Mo Yamin 1

The Spatial Dimension in Hymer’s analysis of the multinational organization

Prof Mo YaminMo.Yamin@manchester.ac.ukwww.manchester.ac.uk/research/mo.yamin

Mo Yamin 2

Overview

• The spatial dimension is a key aspect of Hymer’s analysis of the MNE as an organization :» Hymer’s perspective on the evolution of the Corporate Form» Hymer’s analysis of multinationality and of the Global Outlook» Strict separation between the Strategic and Operational domains

and the so-called ‘Correspondence Principle’

• There is also a weakness in his analysis in the neglect of the impact of ‘embeddedness’ in host countries» ‘Hymerian’ explanation for the ‘regional’ MNE in terms of re-

establishing MNE control over strategy » Reducing subsidiary value chains scope and outsourcing

Mo Yamin 3

The corporation of today…

• ‘‘In the giant corporation of today, managers rule from the tops of skyscrapers; on a clear day, they can almost see the world” (Hymer in Cohen et al 1979:43)

» Emblematically Hymerian statement that captures both the strength and ‘weakness’ of his conceptualisation of the spatial dimensions of the MNE

Mo Yamin 4

The evolution of the corporate form

• The ‘Marshallian’ Factory • The National Corporation (N-Form) • The Multidivisional Corporation(M-Form) • The Multinational Corporation …

» Successive corporate forms entail greater planning capability to achieve a much tighter coupling over the production cycle across geographical and product spaces.

» However Hymer believed that the above evolutionary sequence was not inevitable but (in part) reflected particular corporate choices; choices that both reflected and exacerbated socio-economic inequalities

Mo Yamin 5

Hymer on the genesis of the M–Form

• The M-form arose in part because the N-Forms eschewed a policy of international expansion in favour of a policy of domestic diversification :

» The N-Form’s capabilities were in mass production and mass distribution. They were able to integrate previously disparate regional markets in their industry into a unified national market as is documented in detail in the Visible Hand.

» These capabilities could have been the basis of a reasonably high degree of corporate internationalisation: capabilities that had integrated disparate regions to create a National Market within the US also ‘opened up new possibilities for transferring organisational abilities internationally’

Mo Yamin 6

The M-form v the geographical extension of the N-Form

• Internationalisation based on the N-Form would have had a more ‘egalitarian’ character:» It was possible “to expand mass production systems very widely

and make basic consumer goods available on a broad basis throughout the world”

• This did not happen. Hymer’s explanation is in terms of a change in strategic orientation away from mass production: » Large US companies turned to a strategy of new product

development aimed at smaller number of higher-income earners, primarily within the US Market.

Mo Yamin 7

The genesis of the Multinational form: The M-form template

• The M- form has great flexibility because ‘a cortex specialising in strategy’ resides at the top that can plan on a much wider scale and with greater flexibility than before and allocate capital with more precision.

• For Hymer, the key feature of multinationality as a corporate form is precisely the enhancing of the ‘strategy cortex’:

» “The M-Form has a much wider horizon leading in many cases to a global outlook and the transformation to the stage of the multinational enterprise”

» The planning horizon successively elevated from local to national and to global

Mo Yamin 8

Hymer’s notion of the ‘global outlook’

• A corporation’s thinking “of its world market position rather than merely its US market position and (planning) in terms of worldwide factor availabilities and demand patterns”

» Rooted in the confidence of the US corporations that they could project their market /organisation power anywhere

» Large corporations were seriously studying the “fundamentals of production and consumption” and would “dominate the taste patterns and consumption standards of the ‘middle classes’ in all countries”

Mo Yamin 9

Organizational imperatives of a global planning outlook

• Strategic control resides exclusively at the top of the organization. Strict separation between strategic and operational levels » This is fundamental as otherwise ‘the global outlook’ will be no

more than an ambition with the likelihood that overtime the mutinational will dissolve into the international analogue of what Chandler termed a ‘federation of autonomous offices’ (Chandler, 1977, p. 7)

• ‘Divide and Rule’: key to retaining monopoly over strategy at the top

Mo Yamin 10

The important things for the maintenance and cohesion of control are

1. Having an efficient and effective system of vertical communication so that information from the bottom flows rapidly and easily to the executive level as do orders from the top to the operatives below

2. Cementing lateral communication at the higher levels of the organization so that important decision makers do not work at cross purposes but have an opportunity to exchange information and reconcile differences

3. Breaking lateral communication at the lower levels so as to prevent alliances and interchanges that lead to actions counter to those prescribed by higher management

Mo Yamin 11

‘Cementing’ lateral communication at the top of the pyramid

• Entails both a social and a spatial dimension » Social and cultural homogeneity:

• ‘Top executives of most of the major corporations in the United states are drawn from a relatively homogenous cultural group quite distinct from the population of the united states’

• Stratified education system effectively separated future managers from future workers even before they entered the workplace. Thus a ‘deep social gulf was created between mangers as insiders and workers as outsiders’ (O’Sullivan 2000)

• The spatial dimension is crystallised through the ‘correspondence principle’

Mo Yamin 12

Correspondence principle

Levels Location of activity

Level I (top management)

Planning, goal determination and setting the framework* Concentrated in ‘central’ cities

Level II management coordinating the managers at Level III * Concentrated in ‘smaller’ cities

Level III management the day-to-day operations within the established framework* Dispersed and potentially ‘footloose’

• close correspondence between the centralization of control within the enterprise (microcosm) and the centralization of control within the international economy (macrocosm)

LI

Level II

Level III

Mo Yamin 13

The importance of central cities: the architecture of dominance

• ‘Cementing’ communication at the top requires an oral rather than a written system of communication:

» The criticality of face to face communication between key executives in the company and with those in the media , banking , accountancy , legal and key governmental bodies

• “The telephone is prodigally used, of course, but the personal conference remains the method by which the most important work is done”

• “The skyscraper facilitates my personal contacts in a way never possible before. From my office on the twenty–eight floor of a building in the Times Square district, I can get to practically every person of importance in the architectural and business field in fifteen minutes time“ – US executive cited by Hymer

Mo Yamin 14

Hymer’s notion ‘Divide and Rule’: the ‘missing’ spatial link

• Hymer envisaged the threat to the centre’s monopoly over strategy as coming only from an alliance between different subunits within the corporation.

• The implications of individual subsidiaries’ ability to develop strong linkages with potential counterparts in their host environment was not addressed

• The contemporary literature on subsidiary ‘embeddedness’ suggests the separation between strategic and operational domains in MNEs can frequently become fuzzy

Mo Yamin 15

The HQ strikes back!

• Hymer did not consider the inevitably federative nature of the MNE and the difficulties for retaining full strategic control at the top that this would imply » MNE CEOs at the top of skyscraper could not, after all, see what was ‘inside ‘

the subsidiary’s networks !

• However his work does suggests MNE controlling groups would institute structural changes to diminish subsidiary power:» the purported preponderance of the Regional MNE strategies (Rugman 2005)

can be explained in Hymerian terms (Yamin and Forsgen, 2006; Yamin and Sinkovics, 2007)• In Regionally focussed MNEs HQs have better knowledge of subsidiary networks and

enhanced behaved control possibility

16

Reducing subsidiary value chain scope to increase HQ control

Mo Yamin

Subsidiary value chain

Host country

firms

Host country

firms

Host country institutions

(e.g. Universities)

Single activity(host country)

Single activity(host country)

Single activity(host country)

Reduced subsidiary embeddedness

Reporting/communication links to corporate or regional HQs

A

B

ASubsidiary embeddedness in local networks• Increases subsidiary capability• Makes HQ control over it more difficult

B• Reducing the value chain scope of

individual subsidiary

Mo Yamin 17

References

Cohen, Robert B., Nadine Felton, Morley Nkosi, and Jaap van Liere (1979), The

multinational corporation - a radical approach. Papers by Stephen Herbert Hymer.

Cambridge: Cambridge University Press.

Kogut, Bruce and Udo Zander (1993), "Knowledge of the firm and the evolutionary theory

of the multinational corporation," Journal of International Business Studies, 24 (4), 625-

645. (DOI: 10.1057/palgrave.jibs.8490248 ).

O'Sullivan, Mary (2000), Contests for corporate control corporate governance and economic

performance in the United States and Germany. Oxford, UK: Oxford University Press.

Rugman, Alan M. (2005), The regional multinationals MNEs and "global" strategic

management. Cambridge, UK: Cambridge University Press.

Yamin, Mohammad and Mats Forsgren (2006), "Hymer's analysis of the multinational

organization: Power retention and the demise of the federative MNE," International

Business Review, 15 (2), 166-179. (DOI: 10.1016/j.ibusrev.2005.07.006).

Yamin, Mo and Rudolf R. Sinkovics (2007), "ICT and MNE reorganisation: The paradox of

control," Critical Perspectives on International Business, 3 (4), 322-336. (DOI:

10.1108/17422040710832577).