Vacillation between Integration and Differentiation

In terms of the MNC’s business strategy, the firm’s international strategy (global integration versus local differentiation) and accompanying decision-making structure (centralized versus decentralized decision-making) often become the major conflict within the MNC’s strategic planning, as well as within HRM’s support of those plans. Typically, tensions emerge between the parent company and its subsidiaries, stemming from the need for local responsiveness at the subsidiaries and global integration imperatives at the corporate headquarters (Bartlett and Ghoshal 1998; Briscoe et al. 2009; Ferner 2004; Ghoshal and Nohria 1993; Tayeb 2005).


The international HRM literature classifies a MNC’s approach to managing their subsidiaries in one of four categories: ethnocentric, polycentric, regiocentric, and geocentric (Dowling et al.1999, 70-75). These terms are based on the model developed by Perlmutter (1969), which is linked with the stage of a firm’s internationalization and the level of local resources and capabilities.

• Ethnocentric: Subsidiaries are managed by expatriates from the home country. The policies and practices of headquarters are the default standard with which all subsidiaries need to comply.

• Polycentric: Subsidiaries are managed by local nationals and have some decision-making autonomy. The policies and practices are adapted to local conditions.

• Regiocentric: Reflects the geographic strategy and structure of the MNCs, career mobility for local nationals move outside their countries but only within the region.

• Geocentric: Superiority is not equated with nationality. The policies and practices are created by a worldwide integrated approach.

However, in the real world, these orientations never appear in a pure form because the environmental contingencies facing the firm influence its corporate strategic approaches.

One of the traditional theoretical frameworks, the global integration/local responsiveness matrix popularized by Bartlett and Ghoshal (1998), illustrates the linkages between environment and strategy. Each MNC’s subsidiary must be responsive to local customers, governments, and regulatory agencies for its ongoing institutional legitimacy and economic success. On the other hand, MNCs are also forced to integrate the subsidiaries’ activities globally because of having multinational customers, global competitors and suppliers, the needs of knowledge sharing, and pressure to achieve economic efficiency and reducing redundancy. According to Ghoshal and Nohria (1993, 27), the environmental conditions faced by MNCs are classified into four types (Figure2),

Figure 2

and Bartlett and Ghoshal (1998) suggest the three international corporate-level strategies: global, multi-domestic, and transnational as shown in Figure 3.

Figure 3

In the matrix, for example, Bartlett and Ghoshal examine that pharmaceutical and medical device industry exists in a transnational environment where they simultaneously face strong demands for both global integration and local responsiveness. For the global pharmaceutical and medical device makers, besides economies of scale in manufacturing, clinical trials and marketing, they need to integrate their internal knowledge and resources to discover new products and sustain diverse portfolios of research projects across borders. On the other hand, the companies have to be responsive to a myriad of local and country-level regulation, each of which has posed its own unique requirements for new product approval.

These academic frameworks help understand what factors determine the role of the headquarters and the subsidiaries in the MNC’s organizational strategies. Moreover, other than the external factors and the local capability of MNC, some forces, such as the strategic importance of the local market, corporate leadership style, organizational history, and local culture, have great impact on shaping the configuration of a company’s assets, responsibility distribution, and management style (Bartlett and Ghoshal 1998). The strategic importance of subsidiaries with the growing markets provides the local subsidiaries with strong bargaining power. Additionally, some studies have shown that MNCs of different national origins exhibit distinctive patterns of centralized control and subsidiary autonomy in their management; they also find that the U.S. MNCs are more centralized than those of other nationalities (Ferner 2004). According to the research about foreign subsidiaries in Japan, because the American MNCs maintain strong centrally-run systems and manage subsidiaries on tight reins from headquarters, some of the Japanese HR managers complain about the centralized organizational structures in their firms. Furthermore, the managers argue that since the collapse of the bubble economy and the shrinking Japanese market, global standard systems of American firms have strongly penetrated into Japan (Shibata and Doyle 2006).