Strategy and Structure of Multinational Companies


Multiculturalism and geographic dispersion Adler (1983) tried to identify the major differences between domestic and multinational firms by asking a selected group of experts in this field. Two factors were considered to be of primary importance in differentiating between domestic and multinational firms: multiculturalism and geographic dispersion. Multiculturalism is defined as ‘the presence of people from two or more cultural backgrounds within an organization’. Geographic dispersion is defined as ‘the location of various subunits of the parent firm in different countries’. According to Adler the combination of both multiculturalism and geographic
dispersion is of fundamental importance. So far, most international business studies have focused on the consequences of geographic dispersion and tended to give little attention to the consequences of multiculturalism. Most comparative management studies reversed the emphasis. They tended to focus on cultural differences, while more or less neglecting the geographic dispersion aspect of multinational firms. To get a complete picture of multinational firms, both perspectives are equally important. As the subjects in this chapter fall mainly in the
realm of international business, multiculturalism will occupy only a modest role. Other chapters in this book, however, will compensate for this shortfall.
Justify Full


Multiculturalism and geographic dispersion lead to greater complexity. When asked to describe this complexity more concretely by completing the statement: 34 I n t e r n a t i o n a l H u m a n R e s o u r c e Ma n a g e m e n t ‘In comparison with domestic organizations, complexity is greater in multinational organizations because of…’ the experts predominantly agreed with the following (the figure in parenthesis represents the percentage of experts that agreed
with the statement):

• the need for multinational corporations to be more sensitive to government, labour, and public opinion concerns (91.7%) and regulations (62.5%);

• home-country philosophies and practices that are inapplicable in foreign locales
• the impossibility of implementing uniform personnel practices (83.3%) and performance
standards (70.8%) (Adler, 1983: 15). These different factors will be dealt with extensively in this and subsequent chapters.

Potential benefits of multiculturalism and geographic dispersion

Multiculturalism and geographic dispersion can be accompanied by both advantages and disadvantages. Regarding multiculturalism, the panel of experts made a distinction between current and future benefits. According to the panel the most important future benefits of multiculturalism would be:

• increasing creativity and innovation (83.3%);

• demonstrating more sensitivity in dealing with foreign customers (75%);

• being able to get the best personnel from everywhere (i.e. not being ‘stuck’ with just local talent (66.7%);

• taking a global perspective (e.g. the MNC choosing the best opportunities globally) (62.5%);

• creating a ‘superorganizational culture’, using the best of all cultures (based on the need for a unifying, transcending culture) (62.4%);

• greater flexibility within the organization both to adapt to a wider range of environments and to change within those environments (62.5%) (Adler, 1983: 21).


In the previous chapter we discussed how Ghoshal (1987) identified three fundamental ways of building global competitive advantage for multinational companies. In later work these means for achieving worldwide competitiveness were linked to the different ends in terms of strategic objectives. In this section we will discuss the three major strategic objectives of multinational companies and will show how MNCs following different competitive strategies use different
combinations of means and ends. In a final subsection, we will discuss work by Rugman and Verbeke that links the transactions cost theory of international production as discussed in Chapter 1 to the competitive strategies identified by Bartlett and Ghoshal.

Strategic objectives

Bartlett and Ghoshal (2000) discuss three different strategic objectives for multinational companies. They argue that multinational companies need to meet the challenges of global efficiency, multinational flexibility and worldwide learning. It is important to realize that global efficiency can be enhanced both by increasing revenues and by lowering costs. Global integration of activities allows firms to realize economies of scale and scope and hence leads to lower cost. Most authors have focused on this part of global efficiency.

However, firms can also increase their revenues by differentiating their products to respond to national differences in tastes, industry structures, distribution systems and government regulations (Bartlett and Ghoshal, 2000: 242). Multinational flexibility is defined as ‘the ability of a company to manage the risks and exploit the opportunities that arise from the diversity and volatility of the global environment’ (Bartlett and Ghoshal, 2000: 243). Bartlett and Ghoshal identify four sources of diversity and volatility that can offer both risks and opportunities:

• macro-economic factors, such as wars, interest and wage rates, exchange rates;

• policy actions of national governments, such as expropriation and changes in exchange rates;
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• responses of competitors in the host market;

• resources, including natural, financial and human resources.

The very presence of multinational companies in diverse national environments creates opportunities for worldwide learning. MNCs are exposed to a wide range of different stimuli and this allows them to develop the diverse resources and capabilities that give them the ability to innovate and exploit these innovations worldwide (Bartlett and Ghoshal, 2000: 246). It is important though that the MNC creates the mechanisms and systems to facilitate learning.
The existence of diversity alone does not guarantee learning.