Multinational Corporations and Organization Theory

Post Millennium Perspectives

Christoph Dörrenbächer, Mike Geppert, Christoph Dörrenbächer, Mike Geppert

• Publisher: Emerald Publishing Limited
• Year: 2017
• Print ISBN: 9781786353863
• eBook ISBN: 9781787143128
• Topic: Business
• Subtopic: Organisational Behaviour
• Index: Business

The study of multinational companies (MNCs) has been split for many decades into two camps which hardly 'talked' to each other: a) predominantly economic and functionalist oriented International Business Researchers, and b) largely social constructivist and critical management oriented Organization Theorists. This volume intends to build bridges by bringing together leading international scholars from both camps, who provide new insights in the study of MNCs. In addition to the bridge-building exercise, the book aims to develop a more comprehensive organizational theoretical understanding as well as methodological plurality in the study of how MNCs function in the post-millennium era, both internally and externally, and also how they control their international operations across economic, institutional, cultural, linguistic, political and social divides. Key topics addressed in our volume include: historical perspectives on the study of MNCs, the role of increased financialization and marketization on MNCs, the new role of the HQ within contemporary MNC, the role of language in MNCs, discursive studies of MNCs, labour representation in MNCs as well as social movements and corporate social responsibility and MNCs.

PART I
SETTING THE SCENE

MULTINATIONAL CORPORATIONS AND ORGANIZATION THEORY: AN INTRODUCTION TO POST-MILLENNIUM PERSPECTIVES

Christoph Dörrenbächer and Mike Geppert

ABSTRACT

This article takes stock of interdisciplinary research on Multinational Corporations (MNCs) by elucidating paradigmatic shifts in the world of MNCs in the new millennium and analysing more recent developments in the disciplines of International Business (IB) and Organization Theory (OT). The article also introduces the altogether 14 individual contributions of this 49th volume of the Research in the Sociology of Organizations series. It closes by looking into the questions of where interdisciplinary OT/IB research on MNCs is now and where it is likely to go in the future.

Keywords: Multinational corporations; organization theory; international business and management; interdisciplinary research; post-millennium perspectives

SETTING THE SCENE: AN ILLUSTRATIVE CASE EXAMPLE

The Volkswagen Dieselgate is a good example to demonstrate how closely organization theory (OT) and international Business (IB) literature is intertwined. Trying to understand the fact that Volkswagen secretly had built in a defeat device in 11 million diesel cars, sold in more than 30 countries from 2006 to 2014, requires combined insights from both disciplines. We will illustrate this by discussing two fundamental questions regarding the scandal: Why was the ‘cheatware’ developed at all and why did it leak out in the end and created one of the most prominent post-millennium corporate scandals?

Firstly, why was the ‘cheatware’ developed? When drafting this introduction (summer 2016) public prosecutor’s investigations were still on their way with confessions of the 17 Volkswagen managers accused at this time, and the value of their confessions for comprehending the incomprehensible remains still open. Hence, answering the questions why the defeat device was developed and used million-fold is and very likely will remain a matter of interpretation. Here Weick’s (1995) organizational sense-making approach in combination with an IB approach by Hutzschenreuter, Pedersen, and Volberda (2007) that explains corporate growth and internationalization by managerial intentionality offers some insights. Given the fact that so far any direct involvement of Volkswagen board members and the CEO into the development of the defeat device remains quite difficult to be fully proven, the question arises what made the responsible managers at the top end and especially in the engine development department develop and apply the ‘cheatware’, even though it was clear to all of them that it is unlawful?

Following Weick (1995) organizational decision making is strongly influenced by organizational members making sense of, or in other words, mentally constructing their social environment. The environment at Volkswagen at the time the defeat device was developed was characterized by extremely high managerial aspirations, stretch goals and an absolute submission under the dynamics of the hyper-competition in the automotive industry, characteristics that according to Hutzschenreuter et al. (2007) drive growth, internationalization and international market success. Indeed a key aim of Volkswagen, mantra-like proclaimed by the then-CEO Martin Winterkorn and leading managers, was outstripping Toyota as the number one car maker of the world, not only for the time being but also for the future (see for instance Winterkorn, 2015). In such an environment, admitting the failure to find a cost-effective way to meet the strict emission limits of the United States, one of the markets that needed to be won to become number one, was seemingly not an alternative for the managers in the engine development department. ‘We have been desperate’ (ARD, 2016: 00:03:25), the indicted managers later testified, but they had developed the defeat device and hoped that it would remain unnoticed. Astonishingly their secret was kept about eight years, despite the many people involved in its development, update and dissemination across the globe, what not only involved a number of leading managers and engineers in the headquarters and foreign subsidiaries but also regulatory authorities in numerous countries.

Secondly, addressing the question, why the use of the defeat device leaked in the end and unleashed one of the most prominent post-millennium corporate scandals so far, one has to maintain that this did not happen because somebody in the company remembered the Corporate Social Responsibility (CSR) guidelines, the compliance department finally did its job, or there was a whistle-blower surfacing the truth (even though there are some attempts documented in which managers from the engine development department tried to alarm the top management about possible consequences).

No, the fraud was uncovered and turned into a huge scandal because Volkswagen failed to successfully master institutional duality (Kostova & Roth, 2002), a concept that genuinely combines OT and IB perspectives. The concept embodies that MNCs are subject to both home and host country institutional pressures and that they need to imply organizational routines to comply with both. In the case of Volkswagen this obviously failed with regards to the US market. Not only were the managers in the engine development department severely mistaken about the decisiveness by which regulatory authorities in the United States such as the California Air Resources Board (CARB) or the US Environmental Protection Agency (EPA) enforce law (and prosecute initial suspicions), nor did the new management – appointed after the scandal erupted – realize that the very same authorities are not at all open to the same ‘camaraderie’ (Booth, 2016) that characterizes the relationship between car manufacturers and environmental regulation authorities in many European countries, and in particular in Germany (for detailed descriptions see Booth, 2016; Der Spiegel, 2015). Hence the public claim by the new CEO Michael Müller that Volkswagen ‘didn’t lie’ but that it just ‘had not the right interpretation of the US law’ (Michael Müller in National Public Radio, 2016) is either a lame excuse or an extreme example of what has been labelled as country of origin effect – another interdisciplinary concept combining OT and IB – that maintains that MNCs develop concepts of organizational control at home and export them abroad due to sunk costs, constraints of coherence and path-dependent behaviour (Hu, 1992; Ruigrok & van Tulder, 1995; Whitley, 2001).

PREVIOUS STUDIES

Of course it did not need Dieselgate to uncover the value of combining OT and IB perspectives in order to understand the activities and behaviour of MNCs. Indeed, some of the earlier works in the field associated with authors such as Aharoni (1966), Fayerweather (1969) and Perlmutter (1969) implicitly or explicitly combined OT and IB ideas to make sense of MNC strategies and behaviour. In essence, these works applied Cyert and March’s (1963) path-breaking behavioural theory of the firm to MNCs. The same is true for the so-called Uppsala Model – a model that draws on bounded actor rationality and organizational learning theory to explain the internationalization process of firms (Johanson & Vahlne, 1977). Heavily discussed throughout the 1980s and 1990s, with a thorough revision in 2009 (Johanson & Vahlne, 2009), the Uppsala Model is probably the most influential interdisciplinary OT/IB approach so far. However, as the Dieselgate example above and the discussion below show it is by far not the only one.

The most profound attempt to take stock of interdisciplinary OT/IB approaches and to systematically explore the link between OT and IB in MNC studies was provided in 1993 when Sumanta Ghoshal and Eleanor Westney published their edited volume entitled ‘Organization Theory and the Multinational Corporation’ (Ghoshal & Westney, 1993). This volume was going back on a same-named panel at the annual Academy of International Business (AIB) meeting in San Diego in 1988, followed up by a workshop on the topic at INSEAD a year later that had a broader audience from both academic fields. In retrospect, Ghoshal and Westney saw the volume as a reflection of the rise of compatible paradigms in both fields: The open system approach in OT stressing the organization-environment link, and the contingency approach in IB stressing an environment-strategy-structure paradigm.

Unsurprisingly, a first set of contributions in this volume then explored the environment–MNC nexus using the lens of up-to-date organization theories such as institutionalist theory (Westney), network theory (Ghoshal & Bartlett), population ecology (Delacroix) and learning theories (Kogut). A second set of papers looked inside the MNC, discussing issues of organizational structure and governance through information processing (Egelhoff), transaction cost (Hennart), hierarchy (Hedlund) and procedural justice (Kim and Mauborgne) approaches, followed by a short appendix of two papers on norms (Kilduff) and culture (van Maanen & Laurent), that in the second edition (Ghoshal & Westney, 2005) were integrated into the previous part.

In essence, all these papers represented an application of promising OT approaches to the study of MNCs, that – following the introduction to the second edition (Ghoshal & Westney, 2005) – have turned out to be of great impact throughout the 1990s and the early years of the new millennium. New paradigms were not seen to have evolved during that time span; hence the original chapters of the first volume went more or less unchanged into the second edition of Ghoshal and Westney’s stocktaking endeavour. There was only one chapter added, namely a chapter by Guillén and Suárez that reflected the strong upswing of comparative institutionalist works on MNCs which had been stimulated by the path-breaking chapter of Westney in the first volume.

While the overall evaluation that there were hardly any new OT paradigms to be of influence in the study of MNCs in our view somewhat downplays the ‘subsidiary turn’ in MNC studies that is strongly linked to the work of Birkinshaw and colleagues (that of course has to been seen in a row with Ghoshal and Bartlett’s chapter on network theory and the heterarchy approach of Hedlund in the original edition), we strongly agree with the overall picture that Ghoshal and Westney provide in the introduction to the second edition to portrait the state of art of the OT/IB relationships in 2005:

• (1) A bridge is built between the two disciplines.
• (2) There is increasing traffic over this bridge as legacies from the past¹ have disappeared and new fruitful paradigms have evolved.
• (3) However, the traffic is still rather unidirectional with OT approaches fertilizing the study of MNCs but hardly any impact vice versa.

With more than 10 years passed by since the publication of the second edition (and more than 20 years since the first edition) of the Ghoshal and Westney volume we think it is time again to take stock of the OT/IB relationship. This is not only related to the fact that highly commendable more recent attempts to map the OT/IB relationship have been much less detailed as they have been part of broader projects aiming to assemble all major views (Forsgren, 2008), images (Collinson & Morgan, 2009) or themes (Rugman, 2009) that might be relevant for the study of MNCs. It is also related to the fact that a new generation of researchers with new theoretical backgrounds and new questions have entered the scene both in OT and IB, and probably most important, that relevant paradigmatic shifts have occurred: shifts in the world of the MNC, in IB and in OT, all affecting the potential for more in-depth interdisciplinary collaboration of OT and IB.

In the remainder of this introduction we will first inspect these paradigmatic changes in more detail. Then we will introduce the contributions of our volume and conclude by mapping how far interdisciplinary OT/IB research has progressed since the start of the new millennium and what’s up in the future.

DEVELOPMENTS IN THE WORLD OF THE MNC

Taking a post-millennium perspective, tremendous changes in the world of the MNCs become visible. Changes extend to the socio-political and economic environment of the MNC, the types of MNCs either entering or dominating the scene as well as to the mode by which these companies operate. In a recent historical account, Fitzgerald (2015) sees MNCs as having evolved over four historical phases, stretching from the beginning of the modern world in the second half of the 19th century until today.

A first phase is seen as dating from 1870 to 1914. MNCs in this phase developed as competitive organizations replacing chartered concerns of the mercantilist area. Backed by (and simultaneously promoting) political imperialism and colonialism, MNC activity was particularly strong in resources (e.g. mines, plantations) and infrastructure (ports, railways, water and electricity) thus boosting foreign trade and foreign direct investment (FDI) and laying the basis for the integration of the global economy (ibid., pp. 148–155).

The second phase is seen as dating from 1914 till 1948 covering the two world wars as well as the interwar years. Despite of the disintegrating effects of world war I, an unwinding of the international economy was initially only partial, with MNC activities from a number of home countries (e.g. the United States) further prospering, both in particular industries (e.g. the automobile, rubber, telecommunications and household goods industry) as well as in the developing world. However, the economic downturn from 1929 onwards, the rejection of national governments to return to the international system and first cases of nationalizations (e.g. of foreign-owned utilities in Latin America) strongly reversed the previous global phase. For MNCs as a whole this led to a stalemate in developing new business opportunities abroad, stronger government control in host countries and an increasing number of property sequestrations (ibid., pp. 253–257).

The third phase that lasted from 1948 to 1980 is according to Fitzgerald (2015) characterized by a gradual re-emergence of the international economy through a long-term lowering of tariffs and investment controls under a strong US hegemony, with the cold war and superpower rivalry setting geographical boundaries for MNC activity. MNC activity in manufacturing (e.g. in automotive, machine tools, chemicals and office machinery) saw a great upswing in developed economies; de-colonialization let to further cases of nationalization in resource extracting and infrastructure industries (ibid., pp. 411–414).

While the number of MNCs rose rather steadily in the third phase from about 5,000 in 1950 over 7,000 by the end of the 1960s to approximately 15,000 in 1980 (Gabel & Bruner, 2003, p. 3; Ghemawat & Pisani, 2013) the following fourth phase, seen by Fitzgerald (2015, pp. 496–500) as lasting from 1980 to 2012, saw an explosion in the number of MNCs to slightly more than 100,000 in 2010 (UNCTAD, 2011).² The dynamic growth in the number of MNCs reflects the strong expansion of the international economy in this phase, that was due to a number of different influences: (1) a liberalization/opening up of many service industries (e.g. telecommunications, transport, electricity, gas, water) for foreign capital in the developed world since the 1980s, (2) th...

Table of contents

• Cover
• Multinational Corporations and Organization Theory: Post Millennium Perspectives
• Part I Setting the Scene
• Part II Further Development of Established Debates
• Part III New Conceptual and Methodological Approaches in the Study of the Mnc
• Part IV The Contemporary Mnc: an Internally and Externally Politicized Organization
• About the Authors
• Index