Academic journal article
By Carpano, Claudio; Shao, Alan T.
Multinational Business Review , Vol. 2, No. 2
A key contention of the strategic management literature is that above average performance is the result of the proper match between a firm's strategy and its environment and of the proper match between a firm's strategy and its organizational structure. Recently, some authors have argued that an understanding of the reasons behind above average performance cannot be fully captured by research focusing solely on the match concept. These researchers have contended that the concept of a firm's resources provides important insight on the determinants of a firm's performance (e.g., Tallman, 1991). Since these two approaches to the study of the firm are complementary, we build on them to explore the determinants of international advertising agencies' performance.
Most empirical studies on strategy and structure in multinational enterprises (MNE) have used the entire corporation as a unit of analysis and have assumed that homogeneous links exist between headquarters and subsidiaries within each MNE. Only a few empirical studies have investigated business-level international strategy (e.g., Carpano and Chrisman, 1992; Roth and Morrison, 1990). Since the constraints of the international environment on firms' international strategies and the difficulties associated with the integration of geographically dispersed activities differentiate MNEs from purely domestic firms (Bartlett and Ghoshal, 1987; Prahalad and Doz, 1987), studies are needed that expand our understanding of the determinants of above average profit of single-businesses competing internationally.
The present study contributes to the current debate on the performance implications of strategy, structure, and firm-specific resources by addressing the following research questions: What are performance implications of international strategies and of differentiated organizational structures within multinational advertising agencies? and does a foreign subsidiary's level of resources moderate the relationship between performance and the match between strategy and structure? Since within MNEs the links between headquarters and subsidiaries are differentiated (Ghoshal and Nohria, 1989), the unit of analysis of this study is not the entire corporation but rather the individual foreign subsidiaries.
The rest of this paper is divided into five sections. The first part discusses the relevant literature on the relationship between strategy-structure and on the resource-based theory of the firm, as it pertains to MNEs. Then research hypotheses will be offered, followed by discussions about our research methodology, data analyses and results. The final section will provide some conclusions and implications about our study.
In this study the term structure refers to the administrative mechanisms used to integrate work activities. Integration has been among the dimensions most frequently used in studies exploring the business-level relationship between strategy and structure (e.g., Miller, 1987). Integration is defined as the extent to which the activities and procedures of organizational units are coordinated for the achievement of organizational goals. During the past few decades, several studies have examined the relationship between MNEs' organizational structures and strategies (Daniels, Pitts, and Tretter, 1984; Habib and Victor, 1991; Stopford and Wells, 1972). Most of these studies were based on Chandler's (1962) work, which conceptualized structure as formal structures and strategy in terms of sales growth, product, and geographic diversification. This stream of research assumed that relationships between headquarters and subsidiaries were homogeneous within an MNE. During the 1980s a number of studies explored other dimensions of MNEs' organizational structures [e.g., integration and formalization (Ghoshal and Nohria, 1989; Prahalad and Doz, 1987)]. These studies recognized that the characteristic of the link between subsidiaries and headquarters depends on each subsidiary's unique strategic role and operating environment. …