6. Organizing for International Growth

Organizing a multinational involves the following major decisions: location of activities in foreign markets, allocation of resources and capabilities to subsidiaries, the level of integration of subsidiaries, the direction of communication between headquarters and subsidiaries and among subsidiaries, the level of formalization of procedures and rules governing the life of subsidiaries, and their decisional autonomy. The decision about which locations we decide to develop and produce and sell our products and services in is a source of competitive advantage, and this may strongly impact the firm’s long-term competitiveness. We describe the pros and cons of the offshoring and offshoring outsourcing solutions (including the risk of commoditization) and overview the key factors in the “make or buy” decision. The configuration of the role of a foreign subsidiary is another important decision; a firm needs to consider its internationalization goals, the level of strategic importance of the target market where the subsidiary is located, the ability of headquarters to understand the target market’s competitive and cultural context, and the ability of a subsidiary to operate in relative autonomy from the rest of the firm. We fully agree with Professors C. Bartlett and S. Ghoshal that it is impossible for a modern multinational to operate as a uniform and symmetrical organization. Therefore, as an alternative to network and hierarchical organization, we propose heterarchical organization. Heterarchical multinationals are made possible by different approaches to people management based on a global mentality, broad involvement of employees, and specific hiring policies and career paths. Heterarchical organizations with these kinds of people management policies are difficult to implement, but also difficult to imitate. We conclude by emphasizing the importance of subsidiaries within multinational organizations as a source of innovation.