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ICT and MNE reorganisation: the paradox of control

Mo Yamin and Rudolf R. Sinkovics
Manchester Business School, Manchester, UK
Abstract
Purpose The purpose of this paper is to highlight the ICT-enabled enhancement of control capability in MNEs. The literature on MNE structures acknowledges the role of ICT as a support system, but the specic changes facilitated by ICT have remained signicantly underdeveloped. The paper seeks to address this issue conceptually and link contemporary ICT advancement with changes in MNE strategy or structure. The paper further posits that certain applications of ICT may paradoxically reduce a key advantage of multinationality. Design/methodology/approach The paper is of conceptual nature and critically examines and develops literature to generate insight on the implications of ICT applications for MNE development. Specically the focus is on enterprise resource planning systems (ERPs) and the impact of enhanced visibility of remote operations to headquarter management. Findings The nding is that ICT application entails a possible trade-off. It may facilitate an enhancement of control capability for MNE headquarters, however, potentially entails the risk of lessened adaptive capability of subsidiaries, thus potentially constraining the long-term viability of MNE operations: Practical implications Whilst ICT applications may improve coordination and control for the MNE, a level of subsidiary autonomy and initiative taking is still benecial for MNE strategic and organisational development. ICT applications should not go so far as to suppress it. To this end, managers may be advised to purposefully blur subsidiary visibility, by, e.g. allowing the use of different ERP systems. Originality/value The main contribution is the integration of literature on ICT advancements, specically the application of enterprise resource planning systems (ERP), into the IB literature. Keywords Multinational companies, Communication technologies, Manufacturing resource planning, Organizational structures, Adaptability Paper type Conceptual paper

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critical perspectives on international business Vol. 3 No. 4, 2007 pp. 322-336 q Emerald Group Publishing Limited 1742-2043 DOI 10.1108/17422040710832577

1. Research problem and motivation Traditionally multinational enterprises have developed structures that resembled federative rather than unitary organisations (Yamin and Forsgren, 2006), implying signicant degrees of autonomy for nationally focussed subsidiaries (Birkinshaw and Hood, 1998; Ghoshal and Bartlett, 1990). The overall outcome has been an organisational tussle over strategic control between the centre and divisional and subsidiary units as a key feature of multinational enterprises. The underlying issue is the invisibility of the operational context and network embeddedness of the subsidiaries creates knowledge decit at the centre thus undermining headquarter at. Put in another way, the invisibility reects the difculty of fashioning an information system which transmitted full information to the centre However changes in the broader landscape of international business have increased the imperative for central control in multinational enterprises. More specically key globalisation dynamics, namely growing liberalisation and advances in information and communication technologies (ICT) have enabled major shifts in the strategy and

structure of multinational enterprises (MNEs) with increasing emphasis on global integration of operational activities (Buckley and Ghauri, 2004). Since the 1980s globalisation drivers have dramatically intensied both the desire and the ability to control operations from the centre of the MNE so that the structure has been evolving away from the traditional federative system. A key facilitator has been the application of various ICT mechanisms to signicantly upgrade the monitoring capability at the centre and thus to engender much greater visibility in the vertical information system of the organization. While there is a consensus in the literature that ICT advances have been a major factor in the restructuring of multinational enterprises (Birkinshaw et al., 2001; Nolan et al., 2002; Rugman and DCruz, 2003), there is less focus on the enhancement of strategic control capability as an important dimension of the restructuring. Nor is there any discussion of the implications of such restructuring in terms of the nature of multinationality. More specically there is no discussion of how tighter control over strategy may undermine the very advantage of multinationality. This paper has two objectives. First we articulate the ICT enabled enhancement of control capability in MNEs. The literature on MNE structures generally acknowledges, but without elaborating in any detail, the role of ICT as a critical support system, enabling, e.g. the growth of global account management or the slicing of specialised activities under relocation in particular countries which again requires greater information system management. On the other hand, from the ICT perspective, some analysts have suggested that enterprise resource planning (ERP) ` -vis systems such as SAP/Oracle, etc. greatly increase the power of the centre vis-a subordinate units and have labelled it as a return of big-brother (Le Loarne, 2005). However, such studies have not demonstrated or made a strong linkage between the development of ICT and the particular changes in MNE strategy or structure. Our second and more important objective is to argue that in enabling much greater central control in MNEs, the application of ICT may paradoxically reduce a key advantage of multinationality: the long term viability of genuinely multi-national enterprises may thus be at jeopardy. The structure of the paper is as follows: In section 2 we comprehensively discuss the departure from the federative multinationality. This entails two key dimensions, the disintegration of subsidiary value chains and the growth of outsourcing. Both dimensions are based on increasing modulations and signicant ICT support systems. In section 3 we develop the argument that although ICT applications may enhance the control capability of the MNC centre, it may have a detrimental effect on the development of adaptive capability in the organization. Section 4 concludes the paper by considering limitations and implications for future research. 2. Structural change and control enhancement in MNE: the role of ICT Advancements in ICT are routinely seen as a background for environmental and strategic changes in International Business (Sinkovics and Yamin, 2007). The literature has credited ICT and the role of the internet with removing some barriers to growth and international scope of small businesses (Bell, 1995; Lituchy and Rail, 2000). Set against the classic Uppsala model of rm internationalisation, Forsgren and m(2007) discuss the relevance of traditional views on internationalisation for Hagstro internet-related rms. Yamin and Sinkovics (2006) explore the effects of internationalisation via online media on psychic distance perceptions of rms. ICT

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has recently also been linked to organisational performance (Jean, 2007; Wu et al., 2006). Some recent research has suggested that the internet and digitalization facilitates radical changes in the structure of big business, which may reinforce centralizing tendencies in MNE hierarchies (Cowling and Tomlinson, 2005; Kim et al., 2003) and strengthen the dominant position of the largest multinationals (Nolan et al., 2002; Sturgeon, 2002). Thus, ICT advancement facilitates signicant structural changes in multinational enterprises, away from the traditional federative system towards more tightly integrated and controlled entities. In this section we provide an overview of this change and examine the role of the ICT in it. 2.1 The nature of structural change in multinational companies The assertion of central control in multinationals is a generally challenging phenomenon.The multinational enterprise is inherently an arduous organisational context for control retention. Thus a central issue in MNE management literature has been the practical difculty of maintaining the separation between strategic and operational domains; in particular the literature on subsidiary autonomy indicates that, through their linkages in host countries, some subsidiaries gain access to strategic resources and therefore power (Andersson et al., 2002; Mudambi and Navarra, 2004). Consequently, the separation between strategic and operational domains in MNEs can frequently become fuzzy; in fact, MNEs are more likely to operate as federative rather than unitary organizations. In the following section we provide a brief overview of the MNE as a federative organisation and in the subsequent subsection we demonstrate the specic structural changes that have been affected to reassert central control over strategy. 2.2 The MNE as a federative organisation: Network invisibility and implications for strategic control 2.2.1 Subsidiary embeddedness and headquarter knowledge decit. Ghoshal and Bartlett (1990) outlined the theoretical case for viewing the MNE as a federative rather than a unitary organization. This was premised on the view that, because the MNE is embedded in different economic and institutional domains, it cannot be governed as a unitary organization. The key difference between unitary and federative organizations is that in the former at is a fully effective control mechanism whereas in the latter at is only partially effective. Ghoshal and Bartlett (1990) observed that the efcacy at is particularly limited in the case of multinationals not only because some of the subsidiaries are very distant and resource rich but more so because they control critical linkages with key actors in their local environments. Subsequent studies have shown that subsidiaries grow progressively closer to local host country networks (Phene and Almeida, 2003), while a number of studies have explored the implications of subsidiary embeddedness for MNE management (Andersson et al., 2002). Embeddedness entails mutual adaptations in developing processes and products between a focal subsidiary and a small number of host country counterparts (customers, suppliers, research centres and universities) with whom the subsidiary has developed lasting business relationships. Subsidiary embeddedness has two related consequences with profound implications for the ability of the headquarters to retain exclusive control over strategy.

First, a subsidiarys embeddedness generates (knowledge-based) resources rooted in its relationships with external partners (Andersson et al., 2002; Forsgren et al., 1999). Such resources are typically outside the control of the MNE headquarters and increase the subsidiarys power and hence its scope for independent action s and initiatives (Andersson et al., 2002; Birkinshaw and Ridderstrale, 1999; Mudambi and Navarra, 2004). Moreover, embeddedness is a source of strategic power and is distinctive from other forms of power such as those identied by Ferner (2000) which stem from the subsidiarys position as the interpreter of the local environment. These sources of power enable the subsidiary to inuence how the centres strategy is implemented but do not generate resources for the subsidiary independent of the centre. Second and perhaps even more important is that the subsidiaries locally rooted networks are largely invisible to the MNE centre (Holm et al., 1995). The invisibility of the subsidiarys network is the inevitable consequence of embeddedness and is due to the opaqueness of network relationships and interdependencies to outsiders. This is not simply an agency problem whereby the local mangers may deliberately hide relevant information from their principals further up the MNE hierarchy, although this may also happen. MNEs upper echelon tends to have at best a fuzzy and rather vague understanding of the subsidiarys network and this undermines their ability to control the subsidiary. Thus, the most critical consequence of subsidiary embeddedness is that it creates a knowledge decit for the centre with regards with the subsidiaries operating environment and hence its resource and power base. Also, because the required knowledge relates primarily to subsidiary network context and would lack transparency to outsiders, the efcacy of the MNEs formal communication system is limited, even though such communication increasingly benets from rapid technological progress (e.g. greater use of electronic communication and the Internet). 2.3 The retreat from federative multinationality enhancing organisational visibility and the role of ICT Whilst management scholars have implicitly recognised that the MNEs federative nature is inimical to the MNEs controlling elites, they have overestimated the effectiveness of the softer, value or culture based methods in overcoming the hurdles lvell and that the federative structure creates for control (Forsgren et al., 1995; So Zander, 1998). Furthermore due to broader socio-political changes, notably the shift in the governance regime highlighted in the introduction of this paper, the intolerance towards control loss has been increasing The crux of the control problem in the federative structure is the invisibility of subsidiary networks and the resultant knowledge decit for the centre. Propelled by pressures emanating from nancial markets, and enabled by radical advances in ICT, MNE headquarters have sought either to destroy subsidiary networks and/or to penetrate them, thus overcoming their knowledge decit. This can also be explained using Foucaults panopticon metaphor in connection with information systems (Silva, 2005). ICT has enabling power (Barnes, 1988) for MNE headquarters, it allows these to put subsidiary networks under surveillance, a state of conscious and permanent visibility that strengthens central control and enacts power. Yamin and Forsgren (2006) explain the preponderance of regional MNEs in terms of the centres need for proximity to its important subsidiaries and as a manifestation of the network penetration tactic. Here, we focus on structural changes that have effectively destroyed subsidiary networks.

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The demise of the federative MNC is associated with two developments, the drastic reduction in subsidiary value chain scope and increasing offshoring and outsourcing of core activities. We posit that both developments are facilitated by substantial technological advancements, particularly ICT-integration and IT-advancement activities (Jean, 2007) in the form of ERP. 2.3.1 Drastic reduction in subsidiary value chain scope. Figure 1 illustrates this development. The perspective taken in the Figure is the host country perspective. While the original conguration (A) involved substantial embeddedness of the host country subsidiary in local networks, thus increasing subsidiary capability and ` -vis parent strategic and operational decision making, (B) points at a autonomy vis-a reduced value chain scope for individual subsidiaries. In the federative MNE, national subsidiaries were an important part of the organisation. National responsiveness was generally regarded as an important requirement for competitive advantage and this entailed that subsidiaries develop the local knowledge and organisational capability to coordinate a number of value adding activities to serve local demands effectively. A survey of MNE CEOs in the late 1980s reported a high degree of agreement with the statement that the primary role of our overseas units is to nd out and take advantage of opportunities within the countries in which they operate (Leong and Tan, 1993, Table I, p. 458). However this is increasingly not the case. According to Birkinshaw (2001) national subsidiaries are now an endangered species:
Most MNCs have now moved towards some variant of the global business unit structure in their international operations and a corresponding dilution in the power and responsibilities of the country manager. The result is that the national subsidiary no longer exists in most developed countries. Instead there is a series of discreet value adding activities (a sales operation, a manufacturing plant, an R&D centre) each of which reports through its own business unit or functional line (Birkinshaw, 2001, p. 281, own emphasis).

Figure 1. Retreat from federative multinationality the facilitating role of ICT

Buckley and Ghauri (2004) observe a similar phenomenon and point out that MNE strategies now revolve around the disintegration of the value chain:
The managers of MNEs are increasingly able to segment their activities and to seek the optimal location for increasingly specialised slivers of activity (Buckley and Ghauri, 2004, p. 83, emphasis added).

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The disintegration of subsidiary value adding activities clearly undermines the scope for the development of external linkages by the subsidiary. The important point is that even if a particular host country is chosen as an optimal location for several value adding activities they are not integrated horizontally within the same country but vertically within a global business unit usually managed from outside of the host country. Thus, in sharp contrast to the typical federative structures, subsidiaries are increasingly networked internally within the MNC of which they are part and decreasingly networked with the national economies in which they are located (Birkinshaw, 2001; Yamin, 2005). The disintegration of host country based value chains is itself a function of two inter-related developments, namely the growth of global customers (global accounts or clients) (Birkinshaw et al., 2001; Shi et al., 2005) and increasing ability at the centre to deploy ICT based support systems to achieve global integration of the supply chain at the corporate or divisional (as opposed to national subsidiary) level. The production system is increasingly modularised, facilitated through a machine based and highly codied knowledge system. Coordination no longer requires communication of highly tacit knowledge and essentially enhances the visibility of subsidiary operations through electronic integration (Grover and Saeed, 2007). The facilitating role of ICT in the information exchange between headquarters and subsidiaries will be discussed further in the following section 2.3.3 below. The electronic integration, i.e. linking of headquarters, subsidiaries and other external networks of suppliers brings out an increased visibility of subsidiary behaviour and achievements. This process is depicted in the reporting and communication links to corporate or regional HQs in Figure 1 above. 2.3.2 Outsourcing and offshoring activities. Whilst the above relates mostly to intra-MNC developments, equally signicant is the greater degree of externalization. The MNC develops long term contracts with large scale providers of a variety of intermediate and nal inputs. In one sense this is not new, but there is a signicant difference between the traditional subcontracting or buying relations and to nen and Ruokonen, 2007; Levy, 2005). Whereas contemporary outsourcing (Ha subcontracting involves the performance of an activity by an outside supplier, with the objective of reducing costs or mitigating risks, there is now a highly developed global market for outsourced provision of goods and services. Outsourcing involves the delegation of non-core functions previously handled in-house, including a shift of signicant amount of decision-making to outside suppliers (Espino-Rodriguez and Padron-Robaina, 2006; Farrell, 2005). The relevance of outsourcing in terms of the demise of the federative MNC is that, through outsourcing, the MNC centre shifts from invisible networks around subsidiaries to visible networks controlled by the centre itself. Nolan et al. (2002) document the extension of coordination and planning by systems integrator rms with aligned upstream rst tier suppliers regarding production location, R&D,

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product development, and with downstream distribution and maintenance. Thus, externalization actually helps shift the balance of power in favour of control and planning by the MNC centre (Nolan et al., 2002; Strange and Newton, 2006). Facilitated by advances in ICT, core rms within the value chain exercise tight control over rms across the value chain, both upstream and downstream. The idea is that ICT-enabled alignment and coordination capabilities are rm-specic and hard to copy for outsiders, thus contributing to the generation of sustained advantage (Wu et al., 2006). Firms which wish to be selected as aligned or integrated partner suppliers must agree to cooperate with the core rm in opening their books, planning their new plants, organizing their R&D, planning their production schedules and delivering their products to the core rms (Nolan et al., 2002). 2.3.3 Implementing electronic integration ERP as a facilitator of recentralisation. Both of the above changes have in similar though not identical ways been facilitated by the implementation of enterprise resource planning systems. In both respects, the production system is increasingly modularised, assisted through a machine based and highly codied knowledge system. Coordination no longer requires communication of highly tacit knowledge and essentially enhances the visibility of subsidiary operations through electronic integration (Grover and Saeed, 2007). The concept of electronic integration has emerged in the context of buyer-supplier relationships and dened as a form of quasi-integration, primarily with a focus on the restructuring of vertical supply-chain relationships (Jean, 2007; Zaheer and Venkatraman, 1994). Kim and Umanath (2005) see ICT as an important technological breakthrough in independent partnerships, since it radically changes the technological landscape of cooperation and allows partners to exploit ICT capabilities (Kim and Umanath, 2005). They develop a multidimensional construct of electronic integration which includes coordination of decision and operation integration, mutual investment in relationship-specic assets, information sharing and monitoring and control. It is clear that this perspective can similarly be used in the federative MNE-subsidiary context, where the above changes are premised on an elaborate internal support system (Birkinshaw et al., 2001). Furthermore, the perspective of dramatically reduced subsidiary value chain scope is supported in the operations management literature, where it is suggested that enterprise resource planning software (ERP) has created an opportunity to distance the power to inuence operations actions from the location of the function (Jenkins, 2001, p. 201). An ERP application entails an enterprise-wide software package that tightly integrates a variety of necessary business functions into a single system with a shared database (Lee and Lee, 2000). Earlier, especially in large federative MNEs, many incompatible legacy systems and processes coexisted, making organisational integration processes difcult. The objective of ERP implementations is therefore typically to replace these legacy systems into a coherent single system. Todays ERP packages have evolved signicantly from material planning systems and manufacturing resource planning and tightly couple such processes as nancial, human resources, distribution and even marketing management. Most commercial functions of any organisation in varied sectors are now represented in ERP software. With extensions to include World Wide Web capability, customer relationship management (CRM), supply chain management (SCM) and support for electronic marketplaces, ERP systems have developed towards a suite of integrated business

processes. A key selling proposition for ERP systems is that these offer cheaper acquisition and running costs than custom-built applications, hence, they are often the preferred replacement for legacy computer systems (Shanks and Seddon, 2000). ERP system implementation however, is not considered to be an easy and seamless task. Costs of implementation are often reported to be ve to ten times the cost of software licences (Davenport, 2000, p. 68). What is more, the adoption and implementation of ERP is usually connected with signicant changes in organisational knowledge and learning processes. This is due to a lengthy implementation process of customisation and the need to align business processes with the functionality provided in the ERP software. Clemmons and Simon (2001) have reviewed the concepts of control, coordination and their trade-offs including Bartlett and Ghoshals (1990) typology of rm strategy. They demonstrate that human resource issues are often examples of organisation elements which do not conform to the design of the original organisational structure and thus require some sort of reconguration to match the requirements of the ERP packages (Clemmons and Simon, 2001). Popular ERP software such as, e.g. SAP offer a multitude of business reference models from different industries, included in the package. To this end, ERP packages embody established ways of doing business (Lee and Lee, 2000, p. 282), imposes its own logic on a companys strategy, organisation, and culture (Davenport, 1998, p. 122) and requires tailoring to an organisation and the organisational infrastructure that affects how people work. Managers in the ERP adopting rm thus have to decide which reference model to use and consequently map this to their organisations business. In this process of mapping a reference model to their organisation, process knowledge is transferred. 3. Implications for the nature and advantage of multinationality As already noted, the demise of the federative MNE is at root a process in which the power and the position of national subsidiaries in the MNE is radically declining. Traditionally, the key strategic issue for MNCs was the handling of the tension between the imperative of global integration, on the one hand, and the need for national responsiveness, on the other (Doz and Prahalad, 1991). Responsiveness reected the essence of multinationality, acknowledging that each national context was more or less unique and required a tailored rather than a uniform approach from the MNE. The ICT-enabled changes in the organisation of the MNE in effect amount to a radical decline in the importance of national responsiveness as a strategic imperative in MNCs. However, although the decline in the position of the nationally focussed subsidiaries has beneted the MNE by increasing its control capability, the downside is arguably a reduction in its adaptive capability, a key advantage of the multinational organisational form. 3.1 Subsidiary isolation and adaptive capability in MNEs A number of management scholars have highlighted the relevance of exploration in the strategic activities of rms (Hedlund and Rolander, 1990; Levinthal and March, 1993; March, 1991). Thus, whereas exploitation is the utilisation, renement and extension of existing capabilities, exploration is the search for alternative capabilities that may underpin future exploitative potential. The value of exploratory activities is therefore that they help to create adaptive capabilities for the organisation. It is generally agreed that in most organizations exploitation drives out exploration (Ahuja and Lampert,

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2001; Birkinshaw and Ridderstrale, 1999; Levinthal and March, 1993; March, 1991). It can be argued that the ability of subsidiary units within an organisation to undertake initiatives independently of the centre is an indication of that organisations exploratory capabilities. In this sense, exploratory capability is at least partly a consequence of the weakness of the centre to control the behaviour of sub-units. In tightly controlled multi-unit organisations, the ability of sub-units to detect new ideas, develop initiatives around these ideas and hence generate new local competencies is severely curtailed. In such corporations exploratory capability is likely to be low. Linking an organisations exploratory potential with its sub-units ability to undertake initiative reects the premise that exploratory initiatives are unlikely to stem from the centre. The reason for this is that top decision-makers are likely to have a strong commitment to the rms current concept of strategy and thus a preference for activities that are consistent with it. This phenomenon has been recognised by authors with quite diverse perspectives on the organisation (Teece, 1998; Williamson, 1975). Typically, top executives display a high degree of attachment to the status quo (Hambrick et al., 1993). And, as Burgelman (1983, p. 67) suggests, because top managers have an inexible stance in relation to current strategy, their capacity to deal with substantial issues pertaining to new technological and market developments can be expected to be low. Thus even in apparently dynamic and progressively managed companies, there is a remarkable degree of inertia in ofcial corporate strategy. Top level commitment to current strategy remains strong even when environmental changes have eroded the value of the competencies that underlined the strategy (Burgelman, 1994; Burgelman, 2002). By comparison, operational and middle-level managers are naturally sensitised or exposed to exploratory stimuli because, to a large extent, the operational locus is where the opportunities and pressures for change are most keenly felt (Brown and Duguid, 1991; Dutton et al., 1997). Top managers are deprived from this important source of exploratory stimuli, because by the very nature of their position in the organisation, they are too distant or removed both spatially and cognitively, from the operational locus. Furthermore, top managements inexible adherence to the current concept of corporate strategy inevitably implies that it overlooks or even suppresses non-canonical knowledge at the periphery or at the operational domain. In Burgelmans words, top managers rely on the structural context to bring autonomous behaviour under control (Burgelman, 1983, p. 67). As Birkinshaw and Ridderstrale (1999) convincingly argue, corporations develop a strong immune system the function of which is to repel or resist initiatives even though they may promise an improvement in performance. Consequently, exploratory activities are often manifested as autonomous behaviour that is, strategic activities by operational and middle-level managers that are not authorised or even encouraged by top level decision-makers in the rm (Birkinshaw and Hood, 1998; Burgelman, 1983). And, given the multi-layered structure of large organisations, some leeway or opportunity is likely to exist for these managers to undertake autonomous activities unnoticed by top decision-makers. Thus some autonomous behaviour is inevitable in complex organisations. The importance of autonomous behaviour is that new strategic directions are often charted through initiatives by the operational and middle level mangers. In fact, as Burgelman (1983, 1994, 2002) suggests, in companies where autonomous activities are strong, strategy making should not be considered purely as a prerogative of the top decision-makers. Rather, strategy making should be viewed in terms of an

intra-organisational ecology or internal selection environment in which autonomous initiatives offer strategic choices to top management (see also Ghoshal and Bartlett, 1995). An immediate advantage of this is that considering simultaneous alternatives may reduce excessive commitment to any one strategic option. The danger that core competencies become core rigidities may be somewhat reduced (Dutton et al., 1997; Leonard-Barton, 1992). Furthermore, given that environmental changes will inevitably undermine the value of competencies that underpin any current strategy, the existence of alternative capabilities within the rm enhances adaptive capabilities. As argued elsewhere (Yamin, 2001, 2002), a key advantage of multinationality is that its dispersed structure inadvertently creates conditions conducive to entrepreneurial and innovative activities by the subsidiaries. This is a valued characteristic of the MNE as a generic organisational form if one accepts: . the view that, the hierarchical structure of large rms tends to frustrate entrepreneurial and innovative activities at the periphery; and . that this is an undesirable outcome. The notion that in most organisations, exploitation drives out exploration holds that both these statements are true. From this perspective, multinationality can be captured in the following statement: multinationality evens out the odds between exploitative and exploratory aspects of rm activities. Thus, due to the organisational isolation ` -vis the parent (and hence operational and network invisibility) of the subsidiary vis-a there is a greater scope for exploratory and entrepreneurial activities in the multinational enterprise than in otherwise similar uninational enterprises. The evolution of each national subsidiary reects a unique combination of market, institutional, and network inuences that give the subsidiary distinctive market and technological capabilities (Geppert et al., 2003; Regner, 2003; Yamin, 2002). By comparison sub-units of a national rm will have capabilities more closely tied to that of the parent unit and thus the national rm will display a lower degree of differentiation in terms of competencies. Thus the relatively weak control structure of federative MNEs helps both to generate and maintain differentiation within the MNE. This means that the MNE possesses a richer internal selection environment. The existence of differentiated competencies potentially provides the MNE with a wide range of strategic choices. If major technological or market changes undermine the value of the MNEs currently dominant technology, then alternative proven competencies, which can become the basis of a new strategic direction for the MNE may well exist within the network. In particular, subsidiaries that have successfully gained global mandates through their own initiatives will have broadly-based competencies that can underpin a new strategic direction for the MNE as a whole (Birkinshaw and Hood, 1998). Such transformation is by no means an easy process, a fact conrmed by recent case studies (Burgelman, 1994; McNamara and Baden-Fuller, 1999). But the prior existence of a wider range of alternative competencies within an MNE compared to a national rm gives the former a potential advantage. A major obstacle facing organisational renewal is the risk associated with abandoning current competencies when new competencies are not fully operational (Kogut and Zander, 1992; McNamara and Baden-Fuller, 1999). This risk is clearly attenuated in an MNC to the extent that it may avoid the need to generate wholly new competencies. In this

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sense, it can be said that organisational isolation may enhance the survival prospects of an MNE. 4. Conclusions In this paper we have argued that major organisational changes within the MNC, facilitated by the application of advanced ICT have had the consequence of improving the control capability of MNE centres and thus removed or drastically reduced the operational and network invisibility of national subsidiaries. We have also argued that an inherent feature of MNEs as an organisational structure is that it encourages intra-organisational diversity and hence adaptive capability or potential. An obvious implication is that ICT tends to undermine the arguably desired feature of multinationality. Returning to the theme of exploitation versus exploration, it must be acknowledged that organisations cannot focus exclusively on either exploitation or exploration and that maintaining an appropriate balance between exploration and exploitation is a primary factor in system survival and prosperity (March, 1991, p. 71). From this perspective, ICT improves the exploitation capability of MNCs as by improving overall operational coordination it could enhance the efciency in the MNC. However, by the same token the extensive application of ICT can damage the MNCs explorative potential. There is a clear danger that the balance between exploitation and exploration in the MNCs has gone too far in the direction of the former. From a practical and managerial perspective, our paper points out that ICT application may improve coordination and control for the MNE. However, a level of subsidiary autonomy and initiative taking is still benecial for MNE strategic and organisational development. ICT application should not go so far as to suppress these initiatives. Managers may be advised to build organisational contexts and routines which protect and retain appropriate levels of autonomy. With specic reference to ICT application and ERP systems, managers may purposefully want to blur subsidiary visibility. This could be achieved by allowing multiple-vendor ERP systems which are linked together, but not overly tightly coupled. Whilst our arguments about major organisational shifts due to ICT application are derived from extant literature, we recognise the rather tentative nature. As a logical next step to overcome this limitation, we suggest undertaking case studies and expert interviews with managers from MNEs and their subsidiaries which have adopted enterprise wide ICT applications (ERP systems) in the past. Both long-time adopters and recent adopters of ERP systems may provide insights into the nature of organisational change which was introduced as part of ERP introduction and implementation. Initially, the perspective of subsidiary managers may provide most useful insights into the organisational changes, as it will allow elaborating the consequences of heightened MNE control power and visibility of the subsidiary ` -vis the parent, as perceived by the subsidiary. Ultimately, a dyadic study, vis-a including both subsidiaries and MNE headquarters may allow a comprehensive picture.
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