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Antecedents and evolution of the Bartlett and Ghoshal transnational typology Matevzˇ Rasˇkovic´ Faculty of Economics, University of Ljubljana, Ljubljana, Slovenia and Visiting Scholar, Shanghai University of International Business and Economics, Shanghai, China, and

Maja Makovec Brencˇicˇ and Marko Jaklicˇ Faculty of Economics, University of Ljubljana, Ljubljana, Slovenia Abstract Purpose – The purpose of this paper is to systematically describe the evolution of Bartlett and Ghoshal’s transnational typology within an appropriate historical context, and to additionally review key antecedent works of other authors who contributed to its evolutionary nature. Design/methodology/approach – The paper presents a comprehensive review of the literature by combining an evolutionary perspective with a Chandlerian business history approach. Findings – The paper shows how Bartlett and Ghoshal’s transnational solution concept was developed in light of the global economic changes of the 1970s and 1980s, as well as the managerial and strategic challenges faced by US MNCs. It shows how the transnational solution concept should not be seen as a single work, but rather the outcome of an academic discourse which lasted over a decade. The review of Bartlett and Ghoshal’s stream of work since the mid 1980s also shows how the transnational solution concept developed gradually into its present form and through the integration of several antecedent concepts. Originality/value – This paper describes not just the actual evolution of Bartlett and Ghoshal’s transnational typology, but also systematically identifies and analyzes key antecedent works by other authors. This analysis has been overlooked and is at the same time key to the understanding of their typology. The employed evolutionary and business history perspectives within this paper are new to the international management literature. They should be especially valuable for graduate students and scholars who employ Bartlett and Ghoshal’s typology, or anyone who wishes to understand the Zeitgeist of the time articulated by this seminal work, which will soon celebrate its 25th anniversary. Keywords Multinational companies, Business history, Bartlett and Ghoshal transnational typology, Evolutionary perspective, Integration-responsiveness framework Paper type General review

Introduction Most of the international management literature dealing with multinational companies (MNCs) assumes that there are different types of MNCs, such as “polycentric, The Multinational Business Review This research was conducted during a six-month visiting graduate fellowship at Harvard Vol. 21 No. 2, 2013 pp. 148-173 University, FAS Sociology in 2010-2011 by the leading author, who wishes to especially thank q Emerald Group Publishing Limited Professor Peter V. Marsden and Anus ˇka Ferligoj. The authors also thank Alan Rugman for his 1525-383X valuable comments and suggestions on how to improve the paper. DOI 10.1108/MBR-01-2013-0004

geocentric, ethnocentric, multidomestic, international, global and transnational” (Harzing, 2000, p. 101). Such classifications are useful for: . understanding the complexity, organizational structure, and functioning of MNCs; . predicting MNC behavior; and . integrating and comparing various studies, typologies, and frameworks (Harzing, 2000). Harzing believes Bartlett and Ghoshal’s work published in 1989 is particularly valuable because “very few studies in the international management literature have tried to derive and test comprehensive typologies of MNCs” (Harzing, 2000, p. 102) and they provide an extensive and extremely important concept through conceptualization and discussion of the transnational company typology. In the evaluation of the intellectual contribution of Bartlett and Ghoshal’s typology, Rugman described their work “as the most influential set of organizational studies in the history of international management” (Rugman, 2002, p. 37), particularly highlighting the “linkage of the theoretical integration/national responsiveness matrix with the nine case studies of organizational structures of multinational enterprises (MNEs) across the ‘triad’ of the United States, Europe, and Japan” (p. 37). In terms of its scientific influence, Barlett and Ghoshal’s book Managing Across Borders: The Transnational Solution (1989) was voted as one of the top 50 most influential management books of the twentieth century by The Financial Times. Likewise, Bartlett and Ghoshal’s textbook on transnational management is already in its sixth edition. Rugman (2002) also showed how Bartlett and Ghoshal’s (1989) work was a particular favorite among MBA students, due to its pedagogical power and its comprehensive and robust case study approach. The “enormous influence [. . .] [of their work] on the broader fields of both strategic management and organizational theory” was especially emphasized by Rugman (2002, p. 37) and Bartlett and Ghoshal (2002); albeit Bartlett and Ghoshal (2002) credited much of their seminal impact to luck and underdevelopment of the international management literature. A recent analysis of the impact of the 1989 Bartlett and Ghoshal typology by Ferreira (2011) is based on citation and co-citation analysis. It placed their framework among the top ten most cited and co-cited works in the Journal of International Business Studies ( JIBS) from 1989 through 1999. Ferreira (2011, p. 369) observes: [. . .] an increase in citations to Bartlett and Ghoshal (1989), which is likely to be the outcome of a large and growing focus on the firm and on the strategy and structure, rather than the traditional perspective based on industrial organization, the existence of the multinational per se, or the environment-related factors.

While myriad MNC typologies and frameworks exist today, Bartlett and Ghoshal’s (1989) work stands out not just due to its overwhelming bibliographic impact (Ferreira, 2011), but also because of its strong managerial focus (Bartlett and Ghoshal, 1989), some empirical verification (Leong and Tan, 1993; Harzing, 2000), case study background (Harzing, 2000), and compatibility with new kinds of cross-disciplinary perspectives, such as economic sociology (Heidenreich, 2012). It is clear that Bartlett and Ghoshal’s (1989) typology and their transnational solution concept have certainly had widespread scientific and managerial impacts over

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the last 25 years. However, it is not widely known that their transnational solution and the typology itself evolved gradually and was developed through the integration of a plethora of antecedent works and concepts by other authors. In works after their 1989 publication (such as in 2002), Bartlett and Ghoshal explained the business and economic contexts in which their work emerged in the 1970s and 1980s. However, beyond their own work, there is not an evolutionary and/or business history perspective of their work in the international management literature which would go beyond the mere acknowledgement of its scientific impact (Ferreira, 2011). Thus, the purpose of this paper is to systematically describe the evolution of Bartlett and Ghoshal’s transnational typology within an appropriate historical context and to systematically review key antecedent works by other authors, which helps us to better understand Bartlett and Ghoshal’s work and employ it more correctly. Many graduate students employing the typology and the transnational concept today are not aware of its evolutionary background, nor do they understand its appropriate business history context. This paper examines Bartlett and Ghoshal’s work using its true evolutionary and integrative nature, as well as the Zeitgeist of the 1970s and 1980s; thus, it should be especially useful for graduate students and scholars who are employing Bartlett and Ghoshal’s typology in their academic research. This paper also provides a timely reflection on Bartlett and Ghoshal’s work in light of its approaching 25th anniversary. Last, such an evolutionary perspective highlights the need to continue the evolution, and to continue adapting the typology to current circumstances and challenges, if we want their seminal work to be used for the next 25 years. Antecedent works to the Bartlett and Ghoshal typology by other authors Individual antecedent works While the general idea of Bartlett and Ghoshal’s (1989) typology can be traced back as far as Perlmutter’s (1969) distinction between polycentric, geocentric, and ethnocentric organizational structures and management practices (Ghoshal, 1987), it is particularly important that the evolution of their typology is placed in the appropriate historical context of the dramatic global changes of the 1970s and 1980s (Bartlett et al., 1990). This is very much in the spirit of Chandler’s historical corporate accounts from 1990, particularly with regard to their organizing principles (Bucheli et al., 2010). These changes called for a new discussion of “the characteristics of the various types of MNCs in a systematic way” (Harzing, 2000, p. 102), and also noted that more holistic MNC typologies began to evolve increasingly by the 1980s due to: . the necessary reduction of the complexity related to various MNC characteristics; . the predictive power of effective typologies in terms of actual MNC behavior; and . the prescriptive configuration of key resources, capabilities and processes, aimed at increased organizational performance (Harzing, 2000, p. 102). Coming back to a Chandlerian historical account, there was also an important strategic and managerial problem that called for a new way of thinking about MNCs. Namely, American MNCs began to lose their global dominance and were suddenly confronted by increasing FDIs by Japanese, Swedish, and West German companies worldwide (Grimwade, 2000). Further, Japanese MNCs began a widespread FDI-led penetration of the US market, particularly in the automobile industry (Hout et al., 1982). Thus, Kogut (1992), building on Chandler’s (1990) scale and scope legacy, highlighted the issue of

the interrelation between technological innovation and progress, and the evolution of new organizing principles and capabilities, which called not only for new managerial approaches among MNCs but, also, for new types of mindsets. A new strategic and organizational framework was needed, with more than just a set of a few new managerial implications. The issue of “coordination of flows among subsidiaries, and the flows of data, information and knowledge throughout the network of subsidiaries that comprise MNCs” was increasingly important in this new setting (Ferreira, 2011, p. 359; Gupta and Govindarajan, 1994; Birkinshaw and Morrison, 1995; Birkinshaw and Hood, 1998). A wider strategic typology was also needed to build on Chandler’s (1990) work outlining the organizing principles embedded in the historical, social, and political structures of the time. A 1983 paper by Levitt on the globalization of markets was on one side of the discussion related to how MNCs should most effectively face the increasing pressures of market globalization. Works by Hout et al. (1982) and Hamel and Prahalad (1985) were on the other. All three papers were published in the Harvard Business Review (HBR). These papers, as well as others, influenced Bartlett and Ghoshal’s (1986) paper, which provided the conceptual starting point for their subsequent works in 1989 and 1990. Levitt’s hedgehog analogy Levitt’s understanding of the new face of globalization was that, despite cross-cultural and other market differences, globalization was leading towards a converged and fairly homogenized market. He described this transformation quite dramatically by saying “The globalization of markets is at hand. With that, the multinational commercial world nears its end, and so does the multinational corporation” (Levitt, 1983, p. 92). Within this converging, single-global market perspective, MNCs were believed to be at ` -vis competitors”, if they were to continue to follow the a “severe disadvantage vis-a traditional marketing-driven strategies employed by local competitors (Levitt, 1984, p. 2). This view was also heavily influenced by Levitt’s marketing background, and particularly his earlier work on marketing myopia (Levitt, 1960). In 1983, Levitt already acknowledged the existence of two distinct types of MNC strategies, namely the global and MNC. He firmly believed that the future of MNCs exists in the implementation of global strategies, where marketing imagination should be applied to “developing advanced, functional, reliable standardized products, at the right price, on a global scale” (Levitt, 1984, p. 2). Building on the symbol of a hedgehog-like, highly-specialized global strategy and the example of the success of Ford’s Model T, Levitt’s recommendation to MNCs was that “effective global strategy is not a bag of many tricks but the successful practice of just one: product standardization” (Levitt, 1984, p. 2). Thus, MNCs should focus on setting their presence in a few markets where such standardization was possible, and retreat from the markets and market segments where high customization was needed. These markets and segments were the realm of the multinational strategy, which in Levitt’s opinion was to some extent very much locally bounded. Hout, Porter and Rudden’s fox analogy Contrary to Levitt’s idea of MNCs as hedgehogs, and the panacean understanding of the role of the global strategy, Ghoshal emphasized how “the effective global [MNC]

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strategy does not require the approach of the hedgehog, who knows only one trick, but that of a fox, who knows many” (Ghoshal, 1987, p. 426). Ghoshal supported the fox analogy. In response to the discourse between Levitt (1984) and Hout et al. (1982) – and later by Hamel and Prahalad (1985) – Ghoshal emphasized a widespread misunderstanding of “global strategy” and the often blurred lines of distinction between “global industries, companies and strategies” (Ghoshal, 1987, p. 425). In their understanding of MNC strategy, Hout, Porter and Rudden emphasized in their 1982 work that, while Levitt’s position may be valid for some types of industries, it is not true for all of them. Levitt’s power of global strategy was based on the assumption of increasingly converging global markets. While Hout, Porter and Rudden acknowledged the validity of the power of global strategy, they did not agree with the level of this assumption. They did not share his view on the extent of the convergence of domestic markets into a single global market across most industries worldwide. This perspective was even more explicitly articulated by Michael Porter. He believed “the [only] appropriate unit of analysis in setting international [or global] strategy is the industry, because the industry is the arena in which competitive advantage is won or lost” (Porter, 1986a, p. 29). From this perspective, Porter further outlined an industry typology as a continuum. Along this continuum, he distinguished between multidomestic or multinational industries (where competition is country independent) and global industries (where competitive positions across countries are interdependent, not just across a group of a few countries but also on a global scale). Similar to Ghoshal’s (1987) position, Porter believed the reference to a global MNC strategy “has become overused and perhaps under-understood” (Porter, 1986a, p. 29) – probably stated with Levitt particularly in mind. Within their understanding of the industrial embeddedness of MNC strategy, Hout et al. (1982, p. 99) stated the opinion that: [. . .] the potential for global competition is greatest when significant benefits are gained from worldwide volume – in terms of either reduced unit costs or superior reputation or service – and are greater than the additional costs of serving that volume.

The underlying force behind achieving any type of benefit lay in “the potential of synergies or sharing costs and resources across markets” (Ghoshal, 1987, p. 425) where the MNC, driven by a global strategy, becomes a “heavyweight champion who knocks out opponents with scale and pre-emptive investments” (p. 426). From this perspective, Ghoshal (1987, p. 426) stated that the “global industry-global strategy link” was useful as an “ex-ante” strategic imperative for some industries, where economies of scale could be achieved through global integration, while, in other types of industries where this could not be achieved, this link was more useful for “ex-post explanations of outcomes” (Ghoshal, 1987, p. 426). Providing a more company-level (as opposed to industry-level) perspective on global vs locally responsive MNC strategy, Yip (1989) focused on the issue of how in certain circumstances MNCs are able to develop and implement global strategies. This was to some extent derived from the drivers of industry globalization. Yip focused on the “appropriate setting for global strategy levers” themselves (Yip, 1989, p. 30), which were partly influenced by drivers of industry globalization, and partly by the “position and resources of business and parent company” (Yip, 1989, p. 30). Further, the final

impact of the global strategy levers on the actual benefits/costs of the global strategy was moderated by the MNC’s ability to effectively and efficiently implement global strategy. Thus, the use of a global strategy was based on the MNC’s ability to develop its core business strategy in the home market, successfully internationalize it, and also globalize “the international strategy by integrating the strategy across countries” (Yip, 1989, p. 29). Yip contended MNCs knew “the third step less well since globalization runs counter to the accepted wisdom of tailoring for national markets” (Yip, 1989, p. 29). Hamel and Prahalad’s portfolio perspective Hamel and Prahalad (1985), with an opposite position to that of Levitt, did not explicitly acknowledge the deficiency of Levitt’s position (like Hout, Porter and Rudden did in 1982) but, instead, outlined a different kind of strategic imperative of global companies. According to Hamel and Prahalad (1985), it was imperative for MNCs to a priori develop and manage vast and highly differentiated portfolios. Such portfolios should not span only customized product varieties, but should also span industries and markets. At the center of this idea was a new concept of cross-subsidization, which relied on the accumulation and funneling of resources to specific companies within this portfolio in specific local markets and/or market segments. In this regard, such accumulated company resources (e.g. financial resources, technologies, distribution systems, etc.) could be appropriately tapped into and leveraged as best suited. This was done mainly in order to fight and drive off local competitors, or other competitors with a shorter international reach. Such companies were, in turn, unable to fight back accordingly since they could not tap into and leverage the same resources to sustain such competition (Hamel and Prahalad, 1985). Hamel and Prahalad (1985) embraced the idea of national and market differences at the level of differentiated product portfolios, which in their view called for the use of a multinational strategy. Their elevation of highly diversified US companies across industries (dubbed the conglomerate companies, e.g. General Electric) was heavily influenced by US anti-trust policies of that time (e.g. the Celler-Kefauver Act in the 1950s which limited acquisitions), as well as the use of conglomerate mergers across industries. These MNCs were run on a “firm-as-portfolio model” – an efficient response to legislative company growth limitations to circumvent regulatory disfavor (Davis et al., 1994, p. 547). Other individual antecedent concepts Beyond the three papers presented so far, Kogut should also be mentioned. His understanding of MNC strategy formulation was that of “placing bets on certain markets and on...