Multinational Corporations as Differentiated Networks

Multinational corporations are considered as a differentiated network of interorganizational (HQ-subsidiary) relations. Using data from 66 of the largest North American and European multinationals it is shown that four naturally existing clusters of subsidiaries can be found on the basis of the complexity of the external environment faced by the subsidiary and its organizational resources. Centralization, formalization, and socialization are used to characterize the nature of the HQ-subsidiary interaction and a multivariate "fit" between these management processes and each subsidiary type is shown to be a significant predictor of subsidiary performance. A typology of the different subsidiary types within a multinational corporation is proposed based on this "fit". MULTINATIONAL CORPORATIONS AS DIFFERENTIATED NETWORKS INTRODUCTION In a classic series of tiistories on the emergence of the modern business enterprise, Alfred Chandler (1962, 1977, 1985) traces the structural evolution of business organizations from the small family owned and managed enterprise to the most dominant and visible form of modern organization the large, geographically dispersed, professionally managed multidivisional enterprise. The multinational corporation (MNC) is the quintessential case of the dispersed firm, with individual components located in a number of autonomous political units (Fayerweather, 1978). These organizational sub-units, or subsidiaries, are often embedded in highly heterogeneous environmental conditions (Robock et al., 1977) and have developed under very different historical circumstances (Stopford and Turner, 1985). From the perspective of organizational theory, this suggests that each subsidiary may be treated as an organization itself, and the MNC as a network of differentiated interorganizational linkages between geographically and goal dispersed organizations that nonetheless are bound by a formalized base of interaction (Herbert, 1984). The concept of differentiation in the large multiunit complex organization is not new to organization theory. It was recognized and placed center-stage almost two decades ago by Lawrence and Lorsch (1967). What is surprising, however is that while fields such as industrial economics (Baumol, Panzar and Willig, 1982; Teece, 1982) and strategy (Salter and Weinhold, 1979; and Rumelt, 1981) have since developed positive (i.e. both normative and predictive) theories, that explicitly focus on the differentiated aspect of multiunit industrial organizations.