Journal of International Management 11 (2005) 143 161

Information technologies and the future of the multinational enterpriseB

Rakesh B. Sambharyaa,*, Arun Kumaraswamyb,1, Snehamay Banerjeea,2
b a School of Business, Rutgers University-Camden, Camden, NJ 08102, United States Singapore Management University, Lee Kong Chian School of Business, 469 Bukit Timah Road, Singapore 259756, Singapore

Available online 12 May 2005

Abstract In this paper, we highlight the pervasive influence of information technologies on multinational enterprise (MNE) operations, strategies and structures. The democratization of information technologies has diminished geographic distance and compressed response times for MNEs. In turn, this has led to an increased and simultaneous emphasis on both global efficiencies and local responsiveness. We explore the consequences of this change in emphasis for MNE strategic and structural orientations as established by Bartlett and Ghoshals typology of MNE strategies. Our conclusion is that the distinctions between the four strategic orientations are becoming increasingly blurred and MNE structures are becoming more organic in nature. In addition to discussing these changes, we also highlight emerging challenges that MNEs face in an increasingly borderless, time compressed world. D 2005 Elsevier Inc. All rights reserved.
Keywords: Multinational enterprise; Global strategy and structures; Information technology; Local responsiveness; Global efficiency

B Paper presented at the 5th Annual International Business Research Forum, Information Technology and International Business Theory and Strategy Development, Temple University, Philadelphia, March 2004. * Corresponding author. Tel.: +1 856 225 6712; fax: +1 856 225 6231. E-mail addresses: sambhary@camden.rutgers.edu (R.B. Sambharya), arunkumar@smu.edu.sg (A. Kumaraswamy), snehamy@camden.rutgers.edu (S.Banerjee). 1 Tel.: +65 6822 0713; fax: +65 6822 0777. 2 Tel.: +1 856 225 6587; fax: +1 856 225 6231.

1075-4253/$ - see front matter D 2005 Elsevier Inc. All rights reserved. doi:10.1016/j.intman.2005.03.005

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1. Introduction Since the late 1980s, the world economy has undergone tectonic shifts due to two interrelated yet distinct forces: globalization and information technology (IT). With the globalization of the world economy, it became impossible for multinational enterprises (MNEs) to survive only by leveraging economies of scale, size, command and control management, multidomestic strategies, and an export orientation (Economist, 1995). Instead, MNEs had to address the challenges of efficiency in current operations, management of risks and the need for global learning and innovation (Ghoshal, 1987). To face these challenges, MNEs adopted an organizational system consisting of (1) the dispersal of the companys various activities and functions in the value chain and their location in different parts of the world to take advantages of national differences, and (2) a reintegration of the dispersed activities and functions to benefit from scale and scope economies (Phatak, 1996). Correspondingly, MNEs responded by moving from a simple integration system that was appropriate for a multidomestic strategy to a more complex mode of integration that requires locating activities according to the logic of the market and dispersing decision-making throughout the world. In doing so, the MNEs have also become the primary vehicle through which the diffusion of IT is taking place globally (Kogut, 2003). MNEs serve to diffuse IT through two powerful mechanisms. First, they seek new opportunities both in terms of entering new markets and fulfilling sourcing requirements. Second, they diffuse IT as part of their communication networks in the worldwide coordination of far-flung subsidiaries, suppliers, and customers (Kogut, 2003). Even though globalization and the diffusion of IT have gone hand in hand with the growing market power and geographic reach of MNEs, the Internet and innovations in various web related technologies (such as XML, SSL, digital signature, digital watermarking) have changed the very rules by which these MNEs have to play. The dnewT rules of the game include restructuring to foster a dglocalT outlook, nimbleness, empowerment of local managers/employees and the management of knowledge. IT enables MNEs to globalize production and finance by reducing the cost and time of communications. In turn, globalization spurs technology by intensifying competition and hastening the diffusion of technology through foreign direct investment. What are the consequences of these mutually reinforcing cycles of globalization and IT diffusion for MNEs? Specifically, how is IT influencing the strategies and structures of MNEs? What are the new challenges and issues that MNEs face in an increasingly borderless, time compressed world? These are the questions that we explore in this paper. In doing so, we use the Bartlett and Ghoshals (1989) typology of MNE strategies as our inquiry frame that provides the context for the changes that have occurred due to the influence of IT.

2. Typology of MNE strategies in the pre-IT era The integrative/responsiveness framework is the centerpiece of the theoretical literature on MNEs (Prahalad and Doz, 1987). As the name indicates, the development

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of this framework lies in the two dimensions: responsiveness and integration. The first dimension, local responsiveness refers to the extent to which subsidiaries respond to local differences in customer preferences. The second dimension, integration, refers to the extent of interdependencies within an MNE, i.e., the degree to which the operations of various units of the MNE are dependent on one another. The integration dimension revolves around the notion of global efficiency and thus costs. In a landmark in-depth study of nine MNEs from 3 different countries, Bartlett and Ghoshal (1989) proposed a typology of MNEs that builds on the integrative/responsiveness framework. They identified the existence of four different strategies adopted by MNEs: international, multidomestic, global, and transnational. Table 1 presents the key organizational characteristics of the four strategies identified by Bartlett and Ghoshal (1989). Bartlett and Ghoshal based this classification on two underlying factors. First, an MNE matches its capabilities to the strategic demands of its businesses. Second, the MNEs administrative heritage influences the organization of its worldwide operations. The combination of these two different but interrelated factors results in different organizational strategies and matching structures. For instance, when local responsiveness is important, MNEs adopt a portfolio approach to managing their subsidiaries. This results in the decentralized bmultidomesticQ strategy that can take advantage of differences in markets around the world. In those cases where global efficiency is more important, a more centralized approach is taken with headquarters calling the shots. This centralized bglobalQ strategy results in higher degree of interdependence among subsidiaries. Likewise, when transfer of knowledge is crucial, MNEs adopt an approach that can leverage learning. This gives rise to the binternationalQ strategy. In addition to these three strategies, there is a fourth and new type of strategy that Bartlett and Ghoshal termed as btransnationalQ strategy, which involves both a high degree of local responsiveness and integration. The transnational strategy is achieved by creating an interdependent network of different but equivalent subunits, with the headquarters not necessarily playing a dominant role. Guillen (2002) expanded on this typology further by identifying the nature of goods and services that would be most appropriate for each of the four strategies. According to Guillen, multidomestic strategies are most relevant for blooknfeelQ goods that require attention to local responsiveness, such as branded packaged goods, clothing, used cars, collectible art, and auctions. A global strategy where cost efficiency is the main goal is relevant for consumer electronics, books, CDs, videos, industrial goods and components. International strategies are relevant for local commodities such as produce, cement, and Internet dial-up services that do not require high integration or high local responsiveness. Finally, transnational strategies, which require attention to both local responsiveness and global efficiency, are relevant for products such as wines, financial services, telecommunications equipment, and information oriented products. Fig. 1 represents the Bartlett and Ghoshal typology in the form of a 2 2 matrix, along with Guillens (2002) adaptation to show the nature of goods or services most appropriate for each of the four strategies. It should be noted here that several studies (Harzing, 2000;

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Table 1 Key organizational characteristics of MNE strategies Key organizational dimensions International strategy Configuration of assets and capabilities Role of overseas operations Sources of core competencies centralized, and others decentralized Adapting and leveraging parent company competencies Knowledge developed at the center and transferred to overseas units Functional structure; International division Multidomestic strategy Global strategy Transnational strategy Dispersed interdependent, and specialized Differentiated contributions by nation units to integrated worldwide operations Knowledge developed jointly and shared worldwide Worldwide matrix structure

Decentralized and nationally Centralized and globally scaled self-sufficient Sensing and exploiting Implementing parent company local responsiveness competencies Knowledge developed and retained within each unit Worldwide area or geographical structure Knowledge developed at the center and transferred to overseas units Worldwide product structure

Development and diffusion of knowledge Organization structures

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High

Global (global commodities)

Transnational (cultural, regulated goods and services)

Level of global efficiency Low International (local commodities) Multidomestic (look n feel goods and services)

Low

High

Level of local responsiveness

Fig. 1. Typology of MNE strategies. Source: Adapted from Bartlett and Ghoshal (1989) and Guillen (2002).

Leong and Tan, 1993) have found empirical support for the Bartlett and Ghoshal typology of MNE strategies.

3. The influence of IT on MNE operations Empirical studies have established the importance of global IT in MNEs (Karimi and Konsynski, 1991; King and Sethi, 1999, 2001; Ramarapu and Lado, 1995; Roche, 1996). Other studies have discussed the influence of IT on MNEs strategy, geographic scope, competitive position and performance (Bharadwaj, 2000; Croteau and Bergeron, 2001; Dehning and Stratopoulos, 2003; Peffers and Tuunainen, 2001). Indeed, the relationship between HQ and subsidiaries of an MNE can be modeled as a function of its IT architecture (Ramarapu and Lado, 1995). An MNEs IT architecture comprises of three dimensions: data architecture, communications architecture and technology architecture. Data architecture is defined as the format of database content or the arrangement of an MNEs databases. Communications architecture relates to the integration of communications facilities between the MNEs HQ and subsidiaries that allows unimpeded flow of information. Technology architecture addresses the hardware and software configuration in the entire MNE (King and Sethi, 1992). Table 2 presents a 3-way categorization of IT architecture and their links to the strategy and structure of an MNE (cf. Alavi and Young, 1992; Keen, 1987; King and Sethi, 1992; Ramarapu and Lado, 1995). With rapid advances in Internet and communication technologies and their adoption in MNEs, IT architectures increasingly rely on global standards. Such reliance on widely accepted global standards has, in turn, led to what Friedman (1999) terms as the democratization of information and technology. This has enabled MNEs to adopt a variety

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Table 2 IT architecture and MNE strategies Dimensions of IT architecture Data Communications Technology Type of MNE strategy Multinational Decentralized Direct HQsubsidiary Local facility Global Centralized Multiple networksHQsubsidiary Central shared facilities Transnational Distributed/shared databases Enterprise-wide linkages Interdependent facilitiesHQ and subsidiary

Source: Adapted from Karimi and Konsynski (1991) and Ramarapu and Lado (1995).

of information technologies as well as to integrate these various information technologies and information systems into transnational information systems (cf. King and Sethi, 2001). In the remainder of this section, we will discuss the consequences of this democratization of IT for MNEs capability for global efficiencyi.e., its ability to integrate and manage its globally dispersed value and supply chainsand enhance its capability for local responsiveness. In doing so, our objective is to tease out the transformative effects of IT on the two dimensions underlying the Bartlett and Ghoshal typology of MNE strategies, and eventually on MNE strategies and structures themselves. 3.1. Influence on MNEs global efficiency One consequence of IT has been the decreasing criticality of geographic scope or distance to MNEs in their search for global efficiencies through greater coordination and control of their far-flung activities. For MNEs, global efficiency is inextricably tied to the optimal management of their internal value chains activities and business processes. MNEs use a variety of ITfor instance, e-mail, corporate databases, wide-area networks, intranets, video-conferencing, group ware and executive information systemsto coordinate and control their distributed value chain activities and business processes. This trend towards increasing linkages, standardization and centralization of data/ information for control/coordination is becoming more pervasive in MNEs. For instance, Cisco Systems, made a concerted effort to globalize its Oracles databases and applications including order entry, manufacturing, and financial systems. This project linked its 10 primary sites in North America and Japan and more than 100 sales offices to global users across the companys network. Likewise, Tricon Global Restaurants Inc., the US-based MNE that owns Pizza Hut, Taco Bell, and KFC, standardized its back office operations at all stores throughout the world, enabling the rationalization and streamlining of their purchasing activities to substantially reduce inventory and related costs. Other MNEs that have resorted to global integration of their IT systems for greater coordination and control include Unisys Corp, Price Waterhouse Coopers and Lybrand, Electronic Data Systems and KPMG (Stephens, 1999). In addition to increasing the ability of the MNE to control/coordinate its internal value chain activities, IT is also ensuring that transactions and activities are also seamless across the MNEs entire supply chain. At the upstream end (i.e. inbound logistics and operations) the MNEs value chain is linked to those of its various suppliers via real-time integration scheduling, shipping, warehouse management and planning (Porter, 2001). On the

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operations side, IT aids in the integrated information exchange, scheduling, and decisionmaking in in-house plants, contract assemblers and component suppliers. Similarly, at the downstream end (i.e., outbound logistics, marketing/sales and service), IT helps in real time transactions of orders that could be initiated by customers, salespersons, or channel partners; automated customer-specific agreements and contract terms; customer and channel access to product development and delivery status; and an integrated channel management system that includes warranty claims. Several examples exist of MNEs using IT to seamlessly integrate their supply chain relationships and transactions with their internal value chain activities, thereby gaining additional global efficiencies. For instance, Sealand Inc., a US-based shipping company, implemented a new proprietary shipping management system that automated customer transactions worldwide, including order taking and document management. This enabled Sealand to integrate multimodal functions such as sea- and land-based shipment tracking, payment processing, and container movements at cargo terminals. Likewise, Nike, Inc., the US-based leader in athletic footwear and apparel, implemented a global electronic supply chain in order to share information with partners around the world and facilitate better decision making. Its competitor, Reebok International, too has utilized SAP enterprise software to unlock valuable information resources, create strong customer relationships and achieve supply chain efficiencies (Hecox, 2004). A relatively recent consequence of the spread of electronic networks and large investments in IT has been the slow disintegration of the MNEs value chain through outsourcing (Kambil, 1991). The reduction in transaction costs between the MNE and its suppliers enabled by ITespecially increased digitization and communicationmeans that several activities that once were performed internally can be bought from others. Indeed, MNEs can now focus just on their core competencies and outsource peripheral activities to specialized and lower-cost providers. In recent times, outsourcing has graduated from relinquishing peripheral or low-value activities to outside specialists to the wholesale externalization of key business processes including corporate treasury management (Wood, 2002), human resources (Calabro, 2003), administration (Financial Times, 2003), content development (Financial Times, 2003) and R&D (Business Week Online, 2003). This trend, aptly named Business Process Outsourcing (BPO), involves much greater information/knowledge transfer and coordination between the firm and its business process supplier than traditional outsourcing arrangements. Depending on the extent of coordination and interaction required, BPOs are classified as (a) collaborativeone carried out under a flexible relationship, but nevertheless in the supplierbuyer format or (b) transformationalone that involves true partnership and even joint venturing to perform high-value processes and activities (Linder et al., 2002). Indeed, relationships that initially began as simple outsourcingfor instance, the global IT relationship between UPS and Motorolahave evolved into strategic partnerships involving higher value activities through the building of trust over time (Zviran et al., 2001). A more recent extension of BPO is offshoring, wherein the business process supplier, instead of collocation with its buyer in the same country, is located in a different geographic region to leverage differences in labor costs and time zones. For instance, countries such as India and Philippines have now become prime locations for offshoring

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business processes such as call centers, back-office operations and even customer service and help desk. Indeed, MNEs have begun moving even higher-value and more complex activities to offshore locations as knowledge transfer and learning are driving the transition of offshoring from just being a vehicle for cost savings to a more intense and careful search for higher quality and productivity (Dossani and Kenney, 2003). In summary, IT is causing the very disintegration of the MNEs value chain, with more value chain activitieseven what used to be key internal processesbeing externalized to become part of the supply chain. From a cost or efficiency perspective for a MNE, this has resulted in a distinct change in emphasis. MNEs, irrespective of their strategic orientation, are increasingly finding that the efficient management of boutsideQ or supply chain relationships are just as important as the optimization of internal value chain activities (such as manufacturing) to leverage national or regional differences in resource availability and costs. 3.2. Influence on MNEs local responsiveness Apart from increasing the potential for attaining global efficiencies, a second consequence of IT is to make MNEs much more locally responsive than before. For instance, the Internet allows the MNE to educate customers more intensely by providing instant and detailed access to product information through their websites. The Internet also enables the accurate and cost effective targeting of specific market segments and customization of promotion schemes aimed at different market segments to a degree never before imagined. IT can be of considerable help in the after-sales service area such as on-line support of customer service representatives through e-mail response, billing integration, customer account review, status of order, parts availability, and building and maintaining accurate customer profiles (Porter, 2001). Indeed, in an in-depth study of six software firms and their international marketing activities, Moen et al. (2002) found that the Internet was used to search for customers, distributors, and partners around the world. They also found that the most significant use of the Internet was for post-sales service and support activities and that these activities generated additional revenues, enhanced company image and improved customer relationships, thereby reducing the uncertainty of operating in unfamiliar environments. The MNE can also obtain rapid consumer response to marketing initiatives such as changes in product features or pricing. Software companies increasingly rely on the Internet for giving a wide cross-section of their customers access to beta versions of their products or services to determine the combination of features most appropriate for their needs. For instance, Yahoo! introduces new websites and services using what it calls a bquietQ or a bsoftQ launch (Iansiti and MacCormack, 1997). First, it puts up a new service on its website without any links to popular pages so that only the most advanced users can find it. Yahoo! also opens the new service to its large group of volunteer beta-testers to try the new service and test its features for errors, utility and ease of use, before releasing the service to all its users. Such instant feedback allows the company to fine-tune changes, thereby creating a perception of faster responsiveness, more robust services and higher levels of customer loyalty.

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The Internet can also alleviate the problems of responding to local concerns, tastes and constraints. For example, E-bay has either established local subsidiaries or purchased local companiesfor instance, Bazee.com in Indiaso that trading can take place between buyers and sellers in local currencies governed by local rules and regulations concerning trade and advertisements. Of course competitors can do the same things; therefore, execution of localization strategies becomes very crucial. An extreme form of such responsiveness is exemplified by mass customization where the MNE is responsive to the idiosyncratic needs of each customer (cf. Gilmour and Pine, 2000). Mass customization has emerged as a solution to addressing the need to respond to varying customer demands quickly (i.e., providing the customer with a product of his/her choice) while at the same time capturing the efficiency advantage of mass production (Drew and Smith, 1998; Kotha, 1995; Piller, 2003). Mass customization requires substantial communication between the firm and its customers to define and translate their different needs. This process, in many cases, is much more than an elicitation and exchange of information and frequently involves close cooperation and even co-creation. The extent of integration with customers may vary from the simple configuration of a computer from a set of predefined options such as Dell to real co-design of products as Cmax offers in the footwear industry (see Piller et al., 2004 for several case studies on mass customization). However, the extent of mass customization varies between countries within the same industry. For example, in the automobile industry, locating cars to match a buyers specification from among a network of dealers is considered customization in the US whereas, in Europe, cars may actually be produced to buyers specifications. IT has created avenues for customized interaction with internal subsidiaries as well as customers, vendors and partners. Specifically, the ability to digitize and remotely manipulate digitally stored information has enabled such competencies and knowledge to be generated in any location within an MNE and shared instantaneously with other locations and with external partners. Possessing this kind of capability has become most useful in the area of knowledge management. For instance, Skandia has utilized a global area network (GAN) to enable any of its subsidiaries to access and use digitized systems and knowledge created and stored in designated competency centers around the world (Bartlett and Mahmood, 1996). In this respect, many MNEs have already resorted to IT to implement a more locally responsive bcommunities approachQ to the management and sharing of their knowledge assets. For instance, Infosys Technologies, a global provider of software services based in India, has adopted a bcentrally facilitated and organizationally distributedQ approach to knowledge management (Garud and Kumaraswamy, 2005). Under this approach, a central knowledge management group creates and maintains a consistent IT infrastructure for the provision of knowledge management services, whereas the actual content in the various knowledge databases are created and maintained by various internal communities and project groups distributed around the world. Furthermore, Infosys is slowly creating a very customizable categorization scheme for the content in its knowledge repositories so that different user communities can categorize content using keywords and categories most appropriate for their respective needs. Another way MNEs can use IT to respond to local knowledge needs is by creating virtual communities. Eli Lilly, the pharmaceutical giant, created an Internet-based business

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InnoCentive, LLC, which provides a platform for scientists from around the world to work in virtual communities to solve complex problems (Lumpkin and Dess, 2004). A virtual community makes scientists free agents and at the same time benefits MNEs and local customers by providing solutions to specific area-related problemsa positive sum game for all parties involved. Beckman Labs, a US-based chemical MNE, has refined this approach further in creating a virtual global forum (TechForum) for all its employees by creating regional communities that are more consistent with the diverse knowledge sharing needs and preferences of employees located in different regions of the world (Pan and Leidner, 2003). In summary, IT is enabling MNEs, irrespective of their strategic orientation, to become more locally responsive, thereby reducing response time. MNEs pursuing multidomestic or transnational strategies can use IT to fine-tune their local responsiveness and reduce the cost at which this can be achieved (Peterson and Welch, 2003). MNEs pursuing international and global strategies now have a capability to engage in some local responsiveness without relying just on competitive advantages of their global efficiencies due to scale/scope economies.

4. Consequences for MNE strategic orientation and organizational structure Our discussion till now has emphasized how IT is enabling MNEs to become more efficient globally as well as more responsive locally. These developments call into question whether the traditional MNE advantage of size that accrues in the form of scale/ scope economies, technological prowess, reputation and brand name still exists. For instance, consider the variety of innovative technologies and business models that are collectively known as be-commerceQ or be-businessQ (for different business models and emerging trends, please see Guillen, 2002; McAfee, 2000; Kaplan and Sawhney, 2000; Wise and Morrison, 2000). More specifically, global business-to-business (B2B) ecommerce revenues are expected to increase nearly three-fold from US $1930 billion in 2002 to US $8530 billion by 2005 (Electricnews.net, 2002). B2B e-commerce is making it cheaper and more convenient for large firms to coordinate their far-flung supply chain relationships and reach geographically and culturally dispersed customers. At the same time, however, B2B e-commerce is also reducing entry barriers by opening up new marketing, sales and distribution channels. This is reducing entry barriers and leveling the playing field for small/mid-sized competitors. In other words, for MNEs, the democratization of information technologies may be a bdouble-edgedQ sword. We now discuss in detail the consequences of this bdouble-edgedQ nature of the role of IT for MNE strategic orientations and organizational structures. 4.1. Consequence for MNE strategic orientation One strategic consequence of IT for MNE is a trend towards disaggregation of the value chain through fewer investments in potential problems areas (both in the functional and geographic sense) and a sharper focus on core strengths and competencies. For example, even global electronics firms such as Sony are contracting out manufacturing and

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concentrating on R&D and engineering, resulting in the emergence of contract manufacturers such as Flextronics. In what way does this potential bhollowingQ out of the MNE affect its competitive strategy? Is such nimbleness obtained at the cost of control and something else? What happens to the notion of internalizing markets (from Dunnings (1988, 1995) OLI framework) to take advantage of market imperfections and gain control? In other words, has the Internet or, more generally, IT changed the dynamics underlying the OLI framework? In order to answer these questions, let us first explore the enabling role played by IT in an MNEs global quest for resources, markets or efficiencies. IT enables MNEs to get quick access to resources in labor markets such as graphic designers and animation but does not help much when resources are physical in nature (e.g. raw materials) (Zaheer and Manrakhan, 2001). Market-seeking MNEs can utilize IT to maximize global reach via the World Wide Web and open new channels of distribution. Efficiency-seeking MNEs can use IT to lower operating cost via business process outsourcing. The Internet also enables MNEs to optimize own resources, focus on its core competencies and gain access to missing resources/competencies by entering into alliances and partnerships with external actors (Peterson and Welch, 2003). Dunning (1995) has addressed how his OLI framework is affected by the era of alliance capitalism. MNEs may engage in foreign direct investment (FDI) and in cross-border alliances in order to learn about, acquire or exploit foreign technology and markets. This view is also consistent with the writings of Nelson and Winter (1982) and Cantwell (1989, 1994) who advocate the role of technological accumulation and learning as ownership-specific advantages of the firm. Secondly, MNEs are increasingly utilizing strategic alliances to improve their dmarket positioningT as a location-specific advantage, thereby enhancing their ability to collect information on risk and regulator environments (Samii, 2004). Thirdly, alliances affect the boundaries of the firm in a profound manner by substituting internalization with quasi-internalization through the reduction of transactions costs and enhancement of the ability to control even external relationships (Samii, 2004). Thus, the Internet and more, generally, IT accelerate all aspects of the OLI framework. Indeed, the very influence of IT, which reduces distance while at the same time accelerating speed of operations, promotes the use and effectiveness of alliances and partnerships. At the same time, however, the increasing number of partners from various countries and locations presents daunting cultural challenges, as is increasingly evident from the difficulties faced even by small companies engaged in BPO (Wall Street Journal, 2004). What may be the eventual consequence of the above events for MNE strategic orientations defined by Bartlett and Ghoshal (1989)? It may be instructive here to explore changes that have taken place during the past decade within MNEs in both the service and manufacturing sectors. For instance, during the 1990s, the French MNE, Cap Gemini, made a $40 million investment to shift to a transnational strategy. The French MNE chose English as a common language for all correspondence and business documentation and adopted common service offerings regardless of which country or market it served (Stephens, 1999). Likewise, in the manufacturing sector, the Swedish maker of appliances and outdoor products, Electrolux, embraced a transnational strategy in place of its earlier multidomestic orientation. In an in-depth longitudinal case study of Electroluxs Home Products Europe division, Manwani and OKeefe (2003) describe in

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detail how the company created an IT architecture to centralize key functions and activities such as supply chain, product development, human resources, standards, and shared services. Thus individual MNEs as well as those firms involved in alliances and joint ventures have leveraged IT to adopt transnational strategies. For instance, the global Renault Nissan alliance in the automobile industry has integrated the respective IT operations of two automakers, Renault and Nissan, to standardize infrastructure, manage global vendor relationships and implement global business applications including computer aided design software (RenaultNissan, 2004). Such integration and leveraging has led to greater collaboration in all activities including purchasing, logistics, manufacturing and R&D globally between Renault and Nissan sites located throughout the world (Yoshino and Fagan, 2003). That this has been possible even in what has been a traditionally been an industry requiring a multidomestic orientation is indicative of the sweeping trend towards transnational strategic orientation. Given these trends, it is our view that the traditional MNEs strategies such as international, multidomestic, global, and transnational, will become blurred due to the advent of the Internet and other new information technologies. MNEs employing global and transnational strategies that emphasize upstream activities in the value chain can utilize IT to become more efficient. Those MNEs using multidomestic and transnational strategies that stress downstream activities in the value chain can exploit IT for greater and more precise global research. MNEs that are better able to control the interface of the value chain activities between themselves and their respective alliance- and outsourcing partners may become more successful than others. As MNEs face a plethora of broadbased or niche competitors due to the IT-influenced lowering of entry barriers, all MNEs will be pressured increasingly towards adopting the transnational strategy orientation (Fig. 2). 4.2. Consequence for MNE organizational structure Modern MNEs, as pointed out earlier in this paper, are characterized by complex integration that requires close control and coordination of their globally dispersed subsidiaries. In this context, IT enables decision-making to be elevated to higher levels in organizations (Hagstrom, 1991) as operational data is easily and inexpensively available to senior managers. Second, IT facilitates formalization as structured roles and job definitions are easily stored and transmitted using IT (Hagstrom, 1991). IT reduces the scope of idiosyncratic judgments in the work of subsidiary managers making worldwide mandates possible (Child, 1984). Third, IT makes it possible to monitor subsidiary activities on a much greater scale than ever before (Sewell, 1998; Zuboff, 1989). In an empirical study of 150 MNEs from 20 countries representing 25 industries, King and Sethi (1999, 2001) found that there existed a fit between MNE strategies, structures and their IT systems. Specifically, they found that for each strategic orientation, the organizational structural characteristics of centralization, dispersal and coordination matched specific IT configurations. At a more micro-level, Finnegan and Longaigh (2002) studied the specific effects of IT on control and coordination relationships between MNE HQ and subsidiaries. In an

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High

Global

Transnational

Level of global efficiency Low International Multidomestic

Low

High

Level of local responsiveness

Fig. 2. Consequences of IT for MNE strategic orientation.

empirical study of 15 MNEs subsidiaries based in Ireland, they found that MNEs used a variety of IT tools to achieve global efficiency, local responsiveness, and transfer of information and learningall hallmarks of a transnational strategy. They also found that the prevalent use of IT changed the very nature of relationships between headquarters and subsidiaries. Specifically, IT enabled headquarters to monitor operational data from subsidiaries in real time and to directly control or establish policies and guidelines for different activities within subsidiaries such as budgeting, sourcing, transfer pricing and production plans. At an extreme, IT even enabled MNE headquarters to make changes to key business processes within subsidiaries. Similarly, IT, through corporate databases and ERP systems, also made it possible for MNE headquarters to ensure coordination between subsidiaries without any explicit interaction among the different subsidiaries or with HQ. This increasing ability of MNE HQ to control and coordinate its relationships with subsidiaries is also being reflected in its relationships with external partners, suppliers and customers. As IT enables MNEs to undertake numerous alliances and partnerships, perform contract manufacturing, create B2B hubs, and deal with infomediaries, their organizational structures are becoming amorphous, fast changing, and flexible. In other words, the traditional boundaries of the MNE (in general, the firm) are becoming blurred too. In our view, going forward, the underlying themes for emerging MNE structures will be adaptation, flexibility, responsive to local needs, team-orientation, two-way communication and decision-making and continual learning. In the Internet age, a new type of manager and employee will emerge. Managers will need to acquire new abilities such as the ability to work in and facilitate teams, general management skills, and management of innovation. Employees will need to become dresearchers in practiceT (Schon, 1983), wherein they reflect and innovate even as they learn to become more efficient in performing their daily routine activities. The human relation function will become more emphasized as the sourcing of highly skilled and knowledgeable employees and managers amidst intense competition for their services become more

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critical to MNE competitive advantage. In other words, the traditional organizational structures favored by MNEs such as functional, geographical or product/SBU may not be appropriate any more. What, then, will the new organizational structures look like? The new structures will be a constellation of adhocracies or entrepreneurial organizations (Mintzberg, 1979) with a very involved headquarters. More organic, hybrid structures such as the flexible matrix or network structures will become the norm. These structures will mix traditional functional specialization with new elements such as ever-changing task forces task-specific teams, troubleshooting units and multiregionalmultifunctional teams as IT enables more intense collaboration, coordination, responsiveness and learning opportunities. In sum, the consequences of IT for MNEs have been that the distinct strategic orientations of the Bartlett and Ghoshal (1989) typology are increasingly becoming blurred with transnational strategies gaining in importance. Furthermore, MNE structures are becoming more organic in nature, given the increasingly simultaneous emphasis on both global efficiency and local responsiveness.

5. Challenges to MNEs in implementation of the strategic and structural changes Aside from the enabling influences, the democratization of IT can also raise new challenges and questions for MNEs both in terms of strategies and structures. Clearly, the traditional command and control style of management was not a good model in a rapidly changing environment. In that case, will the IT-driven centralization and control by headquarters in MNEs be harmful as well? Second, the interpenetration of organizational boundaries creates an entirely amorphous, loosely defined organizational structure. Also, innovation increasingly occurs in centers of excellence distributed around the world and frequently involves alliance partners, suppliers and customers. Will MNEs learn to manage boundary-spanning relationships to foster more open and trusting relationships with suppliers, competitors, and consumers and also be willing to share knowledge hitherto considered sensitive and proprietary? Third, due to outsourcing or BPOs, jobs involving basic skills will continue to migrate to lower cost countries and partners. Will MNEs be able to handle this bdeskillingQ through constant training and education of their employees to perform more complex, value-added tasks and functions? Finally, will MNEs be able to develop a wholly new breed of managers who have the ability to integrate and manage diverse people, cultures and technologies, amidst continual change? On the IT side, a different set of challenges is emerging. IT managers and executives are becoming more concerned with regulatory, technological and country-oriented issues, in addition to their traditional tasks of managing technology and networks (Lai and Chung, 2002). As higher value (and more complex) work is performed outside the firms traditional boundaries or even goes offshore, the integrity and control of information also become dominant issues. Digitized data and information can be copied, transmitted and stored without being detected. The laws relating to data privacy are not universal and victims of crimes from such data loss are not localized. While it used to be relatively easy for MNEs to monitor and control offshore manufacturing activities, it is more difficult to

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monitor and control databases and information-infused activities (e.g., financial, business intelligence and customer information). Economic pressures and national politics will determine some of these issuesfor instance, HSBC is under pressure in UK for moving some of its operations to Indiaeven though good, competitive viable alternatives do not exist. A third set of issues have to do with policy and legal implications for MNE operations around the world. For instance, consider the issue of corporate taxation, an already complex burden for MNEs. Taxation is an important criterion for MNEs to determine where to locate their headquarters and foreign subsidiaries. Earlier, taxation was based on fiscal sovereignty, which traditionally has been based on two criteria territorial jurisdiction and geographical autonomy (Kobrin, 2001). However, as geographic boundaries become less relevant for trade and commerce, the old rules of taxation are becoming difficult to impose. For instance, for tax purposes, how do MNEs account for Internet commerce that transcends geographic boundaries in a consistent manner? Governments will have a hard time determining income streams and even in ascertaining whether a transaction has been completed (Kobrin, 2001). The geographical location of both buyers and sellers may be ambiguous (Sawyer, 1999). For example, UK announced in March 2000 that a server or web site within the geographic boundaries of the UK is insufficient to constitute a permanent establishment. Many states in the US are uneasy about loss of tax revenue from Internet transactions. The ability of suppliers of goods and services to circumvent taxation will give rise to new tax concepts that MNEs will have to adjust to. For instance, consider the bBit tax rateQan idea for taxation based on the volume of data traffic, with telecom companies serving as collectors and distributors of taxes to relevant taxing authoritieswhich has been considered and abandoned for the time being by the European Union (Akdeniz et al., 2000). Finally, there are security and encryption issues that have significant implications for MNE strategies. In the past, commercial and law enforcement agencies rarely debated on the adoption of a policy that impacted both directly. However, in this age of cross-border terrorism and fraud, encryption is becoming an increasingly critical issue that can both enable and constrain global commerce. Stronger encryption increases data transfer security but creates law enforcement problems. In other words, e-commerce and law enforcement issues cannot be decoupled anymore. Here again, different countries have different standards. Malaysia and Singapore have existing laws for legal and controlled access to encryption. France too had similar laws, but dropped restrictions on cryptography in 1999, whereas the US still has some restrictions in place on access to cryptographic codes. Adding to this confusing patchwork of global laws and regulations, respect for privacy and free speech issues complicate the issue of commercial data encryption further. UKs proposal to entrust third parties to monitor and enforce privacy/ protection/security issues is in conflict with the laws of countries wherein the governments maintain greater control on the flow of information. These issues will impact data collection, storage, and data oriented service related decisions made by MNEs, especially for those offering digitized products and services.

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6. Conclusion The challenges facing MNEs today are both difficult and, to a certain extent, not even fully clear. As the Internets role in global commerce continues to evolve into uncharted waters, monitoring and exploiting this ever-changing environment will be the key to MNE success. Firms that are able to understand and respond rapidly to technological and environmental changes will succeed, as they can shape the evolving drules of the gameT to their advantage. But at an even more fundamental level, those MNEs that are able to identify business models that work in the globally connected age will gain first mover advantages. Much will therefore depend on MNEs ability to implement their business strategies effectively. The complex integration on a global scale for efficiency and local responsiveness has become easier in some respects, but considerably harder in yet others. Building a virtual global organization requires an unprecedented degree of dependence on a federation of alliances and partnerships with other organizations (Boudreau et al., 1998). MNEs will need to bring suppliers and customers deep into their various processes and develop a keen appreciation and knowledge of their business partnersT culture and processes. This implies a degree of openness and transparency that MNEs are not used to. Most importantly, dtrustT now becomes a vital component of the firms social fabric. In global terms, this becomes even more critical and difficult to achieve due to the cultural differences that may exist among the various partners of different nationalities. Only those MNEs that can formulate and effectively implement strategies and structures consistent with these new demands for openness, transparency, and trust will survive and thrive in the increasingly borderless and time compressed age of IT and the Internet.

Acknowledgements We thank the editor Mike Kotabe, Arvind Parkhe and two anonymous reviewers for their helpful comments and suggestions on earlier versions of this paper.

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