Ownership strategies of multinational corporations: Towards designing effective global networks

Multinational corporations (MNCs) configure their activities around the world and coordinate them as part of their international strategy, mainly by owning subsidiaries overseas. These subsidiaries are owned in different ways--either directly by the headquarters or indirectly through other subsidiaries (method), and wholly or jointly (form). As an MNC develops its international strategy, a global network of subsidiaries emerges.;Until now, the emphasis of researchers and managers alike has been on individual overseas subsidiaries. MNCs are viewed as if they were a collection of overseas subsidiaries, with little attention paid to the overall structure into which these subsidiaries fit. This neglect of the overall design of the network has resulted in firms experimenting with different ownership strategies and their consequent tortuous evolution, without any guidance in designing global networks. The purpose of this study is to investigate the structure of the entire network of subsidiaries.;The thesis of this research is that MNCs, attempting to implement different international strategies in response to several environmental factors, let their global networks evolve. The ownership structure of the network is therefore a function of the international strategy and environment of a firm. A particular strategy (configuration/ coordination), given a certain environment, may be effective if associated with the appropriate structure.;This study is based on a survey of 318 U.S. manufacturing-sector MNCs using a questionnaire. The ownership structure of an MNC network was identified by studying the nature of ownership--method and form--of overseas subsidiaries. Using network theoretic methods, ownership structure was empirically related to international environment, strategy, and performance.;Ownership structure is related to environmental demands and strategy choices. Different degrees of coordination were facilitated under different ownership structures. A loose structure evolved under a Type I (Local Focus) environment/multidomestic strategy, and a tight structure under a Type II (Global Focus) environment/global strategy. Performance was found to be related to the international environment, international strategy, and ownership structure, thereby highlighting the importance of a fit.;The results of this study throw light on the design of global networks and enable a general theory of the design of MNCs to be eventually developed. Such a theory can be helpful to managers in designing an effective global network of subsidiaries rather than letting the structure evolve as a cumulative result of decisions on individual subsidiaries.