The Global Company – The Centralized Hub
The Global Company was typically a Japanese MNC, which began its expansion to foreign markets in the 1970’s where trade conditions had already improved substantially. They capitalized on centralized technological knowledge and their expertise in highly efficient mass-production. Their production operations and management were almost entirely centralized in Japan, although the labour-intensive production were placed in other East Asian countries, and therefore they only had sales operations in other developed countries. Because of centralization the overseas subsidiaries lacked the resources and responsibilities to boost their motivation and responsiveness to local needs and the central management also lacked thorough information on foreign markets. Because of this the parent company did not have complete understanding or up to date information about the needs of the global market. This lessened the MNC’s capabilities to come up with the right solutions for foreign markets. In this centralized hub, the role of the subsidiary was, traditionally, significantly less important than in the other two configurations, since, in general, its only important task was to sell the products developed and manufactured in the home country. A useful illustration of this can be seen in the relative low degree of prestige concerned with the appointing of Japanese expatriates to a foreign subsidiary. This was certainly the case with the Japanese electronic manufacturing giant – Matsushita –, which is a clear example of a centralized hub. This company evolved to be the biggest competitor in the industry, but they, too, suffered from not acknowledging the true consumer preferences, since communication, in essence, had a top-down direction from headquarter to subsidiaries. Even though central management attempted to address the issue by delegating more responsibility to subsidiaries, these units complained that there was still a “Japanese shadow” embedded in the subsidiary. This discrepancy between addressing the problem and solving it characterizes very suitably the core of the problem of all three of these configurations – namely that of the endurance of the administrative heritage.
As illustrated above the three archetypes are very different in the structure and management of their globally dispersed operations. It can be seen that even companies from the same industries can have totally different structures and shape. Among many others, two central factors seem to be decisive in this context. The first one is the time of internationalization, or, to put it in another way, the state of the environment present at the time of internationalization. The second factor is the difference of business and corporate culture of MNCs, depending much on the region of origin.
Consequently, it is evident that administrative heritage does make a decisive difference in the shaping and continuing operations of the MNC, and last but not least, influences the degree of independence the subsidiaries possess.
Global Changes
As can be deducted from the section above the environment has an important role in shaping the structure and affecting the strategic decisions of MNCs. The last century was by far the most progressive in technological advance and derived from that advancement the environment changed in several ways. This section will cover some of these important changes and explain how they affected the MNC and the role of the subsidiary. Based on Hibbert (1997) we will use the following categorization for the environment: 1) Governments and legal systems; 2) Communications; and 3) Logistics.
Governments and Legal Systems
The last century saw huge political and legal changes. The fall of communism opened up new markets and opportunities for businesses. International trade institutions such as the GATT and WTO along with trade agreements like the European Community’s Single Market Act and the North American Free Trade Agreements (NAFTA) have lowered tariffs and non-tariffs barriers. For several years, the improved terms of trade have stimulated rationalization of manufacturing, logistics and marketing on a regional basis. Although this trend creates opportunities for local subsidiaries to undertake certain activities for the entire region or even globally, it also reduces the independence of the subsidiary.
Communications
Of the technological breakthroughs of the last century nothing was probably affected more by it than communications. Advanced telephone systems allowing people to call all over the world at any given time, the introduction of cellular phones allowing you to be reached personally at almost any place in the world, and last but not least the internet which allows people to communicate through mail and teleconferencing. The Internet also allows for local intranets and databases of MNCs allowing for the continuous sharing of information between subsidiaries and parent headquarters.
Logistics
The movement of goods and people around the world is of no concern today; the concern lies in selecting from the various available choices in transport, in order to get the cheapest solution. This has both put subsidiaries in the position of being obsolete, because their location is no longer strategically important in terms of location, and to be all of a sudden in the best strategic location because of newly opened transport routes or going back to points 1) and 2) the changes of political systems and the reduction of trade barriers. In addition, the improved logistics has increased the mobility making distances much shorter. This increased resource mobility poses a threat to traditional subsidiaries, who can no longer feel safe because of its geographic location.
All of these changes and more have led to what some (Gates, 1994) see as the subsidiaries loss of autonomy, while others see them more as important influences in the evolving role of the subsidiary. In the context of the overall MNC, these changes open up a door towards a more flexible, responsive, and an overall flatter structure. On one hand, the subsidiary is loosing a certain degree of autonomy. On the other hand, though, some subsidiaries get more responsibility, and gain, by means of transfer of knowledge and technology, from other subsidiaries and the parent company. They become an integrated and interdependent part of a bigger network.
Structural Changes – Towards an Integrated Network Strategy
As mentioned before, there was somewhat of a panic in the beginning of the 1980s and towards the 1990s. Companies struggled with their “mid-life-crisis” and some even tried one structural change after another, for example by using Stopford and Wells’s descriptive International Structural Stages Model (1972, cited in Bartlett et al, 2003) as a foundation for structural change. A new revolutionary structure, the matrix structure, saw the light of day in that period, and seemed to be at least theoretically sound along with the fact that a few major MNCs had implemented it with what seemed as great success. In its simplest form the matrix structure can be explained as a multi-functional structure; a team working on a particular project answers to the project manager and then to several managers of different departments connected to the project. While, in theory, the structure promises the ability to use the overall knowledge and expertise of the MNC interchangeably on a particular platform, it created frictions between project managers and department managers and thus conflict and confusion among the common worker. Moreover, the level of coordination required managing it often proved to be the biggest problem. “Separated by barriers of distance, time, language, and culture, managers found it virtually impossible to clarify the confusion and resolve the conflicts. As a result, in company after company, the initial appeal of the global matrix structure quickly faded into recognition that a different solution was required.” (Bartlett et al, 2003, p. 341)
Bartlett et al (2003), suggest that by using transnational strategy the subsidiary can become an integral part of the overall strategy of the MNC. When the MNC obtains a flatter, more responsive, and flexible overall structure, the subsidiary has a more defined framework of operations within which it is autonomous. By applying their integrated network model, the MNC can achieve a complex process of coordination and cooperation and an intra-environment of shared decision-making. It also makes possible the free flow of specialized resources and capabilities, components, products and information among the interdependent subsidiaries of the organization.
The Drivers of Subsidiary Evolution
Birkinshaw and Hood (1998, cited in Luostarinen and Marschan-Piekkari, 2001) identify three main streams of subsidiary management; 1) headquarter-subsidiary relationships, 2) subsidiary roles, and 3) subsidiary development.
This section will focus on the last of the three streams, since this factor is more dynamic in nature, than the two factors, which were covered above. This will enable a better approach to answering how the activities of subsidiaries in MNCs are changing over time.
Luostarinen and Marschan-Piekkari (2001) build on the framework by Birkinshaw and Hood, and present two types of drivers determining the subsidiary evolution. The following section will draw from this work. It is important to emphasize that these two types are complementary, and thus, both types of drivers are active in the evolution process of the subsidiary. However, as will be evident, the extent of each type of drivers varies considerably within the different types of MNCs.
Parent-based Drivers
Evidently, the parent company plays a critical role in the shaping of the subsidiary evolution. In this top-down approach the parent company managers assign a specific role to the subsidiary through the allocation of certain activities. The subsidiaries can be seen as instruments in the parent company’s strategic position on whether to increase its commitment to a specific host country. The subsidiary evolution itself arises either internally from within the MNC or, through the possibilities identified in the external environment. The nature of such an evolution can be both of a negative, as in the case of down-sizing, out-sourcing or sheer divestment, and of a more positive character. The positive cases can be when subsidiaries, with the appointing from the parent company, develop into Centers of Excellence (CoE), often with global or regional responsibilities within certain areas of R&D. This creates strong interdependencies between the parent company and the CoE.
Most large MNCs have at some point in time been through a phase of restructuring. Since such structural changes are always initiated from top management, they inevitably change the evolution path of the subsidiary. The Philips-case, mentioned above as the decentralized federation, can also serve as an illustrative example in this context. In the attempt to regain some of the decision power so firmly embedded in the dispersed subsidiaries, and, also to rationalize the entire corporation, a lot of subsidiaries were closed down or significantly restructured. Thus, the evolution of the subsidiaries changed alongside Philips’ corporate strategy, which went from a ‘various country-based strategy’ to a ‘one coordinated global strategy’.
Additionally the other two structural arch types described above are also applicable when addressing parent-based drivers of evolution. Both of these arch types have a centralized nature and exercise the top-down control, which clearly symbolizes the parent-based drivers.
Subsidiary-based Drivers
This bottom-up approach emphasizes the subsidiary roles of driving the process through its own initiative. Here the subsidiary managers have some degree of freedom in choosing which activities the subsidiary is to undertake, thus, making these drivers more of an entrepreneurial character. From a dynamic perspective, the motives for these subsidiary initiatives is expected to result in some kind of resource growth in an improved position within the MNC, and perhaps, in the longer run, create a virtuous circle of development.
The subsidiary-based drivers can either be internally or externally motivated. The internal initiatives stem from opportunities recognized from within the company in a traditional bottom-up sense. These could be a subsidiary turning into a special resource or competence center through the joint knowledge transfer process with the parent company and/or other subsidiaries. The external initiatives, in contrast, stem from opportunities in the external environment. Here, subsidiary evolution can be influenced by the dynamism and attractiveness of the host country or by specific incentive programs offered by host country governments. Investigations by Papanastassiou and Pearce (1997, cited in Luostarinen and Marschan-Piekkari, 2001) show how creative subsidiaries by having access to host country technological knowledge, can apply this knowledge and share it with the rest of the group. Thus, the subsidiary can drive not only its own evolution, but also that of the parent company.
However, the subsidiary-based drivers often face a well known obstacle in the parent-subsidiary relationship – namely that of resistance from the parent company to anything new and unproven, especially since it comes from an outside unit. Many MNCs are still rather conservative and somewhat ethnocentric in their view towards foreign units. The term ‘corporate immune system’ first presented by Birkinshaw and Ridderstrale (1999, cited in Luostarinen and Marschan-Piekkari, 2001), serves well to illustrate the density of corporate top management’s hostility and suspicious attitude towards subsidiary initiatives. The extent of this hostility differs considerably among subsidiaries, with the geographically and hierarchically peripheral subsidiaries generally suffering the most.
Applying the subsidiary-based drivers to the three structural arch types mentioned above gives a good indication of the variety in the functioning of subsidiary-based drivers. The decentralized federation-model allows for considerable opportunities for the proliferation of subsidiary-based drivers, but the big question mark here, is whether it can be coordinated to benefit the entire corporation. The ethnocentric problems addressed above can easily be recognized in the coordinated federation-model, and even more so in the centralized hub-model. In the latter model the opportunities of innovation of the subsidiary is very restricted, thus making the effect of subsidiary-based driver evolution minimal.
The Centers of Excellence
In today’s global environment, unlike in the hay days of the three archetypical structures, many subsidiaries of large dispersed MNCs are not just supposed to serve their own locally based market. Instead, they play a crucial role within the MNC as a whole. These have global responsibility in certain closely defined areas such as production, management, knowledge management, etc. Whether they are called Centers of Excellence is a matter of definition, but a subsidiary’s role now needs to be more focused on being a vital part to the MNC, working interchangeably with other units and the parent company towards building an overall global competitive advantage.
Frost et al (2002, p. 1000), define a center of excellence as: “A center of excellence is an organizational unit that embodies a set of capabilities that has been explicitly recognized by the firm as an important source of value creation, with the intention that these capabilities be leveraged by and/or disseminated to other parts of the firm.”
The same paper also argues that CoE can be viewed as the outcome of a combination of external and internal factors (Frost et al, 2002). By external factors meaning location and local environment, and its importance to the development of firm-level capabilities and competitive advantage (Marshall, 1920; Kogut, 1991; Porter, 1990, cited in Frost et al, 2002). And by internal factors, Norhia and Ghoshal (1997, cited in Frost et al, 2002) suggest that the multinational enterprise can be modeled as a differentiated network, in which the foreign subsidiary is connected not only to the parent company but also to other subsidiary units across the world.
Based on results from their research Frost et al (2002) suggest that the most important of these factors appear to be parent firm investment and linkages to sources of competence both within and outside the boundaries of the firm. The former being consistent with Birkinshaw’s and Hoods’ (1998, cited in Frost et al, 2002) identification of parent-driven investment (PDI) as one of the classic processes through which subsidiaries develop capabilities that subsequently form the basis for an expanded role within the company. But the relative importance of these factors varies across different types of centers, e.g. manufacturing, R&D etc. More broadly, they predict that globalization with technological advancement will lead to a narrower division of competence and authority within MNCs. The evolution of subsidiaries towards the creation of CoE, through parent companies’ delegation of competencies, supports that prediction.
Case presentation – LM Ericsson
This section will draw on the literature of Holm & Pedersen (2000), Gammelgaard (2000) and Strandskov (2001) all presenting different angles on the same case study.
The LM Ericsson MNC
With more than 105.000 employees spread across more than 140 countries worldwide in 2000 (www.ericsson.com) LM Ericsson (LME) is the world’s largest supplier of telecommunications equipment. Ericsson presents itself as a full-range provider serving both in the Business-to-Business and Business-to-Consumer markets.
LME is very much a global company with local companies serving the various markets. However, despite the worldwide presence, LME has always had a strong base in the home market, with around 45 % of the workforce employed in Sweden, and most production and R&D undertaken in Sweden.
The overall responsibility of product development of this very knowledge intensive company remains firmly in the hands of the parent company and central Swedish product developments units. These units then delegate the responsibility of certain products to different development centers. LME uses the so-called Design Center concept, which enables the access of all global development units to all development resources. This enables the central product development units to benefit from the specific competencies that the different subsidiaries possess. The Design Center status is given to subsidiaries that have acquired critical resources or special competencies within special disciplines.
Furthermore, some subsidiaries have gained a status of a competence center. These competence centers have been given the overall global responsibilities of developing and maintaining a certain competence field. Typically, the competence center will have the decisive influence on the new product development issues within their particular field. Thus, the role of these centers is more of a managerial character than that of the design centers.
One specific feature of the LME is an internal rating system, which is to determine where the responsibilities of the various competencies are to be placed. Criteria such as technological development skills, cost of development, market knowledge and understanding the production quality are used to rank the different design and competence centers. Consequently this encourages the subsidiaries in improving their performance, since high rankings will provide more participation in future R&D projects.
In reality, all LME divides its two operations and activities into two axes – a market axis and a competence axis – thus, creating a responsibility matrix. The market axis is then subdivided geographically into global and local responsibility. The competence axis is a product-market development responsibility axis, where units are responsible either for technology development or market development, thus making product and market responsibilities two separate functions. This means that subsidiaries do not specifically develop products for their own particular market, but works on developments within the subsidiaries’ competence area.
Ericsson products are placed in a large product pool - also known as the LME global technology product pool. Here, all the individual Ericsson companies prepare their offers to the respective clients. Thus, there is not a direct link between the local market responsibility departments and the local product development departments
LM Ericsson Denmark
Traditionally, LM Denmark (LMD) has always had a more significant role within the LME Corporation than the size of the Danish market would otherwise suggest. Thus, LMD has had a status of both a competence center within defined areas and also as a design center. This can mainly be contributed to the high quality level of programming engineers among the LMD workforce, where more than half of the employees work on product-development-related assignments.
In 1996 LMD had a turnover of 1,7 billion DKK – two per cent of the LME total turnover – and was employing 1,250 people, which accounts for approximately 1.5 percent total LME employees.
Following the LME division of responsibilities described above LMD has two main function areas: first, as a coordinator of LME’s normal business activities in Denmark – for example the sale and promotion of digital switches or cellular phones; secondly, LMD has global responsibilities in several competence areas, such as the Network Service and Control and Service Telephony Systems. In addition, Ericsson Diax – a subsidiary of LMD – has in itself, a significant role as a competence center within the LME Corporation.
Competence Development within LMD
This section will briefly present four different competence areas where LMD is responsible for the global product development area.
The first case displays LMD’s involvement in the development of the service telephony system. Initially, the local public owned Danish telephone company, KTAS, which held regional monopolies at that time addressed LMD with a request of this technically sophisticated system. KTAS would even guarantee orders for pre-specified quantities. LME saw an opportunity to use Denmark as a good test market, since this market was perceived to have a high degree of client sophistication. Even though LMD had not developed a competence in this particular area they were still given the internal status of global competence center for this system. This shows how external factors coupled with headquarters approval can determine where competencies are delegated.
The second case concerns LMD’s involvement with their own subsidiary Diax, who now holds the status of both a high engineering design center and competence center in a small niche sector of public switching systems. LMD started their involvement in 1989 through the purchase of 50% of Diax and by 1996 this had increased to 75%. Even though Diax is now very much integrated within the LME organization they continue to be somewhat independent. An example of this is the fact that the product competence within small switches and radio-based access net still is situated apart from the rest of the LME Corporation. This case is a good example of LMD, identifying a valuable competence in Diax, acquire it and then integrate it into the composition of the LMD structure. Due to the relatively high degree of independency they have managed to develop their own competencies, and only then has this been officially acknowledged by LME as a competence responsibility area. Still, LME has allowed Diax to be independent to some extent from the LME organization.
The third case illustrates how a combination of high quality LMD resources on the one hand and strategic headquarter factors on the other hand gave LMD an official competence mandate in a specific area – the Network Service and Control. In essence, a programming personnel shortage in 1997 in Sweden forced LME to either slow down the development process or delegate the full competence responsibility to a subsidiary. The allocation of the competence required extensive network traffic and since this was rather costly at this time, geographic proximity was a major consideration of LME. In addition, the parent company reasoned that it was easier to control the development if it was within Scandinavia. This case displays how strategic considerations by the parent company and location-specific advantages in LMD made central management decide where to delegate this particular competence responsibility. Moreover, it shows a situation where a competence was delegated before it was developed by LMD, meaning that LMD had the basic programming skills to take on such a competence but it was not yet developed.
The last case concerns the Access network management, and is an example of a strong commitment from LMD in attaining a certain competence responsibility in close competition with other units of the LME organization. Although not officially recognized as a competence center by LME, the subsidiary here uses its own ‘slack’ resources to acquire knowledge and competencies in what they hope eventually will be officially delegated to their responsibility scope. Here, the value of the internal rating system mentioned above is displayed. The different units compete internally in claiming the various competencies, which they believe should belong to their particular unit. LMD, in particular, feels somewhat downgraded by LME after the latest restructuring in 1997, and they are very keen on regaining some of the lost ground that the Access network management competence would provide. This case shows that there is not always a formal objective with regard to profitability. Conversely, the objective here is that of developing new products or competencies and thus, promoting LMD’s position within the LME organization in an attempt to participate in new corporate projects.
These four examples show how very distinct factors and conditions contribute in organizing the competence responsibilities throughout the LME organization. It also displays the various means of interplay between headquarter and the subsidiary. Basically, two types of driving forces shape the process. The first one relates to the role and the strategic position of the parent company, whereas the other has more to do with the subsidiary’s own capability position. Moreover, it shows the variety of factors deciding the delegation of competence responsibilities. In some cases the competence is developed before it is delegated, and in some cases it is developed after it is delegated.
Case Analysis and Discussion
This section will integrate the findings of the first two sections with the case presented above. This will serve to illustrate a ‘real life’ example of the concepts presented earlier in relation to the changing role of the subsidiary.
LME´s Multidimensional Structure
From the case presented it can be seen that LM Ericsson does not have a perfect archetypical fit, as to where they are positioned according to the concept of administrative heritage. In fact, the structure in LME is a rather complex one, with traces to several of the types of structures presented in this paper.
At first sight, LME could resemble a typical decentralized federation, due to the facts that this European MNC internationalized in the beginning of the 20th century and today is spread all across the globe. However, the company has a very strong control central management with strong Swedish ties, which handles all key strategic decisions, which does not fit well with the decentralized federation. An example of the strong Swedish ties is illustrated in the organizational chart, where Swedes hold almost all key positions. This somewhat ethnocentric aspect suggests some linkages to the coordinated federation model. In other areas, however, there are significant discrepancies between the two, since the subsidiaries of LME are far from being miniature replicas. The structure also shows signs of a matrix structure, which is illustrated in the responsibility matrix, which is built along the competence and market axis for the different Ericsson units. An additional feature of LME is the global technology product pool, which is also recognized as globally linked innovation pools by Bartlett et al (2003). The fact that all units share the products and competencies suggests an evolution process towards an integrative network structure. Another indicator of the integrative network structure is the allocation by the parent company of specific areas of global competence responsibility to selected subsidiaries, which then have some level of freedom and flexibility within this particular area.
The fact that MNE entails aspects of several different structures is very much in accordance with the view of Bartlett et al (2003, p. 13), who notes, “…a company might reasonably operate with any one of these strategic mentalities. More likely, baring in mind that this is an arbitrary classification, most companies will probably exhibit some attributes of each of these different strategic approaches.”
Drivers of Subsidiary Evolution
The driving forces behind the development processes leading up to some subsidiaries becoming competence centers differ. Of the two drivers of evolution covered in this paper Ericsson uses both the parent- and subsidiary-drivers complimentarily. In some cases (the service telephony system and the network service and control) a strategic choice is made at the parent company assigning specific areas of responsibility before competencies are developed. These cases are pictured on the left hand side of figure 5.1, and are typical examples of parent-based drivers influencing the position and evolution of the subsidiary. On the other hand, LMD has the leverage to use some of its own ‘slack’ resources in areas that they are not yet directly responsible for (Access network management). The purpose here is to develop knowledge and competencies that will provide LMD with competitive advantages vis à vis other subsidiaries. Consequently, the parent might then officially appoint that specific competence to LMD. This pull mechanism displays how the subsidiary-based drivers are also contributing significantly to LMD’s evolution. The right hand side of figure 5.1 shows the two cases where the subsidiary-based drivers are most influential.
Both parent and subsidiary can be more or less active in the process of development. The third case (Network Service and Control) is a good example of a parent-based driver where the active parent delegates a competence to the passive subsidiary, which has made no particular effort to gain that competence area. Conversely, the fourth case (Access network management) demonstrates how LMD is very active in acquiring knowledge and competencies in order to persuade the passive parent company of their rightful claim to that competence.
The cases also illustrate the importance of specific external relationships in situations where the processes are competence driven. In the two cases, involving the service telephony company and Diax, the regional collaboration between the subsidiaries and local environment made the difference. In the service telephony company case the official competence was delegated by the parent company, only because there was a special local demand, which guaranteed sales of predetermined volume. In both cases the local business network turned out to be the decisive forces, which in collaboration with the subsidiary, secured the approval of the competence responsibility.
Centers of Excellence
The idea of LMD competence centers is very much in touch with the literature on CoE. The cases clearly show how the subsidiaries can evolve into CoE by building on their core competencies and thus, this represents a shift away from the impression that subsidiaries are merely fulfilling the roles of implementers and adapters of parent company strategies (Forsgren et al, 2000). The new role of the CoE contains global or regional responsibility within certain designated competence areas. By looking at the matrix by Bartlett & Ghoshal (Reading 4-1, 2003) it becomes evident that LMD is positioned in the top part, due to their high engineering skills and competence. The other variable – strategic importance of local environment – would place LMD on the right hand side – as contributors – due to the limited size of the Danish market. However, the fact that LME has traditionally perceived the Danish market strategically more important than the size would suggest, due to the high customer sophistication, does legitimize some inroads to the left hand side of the matrix. This is also acknowledged by LME in the fact that they have given LMD a ’strategic leader’-role in some of the cases used here.
Concluding Thoughts
This paper has presented the main factors that influenced the evolution of the subsidiaries of Multinational Corporations. The environment is changing on three broad levels; countries and global regions have changed in terms of politics and legal systems; communications have changed the intra-relationships within MNCs; and finally, the logistical improvements have made some subsidiaries positions more uncertain.
The transnational strategy adopts a multidimensional approach by integrating the positive elements of each of the three traditional archetype configurations. Nevertheless, the administrative heritage will remain deeply embedded in the MNC. Often the success of the MNC can be contributed to this heritage, but on the other hand, it can be the MNC’s greatest obstacle on the way towards evolution and necessary change. Here, it should be emphasized that there is no universal method of adopting the integrated network mentality since all MNCs come from different backgrounds, and thus have different administrative heritages.
Subsidiary- and parent-based drivers work complementarily in the evolution of subsidiaries, depending both on local environmental factors and the internal opportunities. The case of Ericsson’s competence centers was used to demonstrate this. Furthermore, it illustrated the growing importance of centers of excellence. By building on their core competencies these CoE now play a crucial role with the responsibility of the entire MNC in certain specified areas. This is in contrast to the past, where the primary focus was often limited to serving the subsidiary’s own local market. The case also shows how globally linked innovation pools can be used to the benefit of the entire MNC and to disperse ideas and innovation.
The role of the subsidiary has become much more specific and simultaneously more integrated into the overall structure of the MNC. Subsidiaries have a very specialized function as scanners of their local environments; scanning for resources and/or valuable information for the overall MNC. The four cases concerning LMD confirm that these developments are occurring in the current business environment. Moreover, it illustrates that Ericsson is in the process of adopting the transnational mentality and thus, moving towards an integrated network structure.
References
Bartlett, C.A., Ghoshal, S. & Birkinshaw, J. (2003) Transnational Management: Text, Cases and Readings in Cross-Border Management (4th Edition) McGraw-Hill: New York.
Birkinshaw, J.M. (1994) Approaching Heterarchy: A Review of the Literature on Multinational Strategy and Structure. Advantages in International Comparative Management, Vol. 9, pp. 111-144.
Frost, T.S., Birkinshaw, J.M., and Ensign, P.C. (2002) Centers of Excellence in Multinational Corporations, in Strategic Management Journal, Vol. 2, No. 11, 997-1018.
Gates, S. (1994) The Changing Global Role of the Foreign Subsidiary Manager. The Conference Board, Europe.
Gammelgaard, J. (2000). How foreign subsidiaries develop into integrated competence centres. Proceedings of the University of Usaar. Reports 58, 164-181
Hibbert, E.P. (1997) International Business: Strategy and Operations. MACMILLAN PRESS LTD., Houndmills, Basinstoke, Hampshire RG21 6XS and London.
Holm, U. & Pedersen, T. (2000). The emergence and impact of MNC centres of excellence. Great Britain: Macmillan Press LTD
Luostarinen, R. & Marschan-Piekkari, R. (2001) Strategic Evolution of Foreign-owned Subsidiaries in a Host Country: a Conceptual Framework. Multinationals in a New Era. Editors: Taggart, J. H., Berry, M. & McDermott, M. PALGRAVE, New York
Narul, R. and Dunning, J.H. (2000) Industrial Development, Globalization and Multinational Enterprises: New Realities for Developing Countries. Oxford Development Studies, Vol. 28, No. 2, 2000, p. 160.
Strandskov, J. (2001). Ændrede roller for udenlandske datterselskaber. Handelshøjskolen i Århus (Århus Business School)
Websites:
http://www.wikipedia.org
http://www.tiscali.co.uk
http://www.ericsson.com
Since no empirical evidence exists on the existence of the TNC in reality, it is mentioned here, and in other places in this paper, as an idea and/or concept to explain the important changes that the global business environment is going through and as a base for explaining how these changes affect the role of the subsidiary.
Koninklijke Philips Electronics N.V. (Royal Philips Electronics), usually known as Philips (founded in 1891), is one of the largest consumer electronics producers in the world. In 2003, their sales were €29.0 billion and they employed 164,000 people in more than 60 countries. Philips is organized in a number of business units: Philips Consumer Electronics, Philips Semiconductors, Philips Lighting, Philips Medical Systems and Philips Domestic Appliances and Personal Care. (http://en.wikipedia.org/wiki/Philips)
Procter & Gamble Co. is a $50+ billion/year Global consumer goods corporation based in Cincinnati, Ohio that manufactures a wide range of consumer products. The company has approximately 106,000 employees. (http://en.wikipedia.org/wiki/Procter_%26_Gamble)
Matsushita Electric Industrial Co., Ltd. is an electronics manufacturer based in Kadoma, Japan. It was founded in 1918. Since then, it has become the largest Japanese electronics producer and competes mainly with Sony, Toshiba and Philips. (http://en.wikipedia.org/wiki/Matsushita)
Single European Act: Act signed in 1986 (and in force from July 1987) to establish a single European market, defined as an area without frontiers in which free movement of goods, services, people, and capital is ensured. (http://www.tiscali.co.uk/reference/encyclopaedia/hutchinson/m0039113.html)
North American Free Trade Agreement: Trade agreement between the USA, Canada, and Mexico, intended to promote trade and investment between the signatories, agreed in August 1992, and effective from January 1994. (http://www.tiscali.co.uk/reference/encyclopaedia/hutchinson/m0041566.html)
Frost (2001, p. 101, cited in Frost et al, 2002) elaborates: “a potentially important source of competitive advantage for multinational firms is the capacity of their foreign subsidiaries to generate innovations based on stimuli and resources resident in the heterogeneous host country environments in which they operate.”
Bartlett et al (2003, p. 347), also elaborate the same context with the term integrated network.
Figures from more recent years were not obtainable from the sources accessible when preparing this paper.
For reference see Ericsson’s organisational chart at: http://www.ericsson.com/about/organiz.shtml
