Modern Multinational Enterprise Research Articles

Configuring subsidiary performance in ambidextrous networks: The role of top management team diversity and autonomy

AbstractSubsidiaries are at the frontline of value creation in modern multinational enterprises. This research is among the first to apply an asset bundling framework to investigate how foreign‐owned subsidiaries achieve higher performance outcomes via ambidextrous network management, that is, with strong exploitative (intraorganizational) as well as strong explorative (interorganizational) network relationships, in emerging markets. Ambidextrous network management may be supplemented by decision‐making autonomy and top management team national diversity. The framework is tested on a sample of subsidiaries located in both Thailand and Singapore. The analysis revealed several configurations that make subsidiaries with ambidextrous networks become successful. Our findings demonstrate to subsidiary managers that exploitation and exploration are complementary for long‐term success in a subsidiary, but that the relative balance between the two is likely to vary according to the nature of subsidiary context‐specific assets.

ВИКОРИСТАННЯ МЕТОДУ КЛЮЧОВИХ ПОКАЗНИКІВ РИЗИКУ В СТРАТЕГІЯХ РИЗИК-МЕНЕДЖМЕНТУ

As part of the rapid development of the global economy in recent decades, a clear demand for timely and effective response to changes in the macroeconomic environment of the multinational enterprises (MNE), as well as the influence of endogenous factors on the achievement of operational and strategic goals of the enterprise, is created within the framework of the corporate governance structure of MNE. Such changes and factors can create both risks and opportunities for MNE. As part of the strategic planning processes, modern MNE must identify and assess risks and opportunities in relation to the key objectives of their strategy and assess the potential change in the risk profile of the enterprise, if there are changes in the strategy and any of its sensitivity to internal or external factors. Existing and new risk management strategies should become an integrated part of the operational and strategic planning process of MNE. At the same time, an effective system of key risk indicators (KRI) is an important component of an effective risk management strategy of MNE, based on a holistic approach to the organizational structure of MNE and taking into account the geographical, functional, operational specifics of the enterprise's business. Applying a natural methodological basis, the article describes the concepts and principles of KRI, their typology and the order of determination. As part of the practical analysis, the role and place of KRI in the system of operational and strategic activity of MNE were determined, as well as a study of the use of KRI was carried out on the example of the collapse of the US residential real estate market in 2007. The conducted study showed the high efficiency of the practical use of KRI to achieve the goals of MNE and increase the efficiency of their business activities.

Footloose multinationals: Extending the internalization theory

AbstractInternalization theory explains how the multinational enterprise (MNE) makes decisions on new investments but does not explicitly address the restructuring (i.e., unbundling) processes that can take place within the MNE network of subsidiaries. Further extensions to internalization theory have considered the ways MNEs recombine, bundle, unbundle and orchestrate resources but have yet to address specifically the issue of divestments and relocations. We contribute to the literature by extending internalization theory through conceptualizing footloose behavior, a repeated relocation of divested operations over a period of time, and approaching MNEs behavior in a holistic way. Empirically, we use four case studies of mature, complex and diversified MNEs within the context of European Union (EU). These MNEs have engaged in several investments, divestments and relocations over several years. Through the analysis of their behavior we demonstrate how the inclusion of divestments and relocations can extend internalization theory in explaining the modern MNE.

Global Innovation Networks – Organizations and People

Abstract Innovation is increasingly the outcome of global networks that connect geographically dispersed knowledge centers. The international business (IB) literature has developed a sophisticated understanding of the multinational enterprise (MNE) as an organization generates value by integrating knowledge across national borders. We advance this literature by making three key arguments. First we highlight the three megatrends that shape the strategy of the modern MNE: the disaggregation of the value chain into ever narrower activities, the migration of value to knowledge-intensive intangibles and the rise of huge emerging markets like China and India, whose domestic firms can grow to enormous size before venturing abroad. Second, we trace these three megatrends to falling spatial transaction costs, enabled in the main, by digitalization. Third, we draw on earlier research on the generic forms of global linkages, arguing that the IB literature has limited itself to organizational pipelines, while paying relatively little attention to personal relationships. The latter are particularly important in the genesis of both entrepreneurship and radical innovation, but are particularly sensitive to the anti-globalization policies. An environment where technology continues to reduce spatial transaction costs, while policy raises them, strengthens large MNEs at the expense of innovative international new ventures.

Transaction costs of early modern multinational enterprise: measuring the transatlantic information lag of the British Royal African Company and its successor, 1680–1818

There is extensive previous research on the early modern chartered multinational corporations, their development and how they dealt with the various challenges they faced. This article attempts to contribute to this field of research by estimating quantitatively the information lag in early modern multinational enterprise, studying the case of the British Royal African Company and its successor the Company of Merchants Trading to Africa. The results show that the transatlantic information lag decreased somewhat during the second half of the eighteenth century. The decrease was however quite modest, and far less striking than has been claimed in some previous research. During the period, this information lag therefore still posed a major constraint on the development of multinational enterprise.

The limits of firm-level globalization: Revisiting the FSA/CSA matrix

Multinational enterprises (MNEs) engaging in foreign direct investment (FDI) need advantages allowing them to offset the liability of foreignness in host countries. This liability of foreignness gives rise to additional operational costs related to economic, institutional, and cultural differences between home and host countries. MNEs therefore need to own or control firm-specific advantages (FSAs) that, along with country-specific advantages (CSAs) and internalization advantages, affect international business transactions. In this paper, we revise Rugman’s classic FSA/CSA matrix to better reflect how firms bundle their assets with CSAs. We further contribute to the prior debate on the linkages between the global factory paradigm and internalization theory by empirically evaluating the validity of a key proposition associated with the global factory, namely that FDI becomes relatively less important as a building block of the modern MNE. We do so using data on FDI and cross-border mergers and acquisitions, a major component of FDI.

Splitting the Unsplittable: Toward a Formulary Approach to Allocating Residuals Under Profit Split

It has been recognized at least since the publication of the US Treasury White Paper in 1988 that the key problem in applying the Arm’s Length Standard (ALS) to multinational enterprises (MNEs) is what to do in the absence of comparables. The White Paper proposed to apply a functional analysis to the various components of the MNE, and to allocate profits based on the comparables that can be found for each function. This led to the development of the profit split method, which was incorporated in the US regulations in 1994 and into the OECD Guidelines soon thereafter. The OECD paper on intangibles has recently recognized that profit split is the most likely candidate of the five ALS compliant methods to be applied to modern MNEs that derive the bulk of their profit from intangibles.But the problem with the profit split method is that it frequently results in a residual that cannot be allocated under the functional analysis because it results from cost savings that inhere in the relationship of the group members to each other. The OECD Transfer Pricing Guidelines do not say what should be done with residuals under the profit split method. The OECDs preferred method of applying the profit split method is to analyze the functions, assets and risk of each member of the affiliated group. However, in the context of residuals this method also proves to be illusory. A functional analysis can only be applied to those functions that can be assigned to the group members, such as production or distribution, but it does not help with residuals that result from the relationship among the group members. Assets can include intangibles, which are usually the most valuable assets of a modern MNE, but intangibles also get their value from the relationship among the group members,and they cannot be allocated to either where they were developed or where they are exploited. Risk is the most tricky concept of all. Recent case studies by the US Joint Committee on Taxation reveal a model in which the entrepreneurial risk for a product is assigned to an affiliate in a low tax jurisdiction and the manufacturing and distribution of the product in high tax jurisdictions are done on a contract manufacturing and commissionaire basis. But it is not clear what the allocation of entrepreneurial risk means among related parties. If a product fails because of technological change or defects in manufacturing or environmental hazards, the risk is effectively borne by the entire MNE.I would therefore propose that the OECD accept the use of formulas to allocate the residual in the profit split method. Specifically, I would suggest using a formula based entirely on the destination to which the goods and services that the MNE provides are sold.

Information technology and transnational integration: Theory and evidence on the evolution of the modern multinational enterprise

Reflecting amplified hazards in cross-border exchange and imperfections in markets for intangibles, internalization has been central in multinational enterprise (MNE) theory. This centrality notwithstanding, the fact is that internalization coheres with lower-powered incentives and carries an implicit drawback, namely, higher realized production costs. With the emergence and deployment of information and communication technology (ICT), modern MNEs are reshaping their transnational governance to address this cost. The modern MNE uses ICT to mitigate transaction costs, and evolves more to arm's length exchange to incentivize lower production costs. A testable prediction is that MNEs in industries more susceptible to and employing more ICT will exhibit a reduced propensity for transnational integration. We examine this hypothesis using available data from 1982 to 1997 for US MNEs across all manufacturing sectors. Regression results and robustness tests are strongly congruent with the prediction. This study, a first to explore empirically the role of ICT in the evolution of transnational exchange, suggests that MNE theory, until now founded primarily on transaction cost economics and a cross-border control theory of value capture, is more likely to keep pace with developments in MNE practice by opening up to incentive theories of exchange governance and a cross-border coordination theory of value creation.

The Organization of Modern MNEs is More Complicated than the Old Models of Global, Multidomestic, and Transnational

In this paper we review the traditional organizational models for multinational enterprises (MNEs), point out their usefulness as ideal models to analyze the organizational structures of MNEs according to the global integration/local responsiveness framework, and discuss some of their limitations as accurate characterizations of modern MNEs. Additionally, we describe a more complete typology that can be used to analyze and characterize modern MNEs.

A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises

This paper addresses two important issues at the nexus of the literatures on international trade, foreign direct investment (FDI), foreign affiliate sales (FAS), and multinational enterprises (MNEs). First, the introduction of a third internationally-mobile factor (physical capital) to the standard 2 × 2 × 2 “knowledge-capital” model of MNEs with skilled and unskilled labor allows us to resolve fairly readily the puzzle in the modern MNE literature that foreign affiliate sales among two identical economies completely displace their international trade. Intra-industry trade and intra-industry FDI (and FAS) can coexist for national and multinational firms (with identical productivities) in identical countries. Second, the introduction also of a third country to the model suggests a formal N-country theoretical rationale for estimating gravity equations of bilateral FDI flows and FAS, in a manner consistent with estimating gravity equations for bilateral trade flows.

Multinationals and Industrialisation: The Bases of ‘Inward Investment’ Policy

The paper argues that policies towards inward investment should extend, much more decisively and comprehensively, beyond initial attraction in order to seek to secure sustained benefits from these operations. The view of the modern multinational enterprise as a dynamic differentiated network, operating through subsidiaries that have scope for evolution and development, provides a basis for the analysis of the potentials in this regard. The paper discusses in detail the content of particular phases in subsidiary transformation that can then provide a potential for embedding their operations in a host country in a creative and dynamic way that generates mutually supportive interdependencies in processes of resource (notably knowledge) generation and use.

Pioneering Foreign Direct Investment in British Manufacturing

This article analyzes all known cases of foreign direct investment in British manufacturing prior to 1890. From 1890 onwards the bulk of foreign entrants were industrial goods producers. Before 1890, the pioneering entrants were mostly consumer goods manufacturers. The article demonstrates that, with one monumental exception, these pioneers were narrowly focused, driven entirely by a concern about enhancing access to the British market. Typically they failed. The one exception was the Singer Manufacturing Company. This investment was of an entirely different nature. Singer's commitment was large and non-reversible from almost the very beginning, and was predicated on an awareness of the possibility of using Britain as an export platform. Its consequence was the emergence of Singer as the world's first modern multinational enterprise and as one of the world's largest firms by 1900.

Multi-National, Multi-Archival: The Business Records of the HSBC Group

This essay explores the issues affecting the archives of modern multi-national enterprises. Examples are taken from the recent experience of the HSBC Group, whose member companies include Hongkong Bank, Midland Bank, the British Bank of the Middle East, and other long-established providers of financial services. The paper reviews the following issues: • What are the advantages and disadvantages of centralization of the archives of a multi-national enterprise? • How important is the location of the archives? • What are the practical and technical implications of relocating the archives of constituent companies of a multi-national enterprise? • What factors should motivate the collecting policy of a multi-national enterprise? • What factors influence the relationship between a multi-national archive and other custodians of its records? The essay concludes by considering how a multi-national business archives might reach and respond to a multi-national readership.