Carla I. Koen. Comparative International Management
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the capital market, in which investors who do not like the investment opportunities in one
country can move their money to a different country in a flash. This reduces the scope for
firms to follow strategies that are very country-specific. Other markets, like the labour
market, still have a more multidomestic character, which encourages divergence of cor-
porate strategies across countries. For example, in the USA, the labour market facilitates
the rapid movement of employees from one company to another, while this is discouraged
in Japan. Therefore, for newly formed US companies it is much easier to attract experi-
enced personnel than it is for new Japanese companies. As a consequence, the start-up of
new activities by existing firms makes more sense in Japan than it does in the USA.
Accordingly, Japanese companies could be expected to diversify to a larger extent than
their counterparts from the USA do, at least from this perspective. Nevertheless, here also
the trend seems to be towards more similarity among countries. A very convincing
example is presented by the European Community, in which successful attempts have
been made to create common markets, enabling the free flow of capital, goods and people.
Firm-specific factors
Finally, we will look at the category of firm-specific factors. At a first glance, it seems diffi-
cult to link factors like stakeholders, dominant logic, resources and learning to converg-
ence or divergence across countries, since they can differ from firm to firm, rather than
from country to country. However, Porter’s (1990) ‘diamond of national competitive
advantage’ suggests that the competitive advantage of companies is influenced by their
national environment. In particular, excellent factor endowments (such as raw materials,
land, labour, capital, technological know-how and infrastructure), sophisticated and
demanding local customers, internationally competitive related and supporting indus-
tries, and tough local competition all increase the competitive strength of firms. So, for
example, BMW’s capability in the development of sophisticated, upmarket automobiles is
partly based on the availability of highly skilled employees, the lack of speed limits, the
presence of very critical customers, the availability of world-class suppliers, and strong
competition from Mercedes-Benz, Porsche and Audi in Germany. It is difficult for car
manufacturers located in countries with less favourable conditions to equal BMW’s com-
petitive strength in this respect. As a consequence, firm-specific factors may be linked with
country-specific factors. We believe enough has been said already about differences
between countries, trends that may reduce these differences, and their consequences for
the divergence or convergence of corporate strategies. We would only like to add here that
the mobility of resources has increased through technological developments. For
example, container shipping, jet aircraft and the Internet have drastically reduced the
costs of moving goods, people and ideas, respectively. Hence, it has become easier to
transfer resources that were once peculiar to a specific company located in a specific
country to a company located in another country. This creates an additional pressure for
convergence of corporate strategies across countries.
Conclusions to this section
To sum up, each firm is faced with a unique constellation of factors that underlie cor-
porate strategy. Therefore, the corporate strategy a firm adopts is also unique. None the
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less, many firm-specific factors, factors that are related to collections of firms, and factors
that are related to countries, are more similar within countries than they are across coun-
tries. Consequently, we expect that there is plenty of room for divergence of corporate
strategies among countries (and some convergence within countries). However, in all
three categories of factors, there are strong trends towards greater similarity across coun-
tries. As a result, we expect to observe divergence of corporate strategies across countries,
but the divergence could very well be diminishing.
10.6 Conclusions
In this chapter we have investigated the relationship between corporate strategy and insti-
tutional variables such as the political system, the financial system and the labour system.
Differences in these factors across countries might result in divergence in corporate
strategy. The relationship has been investigated in a number of larger-scale empirical
studies. The variety in the samples, data and methods that were employed in these studies
implies that only tentative inferences can be drawn. Still, we might conclude that conver-
gence of corporate strategy has increased over time. A study that was based on older data
found no similarities across countries, while studies that included more recent data found
strong similarities across countries.
This allows us to conclude that institutional theory offers, at best, a partial expla-
nation of corporate strategy. While there are still some differences between the corporate
strategies adopted by firms in different countries, these are becoming smaller.
This is not entirely good news for the explanatory power of institutional theory in the
area of corporate strategy. Generally speaking, institutional theory implies sustained
diverg-ence of corporate strategy, given that institutions vary across countries and are
assumed to be fairly stable over time. Furthermore, the differences in corporate strategy
across countries that were observed could not always be explained by institutional factors.
We also found that the degree of convergence might differ among industries. This sug-
gests the existence of at least one additional factor that is relevant for the convergence or
divergence of corporate strategy.
In our case, the explanation offered by institutional theory is, at best, incomplete. In
order to offer a more complete picture, we developed a model that, aside from institutions,
also incorporates additional theories and variables that explain corporate strategy. The
variables could be assigned to three categories:
1. factors that are specific to firms
2. factors that pertain to collections of firms, and
3. factors that pertain to countries.
Companies that possess firm-specific factors that are subject to country influences,
that are active in multidomestic industries and factor markets, and that originate from
countries with unique institutions have ample scope for country-specific strategies. In
contrast, companies with firm-specific factors that are not peculiar to a given country,
that are active in global industries and factor markets, and that originate from countries
with more common institutions, have little room for the adoption of country-specific
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strategies. Therefore, in some circumstances, corporate strategies could be very different
across countries, whereas, in other circumstances, corporate strategies could be very
similar across countries. However, since the mobility of resources, the global character of
industries and factor markets, and the homogeneity among institutions (at least those
that are relevant for corporate strategy) are all increasing, we believe that the trend is
towards more convergence of corporate strategy.
Our final conclusion, based on existing and our own larger-scale empirical research,
and the inferences drawn from our model, is that, under the right circumstances, diver-
gence of corporate strategies across countries can still be observed, but convergence is
gaining the upper hand.
An interesting question is what the convergence will entail. A meta-analysis
performed by Palich et al. (2000) indicated that related diversification, in general,
outperformed both single-business and unrelated-diversification strategies. So if we
assume that financial performance determines sustainability in the long term,
we assume that the most widely adopted corporate strategy worldwide will be related
diversification.
Study Questions
1. Explain what you understand by corporate strategy.
2. Describe the different types of corporate strategy that a firm can adopt.
3. Provide a critical assessment of the usefulness of institutional theory for
explaining cross-national differences and similarities in corporate strategy.
4. Explain how the political, financial and labour market systems have an impact on
the corporate strategies of firms.
5. Evaluate how industrial organization theory, transaction cost economics and
agency theory can help to explain corporate strategy.
6. Evaluate the explanatory power of dominant logic, the resource-based view,
organizational learning and strategic contingency theory in the area of compara-
tive corporate strategy.
7. Legitimize your own theoretical choice for understanding corporate strategy.
8. Assess whether and why corporate strategies will converge or diverge across
countries.
Further Reading
Davis, G.F., Diekmann, K.A. and Tinsley, C.H. (1994) The decline and fall of the con-
glomerate firm in the 1980s: the deinstitutionalization of an organizational form.
American Sociological Review 59, 547–70.
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This article is highly interesting because of its institutional analysis of the extinction
of the highly and unrelated diversified firms in the USA.
Mayer, M.C.J. and Whittington, R. (2000) The European corporation: strategy, struc-
ture, and social science. Oxford: Oxford University Press.
Provides an excellent historical study of the evolution of strategy and structure of
European corporations.
Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998) Strategy Safari: a Guided Tour
Through the Wilds of Strategic Management. New York: Free Press.
This book offers an overview of various perspectives of strategic management.
Montgomery, C.A. (1994) Corporate diversification. Journal of Economic Perspectives
3, 163–78.
Case: Examples of Five Different Firms
T
his case treats a number of examples of firms from various countries. Each
firm has followed a unique strategy. At the same time, the cases discussed
illustrate the developments in the firms’ home countries. Successively, we
will look at Tyco International, Buhrmann, Vivendi Universal, Siemens and Tata.
After that, there is a brief conclusion.
Tyco International
11
Tyco International Ltd was founded in 1960 as a US research laboratory. In 1964,
the company went public. Management had soon recognized the commercial
potential of its research and began to look for acquisitions to develop complemen-
tary capabilities in production and marketing. In 1965, Tyco acquired its first
company, Mule Battery Products. This was followed by a long list of other acqui-
sitions. However, financial performance was not consistent. For example, Tyco
was hit by recessions in the late 1970s, early 1980s and early 1990s. In 1992, L.
Dennis Kozlowski became the company’s CEO.
When Kozlowski took over, Tyco had four, mostly unrelated, divisions. Despite
this apparent diversity, the vast majority of the revenues depended on just one
industry – commercial construction – which was highly volatile. Therefore,
Kozlowski set out to reduce the cyclicality. An important first step was the suc-
cessful acquisition of Kendall International, a producer of disposable medical
supplies. Kendall became the core of a new division, the Tyco Healthcare Group.
Many acquisitions were to follow, totalling US$60 billion, creating a huge
11
Besides the references mentioned in the text, this case is mainly based on Tyco International’s corporate
website (www.tyco.com) and several articles from Business Week (e.g. ‘The rise and fall of Dennis Kozlowski’, 23
December 2002). The description of Tyco’s organization is derived primarily from Collis and Montgomery (1998)
and Montgomery et al. (2001). Information on General Electric Company is obtained from its corporate website
(www.ge.com) and the description in the International Directory of Company Histories, Detroit (MI): St James Press.
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conglomerate, offering, for example, fire protection and security products and
services, valves, pipes and other flow-control products, packaging materials,
electrical and electronics components, and medical supplies and devices.
The divisions were allowed to operate in a very autonomous way. The cor-
porate staff was tiny, ensuring little interference from corporate headquarters. At
the same time, financial control was tight. Division presidents were held strictly
accountable for the financial performance of their individual divisions. High-
powered incentives to maximize performance were offered. Fixed salaries were
low, but bonuses, which were mainly paid in stock, could be large. Together with
the acquisition policy, this management style was regarded as the reason for
Tyco’s success. Under Kozlowski, market capitalization increased seventyfold.
From 1997 to 2001, revenues rose by almost 50 per cent a year, while pretax
margins improved to more than 22 per cent. Kozlowski and others began to view
Tyco as the second coming of General Electric, whose excellent financial results
it even outperformed.
Perhaps in an effort to copy General Electric’s successful financial service
activities, Kozlowski made a very costly strategic mistake. In 2001, Tyco acquired
the CIT Group, a commercial and consumer finance company, for the huge sum
of US$9.2 billion. The deal turned out to be a disaster. Tyco would eventually
divest the company, incurring a loss of approximately US$7 billion. Kozlowski
made a second strategic mistake. To boost the already falling stock price, in
January 2002 a plan was announced to separate Tyco into four independent, pub-
licly traded companies. Shareholders, who were already nervous because of the
recent Enron debacle, were taken by surprise and began to suspect accounting
problems. They became even more confused when the plan was withdrawn a few
months later.
By then, Kozlowski had run into more serious trouble. He was accused of
dodging US$1 million sales tax due on fine art. Even worse, together with two
other corporate officers, Kozlowski was accused of, first, obtaining US$430
million from Tyco through improper sales of stock and, second, stealing US$170
million directly from the company. A few examples of the second category were:
the use of company funds to throw a lavish birthday party for Kozlowski’s wife
on Sardinia (costing more than US$1 million)
the reimbursement of US$1 million for items such as jewellery, clothing and
wine
the inappropriate use of a relocation plan to rent a lavish apartment in New
York at an annual rent of US$264,000, paid for by Tyco
the use of an interest-free loan to buy, at a low price, a company-owned
apartment, which was later decreed to Kozlowski’s ex-wife
the sale of a home to Tyco for significantly more than its market value
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the purchase by Tyco of another apartment for Kozlowski for US$16.8 million,
plus US$3 million in improvements and US$11 million in furnishings
the use of an employee loan programme for a wide variety of personal needs,
including yachts, antiques and furniture
the commitment of donations and pledges to charitable organizations with
Tyco money amounting to more than US$106 million, of which at least US$43
million was represented as personal donations.
Consequently, the media started to publish stories about ‘The Great Tyco
Robbery’ and began to liken Kozlowski to Al Capone. Kozlowski had to resign at
the beginning of June 2002. After his departure, the future of Tyco was uncertain.
Tyco was left with a huge debt. Market capitalization fell by approximately US$90
billion in 2002.
In general, after the 1980s, only few conglomerates seemed to be able to
thrive in the USA. Together with General Electric, Tyco belonged to one of the very
few exceptions. Some of the fundamental causes of the fall of the conglomerate
were the complexities of the management of very diverse businesses. In the end,
this type of risk led to the punishment of conglomerates with a ‘conglomerate dis-
count’ instead of a favourable valuation in the stock market (Porter, 1987: 50). In
the second place, during the 1980s, under the Reagan administration, regulatory
policy changed considerably (Davis et al., 1994). Anti-trust policy that had made
diversification the only viable mode of external growth had disappeared.
Moreover, legal impediments that had protected conglomerates against hostile
take-overs were removed. This created an effective market for corporate control,
in which raiders such as Carl Icahn and T. Boone Pickens realized huge profits by
acquiring conglomerates, breaking them up, and selling the separate parts to
finance the deal. To prevent this, many conglomerates opted for voluntary
restructuring of their portfolio of businesses.
Hence, Porter (1987) argued that it is no longer a valid model for corporate
strategy in advanced economies. Only in developing countries, with few large
firms, undeveloped capital markets and scarce professional management
expertise, might the conglomerate model still work.
Buhrmann
12
Buhrmann NV is a public corporation that was created in 1993, as a result of the
merger between three Dutch companies: KNP, BT and VRG. All three were long-
established companies, with roots in the nineteenth or early twentieth centuries.
KNP, or, in full, NV Koninklijke Nederlandsche Papierfabriek (Royal Dutch Paper
Mill), was mainly a producer of paper, cardboard and packaging. BT or, in full,
12
The description of Buhrmann is mainly based on the annual reports of the various companies involved, press
clippings, in particular from NRC Handelsblad and Het Financieele Dagblad (two Dutch newspapers), and
Buhrmann’s corporate website (www.buhrmann.com). We are also indebted to Mario Schijven for his research
assistance.
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Bührmann-Tetterode NV, was also active in the packaging industry, as a producer
and distributor. In addition, BT supplied office products, was a merchant in paper,
and distributed and serviced graphic and office systems. Finally, VRG or, in full,
Van Reekum-Gepacy NV, was, like BT, a paper merchant,and a distributor of
graphic and office systems. Consequently, there were overlaps between the
activities of the three companies before the merger. Also, formal ties between the
companies were present, in particular in the form of two joint ventures between
KNP and BT, and a share of more than 50 per cent of VRG held by KNP.
In the year preceding the merger, all three companies had experienced a
sharp drop in their profitability, mainly because of adverse economic conditions.
Thus some sort of strategic response seemed appropriate. A merger could,
because of the overlaps between the activities, lead to synergies. For example,
the combination of activities might reduce direct competition and increase bar-
gaining power over suppliers and customers in certain markets. Moreover,
expertise could be exchanged, for instance between the business units that were
involved in paper production and those involved in paper trade. Another advantage
of the merger could be a more efficient use of working capital. A central treasury
department could reallocate funds from business units with a surplus, to busi-
ness units with a shortage of working capital, thus cutting out banks as an
expensive intermediary. However, the primary motive behind the merger may
have been risk reduction.
Paper production is highly cyclical. On the one hand, demand for paper is not
very stable – for instance, because the number of job advertisements that are
printed in newspapers and magazines depends on the state of the economy. On
the other hand, supply cannot be adjusted smoothly to demand fluctuations, since
production involves huge investments in paper mills, which are slow to build up
and slow to break down. The ensuing imbalances between supply and demand
give rise to large price fluctuations. The other activities of the merging companies
were also vulnerable to economic trends, although to a lesser extent than paper
production. For each company, the merger represented entry into new industries,
or diversification, and, as a consequence, an opportunity to reduce risks. If some
parts of the merged company were to be faced with adverse conditions, this could,
at least in theory, be compensated by the better performance of other parts.
Nevertheless, despite these possible advantages, the merger was criticized
after its announcement. For example, sceptics claimed that the merger partly
involved companies that were active in different parts of the same business chain
(like paper production and the subsequent distribution). Therefore, the diversifi-
cation was, at the same time, vertical integration. Vertical integration can actually
make a firm more vulnerable to economic cycles. For instance, if end demand for
paper drops by 50 per cent, a distributor of paper could halve the amount of paper
that is obtained from a paper producer. However, if the paper producer is part of
the same corporation, costs will not be halved, since a large proportion of the
costs is not variable, but tied to the investments in the paper mill. Therefore, ver-
tical integration raises the proportion of fixed costs for a distributor, which, in
turn, increases the chance that the company incurs losses in the case of a drop in
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demand. Different criticism came from the European Commission, which feared
that market power in certain areas would become too large. Eventually, the
merger was approved. The merger created a corporation with sales of approxi-
mately €5 billion, about 30,000 employees and over 150 subsidiaries in 30
countries. The subsidiaries could be divided into three main sectors: paper pro-
duction, packaging production and distribution activities.
There was no smooth sailing for NV Koninklijke KNP BT, as the corporation
was somewhat awkwardly named after the merger. More than the traditional
Dutch public corporation, KNP BT stressed the importance of creating share-
holder value. However, it was precisely in this area that the corporation failed to
perform. Over 1993, the year of the merger, a net loss of more than €10 million
was incurred, but this could still be blamed on unfavourable economic circum-
stances instead of the merger. In the following two years, net income rose
considerably, but eventually not as much as the shareholders had expected. In
1996, net income fell below the level of 1994. The share price lagged increasingly
far behind the general index of the Amsterdam Stock Exchange.
A number of causes of the disappointing performance can be identified. The
potential synergies resulting from the merger had probably been overestimated.
The realization of synergies among subsidiaries requires more central coordi-
nation. At the same time, this impairs the ability of subsidiaries to respond in an
appropriate way to new local circumstances. In particular in the area of distri-
bution and trade, the resulting loss of responsiveness often outweighs the
synergies realized. Furthermore, the cycles in the paper industry, which seemed
to become shorter and fiercer, continued to have a destabilizing effect on the
financial results of the merged corporation. Also, the firm was accused of not
informing the shareholders adequately about important developments.
Specifically, according to the Vereniging van Effectenbezitters, an influential
Dutch association of owners of securities, a profit warning was issued too late.
Finally, shareholder confidence was wrecked by disagreement among the senior
officers about the most suitable course for the firm. For example, at one point the
chairman of the executive board wanted to sell the distribution division to
Hagemeyer, a large competitor, but the board of directors refused to go along
with this.
This conflict led to the resignation of the chairman of the executive board. An
important measure that had already been taken was the sale of most of the paper
production to Sappi Ltd, a South African paper producer. However, even after
these two measures, the market value of the corporation was calculated to be
substantially lower than the break-up value. Therefore, splitting up the company
into separate parts was an alternative that warranted serious consideration.
In 1998, the packaging activities were divested. Also, a new name for the cor-
poration was adopted: Buhrmann. After the failed diversification of the past, the
corporation was to focus exclusively on growth in distribution and service. A major
step in this respect was the friendly acquisition of US-based Corporate Express,
Inc. Corporate Express was a large, international distributor of office and com-
puter products. A more hostile move was the bid on Samas-Groep NV and
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Koninklijke Ahrend NV, two Dutch competitors in the office industry. Perhaps in
an attempt to ward off a hostile take-over, the two companies had announced
their intention to merge. Ironically, this may have triggered the bid by Buhrmann.
Both Samas and Ahrend resisted the bid and further increased the take-over
barriers that had already been in place. At the end of 2000, though, a compromise
was reached, according to which Buhrmann would take over part of the activities
of Samas. The bid for Ahrend was subsequently withdrawn.
The take-overs established Buhrmann as a leading international player in the
office and graphic markets. For example, Buhrmann had become the world’s
largest distributor of office products. However, the take-overs also involved two
disadvantages. First of all, about half of the total net sales were now generated in
the USA, making the corporation very dependent on cycles in the US economy.
This became very clear in 2001, when many firms in the USA started to lay off
office workers, and other firms began to economize on their office supplies,
forcing Buhrmann to issue a series of profit warnings. The second disadvantage
was that Buhrmann incurred a great deal of debt in financing the acquisitions.
This gave the lending banks power over Buhrmann and further increased its vul-
nerability to economic downturns, because of the large fixed-interest payments.
Debt could be reduced through use of the money generated by the divestment
of activities. In 2003, Buhrmann announced the sale of its paper merchanting
business to Paperlinx, an Australian company. After the divestment, Buhrmann
would be almost a single-business firm. By far the largest division was Office
Products, which sold, distributed and serviced office and computer products for
the business market. The only other division was Graphic Systems, which sup-
plied graphic machines, materials and related services to the graphic industry.
Naturally, this undiversified character, in combination with an increased depend-
ence on the USA, meant that the opportunity to spread risks was very limited.
Still, shareholders responded very positively to the announcement of the divest-
ment, leading to an increase in the stock price of 40 per cent.
In conclusion, Buhrmann stems from the need of three companies to diversify.
The reasons for diversification were altogether not very convincing and the subse-
quent financial performance was disappointing. Therefore, under increasing
pressure from shareholders the diversification strategy was largely dismantled and
replaced by a strategy of international expansion. Many other Dutch corporations –
like Aegon, KPN, VendexKBB, VNU and Vopak – have also opted for international
expansion, often through acquisitions, in a reduced number of core activities.
Vivendi Universal
13
Vivendi was founded in 1852 in France as the Compagnie Générale des Eaux. It
started as a private water company. Soon after its foundation, it won important
13
This case is based on the description of Vivendi Universal in the International Directory of Company Histories,
Detroit, MI: St James Press, an article in the Dutch magazine FEM Business (10 May, 2003), an article in the Dutch
newspaper NRC Handelsblad (8 November 2002) and an article in Business Week (21 April 2003).
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contracts in Lyon and Nantes and, in 1860, it won a contract in Paris. In 1940,
Générale des Eaux supplied water to 50 per cent of all French town dwellers.
Générale des Eaux remained a water company until Guy Dejouany became
president and director general of the company. He first advocated a thermal
energy programme in the 1960s and 1970s. He also moved the company into
urban cleaning and maintenance, waste management, electrical contracting,
house building and construction. These diversification efforts proved to be very
successful and profits grew to FFr331 million. This success attracted the atten-
tion of other companies. In 1983, Saint-Gobain announced it had a 33 per cent
interest in Générale des Eaux. Dejouany managed to convince the government to
stop the nationalized Saint-Gobain from taking over Générale des Eaux.
Eventually, Saint-Gobain lowered its interest in Générale des Eaux.
With the threat of a hostile take-over gone, the company started to expand
both nationally and internationally. It acquired water distribution activities in
Spain, Portugal, Italy, the UK and the USA, collected waste in Prague and Bogotá,
cleaned the streets of Madrid, and supplied cable television in the UK and
Montreal. The company also acquired private hospitals in the UK.
In France, the company expanded in communication, construction and waste
management. By 1991, Générale des Eaux had become a leading operator of
cable networks in France. Its interests included CANAL and a mobile phone
network. Furthermore, the company acquired several construction companies
and became active in the prestigious La Defense project. Générale des Eaux also
won contracts to clean the Louvre and the Museé d’Orsay, and collected waste for
Peugeot, Air France and Nestlé.
In 1996, Dejouany retired and Jean-Marie Messier took over. By that time, the
media were referring to Générale des Eaux as a ‘corporate octopus’, with
interests in the property, construction, energy, mobile phones, health, amuse-
ment parks, cable television and railway industries. Messier developed an
ambitious strategy to turn Générale des Eaux into a world-leading company in the
environmental service industry as well as in the media and communication
industry. Messier, known in the French press as ‘Jean Marie Messier Moi-Même
Maître du Monde’, spent US$77 billion to achieve his goals in a period of six years.
He changed the name from Générale des Eaux to Vivendi and split off the water
company under the name Vivendi Environment. With the pledge of Vivendi
Environment and its steady cash flows, Messier could convince banks to finance
his strategy. First, Messier created Cegetel, a subsidiary that operated in the fixed
and mobile phones business in France. Vivendi merged with Havas, a publishing
company, in 1998 and acquired Cendant Software, an electronic publishing firm.
At the peak of the Internet hype Vivendi took over Seagram, owner of Universal
Studios and the Universal Music Group, for US$34 billion. Then Messier changed
the name of the company again, this time to Vivendi Universal.
However, after the burst of the Internet bubble, there were difficult times for
Vivendi. In 2001, the company announced a loss of no less than €13.6 billion, and
by 2002 the loss has grown to €23.3 billion. Furthermore, the company had a huge
debt. The international finance industry lost faith in Vivendi and attracting new
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