand the learning process necessary for the

formation and development of an MNC.

Foreign market entry modes

The internationalization process view suggests that the MNC with production subsidiaries

in different countries is the end point of a development process. However, it is also the case

that fully-ﬂedged MNCs may continue to use foreign market entry modes other than

wholly owned subsidiaries. Adapting their mode of entry to local circumstances and regu-

lations MNCs may enter different markets in different ways, or they may be at different

stages of the internationalization learning process in different regions or product areas.

Hence, in order to understand the MNC and the way in which this type of organization

deals with international diversity we need to look in more detail at the modalities of

foreign market entry.

In classifying modes of foreign market entry, two dimensions can usefully be distin-

guished: the degree of control the MNC can exert over the activities abroad and the extent

of resource commitment. The various modalities of foreign market entry that we will

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discuss can be seen as a series of alternatives implying increasing degrees of both control

and resource commitment. The mode that implies the lowest extent of commitment of

resources, and also the lowest level of control, is production in the home country with

export to foreign countries. International control is low in this mode since although the

ﬁrm has total control over the production of its goods, it has little or no control over their

distribution in foreign markets. Exports can be indirect via export agents or conﬁrming

houses. This does not necessitate the ﬁrm having to conduct any special international

activities. If the ﬁrm is to engage in the organization of its exports itself, this means that the

necessary knowledge needs to be present. If exports as a proportion of total sales become

more important, a special export department is often formed within the company, in which

all expertise regarding foreign sales is bundled. Eventually the ﬁrm may decide to set up its

own marketing and sales subsidiary in foreign markets that are particularly important.

Depending on the type of product (e.g. costs of transportation, labour intensity of the

production process) and the country (e.g. regulations concerning ‘local content’ such as

the proportion of the end value of a product that has to be added within the country in

question), the ﬁrm can decide that it is better to produce abroad. If this is the case, there

are two options: it can either sell or rent its advantages to a local ﬁrm (through licensing

or franchising) or exploit them itself, and launch foreign manufacturing (Hennart 1991).

Licensing implies the lowest level of commitment to foreign production. A licensing agree-

ment gives a ﬁrm in the host country (the ‘licensee’) the right to use the intangible

resources of the ﬁrm (e.g. patents, registered designs, trademarks, know-how). In return,

the licensee pays royalties, either in the form of a one-time fee or as a percentage of, say,

sales revenue, or a combination of the two.

Licensing is often the foreign entry mode of choice when the focal ﬁrm’s advantage

consists mainly of process technology. But not all forms of proprietary technology are ﬁt for

this mode of entry. The technology in question should be relatively explicit and easy to

codify. As codiﬁed knowledge can be transferred from one ﬁrm to the other relatively easy,

this is the type of knowledge that lends itself most readily to licensing agreements. Codiﬁed

knowledge is often associated with older technologies. This is conﬁrmed by research into

the use of licensing, which shows that the probability that a ﬁrm uses this entry mode,

instead of engaging in own production abroad, is greater the older the technology, the

more peripheral it is to the licensing ﬁrm’s business, the smaller the investment in R&D

necessary to develop it has been, and the greater the ﬁrm’s experience in international

licensing (Davidson and McFetridge, 1984). However, some types of knowledge are tacit –

that is, non-verbalizable, intuitive and/or not well articulated (Polanyi, 1962). This may, for

instance, be know-how with regard to arrangements for the organization of the production

process within which the technology to be transferred is to be applied.

Like exporting, licensing is a low-commitment, low-control mode of foreign country

entry. However, both the level of control and the level of resources that need to be com-

mitted will in most cases be substantially higher than in the case of exporting. The level

of control is higher because various kinds of restriction may be written in the licence

agreement. However, the licensing ﬁrm also needs to commit more resources, ﬁrst of all

because licensing agreements are complicated contracts and, second, because in many

cases a combination of codiﬁed and tacit knowledge are needed in order to make the tech-

nology transfer work (WIR, 1999). This may mean that the ﬁrm has to send some of its

own employees to the licensee, at least initially.

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The main advantages of licensing are that there is no need for heavy investment, and

the risk incurred is limited. However, there are also some notable disadvantages. The

company becomes to a certain extent dependent on the local licensee, who may not exert

the marketing efforts needed to realize the full market potential of the product, or may

reduce the consistency of product or service quality. Also, the licensee may use the licence

to learn about and eventually ‘engineer around’ the production technology, and in this

way the ﬁrm that grants the licence may be opening itself up to a future competitor.

A contractual form of market entry that offers more control is franchising.

Franchising is a form of licensing of intangible property in combination with assistance

over an extended period. Franchising is most often used to transfer the right to use a brand

name or trademark, and is primarily used in services and retailing (e.g. McDonald’s). In

comparison with a licensing contract, franchising offers greater control, while at the

same time allowing for rapid international expansion. It is often used in retailing and serv-

ices, like the fast-food sector, because the ﬁrm granting the licence can make use of the

local knowledge of the franchisee, which can be an important advantage in consumer

markets. A disadvantage is that the control cost can be hefty. As in the case of licensing,

the interests of the licensor and licensee can easily diverge. For the ﬁrm granting the

licence its brand name is often its most important asset, hence it will want to prevent its

licensees from performing any activities that will erode the value of its brand name.

However, for the licensees any damage to the brand name caused by their actions is, to a

large extent, an ‘externality’ (i.e. they do not bear much of the cost). Thus, if a licensee of

an international fast-food chain decides to compromise quality, it bears only a fraction of

the costs in terms of the reduced value of the licence, while pocketing all the advantages

in terms of lower costs. The only way the licensing ﬁrm can avoid this danger is through

intensive control.

One step further in the commitment chain is when the MNC decides to enter into a

more strategic cooperation with a local company. This can take two general forms: purely

contractual or involving equity. In the case of an equity-based cooperation, for our pur-

poses, we will speak of a joint venture, which is an example of a purely contractual

arrangement of a strategic alliance. Both strategic alliances and joint ventures can have

various activities as their purpose. Hence, this mode of foreign market entry does not

necessarily imply local production, but may also remain conﬁned to marketing and sales

arrangements. The difference with the entry modes discussed so far, however, is the

degree of commitment from the side of the entering ﬁrm. In the forms of market entry dis-

cussed so far this commitment remains restricted, and most of the business risk can be

said to fall upon the local ﬁrm. In strategic alliances and joint ventures, in contrast, the

risk is shared between the partners. This risk sharing can be in divergent proportions (in

the case of a joint venture, normally as a function of the proportion of equity invested).

The fact remains, however, that moving from export, licensing or franchising to an inter-

national strategic alliance constitutes a quantum leap on the path of internationalization.

Strategic alliances and joint ventures can have different functions in the overall ﬂow

of activities of the MNC. The most common forms are forward integration, backward

integration and buy-back arrangements (Buckley and Casson, 1988). In the case of

forward integration, the MNC cooperates with a local company in setting up or using a

distribution system. Backward integration is used, for example, in raw material sourcing.

Backward integration through joint ventures is frequently used in the petroleum

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industry, where full ownership by foreign multinationals is often ruled out by local gov-

ernment regulations. These kinds of restriction often play a decisive role when MNCs

enter into alliances or joint ventures with local government agencies, rather than with

private companies. Buy-back joint ventures or strategic alliances are used when

companies cooperate in a particular phase or process in the production process. An

example is the production of engines in the automobile industry, where the minimum

efﬁcient scale is much larger than in most other activities in the production process. This

is the rationale for, for instance, BMW and Chrysler’s Tritec Motors Ltd, a joint venture for

the production of engines in Brazil.

The advantages of both strategic alliances and joint ventures are that, compared

with wholly owned subsidiaries (as discussed below), the investments and the risks are

reduced. Furthermore, they allow the cooperating companies to combine their strengths,

and to learn from each other. An additional advantage for the MNC may be that, com-

pared with some of the other entry modes, they help to create a more ‘local’ image. The

disadvantages are that the MNC has no full control. Related to this, the cooperation may

lead to conﬂicts between the partners. In particular, 50/50 joint ventures are renowned

for being conﬂict-ridden. Furthermore the learning potential mentioned as an advantage

of the collaborative entry modes may turn into a disadvantage if the local partner ‘out-

learns’ the MNC to the point that it no longer needs the collaboration and becomes a

full-blown competitor. Strategic alliances and joint ventures tend to be unstable; many of

these collaborative ventures are discontinued after a relatively short time (Yan and Zeng,

1999). In a sense, in using these entry modes, MNCs can be seen as ‘buying options’: if

the entry succeeds and the local market is attractive enough, the MNC can choose to

‘strike’ the option by acquiring the joint venture or turning the alliance into a wholly-

owned subsidiary (Bowman and Hurry, 1993).

Finally, the entry mode requiring the largest commitment and also surrendering full

control is setting up a wholly owned local subsidiary. With this entry mode, MNCs have

two possibilities: either they start up a new facility from scratch, or they buy an existing

local ﬁrm. In the ﬁrst case we speak of ‘greenﬁeld’ investment, in the second of an acqui-

sition. Acquired companies are sometimes restructured extensively in order to ﬁt into the

MNC (e.g. in terms of quality management). If this is the case, the term ‘brownﬁeld’ is

sometimes used, indicating that this is a hybrid mode of entry, with characteristics of both

a greenﬁeld investment and an acquisition (Meyer and Estrin, 2001). The advantage of an

acquisition, or brownﬁeld investment, is that local resources – for example, in the form of

management – can be incorporated in the MNC. The disadvantage may be that the

acquired company often also brings with it numerous local practices and/or inefﬁciencies

that are difﬁcult to reconcile with the MNC’s overall policies. A greenﬁeld start-up can be

moulded to the MNC’s liking to an extent often impossible with acquired companies,

because of the sometimes strong resistance to change in existing organizations. The

general advantages of wholly owned subsidiaries as modes of foreign market entry are

that they offer complete control and that the activities in the target country can be inte-

grated within the global strategy of the MNC to a larger extent than with the other entry

modes. The disadvantages are that the resources required are more extensive (since there

is no other investor) and hence there is higher risk exposure.

If the MNC decides to set up a wholly owned subsidiary it has to decide about its legal

structure. Two options exist: the subsidiary can have the legal status of a branch (i.e. no

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independent legal status) or of a subsidiary in the legal sense (Daniels and Radebaugh,

2001: 541). The choice between these options will depend, among other things, on the

disclosure requirements in the host country and regulations regarding the limited liability

of owners of joint stock companies.

Stages of development of MNC organization structures

Building on our discussion of modes of foreign market entry in the previous section, we

will now look at the question of how MNCs organize for the management of the

increasing diversity they will meet in the internationalization process.

Stopford and Wells (1972) studied the development of the organizational macro

structures of US MNCs, focusing on two factors inﬂuencing these structures: foreign sales

as a percentage of total sales, and foreign product diversity (see Figure 9.1). The macro

structure of an MNC reveals the criterion on which the basic grouping of activities within

the MNC is based. The ﬁrst dimension of Stopford and Wells measures the importance of

foreign activities, relative to those in the home country. The second dimension can be seen

as a proxy for the degree of complexity the MNC meets in managing its international

activities. Stopford and Wells describe two distinct paths of development. Most MNCs

started with an international unit (a department or a division) taking care of all overseas

activities. This is possible only if foreign sales are relatively low and if foreign product

diversity is limited. Otherwise it becomes impossible for a single international division or

department to manage all foreign activities effectively.

The direction in which MNCs developed depended on what became the most pressing

issue ﬁrst: the sheer volume of foreign sales or the product diversity of international sales

MULTINATIONAL CORPORATIONS: STRUCTURAL ISSUES 415

Figure 9.1 Evolution or organizational macro structures of MNCs

Network

organization

Global matrix

Area

divisions

International

division

Worldwide

product

divisions

Foreign sales as % of total sales

Foreign product diversity

Source: Stopford and Wells (1972).

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and production. In the ﬁrst case, the solution was typically to base the organization on

geographical divisions. In the second case, the organization would be structured into

product divisions, each of which has a worldwide mandate. Each of the two solutions has

its advantages and disadvantages. Geographically based divisions have the advantage that

all local market know-how is concentrated within a single organizational unit. This

allows for ﬂexible adaptation to local circumstances. However, if the MNC produces and

sells divergent products, it will be difﬁcult for the area-based units to build and maintain

all the necessary product and technological expertise. In contrast, worldwide operating

product divisions have the advantage of bundling all the expertise concerning a par-

ticular class of product and the associated production technologies. However, they will

have more difﬁculty in dealing with country-speciﬁc issues.

If both foreign sales and foreign product diversity continue to increase, MNCs need

an organizational structure that strikes a balance between the advantages and disadvan-

tages of product-based and area-based divisions. Such a structure can be a matrix

structure, in which all major activities are coordinated by both product and area-related

managers. This means that a basic classical principle of organization – the unity of

command – is abolished. A number of managers in a matrix organization have two

bosses. In a well-balanced matrix these bosses are equally powerful, meaning that in case

of disagreement the parties concerned must discuss and negotiate until agreement is

reached. As a result, matrix organizations tend to be cumbersome, in that they entail high

coordination costs and may slow down decision-making. We will return to this point later.

Research by Franko (1976) has shown that the typical growth paths of European

MNCs are different from those identiﬁed by Stopford and Wells in their study of US MNCs.

Because of the smaller size of their home-country economies, these MNCs were forced to

respond to the international dimension of their activities at an earlier stage than was the

case for their counterparts in the USA. Also, the cultural and linguistic diversity within

Europe prompted the European MNCs to grant their local foreign operations more

decision-making power. The result was that, for European MNCs, the geographical div-

ision structure was a more important organizational form than for US MNCs. This

structure is more likely when, in contrast with US MNCs, no single region dominates the

MNC’s activities (Daniels and Radebaugh, 2001: 524).

Apart from being based on a biased sample (in that all MNCs studied were of US

origin) Stopford and Wells’ study is also not completely satisfactory in that they focus on

foreign sales as a factor inﬂuencing the organizational form of MNCs, but neglect the role

of foreign production. Egelhoff (1988) looked at the two dimensions distinguished by

Stopford and Wells (degree of foreign sales and degree of product diversiﬁcation), but

added a third factor: the relative importance of foreign production (see Figure 9.2). He

found that, with low levels of foreign sales, MNCs opt for either the international division

or the worldwide product division structure, depending on the degree of product diversi-

ﬁcation. This is identical to the ﬁndings of Stopford and Wells. If the degree of foreign

sales is high, however, the organizational form depends on the relative importance of

foreign production. If there is little foreign production, MNCs can continue to function

with a worldwide product division structure. If there is much foreign production, MNCs

rather opt for divisions based on geographical regions (if the product diversiﬁcation is low)

or for a matrix form (if product diversiﬁcation is high).

416 COMPARATIVE INTERNATIONAL MANAGEMENT

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Transnational management

Building on the literature discussed above, and their own research into the structures and

strategies of MNCs, Christopher Bartlett and Sumantra Ghoshal (2000) elaborate further

on the management of this type of ﬁrm. Their approach centres on the local-versus-global

dilemma that all MNCs have to face when deciding where in the organization to vest what

sort of decision-making authority. MNCs in their operations have to be adaptive to local

circumstances, to the extent that consumer preferences, market structures and govern-

ment regulations differ between countries. But they also have to integrate activities at a

global level if they want to realize economies of scale to the fullest extent possible.

Moreover, if the MNC wants to avoid costly duplication of efforts in, say, research and

development, it must coordinate and integrate these activities across borders. If the press-

ures to adapt to local circumstances and to integrate globally are, for the sake of

simplicity, assumed to be either high or low, a two-by-two matrix can be drawn in which

the four possible MNC strategies proposed by Bartlett and Ghoshal can be positioned

(Figure 9.3).

If both the pressures for localizing and for globalizing are weak, the most likely MNC

strategy is the international strategy. This is the traditional form of MNCs based in large

domestic markets such as the USA. The international activities receive little special atten-

tion. Products are typically developed for the domestic market and sold overseas with little

or no adaptation. In as far as production abroad takes place, this is largely in response to

transportation costs or to host-country government policies regarding local content

requirements. This form is most adequate for MNCs in certain business-to-business

markets, like machinery and equipment manufacturing. If there are strong pressures for

localizing, and weak forces towards global integration, the organizational form predicted

Figure 9.2 Organizational macro structure of MNCs and the relative importance of foreign production

International

division

Worldwide

product division

structure

Worldwide

product division

structure

Worldwide

regional division

structure

Product*Regions

matrix

Low degree of

foreign sales

High degree of foreign sales

Low High

Degree of foreign production

Low High

Product diversification

Source: Egelhoff (1988).

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418 COMPARATIVE INTERNATIONAL MANAGEMENT

is that of the multidomestic ﬁrm. This is most ﬁtting in consumer markets, in particular for

products that need to be adapted to local tastes, like food and beverages. Local subsidiaries

of the MNC act as quasi-independent ﬁrms, focusing on their own geographical market,

and typically having almost complete freedom in determining their local strategies. The

heydays of this type of MNC were in the ﬁrst half of the twentieth century (Martinez and

Jarillo, 1989). In that period, tariff and non-tariff barriers between many countries were

still a major factor. The opposite situation to that of the multidomestic type is that of

strong forces for globalization and weak forces for local adaptation. The associated type of

MNC is the global ﬁrm. Here global integration of R&D, design and production dominates

at the cost of local adaptation. This form is most likely where economies of scale are

intensely important, as in the production of industrial chemicals. According to Martinez

and Jarillo (1989), this type of MNC was most prevalent in the period 1950–80.

So far, Bartlett and Ghoshal’s description is a variation on the earlier research ﬁnd-

ings described above. The most interesting contribution made by Bartlett and Ghoshal,

however, pertains to the situation in which both those forces driving towards local adap-

tation and those pressing for global integration are strong. In earlier publications, the

matrix form was associated with this situation; but Bartlett and Ghoshal go beyond this

structural solution to discuss the mentality that companies need to develop in order to

thrive under such demanding conditions. Companies that have the mentality that enables

them to simultaneously adapt to local circumstances and to integrate activities across

borders are called transnationals. It is important to note that ‘transnational’ is not just

another word for ‘matrix structure’. Transnationals will often have matrix-like structures,

but that is not the essence of their nature. This lies in the combination of a strategy, a

structure and the mentality of the top management of the companies. In the view of

Bartlett and Ghoshal, the organizational structure is a dependent rather than an inde-

pendent variable: if an MNC wants to be a transnational, it ﬁrst has to change its

mentality from the one-size-ﬁts-all thinking characteristic of global management, or from

the idea that differences between countries are so fundamental that coordination across

national subsidiaries is unfeasible or even undesirable. Some transnationals adopt a

formal matrix structure, while others maintain a macro structure centred on either

Figure 9.3 Bartlett and Ghoshal’s typology of MNC strategies and structures

Multidomestic

Global

Transnational

Weak Strong

Pressures for local

adaptation

International

Weak Strong

Pressures for global integration

Source: adapted from Bartlett and Ghoshal (2000).

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regions or products but dramatically change the way it operates (Westney, 1999). People-

orientated coordination mechanisms, such as horizontal communication and the

building of a strong corporate culture are seen as more important than the hierarchy or

formal rules. Ghoshal and Nohria (1993: 28) refer to ‘normative integration’ through the

‘socialization of managers into a set of shared goals, values, and beliefs that then shape

their perspectives and behavior’. However, as Welch and Welch (1997) rightly remark,

corporate cultures are difﬁcult to change or to ‘manage’, and the loss of central control

may have negative consequences for the MNC, like increased duplication of effort and dys-

functional inter-unit rivalry.

The transnational adapts to local circumstances where necessary, but at the same

time achieves a far greater degree of coordination across countries than is the case with

the multidomestic company. On top of that, the transnational MNC manages its sub-

sidiaries in such a way that the whole integrated system acquires the ﬂexibility necessary

to adapt to changing circumstances, and to allow learning to take place not only between

local subsidiaries and headquarters, and vice versa, but also among subsidiaries. We will

return to this issue in Section 9.4, on knowledge management in the MNC.

Bartlett and Ghoshal’s ideas about the transnational form are not entirely new. In

earlier work, ‘network organizations’ or ‘heterarchies’ (Hedlund, 1986) have been pro-

posed as organizational forms capable of squaring the circle of local adaptation and global

integration. In addition, the importance of the mentality of MNC top management has

also been recognized by Perlmutter (1969) in his seminal essay on ‘the tortuous evol-

ution’ of the multinational company. All in all, there seems to be reason enough to expect

something like the transnational form to make headway within the population of MNCs,

but what is the empirical evidence?

While we have no historical data that would enable us to gauge the penetration of

transnational-like organizational forms, there have been some empirical studies sug-

gesting that the Bartlett and Ghoshal typology rings true. Harzing (2000) gives an

extensive overview of typologies of MNCs, together with an indication of the empirical

support for each of them. She also tests the Bartlett and Ghoshal typology on data from

166 subsidiaries of 37 MNCs. Overall, she found considerable support for the existence of

MNCs with characteristics of the multidomestic, global and transnational type. (The

international type of MNC was not included in her study, since it was not as clearly

deﬁned as the other types, and had not received much empirical support in earlier

studies.) The overall conclusion was that Bartlett and Ghoshal’s typology does indeed help

to categorize MNCs in groups that share important characteristics.

Below, we will look at the mechanisms MNCs use for achieving internal coordination

and control, and then focus on the relationship between headquarters and subsidiaries

within the MNC. First, however, a note of caution with regard to the extent of the simpli-

ﬁcation of our discussion of macro organizational structures of MNCs.

Complex realities

The previous subsection illustrated the complexity of the issue of MNC organizational

structures. In reality, this complexity is even far greater than suggested by the discussion

above. As a consequence of their historical growth paths, as well as because of growth

through foreign acquisitions rather than organic growth, many MNCs display a mixed

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420 COMPARATIVE INTERNATIONAL MANAGEMENT

organizational macro structure (Daniels and Radebaugh, 2001: 525). Recently acquired

subsidiaries often do not ﬁt very well into the existing organizational structure – for

instance, because they perform a combination of activities that is uncommon within the

MNC. An important issue to keep in mind is that whatever structure the MNC chooses, the

international dimension has to be factored in at some point. If the MNC opts for geograph-

ical division, then it is very likely that within these divisions there will be departments

specializing in the various product categories the MNC carries. Likewise, if the MNC is

organized according to product divisions, the responsibility for different geographical

areas will be assigned to organizational units within the divisions. A decision-making

authority may also be allocated to regional or product-based units depending on the type

of decision. For instance, all contacts with local authorities and institutions like labour

unions may be delegated to a country or regional manager, while all responsibility for the

internal activities of the MNC may be allocated to managers of product-based divisions.

An example of such a structural set-up is the Swiss-Swedish producer of power plants and

related products, ABB. Finally, for the sake of simplicity, our discussion above neglected

the middle-layer structures MNCs often adopt – for example, with some kind of regional

headquarters coordinating all product-based divisions within a certain geographic area.

Also the way in which the forces towards local adaptation and towards global inte-

gration work out in a particular MNC and its various units is more complicated than

suggested above. Bartlett and Ghoshal (1989) illustrate this with the example of Unilever.

At the level of the business unit (e.g. Unilever’s detergent business), a balance must be

struck between local adaptation and global integration. However, if one looks more

closely at the various functions performed within the business unit, like marketing, pro-

duction or product development, the need for local adaptation and/or global integration

may well vary. For instance, the sales function is likely to require more adaptation to local

markets than the product development function; we could look even more closely at the

particular tasks that are performed within each function in the business unit. Also at this

level we are likely to ﬁnd tasks that need more or less local adaptation and/or global inte-

gration. Sales promotion activities are, most of the time, geared speciﬁcally to a national

market, but in determining the product policy, local managers must coordinate carefully

with their colleagues in other countries.

Taking into account this complexity of MNC strategies and structures, we will now

look in more detail at the mechanisms MNCs use to coordinate and control their activities.

9.3 Coordination and Control within MNCs

In the previous section we discussed the macro structures of MNCs; but the formal macro

structure, although important, is but one of the mechanisms MNCs use for organizing

their international activities. In this section we will look into the more subtle processes

and systems MNCs employ in order to coordinate and control their activities. After that,

we will concentrate on the headquarters–subsidiary relationship within MNCs, and

discuss the ways in which these relationships are managed.

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