15.1 Internationalization strategies and headquarter - subsidiary relations in multinational corporations

15.1 Internationalization strategies and headquarter “subsidiary relations in multinational corporations

Internationalization strategies are multifaceted and multinational corporations (MNCs) have to formulate strategies on a number of dimensions. ^[1] They have to decide which markets to serve. They have to choose appropriate modes of entry for every country and region. They have to determine at what time and in which sequence different markets should be entered. They have to choose between centralization and decentralization, between globalization and localization, and between standardization and differentiation. Finally, they have to coordinate and integrate their widely dispersed activities. (For these dimensions of internationalization strategies Kutschker and Schmid, 2002, pp. 787 “1032.)

For many MNCs, foreign subsidiaries are playing an increasingly important role in their internationalization strategy, so the relationship between headquarters and subsidiaries has changed during the last 15 “20 years . Some MNCs have become multicentre firms in which competences, capabilities or resources are dispersed (Forsgren, 1990; Forsgren et al. 1992). They have become aware of the fact that their subsidiaries influence is growing, partly as a result of the latter s embeddedness in internal and external networks (Pahlberg, 1996). They also know that their subsidiaries have individual tasks to fulfil and might therefore take on different roles. ^[2] The result of all this is that headquarters are not as powerful as they were previously (see Birkinshaw and Hood, 1998; Holm and Pedersen, 2000).

Not all MNCs, however, have recognized that a shift in perspective is necessary, and do not take proper advantage of their foreign subsidiaries by making full use of their potential. Admittedly, taking advantage of a subsidiary requires the subsidiary to have something special to offer, both to headquarters and to its sister companies. But many subsidiaries have much more to offer than headquarters believes. In this chapter one way of exploiting subsidiaries competences, capabilities and resources is presented: the establishment of a centre of competence, which is a way of upgrading foreign subsidiaries.

Section 15.2 provides a definition of centres of competence and describes their activities, while Section 15.3 presents the findings of a case study in Central and Eastern Europe. This case study will show that centres of competence can be just as successful in transition economies as in mature markets. As will be discussed in the conclusion (Section 15.4) managing centres of competence is a challenging and difficult task.

^[1] In this chapter ˜multinational is used as a generic term for companies operating in more than one country. It should not be interpreted in Bartlett and Ghoshal s (1989) way, who differentiate between international, multinational, global and transnational firms. For a discussion of Bartlett and Ghoshal s work see Schmid (1996, pp. 27 “33) or Kutschker and Schmid (2002, pp. 281 “93).

^[2] Bartlett and Ghoshal (1986, 1989) differentiate between ˜implementers , ˜contributors , ˜strategic leaders and ˜black holes . For a review of the various typologies see Schmid et al. (1998).