Transcript
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Flexible Footprints:RECONFIGURING MNCS FOR
NEW VALUE OPPORTUNITIES
Elizabeth Maitland
Andre Sammartino
Powerful technological, regulatory, and economic forces compel the senior executives of multinational corpora-
tions (MNCs) to repeatedly re-evaluate and reconfigure value chains in the search for ongoing competitive
advantage. However, releasing assets from existing activities and redeploying them to new opportunities is
a challenging and poorly understood task. In particular, the standard strategic management concepts of
use- and firm- flexibility overlook the crucial international dimension of location. Utilizing examples from
GM, Qantas, and a mining MNC, this article argues that strategic flexibility should be consciously measured
along all three dimensions. By using the decision tool set out in this article, MNC executives can map theirworldwide footprint of strategic roadblocks and opportunities to expand into new markets, divest redundant
businesses, and build flexibility to adapt to future challenges. (Keywords: International business, Decision mak-
ing, Strategic planning, Multinational corporations, Corporate strategy, Reorganization, Foreign investment,
Foreign subsidiaries)
M
uch is made of the flexibility and reach of multinational corpora-
tions (MNCs). These organizations are often portrayed as foot-
loose, nimble operators that can easily jump from one economic
hotspot to another. Evidence in recent years suggests such imageryis misleading. As General Motors discovered in the wake of the Global Financial Cri-
sis, legacy effects of existing asset, location, and activity commitments often constrain
where, how, and how quickly the MNCs footprint can be altered. For GM executives,
it proved exceptionally difficult to release capital for the failing home operations,
while simultaneously mollifying multiple vested interests. Embroiled in negotiations
with a host of governments, financiers, and potential buyers, GM executives spent
much of 2009 struggling to separate assembly plants and supplier relationships from
product platforms and supply chains shared across multiple brands and locations.
Intended sales of the Opel and Hummer businesses ultimately failed, while Saab suit-
ors came and went before a last-gasp deal in early 2010.
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The experiences of GM are not uncommon. For MNCs, releasing assets from
existing activities and redeploying them to new opportunities is a challenging and
poorly understood task, for which the standard strategic management tools are inad-
equate. To address this shortcoming, we present a decision tool to understand the
value and the limitationsin short, the strategic flexibilityof an MNCs assets. To
reconfigure an MNC, executives need to understand not only what assets the firm pos-
sesses (i.e., what assets have I got?), but also the opportunities and constraints these
assets represent (what can I do with the assets?), and the implications for future direc-
tions (what strategically will I be able to do?).
In developing this decision tool, we draw on
Ghemawat and del Sols concepts of firm- and use-
specificity for assets, and we introduce a crucial third
dimension of location.1 Ghemawat and del Solargue
that for a strategy to provide a sustainable competi-
tive advantage, it must be based on assets that arespecific, or unique, to the firm. The catch? The more
specific the firms assets are to its current activities,
the less easily the firm can adapt to change, be it a
financial crisis, technological innovation, or new
competitor. Strategic choices involve commitment:
realigning past commitments to new and potential opportunities can be challenging.
At any point in time, the configuration of an MNCs worldwide set of value chains
reflects its previous strategic choices: decisions to pursue advantages from economies
of scale and scope, to build distinctcountry-specific endowments (inputs and skill sets),
and to adapt to pressures from consumers, governments, and other stakeholders in
different environments. We argue that a crucial determinant of the speed and cost
with which MNC strategies can be adapted are these location factorsthe local brand
loyalties, supplier and government relationships, locally tailored process technologies,
and human resource practices that have built up through years of engagement in a
particular country or region. Only through understanding the fullflexibility-specificity
profile of its global assets can an MNC strategically plan for the future.
Our framework builds from a set of core questions about the firm, use and
location dimensions of assets to construct flexibility profiles for individual assets or
groups of assets within the MNC. These individual profiles reflect the speed and costat which an asset can be transformed or transferred to alternative applications and/
or owners. We present decision trees for creating inventories or asset maps that enable
cross-business and cross-country comparisons of the MNCs value chain activities.
The objective is to determine the need and scope for changes to support current and
future value creation, including building in flexibility to adapt to unknown future
events. Opportunities lying latent in the firms current web of activities may be
revealed, opening up previously unrecognized strategic directions.
We discuss three specific types of strategic decisions faced by MNCs and how
they are affected by the location dimension. We explore GMs attempts to divest the
Opel and Saab businesses as examples of reconfiguration decisions hampered by
assets subject to significant firm-, use-, and/or location-specificity. The second case
Elizabeth Maitland is a Senior Lecturer in
Strategy and International Business at the
Australian School of Business, University
of New South Wales (Sydney, Australia)
and a Visiting Professor at Nanjing
University (Peoples Republic of China).
Andr Sammartino is a Senior Lecturer in
Strategy and International Business in the
Department of Management & Marketing,
University of Melbourne (Melbourne,
Australia).
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existing assets that can be leveraged into new applications, while pre-empting speci-
ficity constraints on future strategic decisions. In our third example, an MNC pursues
international growth, triggering analysis of the location-flexibility of its existing
assets, and the firm- and use- flexibility of assets held by potential acquisition targets.
This example is based on our interviews with the executive team and board directors
of a mining MNC and the decision-making process they followed during a billion dol-
lar acquisition of a company with significant assets in West Africa. This case provides
insight into how MNC managers think about strategic flexibility and the influential
role of individuals international work and decision-making experience for under-
standing the strategic implications of asset location.
To help executives effectively employ our framework, we identify common
information constraints, and set out mechanisms for minimizing the impact of these
constraints. As our mining example illustrates, international experience provides
strategists with an innate and largely implicit understanding of asset flexibility across
locations. However, these understandings are imperfect due to limitations on execu-tives decision processes, data availability, and the level of uncertainty when re-
configuring multi-locational and multi-divisional operations. We propose a more
systematic and formalized utilization of our tool to address these issues.
By using the concepts of three-dimensional asset flexibility and the decision
tool set out in this article, MNC executives can map their worldwide footprint of stra-
tegic roadblocks and opportunities to expand into new markets, divest redundant
businesses, and build flexibility to adapt to future challenges.
The Pursuit of Strategic FlexibilityFrom the late-1990s, business scholars and consultants have been calling for
more strategically nimble organizations. Citing the rise of globalization, Hitt, Keats,
and DeMarie warn that with the changed dynamics in the new competitive land-
scape, firms face multiple discontinuities that often occur simultaneously and are
not easily predicted.2 Firms have been urged to seek out strategically flexible combi-
nations of activities and assets, so as to build the capacity to pre-empt and react to
changing competitive conditions.3 Examples of the prescribed strategic initiatives
include the outsourcing of some activities (and the corollary of focusing on certain
core functions), the use of contingent workers and consultants, and the developmentof more modularized production designs and assembly lines.
These calls have accompanied large-scale technological, regulatory, and eco-
nomic changes over the last decade that have pushed MNC executives to significantly
re-evaluate and reconfigure value chains. Advances in information technologies
have facilitated the geographic separation of tasks, enabling MNCs to finely segment
their value chains and send labor- and technology-intensive tasks to countries with
skilled, low-cost workforces. Offshoring has also been aided by the re-opening of
India, China, and the former Soviet Bloc countries to foreign companies, and the
lowering of trade and regulatory barriers in countries around the world. More
recently, the financial crisis has forced significant alterations to many MNC portfolios,
as companies have sought to rapidly divest assets to shore-up other parts of liquidity-
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However, firms face a classic strategy trade-off when taking such steps.
Ghemawat and del Sol identified the trade-off between the flexibility and specificity
of assets. Flexibility here refers to the scope to adapt assets to alternative value-
adding activities, whereas specificity denotes situations where assets have considerably
lower value outside their current application. The more flexible an asset is, the greater
the opportunities the firm has to alter its role and position within any new strategic
direction. Yet, insufficiently specific assets have limited potential to create unique
and ongoing value, as any cost or product differentiation advantage will be fleeting
due to the ease of imitation by competitors. Take, for example, the rapid rates of imi-
tation that have beset cellular phone manufacturers. For the original innovators, their
inability to create very firm-specific, rather than use-specific technologies, limited their
ability to capture sustainable market shares. By contrast, Apples bundling of the iPod,
iPhone, and iPad, with its proprietary (firm-specific) iTunes platform has enabled it to
capture significant market share for the sales of devices and digital downloads.
A less well understood element of the flexibility-specificity trade-off is thatspecificity refers not only to the owner of the asset, but also to the use of the asset.
Determining the flexibility-specificity profile of an asset involves not only asking
whether there is someone else who can, or believes they can, extract value from
an asset, but also if there is the potential to use the asset in a radically different appli-
cation. As one board director we interviewed for this project observed of his earlier
involvement in the sale of an underperforming smelter:
I got a check for 107 million dollars in my hand and I just kind of grabbed it . . . we
were just amazed that we managed to get that. I think they spent several times that
before they finally closed the thing down . . . while the smelter cost them a fortune
in closing it down, they actually sold the real estate eventually . . . they got some
value out of it after all.
Firm and Use: Two Dimensions of Flexibility
Ghemawat and del Sol present a framework for examining this asset flexibility-
specificity trade-off based on firm and use.4 Table 1 sets out examples to clarify the
distinctions between these two dimensions, as well as our additional dimension of
location.
TABLE 1. Examples of Asset Specificity/Flexibility
Dimension Specific cf Flexible
Firm Facilities in Disney theme park
Team of employees extensively
trained in firm methods
Generic office buildings
Casually-hired labor
Use Gas station (pumps, forecourt,
underground tanks)
License to brew beer
Warehouse facility
Right to trade under a brand name
LocationBuried cablingLocally adapted technologies
Culturally specific brand
Relocatable plant and machineryUniversally accepted components
Globally/regionally understood brands
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A firm-specific asset has greater value to the firm than to any other organiza-
tion. Such assets may rely upon knowledge that is tightly held within the firm, be
tailored to particular processes unique to the firm, or be difficult to extract from a
chain of sequential activities within the firm. In contrast, firm-flexible assets can be
readily sold, with buyers able to extract similar (if not greater) value from their
deployment, with little to no modification costs incurred.
To illustrate, consider office buildings. Frequently, they require little adapta-
tion by incoming owners, beyond cosmetic changes to fit-out. Conversely, the facili-
ties in Disney resort parks around the world are highly specific to the Disney
Corporation, given the overall tailoring of most rides and activities to particular
Disney brands, logos, characters, and films. While the parks could be sold to alterna-
tive operators, once divorced from the suite of assets controlled by Disney (i.e., Buzz
Lightyear, the Disney Princesses, Mickey Mouse, and Nemo), they would have con-
siderably lower value. Similarly, a team of employees with extensive training in the
routines and processes of a given firm are much more firm-specific than a pool of ca-sually hired labor performing common business tasks. Removing the former from
their organizational context would reduce their value considerably more than chang-
ing the employer of the latter. Shifting to greater utilization of contingent workers
may offer a firm strategic flexibility in the short-term, but as Hitt et al. argue, dynamic
flexibility (i.e., the ability to persistently adapt) may be lost, as using significant num-
bers of contingent employees may actually reduce rather than build their skill set and
knowledge base, necessities to survive in the new competitive landscape.5
A use-specific asset cannot be readily adapted to another application, or only
at substantial cost. If the firm sought to undertake a different activity, these assets
would have little to no value within the firm and their external market would be
confined to buyers with similar use needs. A license to produce or sell certain goods
(such as alcohol) or to offer services (such as tax advice or medical assistance) is only
valuable to buyers seeking to offer the same and, in some instances, may prevent the
license holder from certain diversification paths. However, the right to operate as an
incorporated business or trade under a certain brand name (or to simply operate a
business) may be useful to a wide range of potential buyers across a variety of indus-
tries and would not bind the current asset-holder to one strategic direction.
As noted, these two dimensionsof firm and useare well-explained and
examined by Ghemawat and del Sol. They recognize that assets vary across bothdimensions and, therefore, fall into one of four quadrants of a 2x2 matrix (firm-
flexibility/specificity by use-flexibility/specificity, as reproduced in Table 2). An asset,
such as money or off-the-shelf IT hardware, may be both firm- and use-flexible.
Owning such assets does not lock a firm onto any particular strategic path, but like-
wise their presence makes no contribution to sustainable competitive advantage. At
the other extreme, technological breakthroughs (such as Nucors ultra thin-slab steel
casting plants or Gillettes investments in the Sensor blade technologies) are pre-
sented as both firm- and use-specific. The assets associated with such technology
are much more valuable within the firm: they have the scope to provide considerable
advantage, and they reflect significant ongoing commitments to the current strategic
direction. Use-specific, firm-flexible assets (such as taxicab medallions and mining
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ready markets for exchange, they are not sufficient for strategic success. Firm-
specific, use-flexible resources (such as the Disney brand name or guanxirelationships
of East Asian conglomerates) offer the firms in question scope to pursue advantages
in a variety of strategic directions.Ghemawat and del Sols matrix in Table 2 enables identification of the con-
straints and opportunities that have been traded off (and will continue to require
balancing) in the pursuit of advantage. More flexible assets will leave the firm with
many options for action, but limited scope to build sustainable advantages. More
specific assets will confer greater advantage, but will constrain the choice set about
direction, and may hamper attempts to respond to environmental change and new
opportunities. By having a well-established understanding of the flexibility profiles
of the firms assets, managers can clearly evaluate how new opportunities fit with
existing asset and activity configurations. As one board director noted regarding
scanning for prospective acquisitions,
Its having an active list that someone is looking at on a weekly basis of who is doing
what and where the bit of extra value is in company x: theyve just announced some-
thing, does that really make a difference, is this the time to go for them before any-
body else realizes, or does this mean we drop them down the list?
However, for managers of MNCs, a piece of the strategic flexibility puzzle is
still missingthe role of asset location.
Location-Flexibility: The Missing Dimension
An MNCs profile of cross-country assets is a complex mix of facilities, know-
how, and technologies. Some assets are highly mobile and suited to applications in
multiple settings, while others may be irrevocably bound to the existing location.
This may arise from some physical or legal constraints on its mobility, such as licenses
for a certain jurisdiction or employees who are ineligible for working visas in other
countries. Assets can be entwined with other value chain activities or components
that are themselves bound to the location: processing plants tailored to inputs from
the vicinity (such as aluminum smelters to bauxite mines); or ordering systems
designed for particular distribution relationships or retail infrastructure. Brands
can have cache in a given cultural milieu, but be meaningless or even offensive
TABLE 2. Mixes of Specificity/Flexibility across Two Dimensions of Firm and Use*
Firm-Specific Firm-Flexible
Use-Specific Nucors thin-slab steel casting plants
Gilettes Sensor blade technology
Taxicab medallions
Mining LeasesUse-Flexible Disneys brand name
Guanxi relationships
Money
Off-the-shelf IT
* Based on Figure 2, p. 29, P. Ghemawat and P. del Sol, Commitment versus Flexibility, California Management Review, 40/4
(1998): 26-42.
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By contrast, location-flexible assets can be easily moved. Returning to the case
of Disney, its brands are well-known in many countries and have facilitated the
worldwide spread of its theme parks, films, television programs, and childrens toys.
Production processes and patented technologies can also be transferable: the rapid
spread and adoption of IT technologies is illustrative of this type of location-flexibility,
with language, culture, and skill providing few constraints. While it is tempting to
view this as a simple distinction between immobile physical assets and easily transfer-
able intangible assets, this ignores the complexity of the location dimension. Many
knowledge-based intangible assets are highly context specific and of little value else-
where, such as investments in brand names and relationships with local buyers and
suppliers. Meanwhile, large physical assets, such as individual pieces of machinery
and even whole plants, can be transportable across borders. When Nanjing Auto
acquired beleaguered British car maker MG Rover in 2005, several production lines
and the entire power-train plant were shipped to China.7
Location effects also spring from government attempts to influence MNCdecisions: e.g., their use of subsidies, tax rebates, and preferential procurement
arrangements to attract and retain technological knowhow and employment-
intensive value-adding activities. As many MNCs have also discovered, govern-
ments can resort to threats and penalties to forestall exit. Throughout the 1970s
and 1980s, Philips famously struggled to shift its European operations from a col-
lection of dispersed country-focused affiliates to an integrated network of produc-
tion and distribution platforms suited to the emerging common market. Shutting
down plants proved politically difficult and economically costly.8
More recently, the strategic maneuvering by General Motors in the period pre-
ceding and following its filing for Chapter 11 bankruptcy protection in June 2009
highlight the difficulties of untangling and pricing geographically dispersed assets,
while balancing stakeholder demands. GMs operations in its second- and third-
largest country markets of China and Brazil, in particular, illustrate the complexity
of its footprint of global assets and value chains. In China, GM was engaged in a series
of joint ventures producing the Buick Regal, Chevrolet Captiva, and Chevrolet Cruze,
based on models or bodies from its European Opel/Vauxhall division; and small
vehicles based on the Matiz design from its Korean affiliate, Daewoo. By contrast in
Brazil, most GM vehicles bore the U.S. Chevrolet brand, but the product and pro-
cess technologies again came from Opel, as they largely had done since GMs 1968
market entry.
This maze of relationships, technology flows, and brands were themselves the
product of GMs decade-long attempt to build a single GM global automotive unit
that placed the pursuit of scale advantages over local customization.9 The stand-
alone brand of Saab added to the confusion. Originally purchased to diversify GMs
product line to compete head-on with the luxury European manufacturers (e.g.,
BMW), it had been a perennial underperformer.10
At the core of its post-Chapter 11 strategy, GM sought to rebuild its operations
around four parent brands (Chevrolet, Cadillac, GMC, and Buick), while divesting
majority or full ownership in the Hummer, Saturn, Saab, and Opel/Vauxhall brands
and operations. Although potential buyers for all four brands were found, only the
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12 production plants in eight countries, servicing demand in 34 national markets.
The German government was particularly vigilant to changes in GMs operations,
as it hosted Opels headquarters, Technical Development Center, and four major
production centers.
Our framework allows us to distinguish the various constraints upon GM. Theembeddedness of many Opel assets within multiple value chains across the GM busi-
ness rendered them firm-specific. With only a proposed minority stake in Opel, the
ongoing supply of product platforms, drive trains, and engines to GM affiliates in
China, Brazil, Argentina, Australia, South Korea, Mexico, and South Africa appeared
highly problematic. Most of Opels valuable assets also had limited use-flexibility. The
design, engineering, machinery, product and process knowledge, as well as the
brands relationships were tailored to the auto industry. This reduced the number
of potential acquirers considerably, especially given the dire condition of GMs U.S.
auto counterparts. Location served to shrink this pool even further. EU competition
law restricted many of the other global carmakers from lifting their European hold-ings. Additionally, there was significant pressure to retain the assets within the EU.
For example, the German government provided crucial financial support to one of
the preferred bidders, conditional on the business staying in situ.
These examples demonstrate the greater complexity or noisiness of strategic
decisions involving activities across multiple countries. Following is a decision tool
that informs the reconfiguration choice sets for MNC executives. For each dimen-
sion of use-, firm-, and location-flexibility, there are questions executives need to
ask to systematically examine how the fit and value of the MNCs assets facilitate
or constrain MNC reconfiguration.
Examining the Three Dimensions of
Flexibility-Specificity Trade-offs
To begin re-thinking an assets (or group of assets) contribution to the MNCs
current and potential strategies, Box 1 provides a series of discrete questions for each
dimension of firm-, use- and location-flexibility.
BOX 1. Assessing your AssetsEach asset (or bundle of assets) in the MNC can be assessed in terms of its
likely value: within the firm; in its current use; and in its current location, rel-
ative to other opportunities. To begin this assessment, consider the fol-
lowing questions:
Firm:
Do we utilize this asset in a fashion that our competitors might not?
Does it incorporate technologies, processes, assumed knowl-
edge that a potential buyer might lack (and which we would
not be willing or able to share with them)?
continued on next page
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Is it in (or crucial to) firm-specific supply chain links?
Would moving it outside the firm considerably limit our future
opportunities to operate certain activities?
Use:
Do we currently use this asset for a range of tasks?
Could we use this asset elsewhere in our value chain?
Would that require significant adaptations to this asset or
others?
Could firms outside our industry or at different stages in the
product value chain utilize this asset?
Does it rely on current inputs to be productive?
Location:
Is the asset physically constrained to its current location?
Is it adapted to address specific cultural or institutional require-
ments within its current location?
Is it reliant on (or crucial to) location-specific supply chain links?
Would moving it offshore considerably limit our future
opportunities to operate within this location (and/or nearby
locations)?
The challenge lies in integrating the dimensions. Evaluating the current
and potential strategic value of an asset requires understanding: the assets profile
along each dimension; and the interactions between the dimensions. The objec-
tive is to determine the MNCs overall strategic flexibility (or the extent to which
one or more dimensions constrains this flexibility). The fundamental overarching
questions are:
What role does the asset currently play in the firm?
What role would we most like it to play in the future?
Question one builds on the data gathered by the Box 1 checklist, delvingdeeper into the value generated by the asset in its current context. It leads to
further analysis exploring the interactions between the three dimensions. For
example:
Does the asset rely upon technology in this location and/or elsewhere in the
MNC (which is an aspect of the location specificity-flexibility dimension)?
If in this location (or elsewhere), is it inside or outside the MNC (that is,
is the asset location-specific, firm-specific, or firm-flexible)?
Is this technology restricted to the current value chain (use-specific), or
present across multiple value chains (use-flexible)?
Could we source similar/better technology elsewhere (location-specific
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These same questions could be adjusted to replace technology with inputs,
distribution channels, or project team. A further set of questions explore the role
of scale (and similarly learning or knowledge):
Does the asset benefit from scale generated across the MNC (firm-specific)?
And across multiple product lines (use-flexible)?
Or, just in this location (location-specific)?
As can be seen in Table 3, adding location (i.e., the international dimension)
generates a three-way (2x2x2) variation on Ghemawat and del Sols original 2x2
matrix. The eight cells represent the different combinations of the three measures
of flexibility, and each includes the resultant redeployment options. These are the
constraints imposed on MNCs by an assets characteristics. We have located several
of Ghemawat and del Sols two-dimensional examples into the new matrix to
demonstrate the discriminatory effects of location. For example, Nucors plants
(labeled earlier as firm- and use-specific) are constrained to their physical locations,adapted to the peculiarities of U.S. labor relations, and reliant on geographically
distinct value chain relationships with suppliers, distributors, and customers. In con-
trast, Gillettes blade technologies (firm- and use-specific) are much more location-
flexible, able to be rolled out to affiliates and markets across the MNC. Similarly,
Disneys brands (firm-specific and use-flexible) are also location-flexible, whileguanxi
relationships of East Asian conglomerates (also firm-specific and use-flexible) are
likely to be constrained to those specific countries in which such firms operate.11
Building Decision Trees and Asset Maps
Using Table 3, we can now see the interactivity of the three dimensions
on an assets flexibility. Assets that fall into the top right hand corner of the table
TABLE 3. Mixes of Specificity/Flexibility across the Three Dimensions of Location, Firm, and Use
Location-Specific Location-Flexible
Firm-Specific Firm-Flexible Firm-Specific Firm-Flexible
Use-Specific Can only be usedin-house, in current
application and in-situ
e.g., Nucors plants
Can only be soldin-situ to local firms
with same use needs
e.g., Taxicab
medallions, mining
leases
Scope to redeployelsewhere, but
in-house and only
in current use
e.g., Gillettes blade
technology
Scope to redeployelsewhere, and to sell
to other firms with
same use needs
e.g., Product designs
using common
technologies, such as
Systems on a Chip
(SoC) integrated circuits
Use-Flexible Can only be used
in-house, in various
applications and
in-situe.g., Guanxi
Can only be sold in-
situ to local firms with
various applications
e.g., Warehouses
Scope to redeploy
elsewhere in various
uses, but only
in-housee.g., Disneys brand
Scope to redeploy
elsewhere in various
uses, and to sell to
other firmse.g., Money, IT
hardware
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(specific along all three dimensions) cannot be reconfigured into alternative applica-
tions without considerable adaptation and expense. Assets that fall into the bottom
left hand cell of the table are extremely flexible, but, by definition, provide little sus-
tainable competitive advantage to the MNC.
Decision trees provide a systematic procedure for determining the overallflexibility of an asset or groups of assets along the three dimensions. Figure 1 frames
FIGURE 1. A Decision Tree for MNC Managers Assessing the Value of Assets and
Scope for Reconfiguration from a Location Perspective
Can we move the
asset around?
(Location)
Does the asset have
multiple uses?
(Use)
Is it equally valuable to other firms?
(Firm)
YES (LF) Scope to
move
NO (LS) Constrained
to current locale
YES (LF, UF) Many
buyers across many
locations
NO (LF, US) Fewer
buyers across many
locations
YES (LS, UF) Many
buyers in currentlocation
NO (LS, US) Fewer
buyers in current
location
YES (LF, UF, FF) Able to sell into manymarkets across manylocations (or
redeployin-house)
NO (LF, UF, FS) Able to redeployin-house
across MNC
YES (LF, US, FF) Able to sell into same
markets across manylocations (or
redeployin-house)
NO (LF, US, FS) Able to redeployin-house
within function acrossMNC
YES (LS, UF, FF) Able to sell into many
markets in current location (or redeploy
in-house)
NO (LS, UF, FS) Able to redeployin-house
within local affiliate
YES (LS, US, FF) Able to sell into one
market in current location (or redeploy
in-house)
NO (LS, US, FS) Only valuable in-house in
current role and current location
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the questions set out above in terms of a decision tree built around a core question
for each dimension that an MNC executive might ask of an asset or bundle of assets:
Can it be moved?
Does it have multiple uses?
Is it equally valuable (or more so) to other firms?
Given we are particularly interested in key MNC strategic decisions, this
decision tree starts from the perspective of location.12 As the GM example amply dem-
onstrates, location may well be the most difficult dimension for executives to assess.
It involves considering the decision making and behavior of many stakeholders
customers, governments, suppliers, competitors, not-for-profits, and activist groups
across multiple cultural, economic, and political divides. The value of operating in a
given location is hard to price. Assets transplanted into new markets and distinctive
from local host-market competitors are often an MNCs prime source of competitive
advantage. For example, McDonalds and Starbucks transfer valuable routines andofferings into each new market, helping to build their brand with consumers. Over
time, these assets are adapted to better suit local conditions. New flavors are added
to menus, employment practices are adapted to local industrial relations require-
ments, and new supply relationships are built within the host country (or region).
Each of these adjustments embeds the assets more deeply within the local environ-
ment. This may have a multiplicative effect on the interplay between firm- and loca-
tion-specificity. In this new location, there may be few firms similar to the MNC in
terms of their asset mix, culture, structure, or practices, reducing the scope to find
host-country buyers for unwanted assets. Adaptation to local factors may also reduce
the scope or attractiveness of within-MNC asset transfer.Ideally, an MNC would use such decision trees to dynamically map and remap
its operations in terms of its assets, linkages between these assets, and jointly utilized
technologies, routines, and knowledge. Figure 2 charts a hypothetical reconfigura-
tion scenario (i.e., showing the Now and projecting a Future) for an MNC oper-
ating in six countries with three product lines. Hard circles represent country
boundaries; the various shapes represent bundles of assets owned by the firm as dedi-
cated to various activities, such as manufacturing and assembly of several products,
distribution, R&D, data and service support, repairs, and corporate HQ. The lines
reflect value-chain connections. Assets may stretch across a border, as between
Countries A, B, and D with respect to corporate HQ functions (for example, shared
finance and currency trading functions). Others may be linked by an international
value chain, such as the service center/repairs linkage between Countries E and F
in the Firm (Now) illustration. These linking relationships are just as important as
the particular location of the assets in question, as they are key determinants of the
assets firm- and use-flexibility.
This hypothetical MNC has a relatively simple configuration. Nevertheless,
the Now and Future maps capture a range of reconfiguration moves, from
divestments to consolidations, new market entries, and relocation of R&D activities.
The footprints of many MNCs will be substantially more complex than Figure 2,as here assets are aggregated into functional domains (the shapes), and missing
i t ibl h d t h l i d t b d h S
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can be constructed at multiple layers of analysis: product groups and divisions,
individual value chains, individual countries or regions, as well as for the MNC
as a whole.
At each level of analysis, the maps can be used as inventories of assets, each
with a score for flexibility/specificity. Such scores would allow the firm to ask a
range of different strategic questions:
Should we remain in country H?
If we entered country J, what assets would we transfer, acquire, share,
divest, or write-off?
Is Country K better than Country L for activity X?
Should we continue to manufacture product N?
Which functions should we still undertake in doing so?
The primacy of a given question or perceived choice set will determine the
nature of the inventories and scoring. An executive focused on product choices will
be assessing assets on the basis of their contribution to the value chain of the given
product, while conscious of the shared elements of the value chain (or contingent
scores of particular assetse.g., due to economies of scope, this asset is more valuable
when three value chains are in operation, less so otherwise). For example, Figure 3
outlines the evaluation process for an MNC contemplating diversification or product
market strategy, for which the primary consideration will be use-flexibility. For firms
considering outsourcing questions or divestment of whole divisions, the relevant
FIGURE 2. The Reconfiguration of a Multinational Corporation (MNC)
Component manufacturing and assembly
(Product Z)
Component manufacturing and assembly
(Product Y)
Component manufacturing and assembly
(Product X)Data warehousing
Corporate HQ
Call/service centre
Repairs
R & D
Retail Warehousing
& Distribution
Firm (Future)
A
B
D
E
F
G
Firm (Now)
A
B
C
D
E
F
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Utilizing the concepts and tools outlined above, an MNC manager can track
where assets are located, their links to other assets within and outside the firm,
and their scope for alternative uses. More importantly, by focusing on the interac-
tions between the three dimensions, strategic flexibility will remain in the front of
FIGURE 3. A Decision Tree for MNC Managers Assessing the Value of Assets and
Scope for Reconfiguration from a Use Perspective
Does the asset
have multiple uses?(Use)
Is it equally valuable
to other firms?(Firm)
Can we move the asset around?
(Location)
YES (UF) Scope to
redeploy in a
different function
NO (US)
Constrained to
current function
YES (UF, FF) Many
buyers across
industries
NO (UF, FS) Able to
redeploy in-house
YES (US, FF) Buyers
with same use
requirements
NO (US, FS) Only
valuable in current
role and in-house
YES (UF, FF, LF) Able to sell into many
markets across many locations
(or redeploy in-house)
NO (UF, FF, LS) Able to sell into many
markets in current location
(or redeploy in-house)
YES (UF, FS, LF) Able to redeploy
in-house across MNC
NO (UF, FS, LS) Able to redeploy
in-housewithinlocal affiliate
YES (US, FF, LF) Able to sell into samemarkets across many locations
(or redeploy in-house)
NO (US, FF, LS) Able to sell into same
market in current location
(or redeploy in-house)
YES (US, FS, LF) Able to redeploy
in-housewithin function across MNC
NO (US, FS, LS) Only valuable in-house
in current role and current location
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do in light of its current asset mix. This is more than merely understanding whether,
in the next quarter, production levels can be varied, inputs sourced from an alterna-
tive supplier, or the channel mix altered. Rather, pursuing strategic flexibility means
retaining or increasing the MNCs ability to change the medium- to long-term direc-
tion of the firm. Following are three recent examples of MNCs facing tough and far-
reaching strategic decisions. In each instance, flexibility (or lack thereof) was a key
constraint, driver, and/or goal in the decision-making process.
Applying Decision Trees
Divesting Saab
To illustrate how the logic of decision trees can be used to evaluate reconfigu-
ration options, Tables 4 and 5 apply our framework to GMs Saab business. Table 4
sets out three potential reconfigurations. GM initially pursued option 3 (sale as a going
concern) as the easiest mechanism to release capital and end its relationship to anunderperforming affiliate.13 As a wholly owned and relatively free-standing, bolt-
on operation, Saab was an obvious candidate for divestment. The independence
of the brand and the minimal number of value chain linkagesin which other GM
operations were buyers, rather than suppliers of know-how, components, or technol-
ogies (GM supplied the power-train assemblies and the 9-4x crossover model had
Cadillac underpinnings)meant it was a far easier unit to separate from the corporate
parent than the much larger Opel business discussed earlier.
TABLE 4. Divestment Options for Saab as Free-Standing, Bolt-On Operation
Option 1: Mothballing of
Production
Option 2: Sale of Some
Assets
Option 3: Sale of Business
as Going Concern
Shut down Saab production but
retain the Saab brand
Leaves open the opportunity for
GM to revive the Saab brand at a
later date
May include selling some assets
while retaining the brand, service
and repair of Saab vehicles(potential overlap with Option 2)
Sell individual assets to multiple
firms
Possible since many assets are firm-
flexible (FF)
Broadens market of buyers (e.g.,
production facilities may be sold to a
non-automotive buyer in the same
locale, while productiontechnologies may be sold to an
automotive manufacturer located
elsewhere, or re-deployed in-house)
Sell group of assets to a single firm
Possible since many assets are firm-
flexible (FF)
Market limited to automotive
companies in the same locale since
some assets are use-specific and
location-specific
Demonstrative Deals:
GM finalized the individual sale of
production technologies for Saab
models 9-3 and 9-5 to Beijing
Automotive Industry Holdings in
November, 2009
GM announces sale of remaining
Saab assets to Dutch specialistsports car manufacturer Spyker in
January, 2010.
GM attempt to sell Saab to
Koenigsegg, a Swedish sports
car manufacturer collapsed in
Nov, 2009.
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However, applying the Box 1 checklist, many of these assets (such as ware-
houses, land, production plant) were location-specific (see Table 5), particularlygiven that most of the production assets were in a small Swedish town away from
major industrial centers. This location-specificity of Saabs core assets counter-
balanced its stand-alone organizational structure. While the Swedish Government
was willing to support GMs efforts to sell the business as a going-concern, there were
few local firms able, and few MNCs willing, to acquire it. Put differently, GMs asset
map indicated Saab should have been easy to decouple from the MNCs other assets.
The challenge was finding a suitor, who saw strategic value in bolting these assets onto
their map.
The effect of location-specificity became clear in the protracted efforts to find
new owners. A deal for full sale (i.e., Option 3) with Swedish carmaker Koenigsegg
collapsed after months of negotiations. Facing the unpalatable choice of winding
down the business, GM sold some of the firm- and location-flexible technology
and production equipment for Saabs 9-5 and 9-3 models to the Beijing Automotive
Industry Holdings Corporation of China (i.e., Option 2).14 A last-minute sale in early
2010 of the remaining assets (including the brand) to the small Dutch specialist sports
car manufacturer, Spyker, brought GM about $74 million in cash, $100 million of
Saabs operating capital and a tranche of preference shares.
GMs experiences with Saab underline the influence of location-specificity in
determining the value of MNC assets and its often constraining influence on other-wise firm-flexible assets. GMs struggles to reconfigure its worldwide value chains
demonstrate the complexity of the task that confronts managers in large, multi-
locational and multi-divisional corporations. GM was one of several car-makers that
had long espoused a global rhetoric, yet its efforts to configure globally efficient
value chains and minimize costly local variations had not engendered the hoped
for level of strategic flexibility.
Reconfiguring Qantas to Compete with Low-Cost Carriers
Operating in a service industry, Australian airline Qantas faced a less complex
set of value chains than GM, but still found its asset mix strategically constraining.
After decades of stable competition and regulation, by the early 2000s, the full-
TABLE 5. Summary of Assets Associated with Saab Sweden
Assets Firm Use Location
Brand (60 year history) FF US LF*
Production Facilities (land, warehouses, office space, factories) FF UF LSProduction Technologies (equipment, machinery, blueprints, patents, etc.) FF US LF
Employees (approximately 3,000-4,000) FF*** US LS
Supplier Relationships FF US** LS**
Dealer Network (e.g., 80 dealers in the UK) FF US LS
* This is somewhat uncertain as customers may have a strong attachment to the Swedish connections/connotations of the brand.
** Saab is located in a company town and as such, suppliers are location-specific. Suppliers are also use-specific since their
output is targeted to the automotive industry.
*** FF if sale of business as a going-concern, otherwise employees are primarily FS.
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of Southwest Airlines in the U.S., Ryanair and EasyJet in Europe, and Air Asia in
Southeast Asia had demonstrated the viability of the no frills model. Qantas exec-
utives felt it was likely an existing overseas carrier would enter the Australian mar-
ket and challenge their highly profitable domestic and international businesses.15
Meanwhile, the rise of budget travel in neighboring Southeast Asia (and the longer-
term prospects of China and India) was an enticing source of significant poten-
tial growth. Counterbalancing this attraction were the well-publicized failure of
Continentals budget brand Continental Lite and KLMs similarly disastrous foray
with Buzz.16
Qantas faced a two-fold strategic issue: how to compete domestically against
a well-funded budget competitor, while also tapping into fast-growing international
routes not viable with a full-service model. While Qantas had successfully used
short-term pricing tactics to see off several no frills domestic start-ups, this was
not sustainable internationally. Hamstrung by relatively high home-country wages,
restrictive industrial relations, and Qantass existing full-service business model, onealternative was to build a low-cost affiliate. Ideally, this business would target the
budget customer, be scalable across rapidly growing regional markets, footloose
geographically, and able to be spun-off to other airlines or via an IPO. Qantas faced
a risk trade-off. On one hand, its valuable full-service brand could be damaged by a
cheap offshoot with an uncertain future. Yet, without a viable product offering,
Qantas risked considerable loss of market share to new competitors both domesti-
cally and throughout Asia.
While the nature of the industry meant use-flexibility was effectively fixed
for most assets, substantially boosting firm- and location-flexibility was possible.
As shown in Figure 4, five asset groups demonstrate this approach. The brand
needed to be new, and culturally neutral, with a simple and easily produced logo
and visual identity. The cost of the air fleet could be held down with limited livery
and painting, rendering them more firm-flexible, while the IT platform and main-
tenance arrangements needed to be simple and scalable. Human resources could
be contracted via franchise master agreements.
In 2004, Qantas launched the Jetstar business to a receptive domestic market.
Jetstars business model started from the basis of minimizing crew and facilities cost.
While the Qantas fleet was dispersed around the country every evening to ensure all
major cities had early morning business flights, the Jetstar fleet returned to centralfacilities, minimizing the costs of storing fuel, maintenance, hangar facilities, and
accommodating and scheduling crew. The Jetstar business focused on budget travel-
ers, who were less time-fixated and willing to forgo in-flight meals, video entertain-
ment, and on-ground facilities. Fast turn-around times were ensured by enforcing no
check-in within 30 minutes of departure and reducing luggage allowances. Jetstars
terminal facilities, staff uniforms, and low-cost advertising campaign adopted a sim-
ple three color-scheme of orange, black, and a prominent white star.
The Jetstar business was distinct from the parent in its positioning, branding,
and identity. As shown in Figure 4, the firm- and location-specificity of its assets were
minimized to ensure that it could be spun-off as a separate entity and scaled into
overseas markets with minimal adaptation. This maximization of flexibility was
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the new business on a variant of the parent brand, with its established reputation forreliability and safety. Jetstar was soon flying on a variety of international routes, in
several instances replacing previously marginal Qantas runs. Achieving the scalabil-
ity goal, the Jetstar Asia business subsequently added numerous within-Asia routes
inaccessible to an Australia-based airline, due to reciprocal air-service agreements
between regional governments. Being vigilant of the strategic flexibility implications
of each asset configuration choice granted Qantas a nimbleness many of its fellow,
entrenched international carriers lack. Building location- and firm-flexibility
allowed Qantas to respond to load changes in booming (but volatile) Asian markets,
without encroaching on or diminishing the value of the parent brand and business
model.17
This example illustrates how our framework can identify existing assets that
FIGURE 4. The Qantas-Jetstar Decision
Qantas faced a decision between launching: an in-house brand (e.g., Qantas Lite) using predominantlyexisting assets; or a distinct entity. Consider the implications for specificity-flexibility of five key asset
groups:
i. In-House Brand (e.g., Qantas Lite)
Assets Firm Use Location
Brandlegacy of prior government ownership andnational carrier status restricts route access
FS US LS
Fleet aging, owned from delivery, parent branded FS UF LF
HR unionized FS US LS
Maintenance unionized, central to parent safety reputation FS US LS
IT systems legacy systems* FS US LS
* Individual IT system components are clearly separable, but the overall network is highly tailored to the firm, its processes
and the industry requirements.
ii. Distinct Entity (e.g., Jetstar)
Assets Firm Use Location
Brand new, no Australian link FF UF LF
Fleet unpainted, standard FF UF LF
HR lowly unionized, multi-skilled, partially off-shored FF US LF
Maintenance lowly unionized, partially off-shored FF US LF
IT systems stand alone FF US LF
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The Mineralco team went through a process of assessing their capacity to
leverage existing assets into new locations, and identifying the assets gaps within
the firms portfolio:
[We] look[ed] to say well, what assets do we want that fit us? Ive sold assets as
well, as I said, and you look to, well
who would make logical sense? Who wouldwant to buy these assets?Board Director, 5 countries, 6 FDI decisions
The key results of these deliberations are summarized in Table 6.
Mineralco was a very effective low-cost producer, with the PNG mine in the
lowest quartile globally for costs-to-output. The firm was also well-respected for its
efforts in avoiding community conflict in recent years, in a country notorious for
its difficult relations with foreign MNCs.20 In describing the value of these assets,
the managers identified key characteristics in line with the questions in Box 1. For
example, good relations with local stakeholders were crucial to the supply-chain of
Mineralco (for renewal of its mining leases, and ensuring access to key infrastructure
and inputs, such as roads, ports, and labor):
Our whole right to operate comes from the locals, notwithstanding that, at the end
of the day, the government puts a stamp on a piece of paper for you. That doesnt
count for anything if you have the locals offside.CFO, 7 countries, 6 FDI decisions
Mineralcos management and board particularly focused on the scope to
utilize its PNG community relations practices elsewhere. While these were identi-
fied as firm-specific (reliant on knowledge and learning other firms may lack) and
use-specific assets, Mineralco identified the scope for location-flexibility:
The tools that they use for interaction with the local people, the community typeissues, I think, are eminently transferable. There may be some differences at the
margin, because of the different responses they might get to various initiatives . . . In
terms of technical skills, they are almost without exception 100 per cent transferable.
Director, 16 countries, 18 FDI decisions
As Mineralco was keen to expand quickly, they focused on acquiring an
operational mine (or close to), with strong exploration potential. Again, the analysis
centered on the available suites of assets:
First and foremost, [we looked for] strategic fit: What does it do for us? What s the
combination of assets? What are the assets? Where are they located? Does it give usa step change in terms of pursuing that diversification strategy? Are we taking on
TABLE 6. Summary of Three Key Assets in Mineralcos acquisition of Petcib
Assets Firm Use Location Strategic Implication
Mineralcos community relations
management in PNG
FS US LF Can be leveraged into West Africa
Petcibs exploration rights
within West Africa
FF (now)
FS (future)
US LS Acquire, then leverage in future to
build advantage in West AfricaPetcibs government relationships
within West Africa
FS US LS Acquire and work hard to retain
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assets that are well developed and mature, or risky and wrong end of that develop-
ment pipeline?CFO
A friendly approach from a small miner, Petcib, brought a set of assets into
play, but complicated by their location in a highly risky and unfamiliar part of West
Africa. As the Board chair observed,
in West Africa if anything goes wrong you areright out on your own on the edge of the Atlantic Ocean and the French couldn t
give a bugger. Two key sets of assetsexploration rights and government relations
dominated much of the assessment process.
Petcib had identified a viable seam of ore and their medium-sized mine was
about to commence operations. For the Mineralco team, the most valuable assets
were the targets extensive exploration rights over large tracts of land within a few
hundred miles of the mine site. While clearly location-specific, these rights were rec-
ognized as firm-flexible, with Mineralcos geologists able to quickly engage in surveys
and test drilling.21 Petcib assets, combined with Mineralcos expertise in low-cost
mining and community relations, represented the potential to build a large presence
in this under-developed region. Once in place, Mineralcos initial mine and supply
chain infrastructure would give it a firm- and location-specific suite of assets that later
entrants would lack. Being physically close to the numerous junior exploration
companies testing the areas geology would also give Mineralco a head-start on iden-
tifying, negotiating with, and acquiring (or at least partnering) successful prospects.
The logic of Box 1 was evident here, with recognition that the assets of such local tar-
gets would be more valuable to Mineralco, given its unique local supply chain, than
potential competitors:
[We can expand] either by discovering more ore or alternatively finding one or twolittle operations that we can operate in the vicinity and leverage off the assets includ-
ing the people that we have at [the acquired mine site] so that it s worth more to
Mineralco than it is to anyone else.Director, 16 countries, 18 FDI decisions
The Mineralco decision makers also paid close attention to Petcibs govern-
ment relations. In such an unfamiliar political environment, it was crucial that
Mineralco retain the key Petcib employee, a location-specific asset, with a history
of positive dealings with local officials:
Now we have one key person there who seems to be well in with the current rulers,
whether they be from the bureaucracy or the political set up
you have to keepthat skill in these countries.Director, 13 countries, 15 FDI decisions
Mineralco management recognized that assessing the substance and integ-
rity of these relationships from a distance was difficult. Retaining the employee
could be a challenge, given the relative firm- and use-flexibility of his connections.
Considerable effort was exerted to observe the interactions in person, including
several executives and board directors travelling to West Africa to meet the indi-
vidual, government ministers, and bureaucrats. It became apparent that Petcib
had built a reputable brand with government officials over its decade in the
country, amassing considerable goodwill by continuing to operate during the civil
war. This goodwill appeared to extend beyond the specific employee, reducing
concerns about possible loss of value through his exit. Overall, these good relations
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in-country expansion, including the development of supply chain infrastructure
and exploration options that competitors would lack.
Mineralcos deliberations highlight the dynamics of balancing the three di-
mensions of flexibility and specificity. Mineralco saw value in acquiring Petcibs
location-specific but firm-flexible exploration rights, because their location-flexiblecommunity relations capabilities from PNG plus Petcibs location-specific govern-
ment relations in West Africa would combine to add considerable value. Overtime,
it was hoped that these synergies would translate into firm- and location-specific
advantages that later entrants would find difficult to replicate.
Implementing Asset Mapping
Changes to MNC value chains rest on the ability of executives to renegoti-
ate external and internal relationships, as well as to identify the constraints and
opportunities to realize new value creation opportunities. Reconfiguring value
chains frequently creates winners and losers. Research has highlighted the scope
for affiliate managers to massage information fed to parent executives through
formal and informal channels.22 For example, a decision to consolidate compo-
nent manufacturing or service support may be good for the overall MNC, but,
for the affiliates and units that lose value-adding activities, the change is dramatic.
Reduced activity entails lower levels of managerial responsibility and prestige,
workforce reductions, and possible market share losses, as tailored local output
gives way to standardized product. Meanwhile, other subsidiaries and regional
divisions may reap greater rewards, scale, and status by securing global product
mandates, project leads, and support roles. Affiliate and unit-level managers face
strong incentives to lobby parent executives and engage in information distortion
to sway such decision making.23
One mechanism to mediate the effect of information filtering is the develop-
ment of specialist templates and teams. Research we conducted with colleagues on
new foreign market entries revealed the highly formalized processes employed by
some leading MNCs. Template documents specify the type and source of informa-
tion for collection. The completed documents are then analyzed and compared
against competing growth options by a specialist market investigation unit in the
parent HQ, and then presented to the senior executive and board of directors forfinal determination. Similar teams, information templates, and boundary or enve-
lope conditions can be developed that are MNC-specific to guide re-appraisals of
its global, regional, country, or product-specific footprint.
While the initial mapping of the MNCs footprint may be time-consuming,
once established, routine audits and updates can be used to separate data collection
from the decision processes and negotiations parent executives must engage in to
reconfigure an asset, a value-chain, or an affiliates role. These audits, which may
be undertaken by specialist teams tasked with maintaining asset inventories or maps,
would then limit the ability of affiliates to filter information and engage in political
game plays. Development of these capabilities should also help to limit the impact
of individual biasesbe it of an affiliate head, divisional director, or even fellow
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Decision makers mental models, or the cognitive frameworks they use to seek and
analyze information, can lead to distortions. These constraints reflect both the limited
bandwidth of individuals to accurately forecast all possible scenarios, and the biases
(or pre-dispositions) that executives bring to decisions.24
Allocating attention to current operational demands and to medium to long-term strategic decisions is a tough balancing act. The attention of MNC executives
is a particularly scarce resource and the sheer volume of information confronting
them can overwhelm and force short-cuts in decision making. Executives who
have spent time in a particular subsidiary, or have been closely involved in the
development of major new markets, potentially bring rich insights into the on-
going value proposition of these activities. However, they may also be clouded by
loyalty to former colleagues or fear damage to their reputation, if a project or busi-
ness is scaled down or spun-off.25 As one of the Mineralco directors observed:
I saw the destruction when you dont manage your portfolio actively. Everybody is
so excited about acquiring something, but people are just not this ready to put
down the ones that really ought to be good to go.
As the Mineralco executives and directors sought to determine the suitabil-
ity of the West Africa investment, our analysis consistently revealed that execu-
tives and directors with extensive breadth and depth of international experience
were keenly attuned to both the nuances of location-specificity and to the interac-
tivity of firm, use, and location dimensions.26 For example, a highly experienced
director (worked in 13 countries, 15 FDI decisions) observed:
This [misunderstanding] happens across a lot of developing countries, in particular,
where on face value there seems to be a structure you can recognize. But it s sort of
a very thin sliver over the top of something that is far more complex and when you
delve down into itthe typical thing you say to people operating in these countries
is, you ask a question three waysquite different questions and if you get similar
answers back then youve probably understood the issue.
In contrast, one of the executives, who had worked at an operational and
functional level in mines in 11 countries, but had no executive-level experience
with foreign investment decisions, commented:
I guess I took it pretty well as read that we would operate in a certain manner, just
like we operate in PNG in a certain manner, and that Petcib hadnt operated in a
manner that was contrary to how we would operate, and therefore it was all okay.
I was unprepared, probably naively so, for the amount of interrogation [from the
Board] that I got on that aspect.
For those with at least medium international work and strategic decision-
making experience, the importance of maintaining an awareness of and sensitiv-
ity to these cross-country nuances was clear:
Even in our board recently I heard people saying . . . this is so great because now we
can just be in Senegal, be in Guinea, be in Mali, be in Burkina Faso. Every one of these
countries is different . . . people make the mistake of thinking that all West Africa s
homogenous . . . well get some synergies of the management weve got over there
but each one will have to stand on its own merits.Director, 5 countries, 6 FDI
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MNCs that are able to develop processes and expertise in mapping their assets
and value chains will be able to quickly respond to changing external conditionsbe
it a global change to economic conditions, new technological opportunities, or failure
of a location-specific competitor. Similarly, decision-making groups, with greater lev-
els of international experience and cultural backgrounds, should also be better placed
than more homogenous teams to understand markets beyond home borders, seek
appropriate information sets, and formulate new global footprints.27
Conclusion
MNCs operate in dynamic, uncertain, and challenging settings. Allocating
executive attention to current operational demands and to longer-term growth deci-
sions is a tough balancing act. Parent executives in multi-business and multi-location
companies are responsible for determining the set of businesses that will comprise
the corporate portfolio and for coordinating these businesses to ensure they create
more value under common ownership than as stand-alone operations. Encrust-
ments from prior investment decisions may constrain the ability to expand or shrink
an MNCs global footprint. Recognizing the limitations of current business models
and configurations can be an important step in building new businesses that strike
a better flexibility-specificity trade-off or enable expansion into different markets.
The addition of location to Ghemawat and del Sols dimensions of use and
firm-specificity explicitly extends the concept of strategic flexibility to the decisions
faced by MNCs. Without close scrutiny and recognition of the MNCs asset portfolio
along all three dimensions, there is a danger that strategic choices made today willhamstring future options. While significant advantage may rest on adapting to the
needs of local customers and tapping into valuable differences in resource availabil-
ity across locations, MNC strategists must remain mindful of the flexibility implica-
tions of any such choices.
Our three cases highlight the complexity of international business decisions.
While automakers grapple with the intricacies of globally distributed supply chains
and multiple product lines, airlines face a world of shifting consumer behavior and
more open skies. Other MNCs, such as miners, chase location-bound inputs in
unfamiliar environments. International business research has long understood the
trade-off of local and global advantages. Our framework and analysis reveal the
importance of honing in on the asset level when pursuing strategic flexibility and
competitive advantage in international markets.
Notes
1. P. Ghemawat and P. del Sol, Commitment vs. Flexibility, California Management Review, 40/4
(Summer 1998): 26-42. A firm-specific asset would have lower value to another firm. A use-
specific asset would have lower value in any other use. A location-specific asset would have
lower value in any other locale.
2. M.A. Hitt, B.W. Keats, and S.M. DeMarie, Navigating in the New Competitive Landscape: Build-
ing Strategic Flexibility and Competitive Advantage in the 21st Century, Academy of ManagementExecutive, 12/4 (November 1998): 22-42, at p. 22. Other prominent contributions to the strategic
flexibility discussion include H W Volberda Building the Flexible Firm: How to Remain Competitive
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zational Preparedness to Reverse Ineffective Strategic Decisions, Academy of Management Executive,
18/4 (November 2004): 44-59. Calls for organizational ambidexterity argue very similar points.
See M.L. Tushman and C.A. OReilly, Ambidextrous Organizations: Managing Evolutionary and
Revolutionary Change, California Management Review, 38/4 (Summer 1996): 8-30; C.B. Gibson
and J. Birkinshaw, The Antecedents, Consequences, and Mediating Role of Organizational
Ambidexterity, Academy of Management Journal, 47/2 (April 2004): 209-226.
3. There is an intersecting literature, mainly in operations management, which distinguishes strate-gic, tactical, and operational flexibility. The distinctions typically lie in the speed, frequency,
locus, and substantiveness of the flexibility. Strategic flexibility is thus defined by Upton, as the
ability to make one-way, long-term changes that involve significant change, commitment or cap-
ital and which occur infrequently, say every few years or so. Tactical flexibility often occurs at the
product or plant level, is more reversible, faster and more frequent. Operational flexibility is the
ability to change day to day, or within a day as a matter of course . . . [for example] a flexible trans-
fer line on which changeover time is minimal. See D.M. Upton, The Management of Manufac-
turing Flexibility, California Management Review, 36/2 (Winter 1994): 72-89, at p. 79. This work
represents an attempt to delineate further the flexibility arguments initially put forward by Ansoff
and by Aaker and Mascarenhas. See H.I. Ansoff, Corporate Strategy (New York, NY: McGraw Hill,
1965); D.A. Aaker and B. Mascarenhas, The Need for Strategic Flexibility, Journal of Business
Strategy, 5/2 (Fall 1984): 74-82. We view operational and tactical flexibility as precursors or subsets
of strategic flexibility. An MNCs capacity to act in a strategically flexible fashion will build upon its
capacity to also make operational and tactical decisions.
4. Ghemawat and del Sol refer to resources, but use the term in the sense of an asset, encompass-
ing both resources and capabilities. Decisions around retaining, reconfiguring, and/or jettisoning
assets are inherently questions of strategic flexibility, as they tend to be one-way and infrequent
with long-term impacts. Ghemawat and del Sol, op. cit.
5. Hitt, Keats, and DeMarie, op. cit., p. 30.
6. These elements of location-specificity are discussed at length in the international business litera-
ture, yet typically overlooked in discussions of strategic flexibility. See J.J. Boddewyn, M.B.
Halbrich, and A.C. Perry, Service Multinationals: Conceptualization, Measurement and Theory,
Journal of International Business Studies, 17/3 (Fall 1986): 41-57; J.H. Dunning, Internationalizing
Porters Diamond, Management International Review, 33/2 (1993): 7-15; A.M. Rugman and A.
Verbeke,
A Note on the Transnational Solution and the Transaction Cost Theory of MultinationalStrategic Management, Journal of International Business Studies, 23/4 (1992): 761-771.
7. D. Bailey, S. Koyabashi, and S. MacNeill, Rover and Out? Globalisation, the West Midlands
Auto Cluster, and the End of MG Rover, Policy Studies, 29/3 (September 2008): 267-279.
8. See, for example, L.G. Franko, The European Multinationals (Stamford, CT: Greylock, 1976);
S. Humes, Managing the Multinational: Confronting the Global-Local Dilemma (New York, NY:
Prentice Hall, 1993).
9. As quoted in That Sinking Feeling, The Economist, November 21, 2005.
10. Saab had been unprofitable since 2001 and accounted for less than one percent of GMs production
output. See V. Fuhrmans, GM to Shut Saab Unit, Quirky Icon of the Road, Wall Street Journal,
December 19, 2009.
11. This may extend to countries with influential communities of East Asian migrants.
12. These decision trees and questions could be considered as simple (yet powerful) strategic rules,
in a similar vein to those identified by K.M. Eisenhardt and D.N. Sull, Strategy as SimpleRules, Harvard Business Review, 79/1 (January 2001): 106-116.
13. In 1989, GM paid $600 million for 50% of Saab Automobile AB, but only needed to pay a fur-
ther $125 million to purchase the remaining shares in 2000. By 2002, GM had lost $4 billion
on the venture. See P. trach and A.M. Everett, Brand Corrosion: Mass-Marketings Threat to
Luxury Automobile Brands after Merger and Acquisition, Journal of Product & Brand Manage-
ment, 15/2-3 (2006): 106-120.
14. Mothballing (i.e., Option 1) was not practical for GM in its perilous financial condition.
15. This information comes from authors discussion with a then member of Qantas executive team.
16. For more on Continental Lite, see R. Doganis, The Airline Business, 2nd edition (New York, NY:
Routledge, 2006), p. 156. The Dutch carrier KLMs failed Buzz off-shoot is discussed in P.
Ormerod, Why Most Things Fail: Evolution, Extinction and Economics (London: Faber & Faber,
2005), pp. 27-28.
17. As a separate entity, Jetstar could more easily enter joint ventures in host countries, such as
Vietnam. Such strategic choices were unavailable to Qantas given its location-specific roots
A t li G t d i It l ll d Q t t di t it lf f
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18. Within months of a significant international acquisition, we conducted multiple interviews with
the entire executive team and the Board directors. We also obtained extensive data on each
executive and directors prior work experience and education, including the number, location,
and type of overseas assignments and prior involvement in international investment decisions.
Each semi-structured interview was conducted from one and a half to two hours. As self-
reported information can be subject to a number of biases, we sought to confirm the internal
and construct validity of the data through triangulation with the board papers, press releases,and media reporting. While the board papers remained confidential, a sample set was triangu-
lated with the transcripts, confirming the accuracy of both the timing of decisions and recollec-
tions of discussions.
19. In Mineralcos home country, the positions of Board Chair and Chief Executive Officer were
separate positions.
20. Violence and militia activity forced the mining giant Rio Tinto to abandon its copper opera-
tions in Bougainville in 1989, while BHP was embroiled in years of legal dispute with the
PNG Government over its Ok Tedi operations. C. Ballard and G. Banks, Resource Wars:
The Anthropology of Mining, Annual Review of Anthropology, 32 (2003): 287-313.
21. The rights were fairly use-specific, in that they pertained to exploration for minerals. Discovery
of deposits of other minerals beyond their specialty could potentially be on-sold to other miners.
22. C. Bouquet, Building Global Mindsets: An Attention Perspective(London: Palgrave, 2005); C. Bouquet
and J. Birkinshaw, Weight versus Voice: How Foreign Subsidiaries Gain Attention from Corpo-
rate Headquarters, Academy of Management Journal, 51/3 (June 2008): 577-601; J. Birkinshaw,
C. Bouquet, and T.C. Ambos, Managing Executive Attention in the Global Company, MIT Sloan
Management Review, 48/4 (Summer 2007): 39-45.
23. In addition to the references in the above note, see G.R. Benito, Divestment and International
Business Strategy, Journal of Economic Geography, 5/2 (April 2005): 235-251; J. Birkinshaw,
How Multinational Subsidiary Mandates are Gained and Lost, Journal of International Business
Studies, 27/3 (1996): 467-495; R. Mudambi and P. Navarra, Is Knowledge Power? Knowledge
Flows, Subsidiary Power and Rent-Seeking within MNCs, Journal of International Business
Studies 35/5 (September 2004): 385-406.
24. Decision processes and outcomes necessarily reflect the experiences and thought patterns of the
individuals involved. Myopic decision making can include the classic managerial traps of focus-
ing on the short- over the long-term and near events to those at a distance; see, D. Levinthal andJ. March, The Myopia of Learning, Strategic Management Journal, 14 (Special Issue, Winter
1993): 95-112; W.K. Smith and M.L. Tushman, Managing Strategic Contradictions: A Top
Management Model for Managing Innovation Streams, Organization Science, 16/5 (September/
October 2005): 522-536. Studies have shown that MNC managers typically struggle to break
free of geography, tending to favor the home market to all others, followed by markets closest
to home, largest in size, and most popular with competitors. See, T.P. Murtha, S.A. Lenway, and
R.P. Bagozzi, Global Mind-Sets and Cognitive Shift in a Complex Multinational Corporation,
Strategic Management Journal, 19/2 (February 1998): 97-114.
25. See, for example, B.M. Staw and H. Hoang, Sunk Costs in the NBA: Why Draft Order Affects
Playing Time and Survival in Professional Basketball, Administrative Science Quarterly, 40/3
(September 1995): 474-494; C. Camerer and D. Lovallo, Overconfidence and Excess Entry:
An Experimental Approach, American Economic Review, 89/1 (March 1999): 306-318; R.G.
McGrath, Falling Forward: Real Options Reasoning and Entrepreneurial Failure, Academyof Management Review, 24/1 (January 1999): 13-30.
26. We used various count measures to distinguish depth of experience (years working overseas),
breadth (the number of countries the individual had worked in), diversity (the standard devi-
ation in a political risk index of each country they had worked in), and specific FDI decision
experience (number of decisions they had been directly involved in). We have provided the
breadth and decision data when identifying quotes from interviewees. On either counts, we
regard 9 or more as highly experienced, 4-8 medium, and less than 4 low.
27. See, for example, T.P. Murtha, S.A. Lenway, and R.P. Bagozzi, op. cit.; M.A. Carpenter and
J.W. Fredrickson, Top Management Teams, Global Strategic Posture, and the Moderating
Role of Uncertainty, Academy of Management Journal, 44/3 (June 2001): 533-545.
California Management Review, Vol. 54, No. 2, pp. 92117. ISSN 0008-1256, eISSN 2162-8564. 2012
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