The Global network Organization of the Future The Rising Governance Mechanism Between Bureaucracy and Contractual Relationships

Provocations The prevailing wind of global networking organization supplanted internal hierarchical structure? The governance structure of global e-business firm will be shaped by non-market forces as well as market forces. The globalization will be hindered by local traditions, economies, cultures, business practices, and regulations.

Dees the principle of economies of scale still work in the global management? In a dynamic global marketspace Quickly clustering among the specialized but interdependent assts and competences toward the emerging opportunities The network organization for new businesses as a spider ’ s web — constituting a value network, or a value constellation which is usually operating neither by arm ’ s-length market- based transaction nor internal hierarchy. Loose coupling and cooperative competition based on the necessary level of mutual trust, respect, and shared collective outcomes expired after the task was done.

The death of hierarchy? ICT pervades everywhere and deconstructs all the traditional practices? Non-market institutions interact with the ICT assimilation Uncertainties and complexities still exist and need managerial monitoring, coordination, and hierarchical task partition, specialization, and integration

Markets Normative basis: contracting property rights Means of communication: prices Methods of conflict resolution: haggling — resort to courts (public orders) for enforcement Degree of flexibility: high Amount of commitment among parties: low Tone or climate: precision and suspicion Actor preferences or choices: independent Mixing of forms: repeat transactions; contracts as hierarchical documents

Hierarchies Normative basis: employment relationship Means of communication: routines, procedures, commands Methods of conflict resolution: administrative fiat — supervision Degree of flexibility: law Amount of commitment among parties: medium to high Tone or climate: formal, bureaucratic Actor preferences or choices: dependent Mixing of forms: informal organization; market-like feature: profit centers, transfer pricing, tournament

Networking relationships Normative basis: complementary strengths Means of communication: relational Methods of conflict resolution: norm of reciprocity — reputational concerns Degree of flexibility: medium Amount of commitment among parties: medium to high Tone or climate: open-ended, mutual benefit Actor preferences or choices: interdependent Mixing of forms: status hierarchies, multiple partners; formal rules

Features of dynamic networking organizations Vertical disaggregation — disaggregation for forming new aggregation/fusion among diversities Brokers — linkage between complements Market mechanisms — encourage inter- unit competition for partnership control Full-disclosure information systems — instantaneous mutual verification

Contracting hazards of global networking business Confronting different circumstances & atmosphere Uncertainty Opportunism Bounded rationality Information compactedness/asymmetry Holdup problem under small number/assets specificity Transaction cost analysis between firms/entities Agency cost/loss arises from the responsibility delegation and accountability problem between the principal and agents

Non-market factors From the perspective of institutional economics / institutionalism Politics, culture, ideology, history, economy, regulation, social norm, IPR regime, etc. Path dependence, lock-in effect, structural inertia, switching cost, self- or mutual-reinforcing mechanism, increasing returns (s), network effects (d) The co-evolutionary process between technological, market and non-market influencers. Complementarities between formal rules and informal/derivative rules Intertwined arrangement between public- and private order

Social network perspective Loose-coupling temporary co-optition relationships Learning and participation purpose A co-development process of social capital among peers

Managerial implications Recognize the institutional differences The firm governance for encouraging the networking collaboration and controlling the efficiency Arrangement for taking national comparative advantages and protecting from risks Free culture of networking entrepreneurship supplemented with prudential mechanisms

Extending readings Galbraith, J. R. (1994), Competing with Flexible Lateral Organizations, Addison- Wesley, Reading, MA. Powell, W. W., and P. J. DiMaggio (eds.) (1991), The New Institutionalism in Organizational Analysis, The University of Chicago Press, Chicago. North, D. (1990), Institutions, Institutional Changes, and Economic Performances, Cambridge University Press. Jensen, M. C., and W. H. Meckling (1976), “ The Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, ” Journal of Financial Economics, pp Williamson, Oliver (1975), Markets and Hierarchies: Analysis and Antitrust Implications, Free Press, NY. Cohen, M. D., J. G. March, and J. P. Olsen (1972), “ Garbage Can Model for Organizational Choice, ” Administrative Science Quarterly, 17(1), pp Hayek, F. A. (1945), “ The Use of Knowledge in Society, ” American Economic Review, 35(4), pp Coase, R. (1937), “ The Nature of the Firm, ” Economica, vol.4, pp