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Different Forms of Agency and Institutional Influences within Multinational Enterprises

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Abstract

  • Given their exposure to diverse institutional settings, decision making in multinational enterprises (MNE) is marked by inconsistencies and conflict. Within the comparative institutional analysis (CIA) literature, such inconsistencies are seen as a source of experimentation or innovation. By contrast, in the international business (IB) literature, institutions are primarily understood as constraints on MNE activity. The latter focuses on ‘institutional effects’ taking institutions as stable and determining of social agency. As a way of addressing this limitation, we aim to understand the conditions that enable actors to engage in strategic action despite institutional pressures towards statis.

  • The research draws on systematic comparative case studies of two large MNEs in the chemical industry, headquartered in Germany and the UK, and operating in Italy, Germany, and Poland. It focuses on one example of agency, subsidiary efforts to change product formulations that are successfully developed by the headquarters.

  • We demonstrate that agency within MNEs is influenced by a fit between MNE coordination structures shaped by home country institutions and host country institutions’ demands for flexibility or collaboration.

  • Institutional incompatibilities between home and host contexts are unlikely to trigger actors’ reflective capacity to change if the actors cannot draw on supportive coordination structures in the MNE. This is not just an ‘institutional distance’ argument as is commonly understood in IB. It is related to whether local institutions support the subsidiary to take advantage of specific opportunities conditioned by the home country institutions.

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Notes

  1. Hollingsworth (2003, p. 132) recognizes that institutional analysis occurs at multiple levels. At the first level, there are the basic norms and rules of a society. On the next level of analysis, there are institutional arrangements that coordinate various economic actors. These consist of markets, associations, communities and clans. The next level consists of the institutional sectors. The norms and rules of a society influence the array of institutional arrangements, and both of these influence the nature of, and the relationship among, various institutional sectors that include a society’s distinct system of education, legal system, business system and financial system. We focus here on transformation of institutional arrangements.

  2. Although Oliver (1991) represents the first systematic attempt at articulating the range of potential responses available to organizations facing institutional pressures, her view reflects a unidimensional understanding of agency. A problem with such a view is that it does not clearly specify the extent to which actors can affect the social world for them to be regarded as having a high versus a low level of agency (Battilana and D’Aunno 2009). We adopt here the multidimensional view, following Emirbayer and Mische (1998), where actors’ engagement with the social world can both reproduce and transform an environment’s structures. We conceptualize agency as a temporally embedded process of social engagement, informed by the past (in its habitual aspect), but also oriented towards the future (as a capacity to imagine alternative possibilities) and towards the present (as a capacity to respond to the demands of the present) (Battilana and D’Aunno 2009).

  3. A condition is necessary for a given outcome if it is always present when the outcome occurs, i.e. when the outcome cannot occur in its absence (George and Bennett 2005; Rihoux and Ragin 2009). Consequently, an unnecessary condition is that which is always absent when the outcome occurs. Ragin (1987) has coined this term to distinguish between conditions that are associated with the outcome and those that are not related to the outcome. This is further exemplified by Rohwer (2011) where the method is argued to trim components that are logically unnecessary for the presence of the outcome in one or more case(s).

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Correspondence to Mike Geppert.

Appendix

Appendix

Illustrative list of codes associated with agency

Categories related to the agency outcome

Sub-categories

British MNE

German MNE

Knowledge transfer (i.e. the direction in which product ideas and process know-how flow)

Exporting/Importing of knowledge

“Knowledge is developed at the centre and exported to overseas units”

“With the [X brand], what we did is that we exported it from the UK. So they [the German subsidiary] took the same range as the UK, and then gradually over a period of time, we formulated a match using their raw materials”

“All recipes are owned, in fact, by the UK. So if we [the Polish subsidiary] want to make changes to the recipes, those need to be approved by the UK. There are people from the UK labs who come here and advise”

“Marketing units operate in Euro team [which consist of a strategic business unit member from the headquarters and marketing managers across Europe. The Euro team notion is quite important. They aid in forging interdependency among [Western European] subsidiaries to stimulate new product development”.

“A country can come and say it would be interesting to develop for example soap paste, which is still in use in countries like Romania. Then we [HQ] get a proposal to develop such a product. But they [CEE subsidiaries] do not develop it in their own country”

Categories related to the agency outcome

Sub-categories

German subsidiary of British MNE

Polish subsidiary of British MNE

Italian subsidiary of German MNE

Polish subsidiary of German MNE

Mode of control (i.e. the extent to which decision making is centralized, standardized and formalized)

Direct/indirect-personal/impersonal nature of control

“We do have a discipline, template, an operating framework that says what is decided where, which decisions are to be taken locally, regionally, internationally, and what things you need to tell people”

“We are much better organized in terms of having country managers and functional structures, which are much more European-based. So in terms of R&D, although we have some labs such as that in France and in Poland, our activities are all pretty well managed in terms of knowing what is going on and who is doing what”

“You [HQ] invest in a lot of infrastructure, not only machinery and equipment, but you build up very much in people, education, training”.

“We [HQ] are sending people to Germany in the form of job rotation¼It may be short period for training purposes and visits for exchange of experience between headquarters and local units”

“A lot of the marketing mix is developed in the [CEE] headquarters. And the countries are responsible for excellent execution of this initiative”.

“95% of the communication is always going through Austria. When Romania wants some information from Poland, they are asking us and we are asking Poland”

Subsidiary capability (i.e. the interest in and ability to improve products and processes)

Extensive/limited emphasis on experimentation

“Four years ago, when I discussed this with Germany and the UK, they [Germany] asked ‘why do you want to launch this when other paints cover well, better than those of the competitors?’ ”

“About 4 years ago, we were looking at different products to launch which would be innovative, different and better than what the competition has got. There were no products¼the market at that point in time seemed to be following the way of developing tinting business¼Looking at the UK market, there were suggestions that launching colours would not be a bad idea, because it works in the UK. However, we are afraid of advices of doing something because it works in the UK. So we did not really know which would be the preferred route”

“About 4–5 years ago, we [the Italian subsidiary] saw a trend in the detergents that were using this marsiglia soap as a marketing concept. It was an enormous success¼We were the first to introduce it into dishwashing, then into softeners¼ In the beginning the test results were not enough to sell to the top management that it was a good process, but then they realized that it was possible”

“We [CEE HQ in Austria] together with the German Chem HQ develop a formula on paper, then we make a production trial in the CEE country where we want to produce this formula. The local R&D controls the production trial and makes all specification parameters, tests on density, solubility, the rinsing behaviour”.

“There is mismanagement in the company. The company is not run properly¼State-of-the-art product cannot be made. There is good technology and highly-skilled people available, but the whole system is totally bankrupt”

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Saka-Helmhout, A., Geppert, M. Different Forms of Agency and Institutional Influences within Multinational Enterprises. Manag Int Rev 51, 567–592 (2011). https://doi.org/10.1007/s11575-011-0091-2

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