Subsidiary Perspective of a Mobile Phone Service Company

Global Integration

Background

The literature review looks into the various resources related to the study on the subsidiary perspective of a mobile phone service company towards MNC global integration. This would justify the significance of the study in terms of the clarification and application of concepts as well as contribution to knowledge or research gaps. The literature review is structured to start with a clarification of the research issue for purposes of determining linkages to available literature before moving on with the identification of the parent, intermediate and immediate literature. Afterwards, debates or differences in perspectives based on various literatures, together with the gaps or unresolved questions follows. The literature review ends with a summary of developments in literature pertinent to the research topic.

The Research Issue

Investigating the subsidiary perspective of a mobile phone service company on MNC global integration has a number of research implications. One, the subsidiary perspective of firms on global integration determines the success of the global business operations through value chain configuration and marketing standardization. Another, the subsidiary perspective of a mobile phone service company on global integration also provides a contextual basis of the issues and problems experienced by the subsidiary and the mother company in achieving value chain integration and marketing standardization for its entire global operations. Integration and standardization are important to successful international business operations. Concurrently, it becomes important to clarify the concepts of global integration and subsidiary relations together with the sub-concepts under these general principles to provide a sufficient framework for the study. Categorization of literature covering these concepts and sub-concepts fall under parent, intermediate or immediate literature with most of the literature constituting parent and intermediate literatures. This implies the need for empirical research investigating the application of these concepts and sub-concepts to actual business contexts, which the present study attempts to fulfill.

The Parent and Intermediate Literature

This section covers the parent literature, specifically those explaining the basic concepts involved in the study especially global integration and organizational structures of multinational corporations involving subsidiaries. Existing literature sufficiently covers the definition of global integration as well as the organizational structure that involve business operations in various markets through subsidiaries.

Definition of Global Integration

Existing literature on global integration have not been able to arrive at a consensus on the definition of global integration. Haspeslagh and Jemison (1991) explained that global integration actually carries a different meaning for various parties involved in different situations. This means the possibility that a subsidiary, operating on a distinct market environment, can develop a different perspective and understanding of global integration relative to the mother company or other subsidiaries operating in different markets. Although, there is no clear consensus on the definition of global integration, Schweiger and Goulet (2000) stated that the different perspectives commonly revolve around the combination of the assets and human resources of the target and the buyer or the subsidiary and the mother company.

The concept of coordination has found close links to global integration. Mintzberg (1983a; 1983b) stated that coordination constitutes a fundamental element of management and since the management of global operations involves coordination, then integrating the operation of subsidiaries with the operations of the mother company necessitates coordination. However, even with the close links between global integration and coordination, there are distinctions between these two concepts, with the extent of difference covered by various perspectives. On one hand, Martinez and Jarillo (1989) described the close links between the global integration and coordination by using these two concepts as synonyms describing the same situation. The authors also defined coordinative mechanisms as administrative tools used in developing integration of the various business units of a business organization. On the other hand, Kobrin (1991) provided a clear variance between global integration and coordination. Global integration also meant transnational integration that involves the processes of product standardization, technology development centralization, and manufacturing linkages that is either horizontal or vertical. As such, global integration was characterized as a change process involving centralization, combination, concentration, and standardization. Coordination also meant cross-border coordination that pertains to the business efforts directed towards the alignment of the operations of various business units to ensure the completion of the tasks of these units in contributing to aggregate productivity.

Global integration has also found links to value creating activities at the level of the business headquarters. Goold, Campbell and Alexander (1994) and Burgelman and Doz (1996) stated that global integration pertains to the manner that headquarters creates value encompassing its international operations. This definition of global integration provides a limit to the scope of the concept to cover only business units forming part of a multinational corporation. This means that global integration does not involve business units considered as external to the firm.

In addition, existing literature also discussed the definition of global integration by looking at its opposite or contrast concepts. Through the process of contrasting, these resources have been able to determine the areas not covered by global integration (Hambrick & Finkelstein, 1987). Bartlett (1986) considered local autonomy as the opposite of global integration with local autonomy referring to the independent management of the operations of different business units under a single multinational corporation so that decision-making in the local level is made without need of consulting the other business units or headquarters. Bartlett and Ghoshal (1989) identified local responsiveness as another opposite of global integration. This is similar to independent decision-making exclusively based on the particular context of the local market without need to consult decision with other business units or the corporate headquarters. However, Prahalad and Doz (1987) explained that business firms could achieve high levels of responsiveness and integration. As such, the more rational opposite of global integration is local autonomy.

Based on existing literature covering the definition of global integration, the definition used in the dissertation is cross-border integration, encompassing value-creating activities and marketing standardization, arising between business units operating in different markets but falling under a single multinational corporation. This definition limits the scope to business units forming part of a multinational corporation but operating in particular markets. This definition fits the requirements of the study in investigating the perspectives of subsidiaries on global integration that involves a subsidiary and headquarters as the units of data collection and analysis.

Elements of Global Integration

Based on the definition of global integration, this has two specific elements, which are the configuration and coordination of the multinational corporation’s value change and the standardization of marketing strategies.

Existing literature have differentiated the configuration and coordination. Porter (1985) explained that configuration of the value chain pertains to the spatial decisions of the multinational corporation covering the location or site of business units together with the number of business units within the multinational corporation and in the different sites. Lim, Acito and Rusetki (2006) developed the concentration-dispersion perspective to encompass decision-making on spatial issues. Porter (1985) stated explained that coordination refers to the manner and extent that the activities of the different business units are combined as opposed to being autonomous. Lim et al. (2006) introduced integration-independence perspective as the concept that covers the combination of activities of various business units forming part of a single multinational corporation. The configuration and coordination of value chain processes of business units belonging to a single multinational firm includes the sourcing of raw materials and basic service components, production processes and linkages, marketing strategies, distribution networks, and support activities encompassing the operations of business units located in different countries but comprising the sub-units of the multinational firm.

Available literature also covered marketing standardization, which Jain (1989) describes as the extent of the uniformity in the experiences of customers of the different business units operating in various countries. Here, classification of literature depends on internal and external focus. Literature on strategies focus on business activity as the core basis of analysis so that these looks into the manner that business units apply uniform policies given specific business contexts. Literature on international marketing carries an external focus by considering the uniformity in the marketing mix applied across the business units. (Yip, 1997) The extent of uniformity in the aspects of price, product, place and promotion determines the level of uniformity in the experiences of the firm’s customers in different countries.

Rationale for Global Integration

After identifying the definition of global integration as limited to cross-border decisions encompassing business units belonging to the same multinational firm and covering the areas of value chain configuration and marketing standardization, the next area that involves clarification is the rationale for engaging in global integration. Available literature provided two distinct perspectives, which are environmental contingency and strategic choice, explaining the rationale for global integration. While the distinctions between these two perspectives is theoretical, these determines the driving factors for global integration as either industry forces and other factors in the external environment or firm-specific capabilities and other factors within the internal environment of the multinational firm.

The distinctions reflect similar characteristics as the debates on environmental determinism as against strategic choice (Astley & Van de Ven, 1983; Hrebiniak & Joyce, 1985). In addition, the distinctions between the two perspectives are parallel to debates involving the positioning-oriented view (Porter, 1985) as opposed to the resource-based view (Barney, 1991) or the dynamic capabilities view (Eisenhardt & Martin, 2000). These perspectives highlight one aspect or more reasons for engaging in global integration so that focusing on only one perspective would provide the study with a limited theoretical foundation (Morgan, 1997). As such, these perspectives require consideration to allow the study to gain insight on the multi-dimensional reasons of justifications for global integration.

Advocates of the environmental contingency perspective propound the basic assumption that industries hold different potential for globalization. As such, firm strategists play the important role of identifying the trends and influencing factors affecting the industry as bases for the determination of the appropriate strategy addressing the needs and demands of the industry (Bartlett & Ghoshal, 1989). In application, a number of best practices have emerged as generic strategies for various industry trends found to lead to positive performance (Prahalad & Doz, 1987). This implies that the environmental contingency view favors the development of contingencies (Galbraith, 1973) that considers the alignment or congruence of the structure of the firm and the strategies implemented by the organization with the environment within which the business firm operates. These contingencies find expression in the different types and levels of structures and corresponding strategies that have evolved.

A simplistic typology is the description of global firms as evolving from ethnocentric to polycentric before finally becoming geocentric (Perlmutter, 1969). This means that the structure of multinational firms evolves according to this evolutionary process and the strategy of multinational firms depend on the best practices determined for the different evolutionary stages. Another simplistic structure and strategy is one determined by technological drivers (Levitt, 1983) so that the organizational structure revolves around the enhancement of technological capabilities and the strategies involve the standardization of products through a uniform technological capability in order to enhance the homogeneity of customer experiences.

However, the simplistic perspectives received criticisms for not being able to cover other important business factors. An alternative perspective involves mixed strategies (Douglas & Wind, 1987) so that standardization occurs for some products and product components become while differentiation occurs for others. In application, the mixed strategy involves standardization marketing mix aspects in a given region, market or market segments and differentiation for one or more of the marketing mix components for different regions or markets. The rationale for the mixed perspective is that achieving a universal strategy is not possible since some strategies receive rational support in some market context but not in others even if the same products, brand and company is involved but operating as different business units (Ohmae, 1989). This implies that the purpose of global integration is not really to derive a universal structure and strategy but to provide a way for the multinational corporation to rationalize its mixed strategies across regions or markets and tie these efforts to address common goals.

Most of the typologies that emerged later on found basis on mixed strategies. One manner of classifying multinational firms is through worldwide integration, national responsiveness, and administrative coordination (Doz, 1980). This developed the concept of transnational firms and propounded the important role of administrative coordination to facilitate administrative and structural shifts directed towards the achievement of the benefits of integration on a global scale and responsiveness on a national level. This manner of classification revolves around firm level analysis.

Another typology, which considered the industry perspective, distinguished industries as either multidomestic or global (Hout, Porter & Rudden, 1982). This means that the structure and strategy selection of business firms depend on the characteristics of the industry within which the firm belongs, which is either multidomestic or global. Another typology that considered the industry level perspective distinguishes strategy selection based on whether the firm falls under multinational or transnational industry (Bartlett, 1986). The author explicitly developed the transnational concept. This means that integration and responsiveness act as the forces that pressure firms to move towards the transnational model. Hedlund (1986) further expanded this typology by introducing the concept of heterarchy to describe the business units of international firms organized into non-hierarchical networks moving toward the goals of integration and responsiveness. The characterization of international firms as networks was carried by other literature through the development of the concept of independent network (Bartlett & Ghoshal, 1990) and differentiated network (Nohria & Ghoshal, 1997).

Another typology emerged as the alternative by combining the firm and industry level perspectives to come up with four distinctive strategies of multinational firms, which are purest global, export-based, high foreign investments together with extensive subsidiary coordination, and country-centered (Porter, 1986). Purest global and export-based strategies are variants of global strategy; country-centered strategies are similar to the multinational concept; and high foreign investment with extensive subsidiary coordination is similar to the transnational concept. Another alternative emanates from the integration and responsiveness factors to influence the introduction of the types of strategies into global, multifocal and locally responsive. Integration on a global level considers multinational customers, multinational competitors, intensity of investment, intensity of technology, cost reduction pressures, universal needs, and raw materials and energy access. Local responsiveness pressures the firm to consider variations in customer needs, variances in the distribution channels, existence of substitutes and adaptations, market structure, and regulatory demands. These pressures then comprise the areas of strategy determination for international business firms. In addition, another strategic area that considers the factors of integration and responsiveness revolves around knowledge and capabilities sharing between corporate headquarters and the various business units (Bartlett & Ghoshal, 1989).

Based on the development of various typologies, three general structural and strategic distinctions emerge, which are the multinational, transnational and global configurations. These types involve different integration strategies.

The global configuration involves the strategy of tight integration of the value chain processes of the different business units resulting to a high level of centralized strategic resources including knowledge and research and development (Bartlett & Ghoshal, 1987a; 1987b). This means that the activities of the business units are likely to revolve around the utilization of raw materials and application of service policies instead of focusing on activities that promote the independence of the business units. Moreover, the business units under the global configuration are unable to function without consulting company headquarters. As such, the high level of centralized control leads to the importance of a strong centralized leadership and decision-making. This would likely involve limited development and innovation from the business units operating in the peripheral markets. The network flows between corporate headquarters and the business units revolve around products. Thus, firms adhering to the global configuration tend to achieve high levels of integration because of centralization but low levels of responsiveness on a national level because of the lack of development and innovation coming from the business units operating in various national contexts.

The multinational or multidomestic configuration pertains to the fostering of high levels of autonomy on the part of the subsidiary units because of the corresponding high degrees of decentralization in decision-making (Roth & Morisson, 1990; Harzing, 1998; 2000). This means that the business units or subsidiaries are self-sufficient in their operations on a national level. As such, the subsidiaries enforce value chains that can stand alone in their country of operations (Leong & Tan, 1993). Corporate headquarters manage this situation by considering the business units as independent firms but manages the productivity of the subsidiaries through output controls, especially financial measures. The output controls comprise the integrating factor for the different subsidiaries since this measures their adherence to overall firm goals (Muralidharan & Hamilton, 1999). Moreover, an informal network exists between the top managers assigned in the corporate headquarters and the expatriates serving as representatives of the headquarters in the subsidiaries (Gupta & Govindarajan, 2001). Multinational business units exercise relatively high levels of independence because of the minimal intervention and interference from the corporate headquarters except only the application of output controls. The derivation and enhancement of knowledge occurs locally instead of coming from headquarters for dispersion in the different business units. Concurrently, the flow that involves corporate headquarters and the business units encompasses financial resources. Thus, the application of the multinational configuration leads to a high level of responsiveness on a national or local level but resulting to limited integration.

The transnational configuration involves the creation of international business firms with the simultaneous capability for responsiveness on a local level, integration on a global level, and learning on a worldwide level. This configuration involves the ability to consider various areas of responsiveness or ambidexterity, which refers to the ability to target conflicting demands at one time (Birkinshaw & Gibson, 2004). Nohria and Ghoshal (1997) described the transnational configuration as both differentiated and interdependent. As such, the transnational configuration involves greater integration relative to the multinational configuration but involves greater responsiveness relative to the global configuration. This means that the activities of the business units covering aspects of the value chain becomes integrated physically and coordinated strategically. The subsidiaries the play pre-determined roles within the context of the multinational goals instead of just focusing on the maximization of opportunities in the local level. Creation of knowledge involves a higher level of dispersion compared to the global configuration because the objectives are sharing of knowledge derived on level of the peripheral units. The manner of integration then involves mechanisms of socialization instead of output measures as in the multinational configuration. This means the development of standardized norms across the business units (Mintzberg, 1983a). Flow of resources is also expanded to encompass resources, products as well as knowledge across the various business units.

Overall, the rationale for global integration based on the environmental contingency perspectives depends on the typology of the operations of business firms. The different typologies carry corresponding structural frameworks and strategic activities directed towards the achievement of the one or both objectives of integration and responsiveness.

Proponents of the strategic choice perspective focus on internal factors and pressures in determining structure and strategy for international business firms constituting the rationale for engagement in integration. As such, the focal areas of the strategy choice view include resources, capabilities and processes (Ghoshal, 1987). Concurrently, available literature focused on the two concepts of strategic integration together with corporate parenting that provide distinct multinational firm capabilities.

Strategic integration covers the manner that management develops value that encompasses value creation of the different business units forming part of the international firm. Moreover, strategic integration has links to the combination and cultivation of the different resources of the international firm such as the intangible assets together with capabilities in the long-term through the process of coordinated deployment from the corporate headquarters to the business units. However, the subsidiaries have room to enhance further assets and capabilities to respond to their particular business contexts. (Burgelman & Doz, 1996) Another view of strategic integration is as pertaining to dynamic capability that is based on particular strategic and structural routine activities (Eisenhardt & Martin, 2000). This means that integrating factors comprise the routine activities common in all the business units.

Capabilities for strategic integration receives importance in the case when managers intend to shift from one configuration to another but there are variances in the levels of resource needs, strategic requirements, and structural frameworks involved in the configurations. Strategic integration as a capability is also important in situations involving the shift from a weak to a stronger implementation of a given configuration. (Teece et al., 1997; Eisenhardt & Martin, 2000) This means that the international business firm employs various combinations of value chain integration and marketing standardization for particular configurations. To ensure integration and standardization, coordination mechanisms comprise important means of unifying processes and outputs across the different business units.

Parenting theory evolved to apply to multi-business contexts, specifically the manner that corporate parents influence the operations of subsidiaries in order to add value to the operations of the business units (Goold, 1996a; 1996b; Goold & Campbell, 1991; 2002; Goold, Campbell & Alexander, 1998). The parenting theory does not particularly focus on integration. Nevertheless, the descriptions of the parenting strategies capture the situation of multinational firms and the manner that corporate headquarters affect the dynamics or workings of the subsidiaries. Since integration involves limitation on the freedom of operation of the business units, the role of the parent company becomes important in achieving effective integration. This means that according to the parenting theory, the rationale of engaging in integration lies in the significance of the role of the parent company in providing effective integrative factors intended to enhance the output and process outcomes across the different business units.

Parent firms can create value for the company in four ways. First, the parent company can apply a stand-alone policy, which means that the strategy and performance of the business units are affected minimally by the parent company. Integration at a minimal level of influence occurs through output standardization (Mintzberg, 1983a), which is implemented through financial rations serving as the targets of the subsidiaries. Second, the parent company can increase its influence on the subsidiaries by implementing synergistic practices and transfer of knowledge and best practices to the business units (Mintzberg, 1983a), specifically activities such as standard work systems, standard norms of practice, and training of workers. Third, parent companies can further enhance its influence on the business units by extending the reach of its central functions to the business units. This extent of influence is nearer integration as strategic change instead of coordination. Fourth, an even greater influence on the business units can be made with the parent company altering the corporate portfolio through the acquisition or removal of operations to facilitate restructuring. This also involves greater parallelism with integration as strategic change instead of a coordinative process. Fifth, parent companies can extend their influence to an extent that covers the influence of purchasing firms during post-mergers (Schweiger, 2002). These different extents of influence applied by the parent company translate into different rationales for integration given different multination firm contexts. Regardless of the extent of influence employed by the parent company, it is necessary that the parent company that constitutes the corporate center constitutes a resource in itself through varying levels of influence or provide alternative processes that derive resources for the business units in order for the level of integration to achieve value to the subsidiaries and justify the engagement in integration.

In addition, there are also parenting styles (Goold, Campbell & Alexander, 1994) that describe the manner that the parent company relates to its subsidiaries. First is the financial control style that involves decentralized decision-making of the business units that usually apply in small business firms (Hout et al., 1982). Second is the strategic planning style that involves an influential staff involved in a wide range of areas of operation in the business units (Hout et al., 1982). Third is the strategic control style involving top-down planning but bottom-up implementation that is achieved through the balanced consideration of financial objectives and strategic milestones. These parenting styles provide the factors that have to be present for parent companies to create value for the business units and provide a reason for the type of integration.

Integration Challenges

After discussing the definition and rationale for integration, the succeeding discussions look into the integration challenges experienced by the multinational firms. Existing literature classify these challenges into those experienced by corporate headquarters and those felt by the subsidiaries.

Corporate headquarters experience a number of integration challenges. First is ensuring the creation of value to support the extent of integration. This means that the integration should create greater value compared to the previous status of the firm (Goold, 1996b). Second is preventing any misguided intervention that depend on the context of business units since excessive guidance can thwart much needed innovative action on the subsidiary level (Goold & Campbell, 2002). Third is enhancing the quality of execution and support staff services of the company headquarters (Goold & Campbell, 2002). Fourth is avoidance of multiple levels of parenting that could lead to redundancy and contradictions (Goold & Campbell, 2002). Fifth is the management of various kinds of intra-firm reporting so that the type of reporting should match the simplicity or complexity of the multinational firm (Prahalad & Doz, 1987). Sixth is the avoidance of the building of empires at headquarters by clearly establishing the roles of top management in maintaining corporate entity and adding value to the subsidiaries (Goold & Campbell, 2002).

Subsidiaries also experience problems in integration. First is achieving structural and strategic fit (Jemison & Sitkin, 1986a; 1986b; Olie, 1994; Carleton, 1997) given variances in administrative heritage (Bartlett & Ghoshal, 1989) that requires the development of a common administrative infrastructure. Second is managing opportunism among the subsidiary managers within the context of agency relations (Jensen & Meckling, 1976; Eisenhardt, 1989a; 1989b) through risk management and agency clarification. Third is ensuring the commitment of the subsidiary managers since commitment determines the success of the integration process (Kim & Mauborgne (1991; 1995) by developing a perception of fairness of the integration (Greenberg, 1993).

Available literature on the problems experienced by the subsidiaries provide significant foundational information for the study by providing concepts that relate to the study on the perceptions of subsidiaries, particularly the managers of the subsidiaries regarding the integration. The factors of attitudes, commitment and cooperative behavior are the problem areas of integration on the subsidiary side but these also comprise determinants of the perceptions of subsidiaries towards integration.

Immediate Literature

This section covers immediate literature since the integration capabilities and the modes of managing the subsidiary provide the determinants of the perspectives of subsidiaries towards integration, similar to the part on the problems experienced by the subsidiaries discussed in the previous section.

Integration Capabilities

A number of integration capabilities are important in the integration initiative. Since integration involves actions and responses not only from the company headquarters