Instructor Manual
Chapter 15: Organizing and Innovating in the MNE
(Prepared by Klaus E. Meyer, March 2019)
Introduction to the Topic
Learning Objectives
1. Articulate the relationship between multinational strategy and structure
2. Outline the challenges associated with learning, innovation, and knowledge management
3. Explain how institutions affect strategy and structure
4. Explain how resources affect strategy and structure
5. Participate in two leading debates on organising and innovating in the MNE.
6. Draw implications for action
General Teaching Suggestions
This chapter introduces key organizational challenges faced by multinational enterprises,
including the organizational structure and the challenges of knowledge management. It thus
addresses issues of key concern to the leadership of multinational enterprises, and thus
debates that middle managers (i.e. your students after graduation) are likely to become
involved in. To motivate a general discussion, you could ask: “The MNE you are working for
has decided centrally that a new procedure for booking business travels [or any other process]
is to be introduced and you may only book through the corporate office – even when you
know how to book cheaper if you do it yourself through the internet or a local agency. Why
do they [HQ] do that?
Opening Case Discussion Guide
The opening case outlines the operational challenges faced by the big multinational
consultancy firms, who are expected to deliver services that draw on a variety of distinct
competences located at different sites around the world. To motivate a discussion, you as
instructor may ask: “French MNE Renault asks you to audit your accounts in the US and
advise how to better integrate accounting practices across its global operations. How are you
going to assemble the team for this customer contract?”
Chapter Outline, Section by Section
Section 1: Organizational Structures in MNEs
Key Ideas
This section introduces the well-established Bartlett and Ghoshal terminology of four strategy
types, which are about where the node of control is in a multinational organization. On this
basis, the section introduces four organizational forms that are related to the four types.
Key Concepts
integration-responsiveness framework
A framework of MNE management on how to simultaneously deal with two sets of pressures for global
integration and local responsiveness.
global integration
A strategy focusing on benefits of aggregating operations above the national level
local responsiveness
The necessity to be responsive to different customer preferences around the world.
home replication strategy
A strategy that emphasizes international replication of home country-based competencies such as
production scales, distribution efficiencies, and brand power.
localization (multi-domestic) strategy
A strategy that focuses on a number of foreign countries/regions, each of which is regarded as a stand–
alone “local” (domestic) market worthy of significant attention and adaptation.
global standards strategy
A strategy that relies on the development and distribution of standardized products worldwide to reap
the maximum benefits from low-cost advantages.
centre of excellence
An MNE subsidiary explicitly recognized as a source of important capabilities, with the intention that
these capabilities be leveraged by and/or disseminated to other subsidiaries.
global key accounts
Customers who themselves operate at multiple sites where they expect delivery
transnational strategy
A strategy that endeavours to be cost efficient, locally responsive, and learning driven simultaneously
around the world.
corporate headquarters
An MNEs central unit that host corporate executives as well as central staff functions
international division
A structure that is typically set up when firms initially expand abroad, often engaging in a home
replication strategy.
geographic area structure
An organizational structure that organizes the MNE according to different countries and regions.
Regional HQ
Unit coordinating activities in a geographic area
regional manager
The business leader of a specific geographic area or region.
global product division
An organizational structure that assigns global responsibilities to each product division.
global matrix
An organizational structure often used to alleviate the disadvantages associated with both geographic
area and global product division structures, especially for MNEs adopting a transnational strategy.
Section 2: Management Knowledge in Global MNEs
Key Ideas
This section outlines the challenges for MNEs to manage knowledge creation and sharing
within their global operations, and introduces Nonaka’s typology of knowledge as an
analytical tool (Figure15.7).
In the second and third editions the notions of reverse knowledge transfer (p. 432-434,
including In Focus 15.1) and subsidiary mandates (page 437-438 and Closing Case) have
been substantially revised.
Key Concepts
knowledge management
The structures, processes, and systems that actively develop, leverage, and transfer knowledge.
explicit knowledge
Knowledge that is codifiable (that is, can be written down and transferred with little loss of its
richness).
tacit knowledge
Knowledge that is non-codifiable and its acquisition and transfer require hands-on practice.
organizational (team embedded) knowledge
Knowledge held in an organization that goes beyond the knowledge of the individual members
reverse knowledge transfer
Knowledge created in a subsidiary being transferred from the subsidiary to a parent organisation.
communities of practice (CoP)
Groups of people doing similar or related work and sharing knowledge about their practices of work
virtual communities of practice
Communities of practice interacting via the Internet.
knowledge governance
The structures and mechanisms MNEs use to facilitate the creation, integration, sharing and utilization
of knowledge
absorptive capacity
The ability to recognize the value of new information, assimilate it, and apply it.
social capital
The informal benefits individuals and organizations derive from their social structures and networks.
worldwide (or global) mandate
The charter to be responsible for one MNE function throughout the world.
Subsidiary initiative
The proactive and deliberate pursuit of new opportunities by a subsidiary to expand its scope of
responsibility
Section 3: Institutions and the Choice of Organizational Structure
Key Ideas
This section considers how institutional frameworks in home and host countries affect firms’
choice of organizational structures. A new IF on Apotex, a Canadian generic drugs company,
illustrates the challenges for international business of operating across multiple jurisdictions.
Key Concepts
national innovation systems
The institutions and organizations that influence innovation activity in a country
Section 4: Resource-based Considerations
Key Ideas
This section discusses how organizational structures and knowledge management practices
support value creation and exploitation.
Key Concepts
No new concepts.
Section 5: Debates and Extensions
Key Ideas
The first debate concerns the nationality of top management teams, and the implications for
the management of the corporation.
The second debate concerns the relocation of headquarters and business-unit-headquarters
away from the country of origin. This has been expanded in the 3rd edition.
Key Concepts
Business unit headquarters
The central coordinating unit for an entire business unit
Section 6: Implications for Practice
Key Ideas
This concluding section emphasizes the need to understand external and internal rules
governing managerial action, along with the need to develop capabilities to manage
innovation while ‘thinking global, acting local’.
Key Concepts
No new concepts
Review Questions
Review questions are provided to students on the website accompanying the book. They
directly ask to summarize the material provided in the text. Instructors may also use the
questions to structure their lectures or review sessions.
Review Questions
(as provided to students on the website)
Material in the Book
1. What are the operational challenges faces by
accountancy and consultancy firms serving
customers operating worldwide, known as “global
key accounts”?
2. What are the key trade-offs between local
adaptation and global standardization?
3. What are the implications of trying to be both
locally adaptive and globally integrated?
4. How do organizational structures reflect the types
structure?
6. What is the difference between tacit and explicit
knowledge, and why does that matter for
knowledge management?
7. How do MNEs transform different types of
knowledge to make best use of it for the
organization?
8. How do knowledge flows vary across Bartlett &
Ghoshals four types of MNE strategy?
9. How do MNEs engage with local and virtual
communities of practice?
10. How do MNEs create governance structures that
Opening Case
Page 417-418
Page 419-420
Page 422
Page 423-424
Page 424-425, Figure 15.7
Page 425-426
Page 428
12. How do home country institutions shape the
organizational structures adopted by MNEs?
13. How do host country institutions shape the
organizational structures adopted by MNEs?
14. How do the nature of a firm’s resources and
capabilities affect its preferred organizational
structure?
15. How does the nationality of the top managers of an
MNEs reflect it strategy?
16. What determines the location of business unit HQ
and corporate HQ?
Page 431-432
Page 432-433, In Focus 15.2
Page 433-434
Page 434-435,
Page 435-436
Critical Discussion Questions
At the end the chapter, we provide discussion questions that aim to stimulate students
thinking beyond memorizing the material learned in the chapter. They are designed to be
used at a basis for in-class discussions, group work, or individual assignments. Below, I
provide some indicative answers of issues that may be raised in response to these questions.
Discussion Questions
(as provided in the book)
Indicative Responses
1. In this age of globalization, some gurus
argue that all industries are becoming global
and that all firms need to adopt a global
standards strategy. Do you agree? Why or
why not?
1. The arguments presented in this
book emphasize opportunities that
arise from interacting across
differences around the world. While
global standardization may be
from your subsidiary. You worry that if your
subsidiary is no longer the star unit when
other subsidiaries’ performance catches up,
your bonus will go down. What are you
going to do?
3. You are a corporate R&D manager at EADS
and are thinking about transferring some
R&D work to China, India, and Russia,
where the work performed by a €70,000
German, French or Spanish engineer
reportedly can be done by an engineer in one
of these countries for less than €7,000.
However, engineers at EADS existing plants
have staged protests against such moves.
French politicians are similarly vocal
concerning job losses. What are you going to
do?
constructive approach to resolving
this dilemma may be to discuss the
conflict of interest directly with
corporate headquarters.
3. This is an ethical question where
many different approaches could be
argued, and emphasis should be the
rigour of the arguments. Note that
EADS sells a large share of its
products (i.e. military) to
governments where the
governments as customers have a
greater say on how the products are
to be produced. This would be
different in price-competitive
commercial airline businesses.
4. This question challenges students to
Closing Case
The closing case provides further opportunities to apply ideas and concepts learned in this
chapter in a real world setting. The Closing Case for this Chapter is “Subsidiary initiative at
Case Discussion Questions
(as provided in the book)
Indicative Responses
1. From a resource-based
perspective: what resources are
needed to develop a machine for
a distance market, such as
China, and where in the MNE
are these to be found?
2. What kinds of adaptations are
needed to compete in the ‘good
enough’ segment in China?
3. What internal processes do
MNEs like Schenck need to
develop and manufacture
different product specifications
for different market segments
across a wide range of
countries?
These questions challenge students to demonstrate
their ability to think and argue strategically.
1. Students are encouraged to give a list of
resources which need to develop. The criteria
are that the resources should fit for a good
enough market, such as quicker delivery time
and comparatively lower quality.
2. The key points are student should understand
differences between premium market and
good enough market (perhaps using ideas
from Chapter 16) and then list kinds of
adaptations.
3. The question challenges students to explore
linkages between internal structures and
practices, and the strategies firms pursue.
Further Learning Activities
China’ has been designed as a real world scenario in which the Chamber as representation of
German business is trying to encourage and coordinate CSR initiatives. It is based on an
initiative that I myself have been involved in. I propose to use this case as basis for group
the actors in the case are mostly representing Shanghai-based subsidiaries of firms
headquartered in Germany.
2. The Integrative Case “Tackling Corrupt Practices: GSK in China” brings together
the themes of corruption (Chapter 3), social responsibility in foreign countries
(Chapter 10) and headquarter-subsidiary relationships (Chapter 15). GSK has globally
announced high standards of social responsibility, but appears to have failed to
implement these policies in China. The case details the complex demands on the
pharmaceutical sector in China that create strong incentives to be inventive in ‘cutting
corners’.
3. The Integrative Case “Cars Made in Britain, Post-Brexit” has been designed to help
student understand the consequences of the Brexit process and of different options to
design future international trade regime for companies that have to make major
investment decisions. It thus integrates key theoretical ideas on international trade
(Chapter 5) with institutional knowledge of the EU (Chapter 8) and of multilateral
institutions such as the WTO (Chapter 9). While the preceding case (Negotiating
Brexit) is taking a national policy perspective, this case brings the issues down to the
corporate level. The case can also be discussed to analyse the role of subsidiaries and
unit HQ within a multinational organization (Chapter 15).
4. The Integrative Case ‘Beko Washes Clothes Across Europe’ discusses the
international growth strategy of the Turkish washing machine brand Beko. It covers
initial entry strategies (Chapter 12), development of the brands and its distribution
channels (Chapter 17), mergers and acquisitions (Chapter 14) and eventually
coordination of dispersed units across Europe (Chapter 15).
5. The integrative case “SG Group Manages European Acquisitions” focuses on the
challenges of post-acquisition integration for an emerging economy MNE. It explores in
particular challenges of cross-cultural management (Chapter 3) in the context of global
strategies and mergers and acquisitions (Chapter 14 and 15).
6. Currently, considerable growth has been documented in Latin American and
Caribbean economies. Based on the specific regulations in each country, part of your
company’s strategy in the Western Hemisphere is to ensure that contracts made by the
firm are agreed to and abided by in all business dealings. Since your company has
sales offices in every Latin American and Caribbean economy, where should your
company focus first? Provide detailed justification for your choices.
For use with Peng and Meyer, International Business 3e, 9781473758438, © Cengage Learning
EMEA 2019
Suriname, Honduras, Trinidad and Tobago, Belize, and Dominica emerge as viable
answers.
7. To remain competitive, a steel company needs to reconfigure its operations to align
with worldwide production. As a consultant on world steel production, provide a
report that indicates appropriate personnel and resource allocation to each region of
the world. As a part of your analysis, be sure to include your analysis for specific
countries in which your client should maintain regional headquarters.
One resource which can be used is “IISI World Steel in Figures”. This website can be
(1.4%; Iran), North America (6.8%; United States), Oceania (0.5%; Australia), Other
Europe (2.4%; Turkey), and South America (3.2%; Brazil).
Search Term: world steel production
Further Readings
At the end the chapter, suggested further readings are provided. The primary aim is to
provide students a starting point for further work, for example when preparing a class
assignment or dissertation. These references also are recommended for instructors not
familiar with the topic and wishing to ‘get ahead of the students’ before lecturing on a topic.
C. Bartlett & P.W. Beamish, 2018, Transnational Management, 8th ed., Maidenhead: McGraw-Hill –
textbook focusing on the integration responsiveness framework and its implications.
J. Birkinshaw, 2001, Entrepreneurship in the Global Firm, London: Sage – a book discussing how managers
in global MNEs, especially leaders of subsidiaries, can lead their unit entrepreneurially.
J. Birkinshaw, S. Ghoshal, C. Markides, J. Stopford, & G. Yip, eds, 2003, The Future of the Multinational
Company, London: Wiley – essays in memory of Sumantra Ghoshal, exploring various aspects of how
best to manage a multinational company, and the integration-responsiveness framework in particular.
N.J. Foss & S. Michailova, 2009. Knowledge governance: processes and perspectives, Oxford: Oxford
University Press – scholarly essays on knowledge processes with focus informal and informal governance
mechanisms.
A. Gupta & V. Govindarajan, 2004, Global Strategy and Organization (p. 104), New York: Wiley –
discusses how companies can be organized to make best use of global opportunities, especially knowledge
management.