US companies developed new technologies and products. They were almost
forced into the international market by spontaneous export orders and oppor-
tunities for licensing. Later they started making their products in manufactur-
ing facilities in Western Europe and in developing countries. The adjective
‘international’ refers to the international product life cycle, which describes the
internationalization process in this type of industry. The critical success factor
in these industries is the ability to transfer knowledge (particularly technology)
to units abroad. It involves sequential diffusion of innovations that were origi-
nally developed in the home market. A classic example of an international
industry is telecommunications switching. In the international organizational
structure, transfer of knowledge and expertise to countries that were less
advanced in technology or market development is the essential task. Local sub-
sidiaries do still have some freedom to adopt new products or strategies, but
coordination and control by headquarters is more important than in the
multidomestic type. Subsidiaries are dependent on the parent company for
new products, processes or ideas. A coordinated federation, often structured by
function, is the name for the structural configuration of this organizational
model. The managerial culture of these companies provided a good fit with this
structure. This culture was based on professional management, which implied
a certain willingness to delegate responsibility. At the same time, however,
these companies used sophisticated management systems and specialist corpo-
rate staff to retain overall control.
Global organizational model
In the 1960s and 1970s the successive reductions in tariff barriers began to
have their full impact. This was accompanied by declining international trans-
port costs and communication barriers. Furthermore, new electronic technolo-
gies increased the minimum efficient scale in many industries. Finally,
consumer preferences became more homogeneous because of increased inter-
national travel and communication. All these developments made centralized
and relatively standardized production with exports to various countries profi-
table again. In a global industry, standardized consumer needs and scale effi-
ciencies make centralization and integration profitable. In this kind of
industry, a firm’s competitive position in one country is significantly influ-
enced by its position in other countries, and rivals compete against each other
on a truly worldwide basis. A classic example of a global industry is consumer
electronics. The preferred strategy in these industries is one that gives primary
importance to efficiency. Global companies integrate and rationalize their pro-
duction to produce standardized products in a very cost-efficient manner. This
is the strategy traditionally followed by Japanese MNCs, which mainly inter-
nationalized in the 1970s. In a global organizational configuration, assets,
resources and responsibilities are centralized. The role of subsidiaries is often
limited to sales and service. Compared with subsidiaries in multidomestic or
international organizations, they have much less freedom of action. The structural
Strategy and Structure of Multinational Companies 47