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Stopford and Wells were Right! MNC Matrix Structuresdo fit a “High-High” Strategy

In Memoriam for Professor John Stopford (1940–2011), Pioneer of International Strategy-Structure Research

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Abstract

  • This paper seeks to address a primary question about matrix structures: under which strategic condition should multinational companies (MNCs) use matrix structures instead of other structures? To answer this question, the seminal Stopford and Wells Model (1972) is re-examined.

  • Stopford and Wells (1972) predicted in their model that MNCs tend to use matrix structure to implement high levels of dual strategies—foreign product diversification and area diversification. Their prediction, however, has remained theoretically unclear and empirically unproven.

  • To address this gap in the strategy-structure literature, we re-examine and revise the Stopford and Wells Model to explain the strategic condition in which MNCs tend to use matrix. The key of the revision is to use “corporate integration” instead of “foreign product diversification”.

  • The revised model is preliminarily supported by the data from a study of German MNCs. This suggests that corporate integration, together with area diversification, are the two over-riding strategies that lead to MNCs’ use of matrix.

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Notes

  1. “The area divisions structure” of Stopford and Wells (1972) is termed “the geographical regions structure” by Egelhoff (1988b) and “the geographical divisions structure” in subsequent studies (Wolf and Egelhoff2002; Wolf et al.2007, Donaldson2009). The matrix described by Stopford and Wells (1972) is termed as “the geographical region x product division matrix” by Egelhoff (1988b) and “the product-geographical matrix” in subsequent studies (Wolf and Egelhoff2002; Wolf et al.2007, Donaldson2009). We use the terms “geographical divisions structure” and “product-geographical matrix” for consistency with more recent studies.

  2. In Stopford and Wells (1972, p. 88), matrix is termed “grid structure”. We use the term “matrix” for consistency with the majority of subsequent studies.

  3. Although any particular classification to delineate different levels of a strategy is somewhat arbitrary, we differentiate the levels of strategy fitted by each structure as “low”, “medium” and “high”. For each strategy, we use the grand mean across all nine structures as the dividing point to delineate different levels of strategies. The structures having a strategic level below the grand mean are classified as having a “low” level of that strategy. The structures having a strategic level at (or closely approximating) the grand mean are classified as having a “medium” level of that strategy. The structures having a strategic level above the grand mean are classified as having a “high” level of that strategy. For example, Table 2 shows the means of the level of foreign product diversity for nine structures (e.g., 6.1 for worldwide product divisions). The grand mean of these nine means is 3.4. Thus, we consider structures such as the worldwide product divisions (6.1) and the product-geographical matrix (5.4) have high levels of foreign product diversity, whereas structures such as the functional-geographical matrix (2.4) and the worldwide functional structure (2.3) have low levels of foreign product diversity.

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Acknowledgments

The authors would like to thank Steven Lui, Ben Luo, John Stopford, Xiaowen Tian, Nick Wang, Joachim Wolf, and the two anonymous reviewers for their comments on this article.

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  1. Australian School of Business, University of New South Wales, Sydney, Australia

    Jane XJ Qiu

  2. Australian School of Business, University of New South Wales, Sydney, Australia

    Lex Donaldson

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Correspondence to Jane XJ Qiu.

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Qiu, J., Donaldson, L. Stopford and Wells were Right! MNC Matrix Structuresdo fit a “High-High” Strategy. Manag Int Rev 52, 671–689 (2012). https://doi.org/10.1007/s11575-011-0122-z

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