Academic journal article Journal of Southeast Asian Economies

ASEAN Multinational Enterprises: A Structural Model Analysis of Strategic Coherence

Academic journal article Journal of Southeast Asian Economies

ASEAN Multinational Enterprises: A Structural Model Analysis of Strategic Coherence

Article excerpt

I. Introduction and Background

Approximately 65,000 multinational enterprises (MNEs), with over 850,000 subsidiaries worldwide, constitute 65 to 70 per cent of international business and world trade (UNCTAD 2002). This activity, observable as cross-border collaborative inter-firm relations (mergers and acquisitions, joint ventures, strategic alliances, and so on, collectively termed joint international business associations, or JIBAs), may be termed "the global factory" (Buckley 2003; Bartels 2005). ASEAN MNEs, given their rising share of foreign direct investment (FDI) stock (Bartels and Mirza 1999), are increasingly significant intermediators in the ongoing process of shifting FDI patterns and global industrial restructuring. (1)

FDI research on ASEAN MNEs is relatively lean. (2) Most related research is confined to performance issues (Birkinshaw, Toulan, and Arnold 2001; Birkinshaw 1998a, 1998b; Egelhoff 1982, 1991). In this context, there has been no research on the interrelationships of what we term strategic coherence, dispersed functionality and international management capability, which are defined and tested empirically in this study.

This paper conceptualizes a model of "strategic coherence" for ASEAN MNEs. The research issue is: as FDI disperses geo-economically (Scott 2000) and "alliance capitalism" expands (Dunning 1997, 2000), how do ASEAN MNEs effectively and efficiently control the "dispersed functionality" and the "international management capability" of their operations, so as to achieve "strategic coherence"? We focus on the structural relationships between these factors by means of a statistical model.

We define "strategic coherence" as the firm's effectiveness in formulating and activating an organizational evolution with operational clarity, that allows adaptive responsiveness to changing global conditions. The assumption is that achieving strategic coherence requires formidable international management capability, coupled with low dispersed functionality.

We define "dispersed functionality" as the development of the firm's spatially distributed structure, through internationalization and JIBAs. We theorize that firms possessing high levels of capitalization, or asset ownership, and geographically scattered, experience higher dispersed functionality. This experience is accentuated when the firm's centre gives greater autonomy to (or exhibits lesser control of) its periphery of subsidiaries and inter-firm operations. Also, higher levels of conflict in the periphery, induced by divergent policies to meet multiple local business practices, contribute to greater dispersed functionality.

We define "international management capability" as the firm's proficiency in synergistic management of its international operations. This capability depends on the degree and quality of vertical integration. We postulate that, from a transaction cost perspective, more vertically integrated firms, exploiting tacit knowledge to respond to markets, experience greater operational efficiency (Williamson 1975). Furthermore, centre--periphery co-ordination avoids costly duplication of operations, and provides timely information for holistic decision-making. We propose that strategic coherence, dispersed functionality, and international management capability are structurally related.

Our empirical approach has four steps. The first conceptualizes the construct strategic coherence, and models and investigates its determinants. The second and third steps respectively delineate testable dimensions of dispersed functionality and international management capability. The fourth step strictly confirms a linear structural equation model in which dispersed functionality and international management capability have "causal" impacts on strategic coherence.

Accordingly, this paper is organized as follows. Section II outlines the background of previous literature in this field. …

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