Clusters and regional management structures by Western MNCs in Asia: overcoming the distance challenge.

VerfasserAmann, Bruno
PostenRESEARCH ARTICLE - Multinational companies

Abstract Recent literature suggests that multinational companies pursue regional rather than global strategies. Therefore, this study investigates regional management structures, using French multinational companies (MNCs) in the Asia-Pacific region as an empirical context, to address two research questions: first, do MNCs split Asia into subregions and, if so, what are the resulting clusters of countries and clustering criteria? Second, what kind of regional management structures do MNCs establish in Asia, and what are their roles and functions? Factors, such as MNC size, the size of host markets, or the nature of their activities, might explain some differences. The authors conducted 77 face-to-face interviews with expatriated managers in charge of the subsidiaries or regional management structures of 47 French MNCs located in 11 countries in Asia, then crossed these data with secondary sources of information. Nearly half the MNCs subdivide the Asia-Pacific region into clusters of countries, where they locate regional management centres (regional headquarters, regional offices, distribution centres, local offices) with substantial functions and roles. The main drivers of a regional Asian strategy and organisation are the overall size of the MNC and its sales in Asia; the presence of manufacturing activities does not exert any influence. This research identifies ten clusters of countries in Asia, determined by the French MNCs in our sample, on the basis of four main criteria: market orientation/ economic logic, geographical and institutional proximity, cultural differences, and the MNC's own characteristics. Smaller MNCs do not slice Asia into clusters but rather centralise regional decisions and control procedures, implementing few regional management centres in Asia and giving them limited roles and functions.

Keywords Multinational companies * Clusters * Regional management centres * Subsidiaries * Regional organisation * Autonomy * Control * Asia

1 Introduction

Even in the modern era of globalising economies, multinational companies (MNCs) appear to pursue regional rather than global strategies, focusing on one or two big regions instead of targeting the entire world simultaneously (Rugman and Verbeke 2008; Delios and Beamish 2005; Osegowitsch and Sammartino 2008; Ambos and Schlegelmilch 2010). These "semi-globalising" MNCs (Ghemawat 2005) and their regionalised strategies have significant implications for academic research and managerial practice, yet they remain poorly investigated (Piekkari et al. 2010; Alfoldi et al. 2012).

In response, we investigate the regional management structures of MNCs empirically, using French multinational companies in the Asia-Pacific region as an empirical context to find answers to two complementary research questions. First, do MNCs consider Asia as a single, unique region, or do they split Asia into subregions and clusters of countries? If the latter, what criteria do they use for this clustering, and do factors affect it, such as the nature of their activities, the industrial sector, or the size of the host markets in which the MNC operates? Second, what kind of regional management structures do MNCs establish in Asia? Specifically, what is their nature, and what are the roles and functions of such structures? We consider factors that might explain differences in regional management structures, such as the size of the MNC, the size of the host markets, or the nature of their activities.

In addressing these questions, we seek to fill several gaps in current research. Piekkari et al. (2010, p. 514) worry that though "regional structures are considered increasingly important in today's regionally-structured world, this topic has attracted relatively limited scholarly attention" and Nell et al. (2011, p. 3) assert that "we still know little about regional management and how it complements other organizational mechanisms in managing and coordinating dispersed activities". Studies instead have focused mainly on individual regional management centres (RMCs) (e.g., Daniels 1987; Lasserre 1996; Schiitte 1997), lacked a clear focus, and tended to offer lists of advantages and disadvantages instead of detailed functions. Ambos and Schlegelmilch (2010) offer similar observations for the particular cases of US and Japanese firms in Europe. Moreover, as Enright (2005a) notes, literature on RMCs tends to be based on small samples, such as Schiitte's (1997) 29 interviews or Lehrer and Asakawa's (1999) 19 cases. This trend has continued in recent studies, published in leading academic journals, that use single case studies (Paik and Sohn 2004; Piekkari et al. 2010) or just a few cases, such as Li et al.'s (2010) study of six Taiwanese MNCs. Our qualitative investigation instead relies on 77 face-to-face interviews, conducted with expatriated managers in charge of the subsidiaries or regional management structures of 47 small, medium, and large French MNCs, located in 11 countries in Asia.

In this large sample, we identify a group of nearly half of the MNCs that cluster the Asia-Pacific region into homogeneous subregions, then locate RMCs in these clusters, including both regional headquarters (RHQs) and regional offices with substantial, differentiated functions and roles. The main factors driving such regional Asian strategies and organisations are the global size of the MNC and its sales in Asia. We also identify ten different country clusters in this zone, determined by the French MNCs in our sample on the basis of four main criteria: market orientation/economic logic, geographical and institutional proximity, cultural differences, and the MNC's own characteristics. Surprisingly, the number of factories and the importance of manufacturing localisation in Asia have little effect. In addition, small MNCs, even when they achieve most of their sales in Asia, still tend to centralise their regional decisions and control procedures at headquarters.

In the next section, we present our theoretical background, focusing on four interconnected topics: the regionalisation of MNCs, the regional organisation resulting from it, the nature of MNCs' regional management structures, and the roles and functions of these structures. After we explain our qualitative interview methodology, we detail our main findings and offer answers to our two research questions. These findings lead into a set of six research propositions. We finish by highlighting how our research contributes to international management theory, before concluding with some general insights.

2 Theoretical Background

2.1 Regionalisation of MNCs

Globalising MNCs often concentrate their sales and production activities in one or two regions (Osegowitsch and Sammartino 2008; Rugman and Verbeke 2008). Rugman and Verbeke (2008) confirm that many of the world's largest firms are not truly global but are regionally based, in terms of the breadth and depth of their market coverage. Ghemawat (2005) also acknowledges that it is often a mistake to design a worldwide strategy; better results can come from strong regional strategies, brought together as a global whole. According to Mahnke et al. (2012), academic research similarly emphasises the increasing importance of regions and regional management within MNCs.

Egelhoff (1988, p. 3) identifies an "area division structure" that MNCs can use to divide the world into geographic areas, each with its own headquarters, responsible for all products and businesses within that geographic area. Egelhoff (1982) also notes that such area division structures are more suitable for large, complex, overseas operations that require regional economies of scale, especially if the interregional differences are greater than intra-regional ones. Moreover, Egelhoff (1988) finds that headquarters organised into geographical area structures are more responsive than those organised into international divisions. Rugman and Verbeke (2008) concur, stating that "the importance of each triad region suggests the introduction of geographic components in the MNE structure". With this claim, they refer to Ohmae's (1985) triadic split of world markets--into North America, the European Union and Japan--which today seems out of date, particularly considering the massive development of emerging economies (e.g., Brazil, Russia, India, China).

Accordingly, Delios and Beamish (2005) find that Japanese multinationals organise their subsidiaries into seven regions: Asia, Oceania, Africa, Europe, Middle East, North America and South America. Paik and Sohn (2004) cite Toshiba's four regional headquarters, in America, Europe, and the Asia-Pacific (which mirrors the classical triad), plus China, which Toshiba regards as a standalone region. This designation is not particularly surprising; China alone contains more inhabitants than the entire European region. In addition, various denominations, such as Asia-Pacific, Oceania, or Australasia, designate the Asian region overall and its subregions. In a valuable classification, Lasserre (1995) differentiates five types of countries in Asia: Platform (Singapore, Hong Kong), emerging (Vietnam, Cambodia, Laos), growth (China, India, Indonesia, Malaysia, Philippines), maturing (Taiwan, Korea) and one established country (Japan). Poon and Thompson (2003, p. 211) also underline "the highly disparate nature of markets in Asia. China alone [can be] seen as a country with several discrete regions".

Thus, according to academic literature, MNCs are unlikely to consider Asia as a single, unique region but instead divide it into several clusters or subregions. Flores et al. (2013), on the basis of an in-depth literature review, identify criteria that MNCs likely take into account when designing supra-national regional groups: (1) geographic proximity; (2) cultural and institutional issues, including religion, political openness, and legal systems; and (3) economic development, trade, and...

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