centralized hub structure in which headquarters takes the most important
decisions. In the integrated network type of structure that characterizes the
transnational, subsidiaries can have a more strategic role, which makes cen-
tralization of decision-making less feasible. Bureaucratic control is high for
global companies as well. Since global companies try to sell standardized prod-
ucts, a high level of standardization is a logical choice. Transnationals are much
more differentiated and have to act in very flexible ways. This makes stan-
dardization and formal procedures less feasible. Output control, operational-
ized in our study as financial reporting and planning and budgeting systems,
is used by all MNCs to some extent, while the complexity and uncertainty of
the transnational environment has led many transnational firms to adopt what
Martinez and Jarillo call ‘more informal and subtle coordination mechanisms’
in the form of control by socialization and networks.
In summary: three ideal-type multinational companiesIn summary, our empirical study was able to clearly distinguish three types of
MNCs which differed systematically on a number of important characteristics.
Global companies operate in industries with rather standardized consumer
needs that make the realization of economies of scale very important. Many
industries have turned global during the last decades, but the consumer elec-
tronics, computer and automobile industries remain prime examples. Since
price competition is very important, the dominant strategic requirement is effi-
ciency, and these companies therefore integrate and rationalize their produc-
tion to produce standardized products in a very cost-efficient manner.
Subsidiaries in global companies typically fulfil a ‘pipeline’ role for headquar-
ters. They are usually very dependent on headquarters for their sales and pur-
chases and are not expected to respond actively to the local market demands
in terms of – for example – product adaptation. A relatively low percentage of
subsidiaries have ‘strategic’ functions such as production or R&D. The total
level of control exercised by headquarters over these subsidiaries is rather high,
mainly caused by a high level of the two direct control mechanisms: personal
centralized control and bureaucratic formalized control. The global configura-
tion is most typical of German and Japanese MNCs.
Multidomestic companiesare the complete reverse of global companies.
Products or services are differentiated to meet differing local demands, and
policies are differentiated to conform to differing governmental and market
demands. Local demand is determined by cultural, social and political differ-
ences between countries. The food and beverages industry is a classical example
of a multidomestic type of industry, but many firms in the paper industry also
score high on multidomestic characteristics. The multidomestic firm is
characterized by a decentralized and loosely coupled organizational structure.
Subsidiaries operate relatively independently from headquarters: they buy/sell
Strategy and Structure of Multinational Companies 57