Geography Reference
In-Depth Information
edge, expertise and decision-making capability. Moreover, where MNEs
attempted to develop a European-wide strategy within this diversified
environment, the required complexity of the decision-making capability
became magnified to an even greater extent. As a result, MNEs tended to
move away from the simple hierarchical decision-making structure of the
early decades of the century, towards more complex quasi-hierarchical
and, in some cases, heterarchical structures.
From a theoretical point of view there are good reasons for these
changes. As a firm's market becomes more specialized and its geography
becomes more complex, the overall performance of a firm depends on its
ability to appropriately respond to its various local economic environ-
ments. The ability of a multinational and multiplant firm to respond
optimally to changes in its local economic environment will depend not
only on its ability to successfully monitor factor cost and market price
changes but also to react to them rapidly. This in turn depends on the level
of subsidiary decision-making autonomy. As such, a firm's responsiveness
to local environmental changes tends to increase as the decision-making
structure becomes flatter and more decentralized. The desire to respond
effectively to local environmental variations in part underpinned the
general tendency for MNEs in the post-war years to change from simple
hierarchies to more complex and in some cases flatter organizational
structures.
In addition, the improvements in both transportation and commu-
nications technologies during the second half of the twentieth century,
which will be discussed in Chapter 7, also facilitated the developments of
these less hierarchical organizational systems. Indeed, over the last two
decades, there is evidence to suggest that many MNEs now exhibit very
flat structures (Birkinshaw 2001), as depicted in Figure 3.25 in Chapter 3.
Obviously, certain types of multiplant MNEs are also systematically more
disposed to flatter decision-making structures than others. For example,
modern multinational firms in service industries such as retail (Kotabe
2001) or international real estate investment (Ball et al. 1998), which
primarily undertake local market-seeking activities and rely to a much
lesser extent on the inter-country coordination of corporate activities,
would often be characterized by very flat corporate decision-making and
organizational structures. This would also be true in cases where different
establishments within a corporate multinational grouping operate with
fundamentally unrelated technologies, such as is often the case within the
pharmaceutical, chemicals or electronics industries. In general though, the
most common forms of MNE organization structures can be represented
by the quasi-hierarchical structures depicted in Figure 3.24 in Chapter
3. Moreover, within this grouping there is almost an infinite number of
