Internal differentiation within multinational corporations

Internal differentiation within multinational corporations This paper argues that the internal structure in complex, multi‐unit organizations such as a multinational corporation (MNC) is not homogeneous throughout the organization, but is systematically differentiated so as to ‘fit’ the different environmental and resource contingencies faced by the different national subsidiaries. Based on a survey of 66 of the largest European and North American MNCs, yielding data on 618 cases of headquarters‐subsidiary relations, it is shown that the different contextual conditions faced by the different subsidiaries of the MNC can be meaningfully classified into four generic situations. Furthermore, for each of these situations the exchange relation between the MNC headquarters and the subsidiary is characterized by a ‘fit’ governance structure consisting of a different combination of structural elements such as centralization of authority, formalization of rules and systems, and normative integration of members. Following the existing literature, these ‘fit’ structures are labeled in this paper as hierarchical, federative, clan and integrative. The multinational is then described as an internally differentiated organization in which each headquarters‐subsidiary link corresponds to one or the other of these administrative forms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Strategic Management Journal Wiley

Internal differentiation within multinational corporations

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Publisher
Wiley
Copyright
Copyright © 1989 John Wiley & Sons, Ltd.
ISSN
0143-2095
eISSN
1097-0266
DOI
10.1002/smj.4250100403
Publisher site
See Article on Publisher Site

Abstract

This paper argues that the internal structure in complex, multi‐unit organizations such as a multinational corporation (MNC) is not homogeneous throughout the organization, but is systematically differentiated so as to ‘fit’ the different environmental and resource contingencies faced by the different national subsidiaries. Based on a survey of 66 of the largest European and North American MNCs, yielding data on 618 cases of headquarters‐subsidiary relations, it is shown that the different contextual conditions faced by the different subsidiaries of the MNC can be meaningfully classified into four generic situations. Furthermore, for each of these situations the exchange relation between the MNC headquarters and the subsidiary is characterized by a ‘fit’ governance structure consisting of a different combination of structural elements such as centralization of authority, formalization of rules and systems, and normative integration of members. Following the existing literature, these ‘fit’ structures are labeled in this paper as hierarchical, federative, clan and integrative. The multinational is then described as an internally differentiated organization in which each headquarters‐subsidiary link corresponds to one or the other of these administrative forms.

Journal

Strategic Management JournalWiley

Published: Jul 1, 1989

References

  • Exchange and power in networks of interorganizational relations
    Cook, Cook
  • Social exchange theory
    Emerson, Emerson
  • The role of foreign subsidiaries in strategic decision making in Swedish multinational corporations
    Hedlund, Hedlund

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