Traditional Forms of Organisations and Their Usefullness to Mnc’s in Organising Their International Structures

Topics: Globalization, Multinational corporation, Internationalization Pages: 10 (3411 words) Published: April 10, 2011
Multinational Corporations (MNCs) or Enterprises (MNEs) have dominated significantly the business world after the Second World War. Historically, the theories of MNCs have addressed questions as: why do firms internationalise [3], why do they do it via Foreign Direct Investment (FDI) rather than through other means such as trade or licensing [4], which type of forms do they follow in their internationalization [5]. Dunning’s eclectic theory [6] provides the basic framework of understanding strategic decision making of MNCs. According to this theory the decision of firms to expand their activities outside the home country via FDI depends on three different advantages: i) ownership (O) implies that a company is the owner of specific capability or resources giving an advantage in certain markets; ii) location (L) gives an advantage to locate an activity in another country by comparison of the characteristics with the home country for example resource endowments; iii) internationalisation (I) depends on the opportunity to internationalise a specific advantage rather than to exploit them on markets through arms’s length transactions. The OLI (Ownership-Location-Internationalisation) can be considered as the envelope for existing theories of internationalisation. The OLI has evolved to include the main changes in international market [7],[8]. The concept of ‘O’ has widened to include the benefits to firms through the interactions and knowledge sharing with other firms. For the ‘I’ advantage alliances and networks of firms can be considered as a distinct organisational mode, complementary to the hierarchical mode. Another important theory for MNCs was initially developed by Vernon [9] where he conceptualised the stage model of internationalisation. He investigated the determinants of FDI and gave importance to location variables in order to determine the sitting of a firm. His product life cycle model of the internationalisation of a firm identifies different stages where the fist stage is that a product is initially produced domestically, then exported and then FDI will lead to it being produced in another country. Finally, in maturity stage the product will be produced only in a third world country due to the low cost advantage and will be imported back to the country it originated from. Here the main focus was on why firms should choose to set up or acquired foreign value-adding activities rather than export. In Europe this school of thought was expressed by Johanson et al. [11],[12] in North America by Bilkey [13] and Cavusgil [14]. Another theory is that of the ‘structure follow strategy’ school identified by Chandler [15]. He studies US companies that need to coordinate their activities around the world and adopt the M-form (Multidivisional). Stopford et al. [16] developed a descriptive model where companies develop and international structure. According to them, when both foreign sales and diversity of products become high, a global matrix/mix structure emerged where a grid structure with geographical and product group became common. The most modern model is the ‘Born Global’ which emerged by the work of McKinsey [17] in a report about Australian firms. This model depicts a company with a new product marketing it globally from the beginning. Other authors have taken the same approach and performed research in different countries contributing to the establishment of this model [18],[19]. According to the newer ‘process’ school of MNCs [20]-[36] of international strategy, the fundamental strategic choice of an organisation is primarily based on the level of global integration versus local responsiveness. It refers to a continuum of integration, coordination, globalisation advantages versus differentiation, responsiveness, and localisation advantages in describing the strategy of MNCs at headquarters or subsidiary level. The global integration/local responsiveness matrix is commonly used for the typology of MNCs....
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