International Integration and Coordination in MNEs

Introduction

The globalization in of MNEs involves foreign-owned subsidiaries as well as export intensive activities. The foreign owned subsidiaries that have export intensive activities will be present in clusters that are embedded. More autonomy and global orientation is necessary for them as well as dynamism as the activities of the cluster are associated with the level of foreign ownership in subsidiary. Hence, the roles of foreign owned subsidiary companies vary with contingencies of local environment in which the subsidiary is being operated. In this case the supply chain management is important in management of a global business. As the globalization involved the transformation federative organization to the network of subsidiaries that have reasonable autonomy it is important to discuss the globalization forces and environmental drivers as well as market liberalization that changed the realities of conducting international business. Hence, in the above context it is important to discuss about the structure of MNEs that exists thrust on global integration of operational and functional activities. In the course of formation of international business management in MNEs the decision making at strategic as well as operational level is being concentrated at company head quarters and regional centers as well as country head quarters. In the above context, the processes of integration and coordination of activities is necessary with different tools to accomplish the tasks, which are part of business. However, achieving the above aspect is difficult due to the presence of enough autonomy to subsidiaries in different countries. Hence, redefinition of boundaries of firm as well as supply chain is necessary in the course of formation of tools as well as vehicles of integration and coordination processes. Hence, Global supply chain management as well as global logistics plays an important role in taking managerial decisions in an MNE that has partly owned subsidiaries in different countries. Hence, the change of landscape of MNEs due to the change in integration and coordination mechanism in international business will be the core point of discussion and analysis in this paper (Julian Birkinshaw, Neil Hood, 2000).1

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Literature Review

In international business management, the parent firms have to deal with subsidiaries regarding environmental, structural and organizational issues. The above issues are important in international business management as they show impact on local responsiveness and on the markets they export. In the course of maintaining relationships the MNEs have to mitigate threats for their business in emerging markets. The threat is reduced when external dependence is decreased and hence, the autonomy as well as individuality and efficiency of the subsidiary are necessary to be free from external threats. Various dimensions that mitigate threats are resource commitment, information flow, and strategic adaptation and control flexibility. The first step is to take maximum advantage of similarities across locations. The important aspect is to successfully differentiate the subunits to confront cultures, markets as well as business practices due to the expected differences between practices of home country and host country. Luo Yadong (2002) quotes Bartlett and Goshal (1987), about local responsiveness and situational contingencies. The relationship between managers of subsidiaries and parental organizations depend on the perceptions of eventualities. As the managers in subsidiaries are more aware of local culture and situation, the managers in parental organizations need to have information about the situation in the host country to understand their perceptions. Hence, the sensitivity in perceptions of managers of headquarters is necessary to maintain relationships with those in subsidiaries as perceptions may differ with culture. The sensitivity results in framing indigenous contingencies in specific environment by appraising the local dynamics and impediments. Hence, the above mentioned contingencies help the foreign subsidiaries to adapt to the particular environment with strategies that benefit from location specific advantages. The important aspects of international management in securing local specific advantages are regarding differences in factor, capital and product markets or government policies. Hence, the strategies or contingencies should be in a manner to leverage degree of integration as well as operational flexibility. In this context, Luo Yadong (2002) quotes Kogut (1985) and talks about Local responsiveness that stems from complexity and dynamism in market conditions. To frame strategies accordingly it is necessary to take macroeconomic environments in host country to respond to diversity in tastes of customers. The above aspect results in maintenance of local responsiveness that helps to maximize subsidiary initiative and the proactive pursuit of new business opportunities to achieve goals. In this context, the relationships with indigenous customers, suppliers, distributors, competitors and government authorities come to the fore and thus the strategies regarding supply chain management as well as the management strategies play an important role. As part of management strategies, it is necessary to gain local competitive advantage through product differentiation according to customer responsiveness (Luo, Yadong, 2002).2

Production aspect in International Business Management

Like any other activities in an MNE, the production activity also involves in foreign value adding if it engages in international production as well as export activities. The first aspect that has to be considered is to adopt the technology, method, strategy or a tool that is not available to the competitors. The above aspects are known as ownership advantages and they are important tools in production activities of any MNE in its subsidiaries. Moreover, the ownership advantages help the company to extend its operations in other countries as they have advantage over competitors. The asset type ownership advantages give the firm the structural advantages and this depends on market distortions. The company should act according to market distortions to avoid the distortions influence the location decisions of MNEs. This can be achieved when the company is examining transactional market as well. By managing structural as well as transactional advantages and transactions, it will be possible for an MNE to expand either vertically or horizontally. Hence, in this case the production activities need the strategies that consider country specific factors as well as the factors of the countries to which the products are exported.

OLI as a Tool

One such important tool is Ownership-Locational-Internalisation (OLI) advantages, which are not constant. In this context, the government policies of the country, natural factor endowments, the quality of human capital, the technological communications infrastructure and the entrepreneurial and business culture of the people play the major role in designing the products and the production activities. The above mentioned factors differ from industrialized countries and developing nations. However, coming to industrial countries, the characteristics of particular industry like production and transaction economies the extent of integration and limitation of the resources play the major role. The size and degree of international involvement of the firm minimizes the limitation of resources. Moreover, it is important to use government policy as in instrument in using OLI tool to change its configuration regarding FDI. After this company need to identify the types of international production that has to be adopted. The first type of production involves the supply of the products to the market of the location in which the company operates. Hence, in this case, the OLI is limited to location advantages of the company. The next important aspect is the size of the market in which the unit is operating. The production will be profitable if the market is substantially large and in this context, the MNE should not establish a company if the market size is small. The next type is to concentrate on local market as well as the foreign market of the subsidiary. In this context, it is necessary to design production activities according to local as well as overseas market. Hence, this type of production may result in diversity of products. The third type results in supplying raw materials to foreign consumers or the to home country production units. This completely depends on needs of the home country unit that match with the location advantages of the host country. The next type is regarding efficiency of rationalized investment. This involves the horizontal integration of production that results in restructuring of an MNE’s activities in foreign country by forming a community and exploiting other markets. The last aspect is that to be engaged in foreign production with intangible assets like technology with specific purpose of protecting global competitive position over competitors (Narula, Rajneesh, 1996). 3

Foreign Performance

Hence, maintaining advantage over competitors is the key in the foreign performance of an MNE. The foreign performance of an MNE is the performance of subsidiary or partly owned subsidiary in the host country. Africa Arino Staff, (2005) states that the most productive MNE or its subsidiary will prevail over others no matter of the location. In establishing that fact, Africa Arino staff took the subsidiaries of American and Japanese companies in Brazil that emerge and expand in the host country. The author state that theories of superior technology combined with theories of transaction costs will have to work with spatial specialization, which is a regional cluster. The theories of superior organizational capabilities are able to foster a network of employees who can think globally and act locally. However, it is difficult to maintain that network all over the world, as Unilever outperforms Procter & Gamble in India; the context is reverse in Mexico. In a similar manner, while Wal-Mart dominates Carrefour in Mexico, the latter outperforms the former in Brazil. The above instances reveal that the subsidiaries, which have think globally and act locally employees outperform their competitors in the host country. The above aspect works in the case of GE and Siemens, or Ford and Volkswagen, the Gap and Zara, Philips and Matsushita and etc. As MNEs in the age of globalization turn to foreign expansion a route to profitable growth, the factors that enable the company to outperform the competitor assumes greater attention. Hence, Africa Arino Staff, (2005) quotes Tallman (1991), Zaheer (1995), Ghemawat (20010, Miller and Parkhi (2002) regarding foreignness and local success of the MNE subsidiaries in the host countries. The comparisons and differences between foreign subsidiaries of an MNE and local firms that attract customers is important as the differences between MNE subsidiary and local firm should be regarding quality and the products should outperform the local ones. The comparison can be about services offered and they also should outperform the local ones despite having comparisons. For example, US based MNEs like Coca-Cola and IBM lead in their sectors in Brazil, but the literature regarding propositions on behavior and performance does not exist up to the need. However, the available literature and the performance are useful to analyze and discuss about the strategies required for foreign subsidiaries of MNEs. Africa Arino Staff, (2005) quotes that firm specific advantages (FSA) are different for various companies in the same industry and those advantages play a crucial role in outperforming the competitors. However, the firm specific advantages may not work equally in all foreign based subsidiaries as the thinking of employees in that subsidiary also matters in implementing strategies and using FSAs (Africa Arino Staff, 2005).4

Integration into Global Economy

In the context of reviewing the success of subsidiaries of MNEs in foreign soil, it is important to understand the integration of that MNE into Global Economy. Here again the integration of the firm depends on the local factors as well as the local strategies and employees of the subsidiary along with the Firm specific advantages. The MNEs have to apply or use their FSAs to frame strategic posture in host country subsidiary and make it successful. Sunil Venaik, David F. Midgley and Timothy M. Devinney, (2005) opine that the regional trading blocs in globalization process, have used communication technology to increase their number of firms. The market faced by subsidiaries decides the decisions of strategy and structure applied in the units. Hence, the survey and analysis done before establishing the subsidiary in a host country enables an MNE to be successful in using firm specified advantages to have growth with profit. To study the above aspect, the subsidiary structure and performance study is necessary linking it to the marketing function as well as production activities. However, the marketing linkup is crucial as the failure in that aspect may result in lack of growth as well as failure of production activities. In this context, Sunil Venaik, David F. Midgley and Timothy M. Devinney, (2005) quotes Yip (1994), Birkinshaw, Hood and Jonsson (1998) about the concentrated examination of narrower operations regarding managerial strategy and performance. In this context, the authors talk about the link between globalization drivers, organizational structure and decision making and firm performance. However, the authors talk about the importance of the role of intermediate constructs of learning and innovation that mediate the effect of environmental pressures and organizational activities on business unit performance that are ignored by Roth and Morrison (1990) and Johnson (1995). In this context the authors cite Ghoshal, Khorine and Szulanski (1994) about the effects of autonomy and networking on interunit learning and innovation. In this context, Tsai (2001) examines the linkage between networking, innovation and performance. However, the influence of environmental pressures and organizational decision making mechanisms are ignored in his study. In this context Schulz (2001) makes a most comprehensive model that includes environmental and organizational determinants of knowledge flows and performance (Sunil Venaik, David F. Midgley and Timothy M. Devinney, 2005).5

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The environmental and organizational determinants decide the competitive advantage despite of controversies regarding them. Ádrian Atilio Caldart and Joan E. Ricart, (2005) quotes Schmalensee (1985), Rumelt (1991) McGahan and Porter (1997) about strategic management in MNEs and their subsidiaries. In this context, authors quote Bowman and Helfat (2001)’s opinion that the creation of corporate strategy is important that cannot be captured by cross sectional database and statistical studies. In developing the above-mentioned advantage, March and Simon (1958) and Cyert and March (1963) are quoted by Ádrian Atilio Caldart and Joan E. Ricart, (2005) regarding behavioral evolutionism and complexity theory in the application of field of biology to organization theory. In this context, the evolution of firm is important as they gather resources and adapt to the environment. Hence, adapting to a different environment in a host country is to develop organizational fitness. In this context, Ádrian Atilio Caldart and Joan E. Ricart, (2005) talk about ‘design school’ of strategy that emphasizes strategic choice and shows firms as the ones that seek strategic fit. When firms try to achieve strategic fit, it is important for them to consider Kauffman’s contribution about universal applicability of selection theory that is applicable in complex systems. Consequently in this context, the relationship between selection and self-organizing comes to the fore, as the organizations adapt to the atmosphere of the host country by modifying their existing form to ensure their fitness according to the landscape. The increase of complexity is due to interdependence between different organizations regarding supply chain management, communications technology and marketing. In this context, Kauffman (1993) talks about elements of entity and the characteristics of elements of entity. Kauffman emphasizes that the collective interaction between different elements and characteristics of the entity and elements results in optimization of fitness (Ádrian Atilio Caldart and Joan E. Ricart, 2005).6

Evolution of Multinational Companies

In the context of evolution of multinational companies in the era of globalization, Paul N. Gooderham and Svein Ulset, (2001) quotes Bartlett and Ghoshal that focuses on transnational activities. The transnational activities influenced cultural, social and psychological processes, by influencing strategy, structure as well as system. In the course of evolution, the employees identified it and are made to commit to it. In the next step, the organizational processes captured individual initiative by creating supporting relationships like supply chain management as well as distributive network. The former is useful in production and the latter is useful in marketing. Paul N. Gooderham and Svein Ulset, (2001) discuss about the operating an enterprise by separating the activities from strategic decision making while the internal control apparatus is operative. The above process constitutes entrepreneurship, integration and renewal. All the three level managers; front-line managers, middle level managers and top-level managers are involved in the process of integration activities. In the context of modern M-forms that characterize the evolution of MNEs in the era of globalization, Paul N. Gooderham and Svein Ulset, (2001) quotes Chandler who published ‘Strategy and Structure (1962) about multidivisional organizational structure. The structure focuses on strategic direction for corporation thus monitoring the performance of divisions and to allocate resources between operating divisions as well as business units. In the above course of operations, various committees, task forces and liaison devices are deployed to promote lateral coordination between divisions or business units. The authors quote operating budgets, strategic plans and performance reports as internal governance mechanisms and concentrated on vertical delegation of strategic tasks from bottom to top managerial cadre. In this context, Paul N. Gooderham and Svein Ulset, (2001) talk about the four stages of internalization proposed by Bartlett and Ghoshal. According to that process, the evolution is arbitrary with significant changes in objectives of MNEs (Paul N. Gooderham and Svein Ulset, 2001).7

Distribution of Information

The next stage in the strategies of an MNE in the era of globalization is distribution of information. In this context, Julia Manea and Robert Pearce, (2001) quotes, Gupta and Govindarajan (2000), Kim (1999) regarding ‘transmission mechanisms’ and ‘modes of integration and states that the above mentioned is very little when compared to modern systems of information distribution. In this context, the authors talk about research and knowledge transfer in the organization mentioned by Hansen (1999) and Kogut and Zander (1992) as well as Zander and Kogut (1995). Despite the above mentioned knowledge, the correlation of work systems with superior labor productivity and process of quality outcomes mentioned by Huselid (1995) are quoted for the efficient usage of knowledge. Hence, the authors opine that it is important to have human, organizational and technological assets and work systems that are difficult for rivals to imitate and process. In the above course of understanding the authors talk about organizational learning, which is a part of knowledge transfer between different parts and departments of organization. The knowledge transfer can be done between subsidiaries also if the organizational culture and processes are easy and worth enough to follow. Stating that interaction is one of the processes of knowledge transfer as well as information distribution, Alcan and Euroil companies are quoted as examples. The authors mention about the dense networks of interaction among senior management that resulted in diffusion of team working to plants and subsidiaries. Whereas at EUROIL, the company depends on electronic communication networks with unstructured volume of material that makes recipients difficult to assimilate. As part of the knowledge and information transfer it is important to note that the authors recognize the importance of ‘best practice’ that refers the demonstration of superior organizational routine replicated in several parts of enterprise (Julia Manea and Robert Pearce, 2001).8

Changes in Strategies

The subsidiaries of MNEs will be mostly of two types; one being concentrating on domestic business and other type concentrating on domestic as well as exporting activities. In this context, Martyn Wright and Paul Edwards, (2001) reveal that the Japanese companies increased export oriented activities after 1970 by taking the export oriented business as part of the central strategy of the company’s international business activities. The above mentioned activity is labor intensive as well as network intensive. Hence, to minimize the network intensive activities of the export oriented companies, the Japanese MNEs turned multinational. In a similar manner American multinational enterprises also invested in advanced countries with advanced technology and ownership. In this context, the Japanese ‘Matsushita’ produced color TVs in United States and minimized the network intensive nature of exporting them to US. This resulted in export activities being in central position in international strategy as the partly owned subsidiaries tried to export their products. Hence, in the above context, the MNEs found a new strategy in production that enable the company to minimize the manufacturing costs thus enabling a subsidiary to export the products from host country to home country of MNE. In the above context of international business, the selection of most favorable place for a fully or partly owned subsidiary is important. As a result, the MNEs in and after 1971 invested largely in developing countries and consequently most projects of MNEs are in the form of subsidiaries in developing countries. However, it is interesting that the marketing investment is more in advanced countries in terms of the number of investment projects in developing countries. However, in 20th century mostly after 1995, the advanced countries occupied 37 percent of total manufacturing investment as well as 62 percent of total investment. In this context USA has received the largest portion of Japanese foreign direct investment. Due to the overseas investment in production activities, the Japanese multinational totaled to 67 in 1982 from 37 in 1974 (Julia Manea and Robert Pearce, 2001).9

Role of Subsidiary

After reviewing the literature regarding the increase of number of subsidiaries of MNEs, it is important to understand the role of subsidiaries and how they change according to time. In this context, Martyn Wright and Paul Edwards, (2001) quote Holm and Pedersen (2000) about relationship between management and subsidiary. In the context of evolution of relationship, the authors quote Brooke and Remmers (1978) and Forsgren et al., (1992) and state that the subsidiaries adjust products received from the parent firm by adapting them to local market needs. In the course of time, they become less dependent on headquarters management and develop competence. However, the authors argue that due to the environmental causes, the foreign subsidiaries are isolated and close linkages with host country are necessary for supply chain management as well as distributor network for marketing. In the above process, the subsidiary evolves and increases its value as a unit to the multinational company. However, the process of subsidiary evolution is different for various host countries and investment flows in that country. In addition to that the development of regional and global centers of knowledge and expertise is important for strategic evolution of foreign owned subsidiaries. In the above context the activities of subsidiary comes to the fore and the changes in them also matters. In this context, Martyn Wright and Paul Edwards, (2001) quote Papanastassiou and Pearce (1998) and Taggart (1996) about nature of subsidiary evolution. The evolution is based on; parent based drivers and subsidiary based drivers as well as host country drivers. The era of globalization compelled the MNEs to make decisions such that their decisions are complementary with those of subsidiary and not only interdependent. As foreign subsidiaries increase their responsibilities from sales activities to manufacturing as well as marketing the process of internalization will be complete. In the course of development of above mentioned activities, the MNE can transfer other functions to the host country thus broadening the area of subsidiaries. Consequently, as part of its evolution, the subsidiary needs to be a partner in a strategic alliance or supplier buyer relationship that triggers further investment in subsidiary operations. As a result, the subsidiary can be a hub of research, manufacturing as well as sales in host country and exporting (Martyn Wright and Paul Edwards, 2001).10

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Production Model and International Organization

As discussed above the internalization of business and increase of activities of subsidiaries needs to discuss the production model. In the above context, the examination of American model of production is significant as the diffusion of ideology, ideas and techniques are clear in that model. Hideki Yoshihara, (2001) states that American model has tended to focus on the manufacturing sector. In this context, Yoshihara quotes Dicken (1992) and single world market proposed by Levitt (1983). As a result, the investments flow across national borders directed by essentially national companies. The manufacturing activities of American companies are based on stateless global organizations. The important reason for the above fact is the leading edge Americans have in manufacturing techniques, which is known as Fordism. The American manufacturing techniques involved the extensive use of machinery as well as standardization of products. Hence, the American companies’ strategy is to decrease labor costs due to mass production. In addition to above mentioned mass manufacturing activities, the American production model involves strong cost accounting methods that determine the inputs with the emphasis of higher output for less costs. In this context, Hideki Yoshihara, (2001) quotes Williams (n.d., p.16) that the US firms are able to exploit by trade and foreign direct investment (Hideki Yoshihara, 2001).11

Methodology

The methodology in this paper is to research and analyze academic journals regarding international business. As international business involves subsidiaries, the nature of subsidiaries is discussed as well as analyzed. The discussion involves the nature of subsidiaries and the relationship between headquarters and regional offices as well as difference in strategies in different areas. In addition to that the analysis part involves the aspect that what may happen in different situations and strategies according to various geographical locations. All the above contexts involve; production, marketing as well as strategic issues. In case of production, the supply chain management matters and in the context of marketing the distribution network makes the difference. Hence, both supply chain management and distribution network as well as marketing and production strategies are discussed and analyzed using reliable academic sources like journals, articles and books.

Advantages: The advantage of this research is it is a general research and can be applicable for any industry or sector. As different geographical locations and strategies are contexts of the paper, the strategies, policies and methods discussed in this paper can be generally used in any sector for management activities in international business. The added advantage is that the analysis and discussion chapters are different in the paper.

Disadvantages or limitations: The limitations of this paper are that it does not involves primary research or it does not concentrate or focus on a single industry. It takes into consideration valid primary research having sufficient standards and the results are useful in general for the international business. It does not concentrate on a particular sector and hence, the technical aspects involved in research that focuses on a particular industry are absent.

Discussion

The discussion starts with production and management methods that are vigorously exported to host countries with foreign direct investments. The discussion starts with American management methods that are made popular in Europe by education and training institutions. IN this context, Reijo Luostarinen and Rebecca Marschan-Piekkari, (2001) quotes Dunning (1993) about the argument that US industry is efficient and in this context authors discuss about technology and management as well as marketing skills, which are best in the world. Hence, it can be understood that when US industry goes overseas, its skills and production methods as well as marketing methods also follow to the host country. However, one can understand that it is not possible to implement the US skills unless the subsidiary takes into account the local cultural as well as political considerations. If the local considerations are absent, the situation in post war period for US companies may arise as the hegemony started to slip due to macro and micro economic and political conditions. Hence, it is compulsory for the MNE subsidiaries to utilize the cheap labor as well as supply chain services in the host country. The above mentioned activities are capable of reducing the cost of production and thus having a competitive price. Moreover, as the competition increased, the Japanese lean production techniques dominated the international business as they revolutionized the production methods by managing the supply chains to optimum extent and for the conditions of the countries in which it is operating as well as it is marketing. In this context, the just in time stock inventory system can be emphasized to decrease the inventory costs in international business. In this context, business process re-engineering of American companies comes to the fore that made individualism, self reliance and willingness to accept as well as propensity to change. The important aspect in the above aspect is about owning and controlling the means of production as well as ideas as international business is transnational process. The owning of ideas involves innovation also due to heavy competition (Reijo Luostarinen and Rebecca Marschan-Piekkari, 2001).12

The heavy competition for the subsidiaries in the host countries brings to the fore the relationship with management. The important aspect is to receive the products from headquarters and to adapt them to local needs. However, the internalization of business activities demands the products that are according to local aspirations and culture. Hence, in the above context the host country plays an important in subsidiary evolution as supply chain management is decided by the conditions of host country as well as policies of the administration. The subsidiaries need to be embedded in regional environments using supply chain management as well as distribution network. Simultaneously, it is important for the company to access the resources of MNE in which it is a part or the subsidiary as the headquarters runs internal capital market and redistribute resources within the firm. However, the supply chain management and distribution network, which are host country based drivers that play a role in activities undertaken by subsidiary. In this context the sales, marketing and manufacturing functions of subsidiary come to the fore and the functional responsibilities are added in the modern context. Regarding sales, marketing and manufacturing activities, it is important to consider strategic alliance or supplier buyer relationship as it plays an important role in evolution of a subsidiary. However, in some cases it is a compulsory for a company to act according to subsidiaries when it extends its operations to other countries by acquisitions, takeovers or mergers. The supply chain management and distributive network of subsidiaries give a change to apply the specialized resources as subsidiary initiative and technology can play such a role. In case of supply chain management and distributive network, the subsidiary draws resources from host country and in that sense it is important to have strategies that are specific to host country. In this context, it is important to investigate the local technological knowledge of subsidiary that can be helpful in managing and maintaining the above mentioned networks (Dennis Nickson and Chris Warhurst, 2001).13

Analysis

After concluding the discussion chapter with management of networks, another important aspect globalization, which is crucial in creating new networks are necessary for analysis. In the above context, Hart, Jeffrey, (2000) quotes economic processes of globalization. As the globalization involves integration of input, factor and final product markets across countries, the significance of Multinational enterprises increased. As the above mentioned factors result in value chain networks, the necessities demand reshaping of policy. However, due to the uneven impact of globalization in different parts of the world, the network maintenance will be a problem due to differences in activities of subsidiaries in various geographical locations. Hence, in order to minimize the above mentioned problem, an MNE has to maintain subsidiaries in a manner to maximize the effect of networking regarding supply chain management and distribution. However, in this context it is important to consider the non economic dimensions of globalization as it is not just a market linkage between countries. In this context, the MNE has to manage both economic and non economic implications. As the MNEs are operating in various countries they even affect the GDP of the country they are operating in. Hence, one can understand by the activities of Multinational enterprises that the foreign direct investments into a country can affect its GDP. In addition to the above fact, another aspect is that the MNEs enter into a host country either by fully owned or partly owned subsidiary. Hence, it has to develop alternative routes, alliances and joint ventures and dedicated sub-contractors for its production and marketing processes. As a result, the MNE has to transfer its knowledge to its subsidiary regarding above activities and permit the regional management to apply that according to the local conditions. In this context, the non-economic implications like administrative strategies as well as political inclinations. Hence, in the above context the globalization will be different from internalization as internalization means just expanding the activities overseas. As it is just not the case in the context of globalization, the global firms are not associated with any particular country and are compelled to locate the activities in the area best suited for them. This is done to achieve maximum gain from the activities and strategies as they are more profitable if are implemented in an atmosphere that supports international business in terms of infrastructure as well as network (Hart, Jeffrey A, (2000).14

The atmosphere and facilities available for a subsidiary of MNE in a host country is important to develop global interactions. In the just mentioned context, the reclusiveness cannot be tolerated as it is important to develop network of subsidiaries as well as networks for subsidiaries. However, the above activities depend upon the policies of the host country also as different administrations frame different strategies to fulfill their country’s necessities. In some countries, the administrations invite FDIs from MNEs to increase their foreign exchange reserves and to develop the caliber of purchasing the imports necessary. Hence, in this context, the companies have to invest in the host country for a long term as the administration prefers the deposits that stay in long term for the usage of international purchases. In addition to that, the administrations of the countries frame policies in a manner to enable their companies to have access to advanced technology. In this context, it is important for MNEs to have partly owned subsidiaries in alliance with the local companies of the host country. Hence, the companies of host country also will be capable to enter the global market and the impact of globalization thus makes a country capable of importing its necessities and makes its companies to be a part of global network of business. Hence, as a result, the globalization as part of its non economic implications results in transformation of state society relations within the host country as well as cultural processes. The above aspect is useful for MNE to develop supply chain management network as well as distribution networks. In addition to that the MNEs have to concentrate on policies of the administrations in host countries as they try to attract FDIs into specific industries. Some countries like China concentrate on the industries regarding manufacturing, but some countries like India may concentrate on services industries (Dali L.Yang and Fubing Su, 2000).15

In the context of preferring the industries, the host country tries to increase the competency of its companies. According to Marie Anchordoguy (2000), the integration of input activities in MNEs and their markets for products increases pressure on developed countries to make their financial distribution systems across the world more efficient. As the MNEs are establishing partly owned subsidiaries all over the world, even the companies in developing countries gain competitive advantage. Hence, it is important for MNEs as well as the countries to consolidate the financial and distribution systems. In the context of MNEs the financial and distribution networks enable the company to extend its operations as well as to market its products. Coming to the countries, the MNEs favor the countries, in which the infrastructure is good for developing distribution networks. As the production of scale and manufacturing decide the success of an MNE, it is important to know that the increase of manufacturing can decrease the price of the product. However, as the competition in increasing administrations in various countries as well as different MNEs are planning their activities in software industry. Even the countries and MNEs, who have expertise in developing manufacturing economy, are now concentrating on software industry, whose nature is not similar to manufacturing economy. The nature of software industry makes it unique, but it depends on the growth of MNEs in various countries of the globe. Hence, the growth of manufacturing sector drives the growth of software industry. Hence, a country, which do not have enough expertise in manufacturing sector can concentrate on software industry and the MNEs who feel that the manufacturing sector is saturated in the areas and sectors they operate can try their luck in software industry. However, it is clear that it is necessary for states and MNEs to renegotiate the domestic as well as international bargains (Marie Anchordoguy, 2000).16

The renegotiation of domestic as well as international bargains involves increasing of competitiveness of the firms. As a result the firms have to change their institutional arrangements according to their activities of their subsidiaries and the administrations have to link the state and society to globalize the processes. The important factor in the context of globalization regarding a country is to break insulation and in the context of a company is to globalize its processes and activities by integrating inputs and networks. However, in the process of globalization processes the role of state is to decide the tariffs that enable MNEs operate in different parts of the world. A country that wants to attract FDIs has to liberalize the tariff system and the legal system should be strengthened. However, if the system of doing business is not insulated from everyday politics, the international business activities cannot be done in a right way and in an efficient manner. As it is clear that higher tariffs cannot attract FDIs, the state has to increase income by increase of business. In many countries, where the system is still evolving the MNEs may face dual economy in which protection as well as liberalization go hand in hand. In the above context, it is important to know the areas of liberalization and the MNEs have to enter those areas forcing the administrations to liberalize other sectors. In some contexts mentioned above, the MNE managements have to bargain with the political system in the country as it is important to develop a network and local provision of infrastructure. Hence, as part of overall structure of an MNE, the subsidiaries in different areas of the world make the company to have network as well as diversified policies of production and marketing. This aspect involves the foreign corporations in manufacturing sector to exploit the capacity of the infrastructure and capacity of the host country as well as local economy (John Raven hill, 2000).17

Case Study

Sony in Poland

In this paper, we consider Sony in Poland and Brazil. Sony Company, which was started with 20 employees in 1946 innovated the usage of transistors by using it in the radio. This innovative attitude of Co-Founder Akio Morita resulted in expanding the activities of the company overseas. The penetration of ‘Sony’ into foreign markets is different in different countries. For example, Sony is not able to invest in Poland due to communism in that country. As a result, it made alliances with distributors and developed distributor network. However, this network helped the company when it established subsidiary after Poland entered the free market. The reason for the entry into Poland was the 400 million consumers in Poland and around Eastern Europe in 1989. The idea of ‘Sony’ was to capture the East Europe Market using the gateway of Poland. The reason for that thought was, Poland has 40 million population and is first to establish a non-communist country. The important aspect the management of Sony observed in Poland is that the country’s retailing entrepreneurs began legitimate operations in the country after non-communist government. Sony found the currency convertibility in Poland a tool for FDI in that country. The above aspect enabled Sony to sell its products directly to the citizens of the Poland and not just for the tourists. Hence, the company has become popular because, till then Poles are not used up to buy the products like the ones manufacture by Sony directly. This resulted in consolidation of business of Sony in the country. Moreover, Poland is crucial for expanding business in other European countries like Byelorussia and Ukraine. The most important aspect that contributed to growth of Sony in Poland is the establishment of an authorized sales and service network in an intermediate step toward a national subsidiary. This is to avoid the sales of gray market that offered the products offered by Sony for a much lesser price but without service. Sony, by establishing service and sales network blocked the expansion of gray market growth up to a reasonable extent. Another important aspect that has to be observed in this context is that the management of Sony explored untapped markets as its expansion came to a saturation point in developed countries and it found that east European countries are good market places for its products. Hence, the establishment of a subsidiary in this context of competitors of Sony entering into Poland and east European market gave a chance to the company to improve the image of Sony in Poland and its neighboring countries. Another important aspect is that, Sony decided to invest in Warsaw in Poland as it is the largest city in Poland and 60 percent of Poland’s population lives in cities. This means, the company selected a good urban place to establish a subsidiary in the country that has majority of urban population. Hence the company has chosen a country that is crucial in extending the business to other East European countries. Moreover, unlike other companies Sony waited for a good opportunity to enter the market by maintaining a distributor for its products in Poland. This enabled the company expand its operations as soon as non-communist government has been formed in Poland and even the establishment of a subsidiary (Luo, Yadong, (2002).18

Sony in Brazil

The next part of the case study is the study of Sony in Brazil. Sony found Brazil as a nice place to enter as it has a population of more than 160 million and as a result the company has subsidiaries in Rio, Recife and Sau Paulo. Sony’s management has a right attitude of guessing the time to enter the market of any country. Similarly it entered into Brazil’s market when the economy was in a boom. Thus Sony became a market leader by beating its competitors Philips and other local dealers. The important innovation that the company introduced here is walkman’s and video cameras. The above innovations resulted in increase of market share for the company. Hence, in case of Brazil, Sony’s strategy is innovation to increase the market share in the presence of a strong competitor. Hence, one can observe that the strategies of Sony in Poland and Brazil are different according to necessities and demands of the situation (Luo, Yadong (Author). (2002)).19

Conclusion

The globalization demands different strategies for any MNE when it enters into different markets worldwide and it is important to note that the globalization is not same as internalization. This is because the globalization involves developing of networks in host countries as well as establishing partly and fully owned subsidiaries. In contrast to the above aspect, most of the internalization is limited to extending the operations overseas by having distributors in different countries. However, in the context of globalization, the MNEs are searching new markets and they understood that establishing supply chain network and distribution networks is crucial for consolidating the growth. Hence, as a result, it is important to note that the MNE, which have subsidiaries and networks mentioned above can withstand competition from local manufacturers as well as other MNEs. In addition to the above aspect, the case study in this paper states that innovation is a way to consolidate the market and have growth in sales. Moreover, the same case study suggests that the selection of a single location is important to extend the operations and establishment of subsidiaries in some other countries near by the location and influenced by it.

List of References

Julian Birkinshaw, Neil Hood, 2000, Characteristics of Foreign Subsidiaries in Industry Clusters, Journal of International Business Studies, Vol.31. Issue 1, pages 141-154.

Luo, Yadong, (2002), Multinational Enterprises in Emerging Markets. Copenhagen, DNK: Copenhagen Business School Press.

Narula, Rajneesh, (1996), Multinational Investment and Economic Structure: Globalization and Competitiveness, London, GBR: Routledge.

Africa Arino Staff, (2005), Creating Value Through International Strategy, Gordonsville, VA, USA: Palgrave Macmillan.

Sunil Venaik, David F. Midgley and Timothy M. Devinney, 2005, Dual Paths to Multinational Subsidiary Performance: Networking to Learning and Autonomy to Innovation in Creating Value through international Strategy, edited by Ghemawat, Pankaj (Editor); Ricart, Joan Enric (Editor), London, Palgrave Macmillan.

Ádrian Atilio Caldart and Joan E. Ricart, 2005, The Roles of the Corporate Level in the Internationalization Process of the Firm, in Creating Value through international Strategey, edited by Pankaj (Editor) ; Ricart, Joan Enric (Editor) , London: Palgrave Macmillan.

Paul N. Gooderham and Svein Ulset, 2001, Is the Governance of Transnationals Really ‘Beyond the M-form’? A Critical Review of Bartlett and Ghoshal’s ‘New Organisational Model’, in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.

Julia Manea and Robert Pearce, 2001, ‘Multinational Strategies and Sustainable Industrial Transformation in CEE Transition Economies: the Role of Technology’, in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.

Martyn Wright and Paul Edwards, 2001, Modes of Integration and the Diffusion of Best Practice in the Multinational Enterprise in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.

Hideki Yoshihara, 2001, Global Operations Managed by Japanese and in Japanese, in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.

Reijo Luostarinen and Rebecca Marschan-Piekkari, 2001, Strategic Evolution of Foreign-owned Subsidiaries in a Host Country: a Conceptual Framework, in ‘Multinationals in a New Era : International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.

Dennis Nickson and Chris Warhurst, 2001, From Globalisation to Internationalization to Americanization: the Example of ‘Little Americas’ in the Hotel Sector, ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.

Hart, Jeffrey A. (Author). (2000). Responding to Globalization. London, GBR: Routledge.

Dali L.Yang and Fubing Su, 2000, Taming the market: China and the forces of globalization, in ‘Responding to Globalization’, Ed and authored by Hart, Jeffry, London, GBR: Routledge.

Marie Anchordoguy, 2000, Grappling with globalization The case of Japan’s software industry, in ‘Responding to Globalisation’, Ed and authored by Hart, Jeffry, London, GBR: Routledge.

John Ravenhill, 2000, Aiming action to secure a piece of the Interests, ideas, institutions and individuals in Australian integration into the global economy, in ‘Responding to Globalisation’, Ed and Authored by Hart, Jeffry, London, GBR: Routledge.

Footnotes

  1. Julian Birkinshaw, Neil Hood, 2000, Characteristics of Foreign Subsidiaries in Industry Clusters, Journal of International Business Studies, Vol.31. issue 1, pages 141-154.
  2. Luo, Yadong (Author). (2002). Multinational Enterprises in Emerging Markets. Copenhagen, DNK: Copenhagen Business School Press.
  3. Narula, Rajneesh (Author). (1996). Multinational Investment and Economic Structure: Globalization and Competitiveness. London, GBR: Routledge.
  4. Africa Arino Staff (Author). (2005). Creating Value Through International Strategy. Gordonsville, VA, USA: Palgrave Macmillan.
  5. Sunil Venaik, David F. Midgley and Timothy M. Devinney, 2005, Dual Paths to Multinational Subsidiary Performance: Networking to Learning and Autonomy to Innovation in Creating Value through international Strategey, edited by Ghemawat, Pankaj (Editor) ; Ricart, Joan Enric (Editor), London, Palgrave Macmillan.
  6. Ádrian Atilio Caldart and Joan E. Ricart, 2005, The Roles of the Corporate Level in the Internationalization Process of the Firm, in Creating Value through international Strategey, edited by Pankaj (Editor) ; Ricart, Joan Enric (Editor) , London: Palgrave Macmillan.
  7. Paul N. Gooderham and Svein Ulset, 2001, Is the Governance of Transnationals Really ‘Beyond the M-form’? A Critical Review of Bartlett and Ghoshal’s ‘New Organisational Model’, in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.
  8. Julia Manea and Robert Pearce, 2001, ‘Multinational Strategies and Sustainable Industrial Transformation in CEE Transition Economies: the Role of Technology’, in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.
  9. Julia Manea and Robert Pearce, 2001, ‘Multinational Strategies and Sustainable Industrial Transformation in CEE Transition Economies: the Role of Technology’, in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.
  10. Martyn Wright and Paul Edwards, 2001, Modes of Integration and the Diffusion of Best Practice in the Multinational Enterprise in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.
  11. Hideki Yoshihara, 2001, Global Operations Managed by Japanese and in Japanese, in ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.
  12. Reijo Luostarinen and Rebecca Marschan-Piekkari, 2001, Strategic Evolution of Foreign-owned Subsidiaries in a Host Country: a Conceptual Framework, in ‘Multinationals in a New Era : International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.
  13. Dennis Nickson and Chris Warhurst, 2001, From Globalisation to Internationalization to Americanization: the Example of ‘Little Americas’ in the Hotel Sector, ‘Multinationals in a New Era: International Strategy and Management’, Edited by Taggart, J. H, Berry, Maureen, McDermott, Michael C, London: Palgrave Macmillan.
  14. Hart, Jeffrey A. (Author). (2000). Responding to Globalization. London, GBR: Routledge.
  15. Dali L.Yang and Fubing Su, 2000, Taming the market: China and the forces of globalization, in ‘Responding to Globalization’, Ed and authored by Hart, Jeffry, London, GBR: Routledge.
  16. Marie Anchordoguy, 2000, Grappling with globalization The case of Japan’s software industry, in ‘Responding to Globalisation’, Ed and authored by Hart, Jeffry, London, GBR: Routledge.
  17. John Ravenhill, 2000, Aiming action to secure a piece of the Interests, ideas, institutions and individuals in Australian integration into the global economy, in ‘Responding to Globalisation’, Ed and Authored by Hart, Jeffry, London, GBR: Routledge.
  18. Luo, Yadong (Author). (2002). Multinational Enterprises in Emerging Markets. Copenhagen, DNK: Copenhagen Business School Press.
  19. Luo, Yadong (Author). (2002). Multinational Enterprises in Emerging Markets. Copenhagen, DNK: Copenhagen Business School Press.
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