Transnational Firms
Models of growth and development
In what sense “global corporations”?
Webs of enterprise – internal organization
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Organization structures
Restructuring and rationalization
Geographical organization of production
Webs of enterprise – external relationships
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Japanese keiretsu structures
Supplier links and subcontracting
Models of TNC Growth &
Development
Last Thursday we examined different
theories of FDI the development of the
TNC or as Dicken says: Why
internationalize?
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Macrolevel and microlevel approaches
Now let’s reconsider the graphic models
of TNC development that we discussed
last Tuesday
Sequential
process
Flow chart from
domestic firm to
TNC
Except that there
are no true
prerequisite steps!
Source: Dicken
1998: 191
Schematic Model
Iconic model
Emphasizing spatial/ regional expansion
Stages of growth
Importance of trade barriers
Source: Hakanson (1979)
Grid model
A way of
conceptualizing two
fundamental
dimensions
Static typology or
classification OR
Dynamic model
showing development
pathway?
A Typology of Enterprise: From Domestic to Global I
Domestic Company:
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Most revenues in home market
Products and processes are primarily for serving
domestic customers
International Company:
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Significant percentage of revenues in international
activities
May have separate international division
Significant distinctions in products and processes
made between domestic and foreign customers
A Typology of Enterprise: From Domestic to Global II
Multinational or Multidomestic Company:
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Extensive international revenues and activities
Strong country organizations and many value chain
activities duplicated around world
Decisions focused on local customer and local markets
Limited coordination across borders
Global Company:
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Makes key strategic decisions on globally integrated
basis
Value chain is geographically specialized and
networked
Products and processes are designed to be global with
capability for local adaptation at minimal cost
A Typology of Enterprise: From Domestic to Global III
Source: "The Challenge of Global
Customer Management" Marketing
Management; Chicago; Winter 2000;
David B. Montgomery, George S. Yip.
Are TNCs Truly Global and Stateless”?
Criteria for Identifying Global Firms
Where are the bulk of assets?
Where are most employees?
Where is the parent company owned and controlled?
What is the nationality of the senior executives?
What is the nationality of subsidiary managers?
Where would firm turn for diplomatic protection?
Where are worldwide earnings taxable?
Source: Hu 1992 California Management Review
Measuring Global Scope
Ra Rank by total foreign assets
Ri Index of transnationality: average of three
ratios (proportions)
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Foreign assets/total assets
Foreign sales/total sales
Foreign employment/total employment
Let’s look at how they rank!
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(Table 6.2)
Organization
structures of
TNCs
Locational
adjustment &
rationalization
in a
multiproduct
TNC
Organizing
production
in space
Organizing
production
in space +
trade links
Exported
finished
product
External Networks
Transactions between firms
Supplier linkages
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Parts, components, subassemblies
Subcontractors
Local to global scale linkages
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Web of trade, transactions, relationships
Deep integration
Keiretsu
Stable, long term, exclusive affiliations
which form identifiable groups
Families of related companies based on
mutual obligations
Ties are based on familial relationships,
friendship, interlocking directorships,
financial links
Reminiscent of Japanese feudalism
Keiretsu Schematic Diagram
Horizontal keiretsu
Groups centred on banks
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manufacturing
trading companies - sogo shosha
life insurance
other financial
Nested satellites within satellites
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shitauke
Horizontal keiretsu,
some with origins to
the pre 1945 zaibatsu
Vertical keiretsu
Centred on large parent firm in one industry
e.g.
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Toyota (automotive)
Sony (electronics)
Kirin (brewing)
Smaller suppliers are nested: satellites within
satellites
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shitauke
Vertical keiretsu,
focused on industries
and vertically linked to
satellite firms (not
shown)
Webs of Enterprise!
Links between
horizontally and
vertically structured
keiretsu
Focus on major automobile
producers as vertical
keiretsu:
Note mainly exclusive links
to banks,
hence to other
manufacturing industries
and suppliers
Subcontracting Relationships
Principal firm
Subcontractor
Industrial:
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processes (chrome plating, polishing, painting,
bottling)
components (supplier or subcontractor)
Commercial:
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whole products to spec
food services on university campuses!
Motivation for Industrial
Subcontracting
Specialized processes
Cost-saving
Complementary or intermittent subcontracting (buffering)
Types of relationship between
principal and subcontractor
Long or short term
Principal or subcontractor may be responsible for:
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Material/components
Design/specification
Finance
Machinery/equipment
Technical assistance
Principal always markets finished products
 But retailing could be viewed as an exception!
Geographical dimension of
subcontracting
Traditionally viewed as local
relationship creating an industrial
cluster or industrial complex
Increasingly global in scope, the web
of links articulates regions, countries
and continents
Nike
Owns no factories
Produces no sneakers
Large scale, vertically disintegrated and
subcontracts all production
Designs and markets sneakers
Nike Subcontracting Model
What would Dunning say?
Ownership specific advantage…
that Nike chooses not to exploit in its
own factories (externalization in lieu of
internalization) and…
location specific advantages of Asian
LDCs