Advances in Business-Related Scientific Research Conference 2012 in Venice
(ABSRC 2012 Venice)
March 28–30, 2012, Venice, Italy
TYPOLOGY OF MULTINATIONAL COMPANIES HAVING A
SUBSIDIARY IN THE CZECH REPUBLIC ACCORDING TO
BARTLETT AND GHOSHAL
Alena Safrova Drasilova
Masaryk University, Faculty of Economics and Administration
Czech Republic
alena.drasilova@gmail.com
Abstract
The paper deals with the typology of multinational companies (MNC) that have a subsidiary
in the Czech Republic, according to the theory developed by Bartlett and Ghoshal.
Typologizing was based on an extensive survey focusing on the special characteristics of the
organization and management of MNCs. For the purposes of the classification of companies,
three groups and three transition zones were determined. As only companies that consider
themselves to belong to a coherent group took part in the survey, it only included the
Multidomestic, Global and Transnational types, and transitions between them. It turned out
that mainly MNCs of the transition type between the Global and Transnational Strategy
are present in the Czech Republic. A total of 23 percent of companies that responded in the
survey could not be included in any of the defined areas, because they showed a combination
of elements of all the above-mentioned types.
Key Words: MNCs, international management, Bartlett and Ghoshal typology, Czech
economy
Topic Groups: International business
INTRODUCTION
Subsidiaries of multinational companies are very important to the local economy. In particular
in the case of small open economies in which the Czech Republic undoubtedly belongs, they
are key players in the area of creation of gross domestic product and national income in
particular. They are a non-negligible source of income for the state budget, and are also very
important for regional employment, investment inflow and for increasing the innovation
potential. On the other hand, many countries support multinational companies through tax and
other incentives. Therefore, a survey was carried out within the framework of the Research
Centre for Competitiveness of Czech Economy among the subsidiaries of multinational
companies in the Czech Republic. The criteria according to which companies were
approached included the number of employees exceeding 50, turnover over 30 million crowns
(approximately EUR 1.2 million), and the legal form of a joint stock company or limited
Advances in Business-Related Scientific Research Conference 2012 in Venice
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March 28–30, 2012, Venice, Italy
liability company. No further narrower selection was made, and the whole target population
was approached within the framework of the survey.
The questionnaire was divided into six sections: General, Organizational Structure,
Centralization, Decentralization, Cooperation, Knowledge and Innovation, Ethics and
Culture, Resources and Strategy. 403 companies out of 2 509 approached took part in the
survey, however, 68 companies were excluded from subsequent evaluation because they did
not meet the entry conditions, or did not classify themselves as belonging to a group in
responding to the first sorting question. In such a case, they would be, for the purposes of
Bartlett and Ghoshal’s typology, included in the International Group. These companies only
reported the presence of foreign capital without any practical application of management
and supervisory competencies. The remaining 335 companies that completed the
questionnaire and responded affirmatively to the sorting question
For the purposes of this questionnaire, the Group is defined as a community that is linked by
ownership, hierarchical, or network ties. Do you think that your company meets this
definition of group?
were classified into the Multidomestic (M), Global (G) and Transnational (T) Groups
according to the Bartlett and Ghoshal’s theory, while three transition zones, MG, GT and MT,
were defined between the three Groups.
THEORY
Organizational structures of multinational companies are extremely large and complex. One
of the starting points when approaching this field of research was a paper by Ando (2005),
which was based on a relatively elaborate theory of Bartlett and Ghoshal published in 1989
(Bartlett & Ghoshal, 1989), and gradually developed in other publications and case studies
(e.g. Bartlett & Ghoshal, 1995, and Bartlett & Ghoshal, 2003). These researchers investigated
the relationship between the Headquarters of a multinational company and its subsidiaries,
and defined four basic types of organizational structures organizational structures:
International, Multidomestic, Global and Transnational. The above-mentioned types differ in
the degree of closeness (or looseness) of relationships both between the subsidiary and its
headquarters, and mutual relations between the subsidiaries from the loosest to the
closest. Key characteristics of the individual types according to the above-mentioned
researchers include
• The degree of centralization, or decentralization, of decision making within MNC, in
particular in the field of product portfolio, marketing, financial management and
others,
• Product and capital flows within MNC,
• Degree of closeness and the manner of functioning of relations between individual
subsidiaries within the whole MNC,
• Presence, or rather absence, of companies that specialize in specific support activities
across the whole MNC,
• Direction and intensity of knowledge transfer,
• General emphasis on the efficiency of functioning of the entire network of
subsidiaries,
Advances in Business-Related Scientific Research Conference 2012 in Venice
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March 28–30, 2012, Venice, Italy
• Use of expatriates,
• Transfer of the dominant culture from headquarters to subsidiaries.
Harzing (2000) then summarizes the individual characteristics as follows:
Table 1: Summary of MNCs Characteristics
M G T
Decentralized federation High Low Low
Network structure Low Low High
Inter-subsidiary flows Low Low High
HQ’s pipeline Low High Low/
Medium
Organizational
design &
subsidiary role
Center of excelence Low Low High
Total level of interdependence Low High High
Level of HQ dependence Low High Medium
Interdependence
Level of subsidiary dependence Low Low High
Local production High Low Medium
Local R&D High Low Medium
Product modification High Low High
Local
responsiveness
Adaptation af marketing High Low/Medium High
Total level of control Low High Medium
Level of personal centralized
control
Low High Low
Level of bureaucratic formalized
control
Low High Medium
Level of output control Medium Medium Medium
Level and type
of control
Level of control by socialization
and networks
Medium Medium High
Extent of expartriate presence Low High High
Direct expatriate control Low High Medium
Level and type
of expatriation
Indirect expatriate control Low Low High
Source: Harzing, A.-W. (2000). An Empirical Analysis and Extension of the Bartlett and
Ghoshal Typology of Multinational Companies. Journal of International Business
Studies , Vol. 31, No. 1, 101-120.
Siew and Chin (1993) tested the strategy of Bartlett and Ghoshal and arrived at a conclusion
that the Transnational Group includes a minimum number of companies. Most of the
surveyed companies were classified in the Multidomestic and Global Groups. However,
already in 1998, information technology starts to be applied in connection with the
organizational strategy of multinational companies (Boudreau et al., 1998), and it was the
information technology and its dynamic impact on the business processes between 2000 and
2010 that led to a shift of MNCs towards interconnected networks in which efficiency is
increased by sharing of resources, knowledge and innovation.
Advances in Business-Related Scientific Research Conference 2012 in Venice
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March 28–30, 2012, Venice, Italy
For the purposes of this evaluation the following hypotheses were formulated based on
literature searches, theoretical knowledge and results of performed researches:
H1: Most companies will be classified as distinct types.
H2: Approximately 1/5 – 1/4 of companies will be included in the grey zone.
H3: As gradual development occurs between the M, G and T Groups respectively, there will
be no company in the MT Transition Group, or the number of companies classified in this
Group will be statistically insignificant.
METHODS
Creating the Questionnaire
The questionnaire was developed based on extensive literature search in all mentioned areas
of management of multinational companies. Both qualitative and quantitative research
approaches were combined. Respondents either answered open-ended questions, or chose
from several options, or, if appropriate, expressed their opinions using a ten-degree scale. The
questions were chosen to be consistent with the general theory of questionnaires (Disman,
2000), and to provide data whose processing and editing will be possible without distorting
the conveyed content (Hendl, 2009). The ten-degree scale was used in particular for issues
related to the degree of centralization of individual companies, degree of redistribution
of financial resources, degree of influence of the group headquarters on subsidiaries
in different areas, and also in the case when the character of the environment in which the
company operates was to be determined.
The reason for using a ten-degree scale was in particular the possibility of
a subsequent transformation of the data into a five-point scale. The other reason was the
fact that respondents often avoid extreme values, and thus a five-point scale is too coarse
for obtaining relevant responses (Babbie, 2010). A seven-point scale was excluded as, in this
case, it did not comply with the requirements for easy data interpretation and processing.
Though the respondents had the opportunity to comment each reply, this fact was not taken
into account when evaluating the types according to Bartlett and Ghoshal’s model.
Štrach (2009) states that the results of researches conducted only in one country may affect
the results depending on the subsidiary position in the hierarchy of the group. Therefore, the
research was, with regard to this risk, designed in such a manner that the respondents
answered both the questions related to the subsidiary, and the questions related to
the functioning of the entire MNC.
Relevant Questions
For the purposes of company typologizing, only those questions were selected from the
questionnaire that could be linked to individual types based on the study of the Bartlett and
Ghoshal’s model. Their summary is shown in the table below.
Advances in Business-Related Scientific Research Conference 2012 in Venice
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Table 2: Questions Used for Evaluation1
Question
no.
Wording of the Question
2.1 Is there more than one company in the CR that belongs to this Group?
Within the Group…
2.2.1b ...there are companies that specialize in a certain activity that is key for your
Group (for example legal services, financial operations, logistics, innovation,
etc.)
2.2.1d ...there are companies that supply other companies in the Group with
components for the making of the final product.
2.2.1g ...there are function headquarters.
2.2.1i ...some companies work together closely, even though there is not a
superior/subordinate relationship between them.
Our company...
2.2.2d ...provides a certain internal activity for the other companies within the
Group (for example legal services, financial operations, logistics, etc.)
2.2.2n ...fulfills the role of function headquarters.
2.3 Choose the market that is regarded as the field of activity of your company in
the area its activities concern: own products, business representative,
services, Internal activities within the Group
Indicate the degree of centralization of decision making within the Group according to the
following scale:
1 – no centralization, 10 complete centralization
3.1a selection of main suppliers
3.1b selection of other suppliers
3.1c selection of main customers
3.1d selection of other customers
3.1e product portfolio
3.1h marketing
3.1k financial management
3.3 Are some of the service activities provided collectively for the whole Group
or a large part of it by specialized organizations?
3.4 Mark on the following scale the degree of redistribution of financial
resources in your Group: 1 – no redistribution, 10 – total redistribution
3.6 How is the strategy of your company determined?
3.7 Who monitors the implementation of your company's strategy?
3.9 Is the implementation of the Group's strategy part of the evaluation of your
company's top management?
1
For the complete English version of the questionnaire see the following webpage:
http://www.augur-consulting.cz/esf/english.php.
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4.3 In what direction is knowledge shared within the Group?
5.1 Does your company have a code of ethics? If so, how was it created?
5.3 To what extent does the culture of the Group headquarters affect the culture
of your company?
5.5 Are there expatriates sent by the headquarters currently working in the
branches and management of your company, or in its superior management
headquarters? If so, in what positions?
5.6 Are there expatriates from your company in the Group headquarters or in
other management positions within the Group?
5.7 Are there expatriates from your company at other companies within the
Group?
Source: The Author
Questioning and Sample Population
The survey was conducted in the form of an electronic questionnaire. The target population
was approached by means of a registered letter and then by telephone, which resulted in
a relatively high return of completed questionnaires. Thanks to the above fact, the sample
population thus shows substantial compliance with the target population mainly in the field
of legal status, line of business, and size of the share of foreign capital. It differed a little from
the target population only in the size of enterprises by number of employees, as demonstrated
in the following Figure.
Figure 1: Comparison of the Target and Sample Population by Number of Employees
Source: Blažek, Ladislav et al. Nadnárodní společnosti v České republice II. Brno: Masaryk
Univeristy.
The reason is probably the fact that large companies are generally more amenable to
cooperation with universities, sometimes they are even under an obligation to respond to
similar surveys, and therefore their managers filled in the questionnaire more often.
Advances in Business-Related Scientific Research Conference 2012 in Venice
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Evaluation of Responses
Each answer to a particular question was evaluated using six letters in order to represent
the relationship of a specific response to the typology. If it was possible to unambiguously
assign the answer to one type, then all the letters were the same (e.g. MMMMMM for
Multidomestic). Transient responses favouring one out of two types had a string composed
of three letters of the first type and three letters of the second one (e.g. MMMGGG for
the transition between Multidomestic and Global). If a particular response did not provide
information on the type of the company, the assigned evaluation string was neutral
(MMGGTT). Using this procedure each company thus received an overall evaluation in the
form of a text string consisting of a different number of the M, G and T letters. These
quantities were determined and recorded in the form of coordinates in the three-dimensional
space.
Given the uniform balance of responses, the obtained sum of all three coordinates is
constant. If we look at the coordinate system projected along the cube diagonal, we obtain an
equilateral triangle whose vertices are (S, 0, 0), (0, S, 0), (0, 0, S), where the S value is equal
to the sum of coordinates of any point. Each point, whose sum of coordinates is equal to S, is
then located on the plane section through a three-dimensional space, while the plane is
determined by these points, which follows from an elementary geometric proof and the
properties of Cartesian coordinate system. In the case of this analysis S = 180. The
resulting triangle heights are M-, G- and T-axes, and their point of intersection is (0,0,0). This
approach uses methods of graphical analysis of data. It is based mainly on the analysis using
polar coordinates (Rencher, 2002), but thanks to the three-dimensional space of
interdependent axes, even the projection of individual points has a geometric
justification. Each company is defined in this system as a point plotted in space using three
coordinates of the Cartesian coordinate system, but it is viewed through two-dimensional
lenses. The interpretation therefore combines a three-dimensional graph with a projection into
the plane.
In this triangle, the points that have the same value of one coordinate are located on the
line segment that is perpendicular to the axis whose coordinates are constant. This makes it
possible to delimit the different zones by the limit values of the coordinates. The properties
of the geometric model are shown in the following figure. Based on the analysis of extreme
variants of answers were distinctive character limit values set at 50, 60 and 70 points, which is
diminished compared to the general scheme of gray zone in which it is not possible to
assign a specific characteristic to the company (right). Values represent the number of
companies in the zone.
Advances in Business-Related Scientific Research Conference 2012 in Venice
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Figure 2:
grey
zone
M G
T
M
MG
G
GT
T
MT
M=S/6M=S/3M=S/2
G=S/2
G=S/3
G=S/6
T=S/2
T=S/6
T=S/3
(S,0,0) (0,S,0)
(0,0,S)
M G
T
50
12
29
145
21
2
M=50M=60M=70
G=70
G=60
G=50
T=70
T=50
T=60
(180,0,0) (0,180,0)
(0,0,180)
76
Source: The Author
FINDINGS
The following diagrams show the sorted values of individual characteristics. It is evident from
the graphs that the G characteristic is spread among the companies in the most even
manner, while the M and G characteristics show more running values including extreme
variants.
Figure 3: Representation of Characteristics
Source: The Author
Figure 4 shows that the M and T characteristics are reciprocally proportionate to a large
extent, which complies with the Bartlett and Ghoshal's theory, while the other couples do not
show a similar dependence.
Advances in Business-Related Scientific Research Conference 2012 in Venice
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Figure 4: Relations between Characteristics
Source: The Author
As shown in Table 3, the M group is the most represented one as regards the "pure" types,
while considerably fewer companies were assigned to the T and G groups according to the
given procedure. Thus the H1hypothesis was not confirmed. The results showed that there
were very little companies in the MG zone, while the GT zone is the largest group on the
whole. By contrast, in the MT zone there are only two companies, therefore it falls below
the limit of statistical significance. The hypothesis H3 was thus confirmed.
Table 3: Evaluation
Group M MG G GT T MT grey zone
No. of companies 50 12 29 145 21 2 76
Source: The Author
76 companies were in the grey zone, which makes 22.7 %, which confirms the H2 hypothesis.
DISCUSSION
The above presented results show that the manner of organization of multinational companies
cannot be strictly described in a general way, as different companies apply different degree
and, consequently, different elements of integration within the network of their subsidiaries. If
we start from the assumption that a company increasing in size in dependence on its activity
makes its management more and more integrated and effective, the procedure from
the International form, or rather Multidomestic, through the Global to Transnational
organizational strategy is retained. The research results show that the Multidomestic form
is, in the case of MNCs having subsidiaries in the Czech Republic, relatively stable. Once
the company begins to implement certain integration and centralization approaches that lead
to interconnection and more effective operation of the MNC as a whole, then the
Global strategy is purely transient, and companies tend not to remain in a state where the
network is strictly controlled by the headquarters but, on the contrary, they are connecting
internally. They thus get into the GT transient group, but only a relatively small number of
them can create a structure designated by Bartlett and Ghoshal as Transnational in its pure
form in this transition phase.
Advances in Business-Related Scientific Research Conference 2012 in Venice
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The Bartlett and Ghoshal typology originated and developed at a time when corporate
information systems were far from the level they are now. Organizational linking of
subsidiaries was very problematic, and reporting was done separately from the company
basic information system. Today it is very easy to create shared data within the group of
companies with the help of a sophisticated information system, get reports at a specific
moment via the information system and evaluate data on multiple levels simultaneously.
Knowledge sharing within the network can effectively take place using data storage; thanks to
reduced distances and the development of free movement of labour it is possible to make
better use of expatriates, create project teams and exploit the synergic effect within the group
of companies. If a company decides to move from the Multidomestic structure to a more
integrated form, it usually uses procedures that Bartlett and Ghoshal included in the
Transnational characteristic, simply because the acceleration of information systems currently
enables it at a minimum cost and maximum effectiveness.
CONCLUSIONS AND IMPLICATIONS
The presented research has shown that very few MNCs are controlled by a centralized
network where the main role is played by the company headquarters. The companies are
either relatively decentralized and the management is carried out in an open manner on
the basis of financial flows, or it includes a relatively complex integrated groups whose
company headquarters are the main decision-making point, but the subsidiaries
cooperate with each other, share knowledge and focus on a specific supporting activities in
certain cases.
The typology of companies according to Bartlett and Ghoshal is the first step to understand
the functioning of MNCs with subsidiaries in the Czech Republic. It is expected that during
subsequent evaluation of the acquired data these typologies will be related to the financial
performance of the company, the culture that affects the respective MNC most, the
perception of the degree of centralization and redistribution of funds to local companies, and
further characteristics obtained in the research.
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