Chapter 1 Flashcards

Question

To an integrated network model of MNCs?

Answer 1

Concept: „decentralized centralization“ (Morschett et al. 2015, p8) • Interdependent organizations with linkages between a dispersed set of units. • Goes back to Ghoshal and Bartlett (1990) For the last 3 decades the predominant model Transnational organizations / Heterarchy / Differentiated network

Answer 2

- distributed, specialised resources and capabilities - large flows of components, products, resources, people and Information among interdependent units - complex coordination processes and cooperation in a shared decision making

Answer 3

• Network nodes (subsidiaries) are linked by bi-directional flows of • Products • Resources • People • Knowledge (Note for later: International R&D is only conceivable with bi-directional flows of knowledge • Some subsidiaries have a strong effect on MNC decisions and strategies Competitive advantage • Does not necessarily originate from the MNC’s HQ • Not created at home and transferred abroad • Can come from any single or more subsidiary/ies • Learning is essential in this context (creation and diffusion of knowledge in the MNC netw.) • High autonomy of subsidiaries might cause problems when orchestrating activities.

Answer 4

The integrated network model stresses that subsidiaries are heterogeneous. Dimensions of subsidiary diversity: • Value-added activities (from single - e.g. sales – to full value chains) • Reasons for establishing the subsidiary (market seeking, resource seeking) • Endowment with resources and capabilities • Local environment of the subsidiary • Type of linkages maintained (horizontal, vertical) • Responsibility of the subsidiary • Age • Size • Performance

Answer 5

Subsidiaries regarded a source of important capabilities can be seen as a center of excellence in the MNE. Target: leverage these capabilities for the whole network (= other subsidiaries) • They receive a global mandate for certain activities and functions • High level of autonomy and freedom • Strong integration into the MNC for (knowledge) diffusion • Prerequisite High level of competence

Answer 6

Mandates • Are awarded to subsidiaries by their parent companies • Define the scope of activities the subsidiary is responsible for • Define the performance expectations • Determine the level and type of investment of the parent into the subsidiary • Determine the level of skills located in the subsidiary Mandates that require strategically critical, high skill functions are more sticky

Answer 7

• MNCs (as networks) maintain network ties to actors external to the MNC (those actors might be networks as well) • Contrary to the initial idea of Ghoshal and Bartlett (1990) MNCs are also embedded in external networks • Various linkages also across borders Imports, exports, ownership, joint ventures, R&D alliances, licensing … • Networks between companies are important for competitiveness Dunning (1997): From market capitalism to alliance capitalism. • Boundaries of the firm (MNC) gets blurry – with all its implications for the theory of the firm - MNCs (as networks) maintain network ties to external actors (that might be networks as well) (see graphs p. 86 & 87

Answer 8

Linkages to the local environment is important for subsidiaries of MNCs • Local environments serve as containing social structures in which information sharing and collective knowledge development is nurtured by • personal network formation, • labor market mobility and the • formation of trustful collaborative ties. • Local linkages can be a substitute to subsidiary capabilities (subsidiaries provide access to these local resources)

Answer 9

Such localized linkages tie innovativeness of MNCs to the properties of geographic locations • Geographic locations are heterogeneous Geographical properties Endowment of resources Environment (economic, social, technological, economic) Knowledge and capabilities • Network structure within the MNC and network structure outside of the MNC is crucial for MNC performance. • Subsidiaries have to balance the embeddedness in the MNCs internal network and the local embeddedness. Balance local interests of the subsidiary with global interests of the MNC network.

Answer 10

* The flip side of this coin * the danger of over-embeddedness of actors and * lock-in to diminishing return paths, stemming from high cost of establishing non-local linkages and low marginal cost of continuing to use existing ones. * This may cause actors * to over-search those environments they already know and * to focus on already established linkages.

Answer 11

* Even in differentiated networks HQs * Still exist (and are relevant) * Have a (somewhat) hierarchical position * Mostly HQs have more power than the subsidiaries * Usually HQs have the strongest power to * Create knowledge (= R&D) and decide

Answer 12

A role is the business the subsidiary participates in and which it is responsible for within the MNC. • A role can be seen as a statement of purpose including Task Market Customer • Roles are described along the following dimensions: • External context • Internal context • Coordination variables (level of autonomy) • Strategy or task

Answer 13

Most prominent typology of subsidiaries is by Bartlett and Ghoshal (1986) and has been updated by Rugman, Verbeke and Yuan (2011). • Strategic importance of the local environment (in the host country) Market size, access to resources … • Level of internal competences of the subsidiary

Answer 14

Contributor subsidiary has more capabilities than required in the not so important market or environment, capabilities can be leveraged in projects within the MNC network Implementer just sufficient competences for a not so important market, no potential to contribute to the MNC beyond the local market, only exploits the local market Strategic Leader potential partner for the HQ in developing and implementing strategies, can take the lead within the MNC, ‚world product mandate‘, ‚center of excellence‘ Black Hole important markets require strong (local) presence, black holes lack those capabilities, MNC must find solutions here, one is to find a strong external local partner for the subsidiary

Answer 15

Contributor: Central coordination, but HQ management should not discourage local management of subsidiaries Implementer: Formalization, to achieve tight control Strategic Leader: Loose and decentralized control, important: support subsidiary, provide resources and freedom for entrepreneurial role Black Hole: Support subsidiary in finding strong local partners

Answer 16

Based on the network perspective of MNCs. Typology focusses on knowledge flow. Knowledge flows are bi-directional (⇿) • Knowledge inflow from the MNC into the subsidiary (S ⇽ MNC) • Knowledge outflow from the subsidiary into the MNC (S ⇾ MNC)

Answer 17

- Global innovator (knowledge provider) source of knowledge for other subsidiaries and HQ, potentially embedded in a knowledge rich environment - Local innovator (knowledge independent) rather detached from the knowledge flows within the MNC, responsible for creating required knowledge itself locally - Integrated player (knowledge networker) also creates knowledge for other subsidiaries in the MNC, but needs knowledge input from the MNC as well, it is maybe a center of excellence embedded in the MNC and the local environment - Implementor (knowledge user) heavily dependent on knowledge input from the MNC network, exploits this knowledge in the host market, no knowledge outflows to the rest of the MNC

Answer 18

* Traditional view of MNC research (focus on HQ) has changed. * Subsidiaries have entered as units of analysis. * More nuanced view on the role of subsidiaries and on the composition of MNCs.

Answer 19

Picking the dimensions is somewhat arbitrary • 2 by 2 matrices are oversimplifying • Roles differ along the value chain, which is not accounted for in the typologies

Answer 20

* Internationalization activities are always driven by certain motives. And the motives are not always to increase sales in this region. The term ‚market entry‘ for internationalization might be misleading Internationalization is also not always triggered by lower production costs. * Internationalization should always be linked to corporate strategy. Hence, the motives are as well. * We have to look at the strategy that drives internationalization to see the motives (and vice versa)

Answer 21

Market seeking • Resource seeking • Efficiency seeking • Strategic asset seeking

Answer 22

Market seeking relates to the output • Access to new markets can be the driving force for starting activities in a foreign country (…exporting) • Country selection by the sales potential Market size / market growth / attractive customer segments/ barriers of entry / competition • Market seeking does not imply production • FDI can help to avoid barriers of entry, reduce shipping costs • Being there (rather than just selling there) can help to understand the market

Answer 23

First steps often with the help of local cooperation partners (they know the market) • Subsidiaries can become gate-keepers to foreign markets. May control distribution channels and marketing activities Power versus the HQ • Current trend is to have more control over foreign sales Increasing involvement in the local market – higher levels of ownership. Vertical integration rather than cooperative arrangement • Follow the customer B2B: if one firms customer internationalizes it might be profitable to internationalize as well (piggybacking) e.g. a service company for a production company internationalizes once the production is internationalized

Answer 24

Securing the input can be a motive for internationalization Natural resources (oil, gas …) Topographical situations (harbors … ) • Country selection by the resource potential Resource availability Cost of the resource Regulatory framework • Partnership strategies are necessary, if local companies have secured access to the resource Acquisition might not work because of legal restrictions • As the resource is important the resource seeking motive leads to strong ties with other parts of the MNC network of subsidiaries

Answer 25

Efficiency seeking relates to the production process • Target: improvement of the cost efficiency of the MNE Exploitation of factor cost differences Generation of economies of scale • Country selection criteria Labor costs Productivity differences Distance to relevant markets (transportation costs) Suppliers Production can be integrated in company‘s overall cross-border production processes (see the current discussion about tariffs)

Answer 26

• Relates to knowledge and capabilities • Assumption: knowledge and capabilities are a crucial determinant of competitive advantage. • Assumption: MNCs can identify, assess, access, digest and exploit knowledge for their competitive advantage • This can explain the investment (FDI) in certain regions (e.g. Silicon Valley) • Country criteria for selection Innovation level Sophistication of demand Related and supporting actors in the innovation system

Answer 27

* Requires a close link to the rest of the MNC to secure that knowledge diffuses within the whole network * Too tight control might discourage creativity and the acquisition of knowledge * Subsidiaries have to have appropriate capabilities to identify, assess, access and process the knowledge * Cooperation to access this knowledge can be helpful. Antecedents: local relationships and trust

Answer 28

Traditionally the geographic sources of advantage are (see Johnson et al. 2017, p. 282) going back to Michael Porter in the 1990s • The underlying idea of Porter’s Diamond is that location are associated with sustainable competitive advantage for firms originating from there (or being located there, more generally) • Factor conditions • Firm strategy, structure and rivalry • Demand conditions • Related and supporting industries. We can add additional geographic sources of advantage Cost advantages Unique local capabilities National market characteristics • Each one of the geographic sources of advantage can be mapped to one or more motives for internationalization

Answer 29

The traditional view Location based sources of advantage are immobile They are accessible by any firm being there • However MNCs may differ in their ability to makes sense of the place (their locational capabilities) - Not all MNCs are equally good in exploiting the geographic sources of advantage • Rather immobile geographic sources of advantage and mobile MNE specific sources of advantage have to evolve together to generate value.

Chapter 1 Flashcards

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