Chapter 13 Learning Objectives After studying this chapter, you should be able to: 1.Articulate the relationship between multinational strategy and structure 2.Understand how institutions and resources affect structure, learning, and innovation 3.Outline the challenges associated with learning, innovation, and knowledge management 4.Participate in two leading debates on multinational structure, learning, and innovation 5.Draw implications for action

ORGANIZATIONAL STRUCTURES international division - typically set up when firms initially expand abroad, often engaging in a home replication strategy geographic area structure - organizing according to different geographic areas (countries and regions) country or regional manager - business leader of a specific geographic area or region global product division - treats each product division as a stand-alone entity with full worldwide— as opposed to domestic—responsibilities

FORMAL AND INFORMAL EXTERNAL INSTITUTIONS formal institutional frameworks erected by various home and host country governments:  to protect domestic employment, the British government taxes British MNEs’ foreign earnings at a higher rate than their domestic earnings  political reasons discourage or ban MNEs from structuring certain operations in “sensitive” countries  host country governments often attract, encourage, or coerce MNEs into undertaking activities that they may otherwise abdicate informal institutional frameworks erected by various home and host country governments:  managers contemplating such moves have to weigh the vocal backlash against such activities that often result in domestic job losses  sourcing decisions are guided by the informal norm of reciprocity, i.e. one country’s suppliers are involved with Boeing, airlines based in that country are more likely to buy Boeing aircraft

Formal and Informal INTERNAL Institutions MNEs are governed internally by various formal and informal rules of the game:  systems of evaluation, reward, and punishment in place based on formal rules  home country national as the head of a subsidiary (such as an American for a subsidiary of a US-headquartered MNE in India)  host country national (such as an Indian for the same subsidiary)  third country national (such as an Australian for the same subsidiary) Staffing approaches may reflect strategic differences:  home country nationals, especially long-time employees of the same MNE at home, are more likely to have developed a better understanding of the informal workings of the firm  appointing host and third country nationals is indicative of an MNEs’ preference for a localization strategy  formal internal rules on how the MNE is governed may reflect conscientious strategic choices  informal internal rules are often taken for granted and are deeply embedded in administrative heritages, thus making them difficult to change

RESOURCE BASED CONSIDERATIONS VRIO framework value - does the new structure (such as matrix) adds concrete value? innovation – crucial difference between an innovator and a profitable innovator rarity - to improve global coordination, many MNEs spend millions to equip themselves with enterprise resource planning (ERP) packages imitability - formal structures are easier to observe and imitate than informal structures organization - building an informal, flexible, invisible matrix) is more likely to outperform rivals