15.4 Conclusions | Change Management in Transition Economies: Integrating Corporate Strategy, Structure and Culture

Areas of competence exist in all MNCs. Some MNCs, however, have not yet recognized the option of upgrading foreign subsidiaries by establishing centres of competence. In the future it will not be enough for subsidiaries merely to have certain competences and capabilities. The challenging task for MNCs will be to develop ways of fully exploiting these competences and capabilities. In terms of managing centres of competence, the basic challenge will be to find the right balance between autonomy and independence on the one hand and integration and interdependence on the other. Centres of competence should have as much freedom as possible within their areas of competence and geographical responsibility. At the same time they should be highly integrated into the MNC network. As far as autonomy is concerned , this should not only involve autonomy over certain decisions, it is also crucial for subsidiaries to have the freedom to use their resources to build up or strengthen their competences and capabilities. In many cases the possession of excess resources is a basic prerequisite for the competence-building process.

In the long run centres of competence might also wish to be an integral part of the overall strategic processes in the MNC. This is similar to what Kim and Mauborgne (1998) call ˜procedural justice , which means that subsidiaries should not only be involved in strategy implementation but also be able to influence strategy formulation. They should be able to perceive the strategy-making process as fair, and as taking into account their own competences and capabilities. Centres of competence want to play an active role in overall MNC development, not just subsidiary development. Thus it would be wrong to manage centres of competence only from the top down. Bottom up and horizontal processes are also required, be this for MNC strategies, structure, culture or any other area.

The very existence of centres of competence suggests that it is not standardization but radical individualization that is needed in headquarters “subsidiary relations. Each centre of competence requires a different approach because of its distinctive competences, capabilities and resources, but all have a decisive influence on headquarters and other subsidiaries. Headquarters can still be seen as strategic centres that help to integrate widely dispersed units (Lorenzoni and Baden-Fuller, 1995), but they are becoming less important. At the same time some subsidiaries role in overall MNC development is increasing. This is true not only of subsidiaries located in traditional markets but also of those in transition economies.

With respect to Central and Eastern Europe, centres of competence allow new insights into the transition process. ^[12] Not only do Western MNCs influence subsidiaries in Central and Eastern Europe, but the latter also influence MNC units in other parts of the world. If MNCs are portrayed as intraorganizational networks it becomes clear that there are various interdependencies between units in different countries . These units can and should feed and bolster each other.

Notes

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).
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).
The distinction between primary and secondary activities is made by Porter (1986, pp. 15 “60), but not all authors share Porter s view on how to differentiate between primary and secondary value-adding activities.
It is surprising that subsidiaries have long been neglected in the literature. Research on subsidiaries has only become of interest in the last 15 years , and has only gained particular importance during the last few years. See Birkinshaw and Hood (1998).
One study was on German MNCs (Schmid et al. , 1999), the other on Japanese MNCs (Schmid, 2000). For a comparison of these studies see Schmid (1999). There is also evidence on the existence of centres of excellence, which are similar to centres of competence. See for instance Kutschker et al. (2001).
I gratefully acknowledge the important work done by Christian Fischer, who collected the data for the case study.
Mechanical engineering is considered to be a process-oriented activity.
This question was also put forward by Moore (2000).
This is in line with the general development of firms, which could be described as ˜guided evolution . See Lovas and Ghoshal (2000). On the international development of firms see Kutschker and Schmid (2002, pp. 1045 “179).
Birkinshaw (1998) differentiates between subsidiary-driven development and parent-driven development.
Some of these reasons are also mentioned by Ferdows (1997). However, unlike Ferdows, we do not consider that the possession of skills and knowledge is the only reason for the centre-of-competence role.
There is a vast body of literature on the transition process in Central and Eastern Europe, including Buckley and Ghauri (1994).

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^[12] There is a vast body of literature on the transition process in Central and Eastern Europe, including Buckley and Ghauri (1994).