The Multinational Corporation as an Interorganizational Network

Summary of: Ghoshal, S. & Bartlett, C.A. (1990). The Multinational Corporation as an Interorganizational Network. The Academy of Management Review, 15(4), 603-625

THE MULTINATIONAL CORPORATION AS AN INTERORGANIZATIONAL NETWORK

MNCs are physically dispersed in environmental settings that represent very different economic, social, and cultural milieus; are internally differentiated in complex ways to respond to both environmental and organizational differences in different businesses, functions and geographic locations.

The authors propose the multinational as a network of exchange relationships among different organizational units, including the headquarters and the different national subsidiaries that are collectively embedded in a structured context.

The authors believe that the linkage between ownership and hierarchical power (fiat) is particularly weak in the case of MNCs because of the large physical and cultural distances between the owned and the owning units. The efficacy of fiat is particularly limited in the case of multinationals not only because some of the subsidiaries happen to be very distant and resource-rich but, more so, because they control critical linkages with key actors in their local environments, particularly the host government. The parent company of a multinational typically enjoys considerable hierarchical authority. However, this does not necessarily lead to fiat as the dominant or even the ‘last resort’ mechanism of control.

Prior literature is limited in the sense that it has tried to provide a relatively clear separation between the ‘organization’ (homogenous and consistent) and its relevant ‘environment’ (uncertain and volatile). This article focuses on the exchange relation that is defined as consisting of transactions involving the transfer of resources (any valued activity, service or commodity) between two or more actors (individuals, as well as collective actors of corporate groups) for mutual benefit.

The multinational network: all the relationships and linkages that exist among the different units of the MNC. Each of the national operating units is embedded in a unique context and has its unique organization set. Different members of the organization set can be internally connected by exchange ties.

Density for each of the different organization sets: the extensiveness of exchange ties within the elements of the organization set.

It measures the extent to which actors within the set are connected, on average, to one another.

The different organization sets of the different units of the MNC may themselves be interconnected through exchange ties.

External network: linkages among the different local organization sets. All members of all the organization sets of the different units of the MNC collectively constitute to the external network within which the multinational network is embedded.

Density for eternal network: ratio of actual to potential ties among all its constituents.

Within density: the density of ties within each of the local organization sets

Across density: the density of ties within the total external network, that is, across the different organization sets.

Different attributes of the MNC can be explained in terms of selected attributes of the external network within which it is embedded. Two attributes of the MNC particularly relevant:

1. The distribution of resources among its different affiliated units

2. The structural characteristics that mediate internal exchange relationships within the MNC and continually restructure the resource configuration

Dispersal: the extent to which the company's resources are concentrated in one unit (low) versus dispersed among the different units (high).

Specialization: the extent to which the resources located in each unit are differentiated from those in others.

Specialized resources can meet the demand of the whole organization and do not need to be duplicated:

1. When interaction densities within the different national organization sets are low, the social context exerts limited influence and intended economic rationality becomes dominant in resource configuration decisions (i.e. take advantage of resource niches). As a result, its overall resource configuration will show relatively low dispersal and high specialization.

2. When within densities are high, however, the company will be forced to fragment its activities and locate more of the different kinds of resources in each market so as to provide the variety that is necessary to match the structures of the local organization sets

(i.e. create the necessary interaction to tap into local knowledge). Consequently, in this case, dispersal will increase while specialization will decrease.

3. With high across density, resource-seeking concentration will decline for their flows are freer. Thus, the logic of resource allocation for both high and low within densities becomes inappropriate. Instead, resource configuration is greatly influenced by the nodal characteristics of the complex external network. Given that for different activities of the MNC, different locations might emerge as the nodes in the relevant external networks (i.e. lead markets), and given that even for the same activity there might be multiple nodes instead of a single node, the consequence of increasing across density for the resource configuration of the company will be one of moderate dispersal coupled with increasing specialization (in the lead market).

The flow of resources within an inter-organizational network is influenced by the distribution of power within the network. Sources of power in social networks:

1. Exchange power: Power accrues to members of the network who control critical resources and do not depend on others for resources.

Remote control loses efficacy when ‘localness’, by itself, is the key requirement for maintaining the relationships. The local unit will use this power to reduce its dependence on the other units of the network. Therefore, it will bargain for and obtain a full range of resources so that it will be able to autonomously carry out as many of its functions as possible.

If all, or most of the units of the MNC are located in environments of high within density, the consequence of this process will be a high level of dispersal of its resources on a local-for-local basis.
 

2. Structural power: Power accrues to the members of the network that are positioned favorably in the larger network of interaction among, for example, customers and suppliers.
    

High across density typically implies a high level of interactions among the subsidiaries of a multinational (decreasing the centrality of the headquarters). For the different activities of the MNC, different locations can emerge as the nodes of the external network. As a result, the level of dispersal in the MNCs resources will be moderate. Further, a high level of specialization also will develop in the resource configuration because nodal positions within the MNC network can be expected to vary by activities and tasks as a reflection of similar variance in the external network.
 

The levels of connectedness within and across the national organization sets can be expected to vary across countries and groups of countries.

-> Configuration of resources in multinationals engaged in such businesses will be influenced by multiple criteria (i.e. the differentiated network). The overall resource configuration will reflect a mix of some resources that are dispersed among some units on a purely local-for-local basis (e.g., product development, manufacturing, marketing); some that are concentrated in different countries to access specialized local resource pools; and others that are concentrated in lead markets.
 

Mimetic and normative forces of isomorphism (i.e. imitation) may be getting stronger as the world jolts along to the global village (e.g. standardization and deregulation), and the observed trend of convergence to the differentiated network structure may be an outcome of these broader societal changes.