The Use of the Multinational Corporation as a Research Context

Journal of Management 2003 29(6) 883–902

The Use of the Multinational Corporation as a Research Context Kendall Roth∗ 1705 College Street, University of South Carolina, Columbia, SC 29208, USA

Tatiana Kostova 1705 College Street, University of South Carolina, Columbia, SC 29208, USA Received 28 February 2003; received in revised form 19 May 2003; accepted 21 May 2003

The multinational corporation (MNC) has been increasingly used as a context for conceptual and empirical work. Based on a review of several leading management journals, we identify three main purposes for which the MNC has been employed: (1) study of MNC-specific phenomena; (2) validation and expansion of existing theories; and (3) development of new theories. We suggest that the latter purpose represents the highest potential contribution of MNC research, yet it is the least utilized so far. We then offer ideas of how to increase the contribution of MNC research through capturing the conceptual distinctiveness of the context, examining the theoretical paradoxes inherent in these organizations, and theorizing about novel combinative phenomena emerging in this context. © 2003 Elsevier Inc. All rights reserved.

My clarifying question is, what is unique about MNE (multinational enterprise)subunit?. . . I don’t see how the ‘foreignness’ of a subunit substantively changes the theoretical arguments. Any kind of multi-unit organization can potentially build relational capital. . . . the context of this study is not clear. Focus on how your study is important to the MNE theory and its evolution. Your study has the opportunity to extend MNE-subunit theoretical perspectives and right now, the paper benefits from social capital literature and doesn’t take the advantage of the MNE counterpart. (Anonymous Reviewers, AMR)

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Corresponding author. Tel.: +1-803-777-3604; fax: +1-803-777-3609. E-mail address: [email protected] (K. Roth). 0149-2063/$ – see front matter © 2003 Elsevier Inc. All rights reserved. doi:10.1016/S0149-2063(03)00083-7

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I am still not convinced that it’s necessary to talk about relations between MNE headquarters and their subunits. I believe that your discussion can be applied to any situation where work is divided into subunits and boundary spanners have ties across subunit borders. . . . Moreover, what is unique about the multinational context that requires a specific theory of relationships? What is the boundary of this theory? In the end, I agree. . . that we need a much more persuasive argument for the focus of this paper on multinational organizations. (Former Editor, AMR) There is an increasing number of scholarly publications that are using the multinational corporation (MNC) as a context to build theory or test research propositions. Furthermore, these publications appear in a wide variety of journals, many of them not strictly limited to the international business domain. Whereas this type of research used to appear primarily in international journals (e.g., Journal of International Business Studies), it now constitutes a substantial part of the articles in mainstream organizational studies outlets. Thus, there is a growing interest in the wider community of management scholars in understanding phenomena related to MNCs. While MNC-related research may be gaining legitimacy, reviewers and editors are asking scholars to defend their choice of the MNC as a context of study, as illustrated in the excerpts from reviews above. This would suggest that either we, as a field, have yet to demonstrate the distinctiveness of the MNC context for theory building and research, or we have not been able to articulate well the theoretical legitimacy of this context. The objective of this paper is to review MNC-related literature and to identify and discuss the various ways in which this context has been employed. Building on this review, in the first part of the paper, we identify fundamental purposes for which authors have used the MNC context and provide examples illustrating these applications. In the second part, we offer some considerations of how future research can better utilize the potential of the MNC context to advance theory.

Study Design In our review, we focused on five leading management journals that are publishing a substantial number of MNC-related articles including Academy of Management Review, Academy of Management Journal, Administrative Science Quarterly, Journal of Management, and Journal of International Business Studies. We would note that although our study does not use the complete set of possible outlets publishing MNC research, we believe that the journals we chose are representative of the trends and issues characterizing the phenomenon from a management perspective. For each of these journals, we reviewed articles for a 10-year period, 1992–2002. We reviewed articles that used the MNC either as the subject of study or as a context for the study of a particular phenomenon (e.g., expatriates, international teams), or unit (e.g., international joint ventures, alliances, and foreign subsidiaries). In addition to these criteria for review, we also screened each article to verify that the MNC context was not incidental or irrelevant. For example, a paper by Robson, Wholey

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and Barfield (1996) was not included although it used data from three of the “Big Six” accounting firms, because there were no explicit considerations (theoretical or empirical) for using these international organizations. Similarly, the MNC context was not essential to Shore, Barksdale and Shore’s (1995) work on employee commitment, where the respondents just happened to work for a large MNC.

Review In our review of the literature, we applied a two-stage approach. We initially examined approximately 50 articles to identify the main purposes or reasons for using the MNC. In some studies the purpose(s) was stated explicitly by the author(s) while in others it had to be inferred by us. We classified these reasons into three basic categories, each of which was further refined into multiple sub-categories. In the second stage, we used these categories to guide our review of the remaining articles, incorporating minor modifications and additional specificity, as necessary. The three main purposes of using the MNC context are to (1) study MNC-specific phenomena, (2) further validate or expand established theories, and (3) develop new theory. Below we describe and illustrate these three main purposes, as well as the additional subcategories we identified within each of them. We should note that any given article may serve multiple purposes, however, for our analysis, we chose the primary purpose of each article. MNC-Specific Phenomena Researchers have produced a substantial number of publications focused on various phenomena specific to the MNC. By “specific,” we mean a phenomenon that essentially does not exist in the non-MNC context, or it has been modified, and is viewed as being different, as a result of the introduction of the cross-border condition defining MNCs. Thus, specificity may range from a difference “in kind” (e.g., international diversification, internationalization, foreign direct investment) to a difference “in degree” (e.g., cultural diversity, political risk, international interdependence). Basic approaches. The dominant focus of studies comprising this group is on explaining and understanding a particular MNC-based phenomenon. However, the theoretical perspectives employed in its examination are seldom specific to this context. Authors generally use established theories from a variety of disciplines. Also typical for this group is the use of a combination of multiple theories or theoretical perspectives. For example, Contractor and Kundu (1998) employed concepts from transaction costs theory, agency theory, corporate knowledge and organizational capability theories to answer the question of “What determines the optimum choice of organizational mode?” in the international hotel sector (p. 325). Kashlak, Chandran and Benedetto (1998) incorporated ideas from the diverse literatures on international cooperation, transaction costs theory, and economic anthropology to understand better the concept of reciprocity in international telecommunications alliances and contracts. Similarly, Tallman (1992) used oligopoly power, transaction cost economics and resource-based theory to explore the host country structure of multinational corporations.

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Another common approach used in these studies is to incorporate additional context-specific variables into existing models in an effort to better capture the phenomenon at hand. However, the basic explanatory mechanism of the theory remains intact, as the primary motive for the research is to better understand the phenomenon itself. For example, if transaction cost economics is used to explain the choice between markets and hierarchies, the cross-border condition may lead to greater transaction costs, and therefore additional “international” variables may be incorporated into a study to capture these costs. However, the basic explanatory mechanism of the theory does not change. An illustration of this type of use of the MNC context is the article by Morosini, Shane and Singh (1998), in which they incorporated national culture to examine performance of cross-border acquisitions. George, Jones and Gonzales (1998) provide another example as they examined the moderating effects of national culture on the relationship between affect and the outcome of an international negotiation process. Topics studied. There is a wide variety of topics that researchers have studied specifically in the MNC context (for list of particular topics and references, see Werner, 2002). A large subset deals with issues related to the boundaries of the multinational firm and the organizational forms MNCs use, including international joint ventures (e.g., Barkema & Vermeulen, 1997; Inkpen & Beamish, 1997; Yan, 1998), international alliances (e.g., Johnson, Cullen, Sakano & Takenouchi, 1996; Kashlak et al., 1998), and interorganizational collaboration (e.g., Holm, Eriksson & Johanson, 1996). Other researchers have addressed decisions or implications related to crossing borders, such as foreign direct investment (e.g., Makino, Lau & Yeh, 2002), mode of entry (e.g., Chen & Hennart, 2002; Pothokuchi, Damanpour, Choi, Chen & Park, 2002), internationalization (e.g., Athanassiou & Nigh, 2000; Kwok & Reeb, 2000; Sullivan, 1996), international entrepreneurship (e.g., McDougall & Oviatt, 2000), and global diversification (e.g., Hitt, Hoskisson & Kim, 1997; Tallman & Li, 1996; Tihanyi, Ellstrand, Daily & Dalton, 2000). There are also a number of articles that deal with the socio-political embeddedness of the MNC and examine topics like the effects of culture, political risk assessment, and bargaining power of MNCs relative to host governments. Examples include Butler and Joaquin (1998) examination of political risk and foreign direct investment, Brouthers and Bamossy’s (1997) examination of the role of Eastern European governments as a key stakeholder in international joint ventures, and the research by Moon and Lado (2000) on the bargaining power relationship between the MNC and host governments. Finally, a number of researchers have focused their inquiry on intra-organizational issues of managing foreign subsidiaries, control and coordination, and cross-border management systems and processes. The work by Newburry (2001) on perceptions of career benefits from global integration in MNCs, Spencer’s (2000) examination of knowledge flows in global innovation systems, Luo’s (2001b) study of the determinants of foreign subsidiary local responsiveness, and Shaffer et al.’s (2001) examination of the psychological withdrawal of employees on international assignments within the MNC illustrate well this line of inquiry. Contribution of approach. As a whole, the contribution of the research in this group weighs more heavily on examining the phenomenon rather than utilizing it for theory development in general. Describing and understanding an MNC-specific phenomenon is a valid

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research purpose in itself especially when this phenomenon is relatively new and not very well understood. However, we would note that such an approach would make a broader impact if (1) the results of the study are tied back to the theory being used, to inform or enhance this theory, or (2) the attributes that establish the distinctiveness of the phenomenon are specified and utilized. The examples below illustrate how each of these contributions can be made. Reuer and Leiblein (2000) examined the downside risk associated with two MNC-specific phenomena, multinationality and international joint ventures. They stated that “real options theory suggests that dispersed foreign direct investment (FDI) provides a portfolio of options that enable a firm to avoid downside outcomes by shifting value-chain activities across country borders in response to changes in local demand, competitors’ actions, foreign exchange rates, input prices, and other environmental contingencies” (Reuer & Leiblein, 2000: 204). However, they found that “dispersed FDI and international joint ventures do not have a general, negative impact on organizational downside risk, as predicted by real options theory and international strategy research” (Reuer & Leiblein, 2000: 210). They suggested: . . . the evidence we present can be explained by the observation that not all investments undertaken in uncertain contexts provide significant options, nor do firms necessarily manage real options properly. The results thus reveal a gap between the promise of risk reduction that theory holds out and the reality of firms’ apparently limited capabilities for managing international investments as options. (Reuer & Leiblein, 2000: 210) They continue by offering theoretical considerations for multinationality and international joint ventures. To examine the case of international joint ventures further, they re-estimated their models using data from domestic joint ventures and found similar results. This demonstrates that their study is not limited to the MNC. It allowed the authors to link their findings back to a “non-international” theoretical discussion and a non-international phenomenon. Zaheer’s (1995) work on the liability of foreignness illustrates the second condition by which MNC-specific research can be taken a step further to contribute more significantly to the literature. In her study, Zaheer first describes the distinctive attributes of the liability of foreignness, noting that it is based on costs arising from four sources: (1) costs directly associated with spatial distance, such as the costs of travel, transportation, and coordination over distance and across time zones; (2) firm-specific costs based on a particular company’s unfamiliarity with and lack of roots in a local environment; (3) costs resulting from the host country environment, such as the lack of legitimacy of foreign firms and economic nationalism; (4) costs from the home country environment, such as the restrictions on high-technology sales to certain countries imposed on U.S.-owned MNEs. (Zaheer, 1995: 343) These costs would likely be negligible in the non-MNC context when a firm is expanding domestically. By providing such an in-depth conceptualization of the liability of foreignness, she is able to explicitly argue why the MNC case is distinct and therefore calls for separate research. A final illustration is the work of Luo (2001a) examining how the performance of international cooperative ventures (ICVs) is influenced by the personal attachment of boundary spanners within the venture. In justifying why this specific context is instructive, he argued:

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ICVs typically entail a considerable outlay of resources, create enduring and irreversible commitments between partners, and parties to them have difficulty controlling opportunism through formal governance mechanisms. . . These characteristics make the role of personal attachment particularly crucial. While previous work on managerial ties and attachment is also informative for ICVs, ICV partnerships differ from domestic auditor-client, advertiser-client, or buyer-seller links in many respects, such as the external environment, nature of cooperation, degree of dependence, division of payoffs, resource contribution, and economic motivation, among others. (Luo, 2001a: 178) The author further explicated how these characteristics of the ICV influence the personal attachment processes for individuals serving in boundary spanning roles. It is worth noting that the study examined ICVs in the Peoples’ Republic of China. He further detailed how this particular external context, where “social ties substitute for a strong market structure” influence the attachment process. Thus, beyond conveying the uniqueness of ICVs, the author also explicitly discussed the attributes of the external context, which further contribute to the distinctiveness of the ICV. Validation and Expansion of Existing Theories The MNC has been also used for the purposes of further testing, validating, and expanding existing theoretical perspectives. This is not to say that this research does not explore MNC-specific phenomena. However, this research seems to be driven primarily by the goal of using the MNC context to extend and test existing theories. This is possible because multinational organizations provide a context characterized by substantial heterogeneity and complexity, which can be (1) contextual (i.e., external environment), (2) intraorganizational, or (3) occurring at the individual-level. Externally, MNCs operate in multiple countries and are therefore exposed to a variety of institutional, cultural, and economic environments. Internally, multinational organizations are typically comprised of differing units residing in different environments and possibly operating under different management systems. Finally, plurality at the individual level is reflected in the wide variety of backgrounds, cognitive templates and biases, values and beliefs, experiences and roles of MNC employees. As summarized by Chang and Taylor (1999): MNCs must function, “in more than one environment, and respond to a complex set of factors such as the diverse nationalities of employees, floating exchange rates, geographically imposed problems of communication, and so forth. . . MNCs can also be characterized as a group of geographically dispersed and goal-disparate organizations. . . essentially, they are workplaces where different ethnicities and cultural values are intertwined.” (Chang & Taylor, 1999: 541–542). Such conditions of high variability provide rigorous opportunities to examine the generalizability of certain theories or to further expand them by changing boundary conditions, incorporating additional explanatory variables, or stating moderating effects. In the following sections we describe the specific purposes of using the MNC context for this group. We do this separately for each of the three sources of heterogeneity discussed above.

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Contextual heterogeneity. By their very nature, MNCs are characterized by multiplicity and diversity of their external environments. The typical MNC will have operations in multiple countries and as a result will face a variety of political, economic, legal, social, and cultural circumstances. Furthermore, some of these multiple environments may be quite distinct from one another. These characteristics of the environment are central to the subset of studies presented in this section. In these studies, the MNC context has been used for the purposes of either further empirical testing of a model or enriching the theoretical model itself. In the former case, the authors commonly use theories that are not specific to the MNC. The context of the MNC is instructive because it provides significant variance in the external environment, thereby allowing for a rigorous test of the theory. One of the most direct applications of this approach is found in studies designed to examine the generalizability of an existing theory by replicating research in different country settings. The MNC provides a means for accessing such settings. Other applications make use of the increased heterogeneity and complexity, which again increase the variance. The examples below illustrate such uses of the MNC where it provides a context with increased heterogeneity or complexity. In their study of the relationship between organizational slack and innovation, Nohria and Gulati (1996) justified the use of the MNC context. Prior research has shown that in large, multinational organizations, such as multinational corporations (MNCs), intraorgaizational differences can be greater than interorganizational differences. . . . Accordingly, we decided that the most appropriate level at which to study this relationship was organizational subunits. . . such settings are rife with classic competing coalition and agency problems. . . thus, we were likely to find considerable variance in amounts of slack across the departments of MNCs, making them a rich setting in which to explore the relationship between slack and innovation. (Nohria & Gulati, s1996: 1250) In a study of the institutional effects of intraorganizational collaboration, Lawrence, Hardy and Phillips (2002) justified conducting their research within an MNC. They argued that the MNC was operating in a setting that “was particularly important in our choice of a case study. The political and social situation in the region at this time both limited and opened up options for collaboration. . . this situation provided [the company] the opportunity, and created the necessity, for collaboration” (Lawrence et al., 2002: 283–284). This design allowed the authors to examine the phenomenon within a heterogeneous context. Guillén (2002) used the MNC related external heterogeneity for slightly different purposes. As he suggested, such a context provided for a rigorous and controlled test of organizational effects. Foreign expansion or entry. . . can in general be treated as analogous to market entry, which is a type of strategic change that organizational ecologists and neoinstitutional researchers have found to be affected by interorganizational variables. . . this setting [S. Korean companies expanding into China] provides a conservative test of the effects of organizational variables, given that purely economic factors have been such a powerful force driving foreign expansion. . . this circumstance rules out the transaction cost issues related to the process of substituting local production in the foreign country for exports from the home country. . . (Guillén, 2002: 514)

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While the preceding studies are focused primarily on capturing empirical-based variability in the environment, the heterogeneity and complexity of the MNC context may also facilitate theory extensions or modifications. Thus, the MNC may be used to enrich the theory development process. In this case, the MNC context necessitates some re-consideration of the theory to maintain its explanatory power in the given setting. Bae and Lawler (2000), for example, examined human resource practices within an emerging economy using a set of MNC subsidiaries and local firms operating in Korea. The context, they argued, allowed them to “consider the impact of non-Western cultural influences on the conventional SHRM [strategic human resource management] framework and provide empirical evidence for the model we constructed” (Bae & Lawler, 2000: 502). Based on specific cultural characteristics of Korea, they provided culture-based explanations of why high-involvement work systems could be implemented in Korea. Janssens, Brett and Smith (1995) adopted Poole’s (1986) conceptual model in their examination of the implementation of a corporate safety policy within the MNC. When applying this model to their context, they argued: Poole’s comparative framework needed to be modified to account for differences between multinational sites. . . cultural values and social, economic, and legal structures in an organization’s home country are expected to affect its corporate policy. . . since organizational practices, shaped by different cultural value systems, reflect managers’ assumptions about how to manage people and the management structures that result from those assumptions. . . the model is likely to be different in different cultural settings. (Janssens et al., 1995: 367) In summary, as illustrated with the exemplary studies quoted above, our review suggests that the heterogeneity and complexity related to the MNC context have been used for both empirical and conceptual purposes. Empirically, for certain phenomena, the MNC context increases the variance in the data. Conceptually, the MNC context may suggest the need for additional constructs, or relationships among the constructs. This may allow researchers to re-specify or extend existing models. However, we would observe that, similar to the studies on MNC-specific phenomena, here the basic logic or explanatory mechanism of the theory being examined remains essentially intact. Thus, this use of the MNC context emphasizes theory extension rather than development of novel theoretical insights. Intraorganizational complexity. In the studies cited above, the focus on the MNE context is motivated primarily by the richness of the external environment. In addition to this external variability, the MNC context can be used to capture intraorganizational heterogeneity and complexity. Examples of such internal heterogeneity include different strategic goals and orientations of MNC units (e.g., Birkinshaw & Hood, 1998, 2000), different governance or control mechanisms (e.g., Chang & Taylor, 1999; Erramilli, 1996), and different management practices and processes used by MNCs (e.g., Roth & O’Donnell, 1996). The main purpose in this subgroup of papers has been to examine the applicability of existing theories and research on different organizational processes and issues, under conditions of increased heterogeneity and complexity. The examples below illustrate this approach. Sanders and Carpenter (1998) examined firm governance using a combination of information processing and agency theory. They observed that, “international firms have often

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been held to represent the most complex managerial decision-making environment. . . the question of how large firms strive to manage and cope with the complexity arising from the internationalization of their operations remains one of the most pressing issues. . . ” (Sanders & Carpenter, 1998: 158). They then argued that such complexity impacts both the information processing demands and the agency conditions. As they state: . . . such complexity also increases the information processing demands placed upon firms and their TMTs. . . the complexity and resulting information processing requirements associated with internationalization also have important implications for the agency relationship between the owners and executives of firm, and, more specifically, for the compensation and monitoring of executives. . . (Sanders & Carpenter, 1998: 160) In a study applying procedural justice to the corporate strategic decision making within MNCs, Kim and Mauborgne (1993) considered this context particularly insightful in that foreign subsidiaries have differentiated strategic requirements for success. They suggest: . . . whereas corporate strategic decisions for a subsidiary with multidomestic industries are driven largely by local concerns, corporate strategic decisions for a subsidiary with global industries are driven chiefly by global concerns. . . global priorities are likely to drive corporate strategic decisions for a subsidiary unit with global industries. Hence, those decisions often do not reflect the unit’s local interests. Consequently, a higher level of conflicting interests is likely between the corporate center and the unit than would be the case for a subsidiary with multidomestic industries. . . in such situations managers responsible for the unit are inclined to ignore corporate strategic decisions and reduce the quality of their implementation. . . procedural justice is likely to act as a countervailing mechanism significantly enhancing managers’ compliance with corporate strategic decisions. (Kim & Mauborgne, 1993: 506–507) In developing a framework exploring human resource management practices within MNCs, Schuler, Dowling and De Cieri (1993) suggests that there are two major components of multinationals that influence such practices—interunit linkages and internal operations. They note that MNCs must operate effectively in a multi-market context. Thus, they observe that for units within the MNC, management must be: . . . interested in how these units are to be differentiated and then how they are to be integrated, controlled and coordinated. . . the issues associated with differentiated and integrating the units of an MNE represent a major influence on SIHRM [strategic international human resource management] issues, functions and policies and practices. . . they are concerned about the internal operations of those units. In addition to working together, each unit has to work within the confines of its local environment, its laws, politics, culture, economy and society. (Schuler et al., 1993: 424) Individual variability. In addition to the external and intraorganizational variability discussed above, the MNC context also provides an opportunity to incorporate into theory and research variability at the individual level. These studies usually examine the applicability of existing theories to individuals with diverse backgrounds and organizational roles. Some of the most typical applications here include the study of the effects of indi-

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vidual values and beliefs that tend to systematically vary across the different units within the MNC. In their study of employee “ecoinitiatives,” Ramus and Steger (2000) assumed that the social environment influences the level and frequency of creative behaviors. Correspondingly, they used the MNC context as it provided potential variation of the behaviors of interest. As they stated, “we were not interested in cross-company comparisons, but rather, in testing our hypotheses by obtaining a diverse sample of employees working in different countries” (Ramus & Steger, 2000: 612). Similarly, in her study of managerial beliefs, Markoczy (1997) used a sample of MNC employees to capture individual variance in cultural backgrounds. Harvey (1997) conducted a study of dual-career expatriate couples to “identify issues that impact adjustment, satisfaction, and support provided by the MNC for dual-career expatriates during this assignment” (p. 634). In that, he applied existing research for domestic dual career relocation to the international relocation condition. Utilizing individual variability based on an MNC sample, he was able to gain insights into the unique problems associated with this phenomenon. In summary, the articles discussed in this section attempt to utilize the heterogeneity and complexity that characterize the MNC including the external environment, intra-organizational diversity, and individual variability. The primary purpose for using these conditions is to either test the applicability of existing theories or incorporate theoretical modifications, that are brought forth by these conditions. As a result, the studies in this group provide knowledge about the validity of existing theories that are applied to the MNC context. Furthermore, they may contribute to incremental theory development by expanding existing models to the MNC context through incorporating additional variables, alternative boundary conditions, or moderating conditions, among others. However, no significant changes with regard to the underlying explanatory mechanism of the theory are suggested by these types of studies. Development of New Theory The articles we reviewed in this group are distinguished by their efforts to suggest novel underlying explanatory mechanisms concerning the relationships of interest. While the basic model may have its foundations in an existing theory, these studies offer a different explanation regarding the underlying processes or causal arguments supporting the relationships. The novel logical justifications arise from the distinctiveness of the MNC context. Thus, rather than extending theory by incorporating a new variable(s) or suggesting that a particular variable(s) is more salient in the MNC context, these studies develop new theory. Below we provide a discussion of three basic ways in which scholars have used the MNC for developing new theoretical insights. New explanatory mechanisms. There are some examples where researchers have recognized that, within their area of inquiry, the MNC context highlights the limitations of the basic explanatory mechanisms of an existing theory and invites alternative explanations. As an illustration, we use the work by Earley and Mosakowski (2000). The authors examined the performance of transnational teams drawing primarily on social identity theory and selfcategorization theory. Considering the effects of team diversity, they noted that the literature (demography, cultural diversity and group) would posit an inverted U-shaped relationship

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between team heterogeneity and effectiveness. However, they developed an explanation suggesting a U-shaped effect. They suggested that nationality is a superordinate determinant of a person’s self-identity within a transnational team. They argued that a unified team culture will likely emerge in both highly heterogeneous teams (through a negotiated process) and in homogeneous teams (due to a shared common worldview), which will, in turn, lead to high performance. However, the development of a common team culture is less likely under conditions of moderate heterogeneity. In such teams, subgroup identities dominate as members retreat back to their pre-existing identities, which in this context are tied to the nationality trait. Thus, while these explanations have roots in previous theory, the in-depth theoretical explication of the heterogeneity and effectiveness relationship within the transnational team, which the authors provided, is quite novel. This is an example of how the MNC context necessitated a change in the basic explanatory mechanism, resulting in new theory development. New organizational conceptualizations. Researchers have also offered elements of new theories that build on the distinctiveness of the MNC. A significant effort in this area has been directed at providing a new conceptualization of the MNC as an organizational form, such as Bartlett and Ghoshal’s (1989) notion of the MNC as a differentiated network and Hedlund’s (1993) conceptualization of the heterarchy. Researchers have theorized about the MNC to explain how these organizations, their structures, and processes evolve as a result of the interaction between their diverse external and complex internal environments. As stated by Doz and Prahalad (1991), “We see the essential difference between DMNCs [diversified MNCs] and simpler organizations stemming from the combined consequences of multidimensionality and heterogeneity” (p. 146). Building on these models, Malnight (2001) made an initial effort to expand them further by studying internal structures and the structural patterns that emerge within multinationals across their diverse operations. In a study of two pharmaceutical companies, he found that “. . . rather than moving to a single organizational model, structural evolution at Lilly and Roche revealed growing variation across processes within firms, and growing similarity in structures across firms within processes” (Malnight, 2001: 1201). He then offered potential explanations for the variations and similarity in structural patterns based on the exploration of MNC complexity. Given these findings, he suggested that the internal complexity of MNCs should be utilized better to further develop theories of the MNC. This article provides an example of how using the MNC context can highlight attributes that may remain unnoticed in the non-MNC context (e.g., co-determination of environment and structures). New theoretical models. Exploring the MNC context allows for a substantial model development within existing theoretical paradigms. An example of this research is the article by Kostova and Roth (2002) on adoption of organizational practices by MNC subsidiaries. Building on insights from Westney (1993) and using the MNC context, they have been able to develop further several key ideas of institutional theory. By conducting their research at the level of the MNC subsidiary, they recognized the need to conceptualize further the institutional duality faced by MNC subunits and to explain the processes by which these dual institutional environments affect the adoption of an organizational practice. One particular insight that came out of their work is that due to the spatial separation between home and host

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country, the home country institutional pressures are transmitted to the subsidiary through the internal organizational environment and thus are affected by the relational context within the MNC. Based on this, they proposed a modified mechanism by which institutional effects operate in the MNC context. Thus, they provided an explanation as to what happens when an organization faces multiple institutional environments with potentially conflicting demands. Institutional theory holds that firms will tend to become isomorphic with the institutionalized structures and processes in their environment. However, a firm cannot be isomorphic with multiple institutional environments where legitimacy in each of them is achieved through different means. Thus, the focus on the MNC context allowed the authors to provide an initial theoretical explanation for the organizational response under such conditions. As a whole, the work aimed at using the MNC context to build novel theory, such as the examples discussed above, is characterized by an effort to push theories further by proposing alternative explanatory mechanisms or by offering explanations of important research questions that can be understood better in the MNC context. We would note that we employed a very stringent view of what constitutes a novel or new theory based on criteria suggested by Whetten (1989) and Sutton and Staw (1995). Thus, there are many other articles that attempt to make theoretical contributions but we viewed them as directed more towards explaining MNC-specific phenomenon or utilizing the MNC-related variance for empirical or conceptual purposes while applying an existing theoretical framework.

Enhancing the Use of MNCs as Research Sites Organizational research has made notable steps in the use of the MNC within a variety of research agendas. Our review, however, suggests that while the MNC context holds promise, it can only be fully utilized through more rigorous and systematic approaches. In particular, more attention needs to be devoted to justifying the use of the MNC and to more fully developing its conceptual distinctiveness. Below we offer several reflections and suggestions that might help researchers in their efforts to address these pursuits. Conceptual Distinctiveness An important direction for strengthening MNC research, which we would suggest, concerns the work that we categorized as primarily focused on MNC-specific phenomena. We already noted a need for this research to make stronger links back to the underlying theory it uses and to make a stronger case of what makes the phenomenon under study conceptually distinct. This is further illustrated by the following comment by Feldman (1997): The difference found in the international arena must be systematically different from the difference found in the domestic arena. For example, much of the expatriate and repatriate literature has demonstrated that these cross-cultural movers have difficult adjustment problems. However, the domestic relocation literature demonstrates the same finding. The critical theoretical question becomes, then: How does the ‘international-ness’ of the move advance our understanding of relocation over and above what happens in domestic job changes? (Feldman, 1997: 450)

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Furthermore, many of the studies we reviewed in this group attempted to capture a given phenomenon by simply adding variables to existing models (e.g., culture). In addition, we observed that, in their efforts to explain a given phenomenon, many studies incorporated lists of variables sourced from multiple theoretical perspectives. These approaches, in our view, may be limited in their contribution to theory. As Whetten (1989) suggested: . . . one way to demonstrate the value of a proposed change in a list of factors is to identify how this change affects the accepted relationships between the variables (Hows). Just as a list of variables does not constitute a theory, so the addition of a new variable to an existing list should not be mistaken as a theoretical contribution. Relationships, not lists, are the domain of theory. (Whetten, 1989: 492) Thus, while expanding models with additional variables or using multi-theory, multidisciplinary, and multi-level approaches are commendable in general, they have to be driven by conceptual considerations. Fundamental to strengthening MNC research is also the clear specification of what exactly is distinctive and defining for these types of organizations and building on this specification in the theoretical development. Examples of such specifications would include the spatial separation of subunits, language and cultural diversity, organizational complexity, and multiplicity of environments. Instead, we observed that most researchers have used the MNC without explicitly stating the theoretical motive for doing so and have not built on specific MNC characteristics. The use of the MNC in many instances appears to be incidental. In other cases, the MNC is simply assumed to be distinctive without any supporting articulation. As a result, some of the potential possibilities for theory building that this context provides are lost. Alternatively, claims are made with reference to the MNC, while they may not be MNC specific at all. We will illustrate the importance of considering the conceptual distinctiveness of the MNC using the example of social capital theory. Two distinct mechanisms for social capital formation have been proposed in the literature. Central to the explanation provided by network theorists is the interaction between social actors (i.e., nodes in the social network). Interactions create ties between them and lead to the formation of social capital for each actor (Burt, 1997). An alternative explanation suggests that social capital can exist as a “public good” and thus be shared by all members of a particular community or any social entity. In this form, social capital is a feature of the entity and exists as a result of firmly established social norms, strong social fabric, cohesion, and closure (e.g., Putnam, 1993). Applying these ideas to the MNC context raises questions about the utility of these explanations. First, due to spatial separation as well as the cultural and language barriers characterizing these organizations, employees of different MNC units have limited opportunities to interact directly with each other. Second, MNCs also lack the opportunity to establish closure in the sense of creating a shared set of values and norms. Thus, both explanatory mechanisms offered by social capital literature may be challenged in the MNC context. This potentially provides an opportunity for new theorizing on an alternative mechanism for social capital formation. This example shows how recognizing specific features of the MNC within a particular theoretical perspective may require further development of the theory or even a new theoretical explanation.

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Recognizing and utilizing the distinctiveness of the MNC context also allows researchers to further specify the boundaries of a particular theory or set of propositions. In their work on MNC legitimacy, Kostova and Zaheer (1999) argue that MNCs are characterized by three types of legitimacy-related complexity—of the external institutional environment, the internal institutional environment, and the process of legitimation. These complexities, they propose, should be taken into account when theorizing about the legitimacy of the MNC because they provide further insights of how legitimacy is established and maintained at different levels of the organization, as well as internally and externally. Theorizing about legitimacy in the MNC context not only provided new insights about the legitimacy phenomenon, but also allowed the authors to reflect back on the applicability of their propositions to the general theory of legitimacy. They explicated which of their propositions are MNC specific and which are generalizable to all types of complex organizations. Several of our propositions are unique to the MNE because they are based on characteristics of the MNE that represent differences “in kind” from domestic organizations. . . These propositions could be thought of as elements of a theory of MNE legitimacy. A few propositions, however, apply both to MNEs and to complex domestic organizations, for they are based on characteristics of the MNE that represent differences “in degree”. . . These latter propositions are not unique to the MNE and serve, therefore, to expand our theories of organizational legitimacy. (Kostova & Zaheer, 1999: 65) This is an example of how the MNC context can help us advance a theory in general by exploring different boundary conditions and specifying where the theory holds. Theoretical Paradoxes A particular distinction of the MNC context that should be explored further, concerns internal and external attributes of MNCs that present themselves as extreme competing pressures, choices, or tradeoffs. A substantial number of MNC-related articles attempt to theorize about these “tensions.” Other researchers strive to resolve them for the purposes of identifying the “best” MNC strategic response and organizational design. Such tensions include but are not limited to: • Centralized versus decentralized decision-making. • Use of ownership versus non-ownership forms of control. • Developing shared organizational values worldwide versus embracing diversity among MNC’s operations. • Pursuing competitive versus cooperative relationships with other entities. • Worldwide integration of MNC activities versus local responsiveness in different markets. • Standardization versus differentiation in management practices and processes. • Maintaining a centralized versus a dispersed knowledge structure. These dualisms (complexities, paradoxes) remind of a recent provocative keynote address by Stark (2000) who discussed the changing landscape of economic and sociology-based views of organizations. He advocated moving away from “dualisms of value versus val-

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ues and economy versus embedded social relations,” as held by economic and sociological views respectively (Stark, 2000: 5). He admonished scholars to move beyond these old competing views and embrace a new “sociology of worth” that invokes an alternative theoretical lens. In exemplifying the notion of sociology of worth, he discussed a variety of phenomena including organizations. He suggested that organizations should be conceptualized as “heterarchies” and stated that this is an organizational form that represents: . . . a new mode of organizing that is neither market nor hierarchy: whereas hierarchies involve relations of dependence and markets involve relations of independence, heterarchies involve relations of interdependence. . . heterarchies are complex adaptive systems because they interweave a multiplicity of organizing principles. The new organizational forms are heterarchical not only because they have flattened hierarchy, but also because they are the sites of competing and coexisting value systems. . . organizational diversity is most likely to yield its fullest evolutionary potential when different organizational principles co-exist in an active rivalry within the firm. By rivalry, I do not refer to competing camps and factions, but to co-existing logics and frames of action. (Stark, 2000: 6–9) A similar point is made by Child and McGrath (2001) who suggested that the “core design challenge” that must be addressed by new organizational forms is “to build systems that can cope with paradox” (p. 1139). As observed by Malnight (2001) within the MNC context: . . . the complexity of observed internal MNC structures highlights the need for international management research to move the organizational debate beyond the traditional opposition of global integration (centralization) and local responsiveness (decentralization). In the context of developing and integrating complex internal network structures, structuring decisions involves employing various combinations of centralization and decentralization in structural characteristics within process structures to pursue multiple and often conflicting strategic objectives. (Malnight, 2001: 1203) If indeed there is great promise in thinking more about new conceptualizations that essentially replace the theoretical baggage associated with many “competing dualisms,” then the MNC context should be particularly instructive. Although competing pressures may be present in many different organizational settings, as we noted above, such dualisms are essential and even defining for the MNC. Therefore, the MNC context may be an exceptionally rich theoretical laboratory for the emergence of alternative conceptualizations. Combinative Phenomena In addition to the attributes noted above, the MNC context can lead to the occurrence of what we refer to as combinative phenomena. Combinative phenomena come into being through a complex interplay of various entities and events that results in the emergence of something new. This occurs through the interaction of cross-national entities that hold significantly different cognitive and experiential assumptions and views. Consider, for example, a team comprised of individuals coming from a capitalist and a socialist country. Based on their opposing ideologies, experiences, beliefs, and values, these individuals are likely to hold radically different behavioral motives. In this context, what should be the team incentive structure? Is there a new and distinct motive that emerges in this structure

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based on the interactions among the team members? Examining such a combination, in our view, pushes researchers to re-consider theory related to team incentives, team performance evaluation, team communication, etc. An example of such a focus on a new combinative phenomenon (at a more macro level), is the work by Uhlenbruck and De Castro (2000). These researchers were interested in the applicability of Western-developed merger theory to transition economies. After examining the phenomenon, however, the authors asserted that they were in fact dealing with something fundamentally different from traditional mergers. A common privatization mode in developing countries—and one utilized by all governments in Central and Eastern Europe—is the merger of SOEs [State-owned Enterprises] with private businesses. . . In traditional mergers frameworks, the seller is assumed to be diffuse shareholders interested solely in maximization of sales price. . . and unable to influence behavior after the acquisition. But in privatization cases the government is the seller, and its interests go further than mere economic concerns; indeed, it is obligated to ensure that economic concerns do not override political and social considerations. Furthermore, the government can and often does enforce conditions after an acquisition, because it may control many of the country’s resources and distribution channels and may be a former SOE’s most important customer. It can influence the former SOE’s strategic choices indirectly. . . and directly. . . and may even proclaim a new set of rules or a renationalization of privatized firms. (Uhlenbruck & De Castro, 2000: 382) This combinative phenomenon, a cross-national merger of a formerly state-owned enterprise and a private firm, is conceptually quite distinct as it is unlike any combination existing domestically. More broadly summarized, using the MNC context to isolate and study the unique co-existence or integration of entities with different assumptions, experiential backgrounds, values, norms, etc. has the potential to yield very different theoretical explanations regarding individual, organizational and contextual interactions. We would encourage researchers to use the MNC context to explore and develop theory related to such combinative phenomena. Other Insights Finally, it could be argued that using the MNC context opens up opportunities for developing novel insights, theories, and perspectives that may be generalizable to other types of organizations as well. Since the MNC, in many respects, presents the most complex case of an organization, a theory developed within it, is more likely to be applicable to other organizations compared with attempts to generalize in the other direction. The MNC can be viewed as representing the general case while a domestic company would represent a special case of an organization. A similar argument has been made by Gupta and Govindarajan (1991) in their conceptual work on knowledge flows and the structure of control. They developed the model for the case of the MNC but then argued that it is generalizable to other diversified companies. The following excerpt illustrates this point: It should be noted that a network of transactions perspective can be applied not only to multinational corporations (a context involving global geographic diversity) but also to domestic diversified corporations (a context involving product diversity). However, be-

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cause of at least two differences between multinational and domestic diversified corporations, MNCs provide a significantly richer context for the study of transactions between intracorporate subunits: (a) On average, value chains. . . under the control of foreign subsidiaries are likely to be less complete than those under the control of strategic business units (SBUs). . . (b) It can be expected that the constraints imposed by geographical distance, cultural diversity, linguistic differences, and the conflicting demands of various host governments will make the realization of synergistic payoffs organizationally more challenging in the case of foreign subsidiaries than in then case of domestic SBUs. In short, the greater complexity of the MNC as a network of transactions makes it a particularly rich context for theory building on this subject; at the same time, the universality of the network perspective should enable the transfer of such theories to non-MNC contexts. (Gupta & Govindarajan, 1991: 770–771) In conclusion, we would encourage researchers to utilize better the MNC context by applying higher standards in their theoretical and empirical inquiries. The field has progressed to the point that we need to be moving beyond descriptive or marginally incremental work applying old thinking to the MNC. As previously argued, “Applying an old model to a new setting and showing that it works as expected is not instructive by itself. This conclusion has theoretical merit only if something about the new setting suggests the theory shouldn’t work under those conditions” (Whetten, 1989: 493). The MNC should be used to foster thinking about alternative mechanisms and explanations. “Strong theory, in our view, delves into underlying processes, so as to understand the systematic reasons for a particular occurrence or a non-occurrence” (Sutton & Staw, 1995: 378).

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Kendall Roth is the J. Willis Cantey Chair of International Business and Economics at the Moore School of Business, University of South Carolina. He received his Ph.D. from the

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University of South Carolina. His current research interests focus on international strategy and cross-cultural management practices. Tatiana Kostova is an Associate Professor of International Business at the Moore School of Business, University of South Carolina. She received her Ph.D. from the University of Minnesota. Her current research interests include the institutional embeddedness of organizations, transfer of organizational practices across national borders, and social capital and knowledge sharing in global firms.