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Flexible Footprints:RECONFIGURING MNCS FOR

NEW VALUE OPPORTUNITIES

Elizabeth Maitland

Andre Sammartino

Powerful technological, regulatory, and economic forces compel the senior executives of multinational corpora-

tions (MNCs) to repeatedly re-evaluate and reconfigure value chains in the search for ongoing competitive

advantage. However, releasing assets from existing activities and redeploying them to new opportunities is

a challenging and poorly understood task. In particular, the standard strategic management concepts of

use- and firm- flexibility overlook the crucial international dimension of location. Utilizing examples from

GM, Qantas, and a mining MNC, this article argues that strategic flexibility should be consciously measured

along all three dimensions. By using the decision tool set out in this article, MNC executives can map theirworldwide footprint of strategic roadblocks and opportunities to expand into new markets, divest redundant

businesses, and build flexibility to adapt to future challenges. (Keywords: International business, Decision mak-

ing, Strategic planning, Multinational corporations, Corporate strategy, Reorganization, Foreign investment,

Foreign subsidiaries)

M

uch is made of the flexibility and reach of multinational corpora-

tions (MNCs). These organizations are often portrayed as foot-

loose, nimble operators that can easily jump from one economic

hotspot to another. Evidence in recent years suggests such imageryis misleading. As General Motors discovered in the wake of the Global Financial Cri-

sis, legacy effects of existing asset, location, and activity commitments often constrain

where, how, and how quickly the MNCs footprint can be altered. For GM executives,

it proved exceptionally difficult to release capital for the failing home operations,

while simultaneously mollifying multiple vested interests. Embroiled in negotiations

with a host of governments, financiers, and potential buyers, GM executives spent

much of 2009 struggling to separate assembly plants and supplier relationships from

product platforms and supply chains shared across multiple brands and locations.

Intended sales of the Opel and Hummer businesses ultimately failed, while Saab suit-

ors came and went before a last-gasp deal in early 2010.


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The experiences of GM are not uncommon. For MNCs, releasing assets from

existing activities and redeploying them to new opportunities is a challenging and

poorly understood task, for which the standard strategic management tools are inad-

equate. To address this shortcoming, we present a decision tool to understand the

value and the limitationsin short, the strategic flexibilityof an MNCs assets. To

reconfigure an MNC, executives need to understand not only what assets the firm pos-

sesses (i.e., what assets have I got?), but also the opportunities and constraints these

assets represent (what can I do with the assets?), and the implications for future direc-

tions (what strategically will I be able to do?).

In developing this decision tool, we draw on

Ghemawat and del Sols concepts of firm- and use-

specificity for assets, and we introduce a crucial third

dimension of location.1 Ghemawat and del Solargue

that for a strategy to provide a sustainable competi-

tive advantage, it must be based on assets that arespecific, or unique, to the firm. The catch? The more

specific the firms assets are to its current activities,

the less easily the firm can adapt to change, be it a

financial crisis, technological innovation, or new

competitor. Strategic choices involve commitment:

realigning past commitments to new and potential opportunities can be challenging.

At any point in time, the configuration of an MNCs worldwide set of value chains

reflects its previous strategic choices: decisions to pursue advantages from economies

of scale and scope, to build distinctcountry-specific endowments (inputs and skill sets),

and to adapt to pressures from consumers, governments, and other stakeholders in

different environments. We argue that a crucial determinant of the speed and cost

with which MNC strategies can be adapted are these location factorsthe local brand

loyalties, supplier and government relationships, locally tailored process technologies,

and human resource practices that have built up through years of engagement in a

particular country or region. Only through understanding the fullflexibility-specificity

profile of its global assets can an MNC strategically plan for the future.

Our framework builds from a set of core questions about the firm, use and

location dimensions of assets to construct flexibility profiles for individual assets or

groups of assets within the MNC. These individual profiles reflect the speed and costat which an asset can be transformed or transferred to alternative applications and/

or owners. We present decision trees for creating inventories or asset maps that enable

cross-business and cross-country comparisons of the MNCs value chain activities.

The objective is to determine the need and scope for changes to support current and

future value creation, including building in flexibility to adapt to unknown future

events. Opportunities lying latent in the firms current web of activities may be

revealed, opening up previously unrecognized strategic directions.

We discuss three specific types of strategic decisions faced by MNCs and how

they are affected by the location dimension. We explore GMs attempts to divest the

Opel and Saab businesses as examples of reconfiguration decisions hampered by

assets subject to significant firm-, use-, and/or location-specificity. The second case

Elizabeth Maitland is a Senior Lecturer in

Strategy and International Business at the

Australian School of Business, University

of New South Wales (Sydney, Australia)

and a Visiting Professor at Nanjing

University (Peoples Republic of China).

Andr Sammartino is a Senior Lecturer in

Strategy and International Business in the

Department of Management & Marketing,

University of Melbourne (Melbourne,

Australia).

Flexible Footprints: Reconfiguring MNCs for New Value Opportunities


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existing assets that can be leveraged into new applications, while pre-empting speci-

ficity constraints on future strategic decisions. In our third example, an MNC pursues

international growth, triggering analysis of the location-flexibility of its existing

assets, and the firm- and use- flexibility of assets held by potential acquisition targets.

This example is based on our interviews with the executive team and board directors

of a mining MNC and the decision-making process they followed during a billion dol-

lar acquisition of a company with significant assets in West Africa. This case provides

insight into how MNC managers think about strategic flexibility and the influential

role of individuals international work and decision-making experience for under-

standing the strategic implications of asset location.

To help executives effectively employ our framework, we identify common

information constraints, and set out mechanisms for minimizing the impact of these

constraints. As our mining example illustrates, international experience provides

strategists with an innate and largely implicit understanding of asset flexibility across

locations. However, these understandings are imperfect due to limitations on execu-tives decision processes, data availability, and the level of uncertainty when re-

configuring multi-locational and multi-divisional operations. We propose a more

systematic and formalized utilization of our tool to address these issues.

By using the concepts of three-dimensional asset flexibility and the decision

tool set out in this article, MNC executives can map their worldwide footprint of stra-

tegic roadblocks and opportunities to expand into new markets, divest redundant

businesses, and build flexibility to adapt to future challenges.

The Pursuit of Strategic FlexibilityFrom the late-1990s, business scholars and consultants have been calling for

more strategically nimble organizations. Citing the rise of globalization, Hitt, Keats,

and DeMarie warn that with the changed dynamics in the new competitive land-

scape, firms face multiple discontinuities that often occur simultaneously and are

not easily predicted.2 Firms have been urged to seek out strategically flexible combi-

nations of activities and assets, so as to build the capacity to pre-empt and react to

changing competitive conditions.3 Examples of the prescribed strategic initiatives

include the outsourcing of some activities (and the corollary of focusing on certain

core functions), the use of contingent workers and consultants, and the developmentof more modularized production designs and assembly lines.

These calls have accompanied large-scale technological, regulatory, and eco-

nomic changes over the last decade that have pushed MNC executives to significantly

re-evaluate and reconfigure value chains. Advances in information technologies

have facilitated the geographic separation of tasks, enabling MNCs to finely segment

their value chains and send labor- and technology-intensive tasks to countries with

skilled, low-cost workforces. Offshoring has also been aided by the re-opening of

India, China, and the former Soviet Bloc countries to foreign companies, and the

lowering of trade and regulatory barriers in countries around the world. More

recently, the financial crisis has forced significant alterations to many MNC portfolios,

as companies have sought to rapidly divest assets to shore-up other parts of liquidity-



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However, firms face a classic strategy trade-off when taking such steps.

Ghemawat and del Sol identified the trade-off between the flexibility and specificity

of assets. Flexibility here refers to the scope to adapt assets to alternative value-

adding activities, whereas specificity denotes situations where assets have considerably

lower value outside their current application. The more flexible an asset is, the greater

the opportunities the firm has to alter its role and position within any new strategic

direction. Yet, insufficiently specific assets have limited potential to create unique

and ongoing value, as any cost or product differentiation advantage will be fleeting

due to the ease of imitation by competitors. Take, for example, the rapid rates of imi-

tation that have beset cellular phone manufacturers. For the original innovators, their

inability to create very firm-specific, rather than use-specific technologies, limited their

ability to capture sustainable market shares. By contrast, Apples bundling of the iPod,

iPhone, and iPad, with its proprietary (firm-specific) iTunes platform has enabled it to

capture significant market share for the sales of devices and digital downloads.

A less well understood element of the flexibility-specificity trade-off is thatspecificity refers not only to the owner of the asset, but also to the use of the asset.

Determining the flexibility-specificity profile of an asset involves not only asking

whether there is someone else who can, or believes they can, extract value from

an asset, but also if there is the potential to use the asset in a radically different appli-

cation. As one board director we interviewed for this project observed of his earlier

involvement in the sale of an underperforming smelter:

I got a check for 107 million dollars in my hand and I just kind of grabbed it . . . we

were just amazed that we managed to get that. I think they spent several times that

before they finally closed the thing down . . . while the smelter cost them a fortune

in closing it down, they actually sold the real estate eventually . . . they got some

value out of it after all.

Firm and Use: Two Dimensions of Flexibility

Ghemawat and del Sol present a framework for examining this asset flexibility-

specificity trade-off based on firm and use.4 Table 1 sets out examples to clarify the

distinctions between these two dimensions, as well as our additional dimension of

location.

TABLE 1. Examples of Asset Specificity/Flexibility

Dimension Specific cf Flexible

Firm Facilities in Disney theme park

Team of employees extensively

trained in firm methods

Generic office buildings

Casually-hired labor

Use Gas station (pumps, forecourt,

underground tanks)

License to brew beer

Warehouse facility

Right to trade under a brand name

LocationBuried cablingLocally adapted technologies

Culturally specific brand

Relocatable plant and machineryUniversally accepted components

Globally/regionally understood brands



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A firm-specific asset has greater value to the firm than to any other organiza-

tion. Such assets may rely upon knowledge that is tightly held within the firm, be

tailored to particular processes unique to the firm, or be difficult to extract from a

chain of sequential activities within the firm. In contrast, firm-flexible assets can be

readily sold, with buyers able to extract similar (if not greater) value from their

deployment, with little to no modification costs incurred.

To illustrate, consider office buildings. Frequently, they require little adapta-

tion by incoming owners, beyond cosmetic changes to fit-out. Conversely, the facili-

ties in Disney resort parks around the world are highly specific to the Disney

Corporation, given the overall tailoring of most rides and activities to particular

Disney brands, logos, characters, and films. While the parks could be sold to alterna-

tive operators, once divorced from the suite of assets controlled by Disney (i.e., Buzz

Lightyear, the Disney Princesses, Mickey Mouse, and Nemo), they would have con-

siderably lower value. Similarly, a team of employees with extensive training in the

routines and processes of a given firm are much more firm-specific than a pool of ca-sually hired labor performing common business tasks. Removing the former from

their organizational context would reduce their value considerably more than chang-

ing the employer of the latter. Shifting to greater utilization of contingent workers

may offer a firm strategic flexibility in the short-term, but as Hitt et al. argue, dynamic

flexibility (i.e., the ability to persistently adapt) may be lost, as using significant num-

bers of contingent employees may actually reduce rather than build their skill set and

knowledge base, necessities to survive in the new competitive landscape.5

A use-specific asset cannot be readily adapted to another application, or only

at substantial cost. If the firm sought to undertake a different activity, these assets

would have little to no value within the firm and their external market would be

confined to buyers with similar use needs. A license to produce or sell certain goods

(such as alcohol) or to offer services (such as tax advice or medical assistance) is only

valuable to buyers seeking to offer the same and, in some instances, may prevent the

license holder from certain diversification paths. However, the right to operate as an

incorporated business or trade under a certain brand name (or to simply operate a

business) may be useful to a wide range of potential buyers across a variety of indus-

tries and would not bind the current asset-holder to one strategic direction.

As noted, these two dimensionsof firm and useare well-explained and

examined by Ghemawat and del Sol. They recognize that assets vary across bothdimensions and, therefore, fall into one of four quadrants of a 2x2 matrix (firm-

flexibility/specificity by use-flexibility/specificity, as reproduced in Table 2). An asset,

such as money or off-the-shelf IT hardware, may be both firm- and use-flexible.

Owning such assets does not lock a firm onto any particular strategic path, but like-

wise their presence makes no contribution to sustainable competitive advantage. At

the other extreme, technological breakthroughs (such as Nucors ultra thin-slab steel

casting plants or Gillettes investments in the Sensor blade technologies) are pre-

sented as both firm- and use-specific. The assets associated with such technology

are much more valuable within the firm: they have the scope to provide considerable

advantage, and they reflect significant ongoing commitments to the current strategic

direction. Use-specific, firm-flexible assets (such as taxicab medallions and mining



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ready markets for exchange, they are not sufficient for strategic success. Firm-

specific, use-flexible resources (such as the Disney brand name or guanxirelationships

of East Asian conglomerates) offer the firms in question scope to pursue advantages

in a variety of strategic directions.Ghemawat and del Sols matrix in Table 2 enables identification of the con-

straints and opportunities that have been traded off (and will continue to require

balancing) in the pursuit of advantage. More flexible assets will leave the firm with

many options for action, but limited scope to build sustainable advantages. More

specific assets will confer greater advantage, but will constrain the choice set about

direction, and may hamper attempts to respond to environmental change and new

opportunities. By having a well-established understanding of the flexibility profiles

of the firms assets, managers can clearly evaluate how new opportunities fit with

existing asset and activity configurations. As one board director noted regarding

scanning for prospective acquisitions,

Its having an active list that someone is looking at on a weekly basis of who is doing

what and where the bit of extra value is in company x: theyve just announced some-

thing, does that really make a difference, is this the time to go for them before any-

body else realizes, or does this mean we drop them down the list?

However, for managers of MNCs, a piece of the strategic flexibility puzzle is

still missingthe role of asset location.

Location-Flexibility: The Missing Dimension

An MNCs profile of cross-country assets is a complex mix of facilities, know-

how, and technologies. Some assets are highly mobile and suited to applications in

multiple settings, while others may be irrevocably bound to the existing location.

This may arise from some physical or legal constraints on its mobility, such as licenses

for a certain jurisdiction or employees who are ineligible for working visas in other

countries. Assets can be entwined with other value chain activities or components

that are themselves bound to the location: processing plants tailored to inputs from

the vicinity (such as aluminum smelters to bauxite mines); or ordering systems

designed for particular distribution relationships or retail infrastructure. Brands

can have cache in a given cultural milieu, but be meaningless or even offensive

TABLE 2. Mixes of Specificity/Flexibility across Two Dimensions of Firm and Use*

Firm-Specific Firm-Flexible

Use-Specific Nucors thin-slab steel casting plants

Gilettes Sensor blade technology

Taxicab medallions

Mining LeasesUse-Flexible Disneys brand name

Guanxi relationships

Money

Off-the-shelf IT

* Based on Figure 2, p. 29, P. Ghemawat and P. del Sol, Commitment versus Flexibility, California Management Review, 40/4

(1998): 26-42.



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By contrast, location-flexible assets can be easily moved. Returning to the case

of Disney, its brands are well-known in many countries and have facilitated the

worldwide spread of its theme parks, films, television programs, and childrens toys.

Production processes and patented technologies can also be transferable: the rapid

spread and adoption of IT technologies is illustrative of this type of location-flexibility,

with language, culture, and skill providing few constraints. While it is tempting to

view this as a simple distinction between immobile physical assets and easily transfer-

able intangible assets, this ignores the complexity of the location dimension. Many

knowledge-based intangible assets are highly context specific and of little value else-

where, such as investments in brand names and relationships with local buyers and

suppliers. Meanwhile, large physical assets, such as individual pieces of machinery

and even whole plants, can be transportable across borders. When Nanjing Auto

acquired beleaguered British car maker MG Rover in 2005, several production lines

and the entire power-train plant were shipped to China.7

Location effects also spring from government attempts to influence MNCdecisions: e.g., their use of subsidies, tax rebates, and preferential procurement

arrangements to attract and retain technological knowhow and employment-

intensive value-adding activities. As many MNCs have also discovered, govern-

ments can resort to threats and penalties to forestall exit. Throughout the 1970s

and 1980s, Philips famously struggled to shift its European operations from a col-

lection of dispersed country-focused affiliates to an integrated network of produc-

tion and distribution platforms suited to the emerging common market. Shutting

down plants proved politically difficult and economically costly.8

More recently, the strategic maneuvering by General Motors in the period pre-

ceding and following its filing for Chapter 11 bankruptcy protection in June 2009

highlight the difficulties of untangling and pricing geographically dispersed assets,

while balancing stakeholder demands. GMs operations in its second- and third-

largest country markets of China and Brazil, in particular, illustrate the complexity

of its footprint of global assets and value chains. In China, GM was engaged in a series

of joint ventures producing the Buick Regal, Chevrolet Captiva, and Chevrolet Cruze,

based on models or bodies from its European Opel/Vauxhall division; and small

vehicles based on the Matiz design from its Korean affiliate, Daewoo. By contrast in

Brazil, most GM vehicles bore the U.S. Chevrolet brand, but the product and pro-

cess technologies again came from Opel, as they largely had done since GMs 1968

market entry.

This maze of relationships, technology flows, and brands were themselves the

product of GMs decade-long attempt to build a single GM global automotive unit

that placed the pursuit of scale advantages over local customization.9 The stand-

alone brand of Saab added to the confusion. Originally purchased to diversify GMs

product line to compete head-on with the luxury European manufacturers (e.g.,

BMW), it had been a perennial underperformer.10

At the core of its post-Chapter 11 strategy, GM sought to rebuild its operations

around four parent brands (Chevrolet, Cadillac, GMC, and Buick), while divesting

majority or full ownership in the Hummer, Saturn, Saab, and Opel/Vauxhall brands

and operations. Although potential buyers for all four brands were found, only the



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12 production plants in eight countries, servicing demand in 34 national markets.

The German government was particularly vigilant to changes in GMs operations,

as it hosted Opels headquarters, Technical Development Center, and four major

production centers.

Our framework allows us to distinguish the various constraints upon GM. Theembeddedness of many Opel assets within multiple value chains across the GM busi-

ness rendered them firm-specific. With only a proposed minority stake in Opel, the

ongoing supply of product platforms, drive trains, and engines to GM affiliates in

China, Brazil, Argentina, Australia, South Korea, Mexico, and South Africa appeared

highly problematic. Most of Opels valuable assets also had limited use-flexibility. The

design, engineering, machinery, product and process knowledge, as well as the

brands relationships were tailored to the auto industry. This reduced the number

of potential acquirers considerably, especially given the dire condition of GMs U.S.

auto counterparts. Location served to shrink this pool even further. EU competition

law restricted many of the other global carmakers from lifting their European hold-ings. Additionally, there was significant pressure to retain the assets within the EU.

For example, the German government provided crucial financial support to one of

the preferred bidders, conditional on the business staying in situ.

These examples demonstrate the greater complexity or noisiness of strategic

decisions involving activities across multiple countries. Following is a decision tool

that informs the reconfiguration choice sets for MNC executives. For each dimen-

sion of use-, firm-, and location-flexibility, there are questions executives need to

ask to systematically examine how the fit and value of the MNCs assets facilitate

or constrain MNC reconfiguration.

Examining the Three Dimensions of

Flexibility-Specificity Trade-offs

To begin re-thinking an assets (or group of assets) contribution to the MNCs

current and potential strategies, Box 1 provides a series of discrete questions for each

dimension of firm-, use- and location-flexibility.

BOX 1. Assessing your AssetsEach asset (or bundle of assets) in the MNC can be assessed in terms of its

likely value: within the firm; in its current use; and in its current location, rel-

ative to other opportunities. To begin this assessment, consider the fol-

lowing questions:

Firm:

Do we utilize this asset in a fashion that our competitors might not?

Does it incorporate technologies, processes, assumed knowl-

edge that a potential buyer might lack (and which we would

not be willing or able to share with them)?

continued on next page



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Is it in (or crucial to) firm-specific supply chain links?

Would moving it outside the firm considerably limit our future

opportunities to operate certain activities?

Use:

Do we currently use this asset for a range of tasks?

Could we use this asset elsewhere in our value chain?

Would that require significant adaptations to this asset or

others?

Could firms outside our industry or at different stages in the

product value chain utilize this asset?

Does it rely on current inputs to be productive?

Location:

Is the asset physically constrained to its current location?

Is it adapted to address specific cultural or institutional require-

ments within its current location?

Is it reliant on (or crucial to) location-specific supply chain links?

Would moving it offshore considerably limit our future

opportunities to operate within this location (and/or nearby

locations)?

The challenge lies in integrating the dimensions. Evaluating the current

and potential strategic value of an asset requires understanding: the assets profile

along each dimension; and the interactions between the dimensions. The objec-

tive is to determine the MNCs overall strategic flexibility (or the extent to which

one or more dimensions constrains this flexibility). The fundamental overarching

questions are:

What role does the asset currently play in the firm?

What role would we most like it to play in the future?

Question one builds on the data gathered by the Box 1 checklist, delvingdeeper into the value generated by the asset in its current context. It leads to

further analysis exploring the interactions between the three dimensions. For

example:

Does the asset rely upon technology in this location and/or elsewhere in the

MNC (which is an aspect of the location specificity-flexibility dimension)?

If in this location (or elsewhere), is it inside or outside the MNC (that is,

is the asset location-specific, firm-specific, or firm-flexible)?

Is this technology restricted to the current value chain (use-specific), or

present across multiple value chains (use-flexible)?

Could we source similar/better technology elsewhere (location-specific



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These same questions could be adjusted to replace technology with inputs,

distribution channels, or project team. A further set of questions explore the role

of scale (and similarly learning or knowledge):

Does the asset benefit from scale generated across the MNC (firm-specific)?

And across multiple product lines (use-flexible)?

Or, just in this location (location-specific)?

As can be seen in Table 3, adding location (i.e., the international dimension)

generates a three-way (2x2x2) variation on Ghemawat and del Sols original 2x2

matrix. The eight cells represent the different combinations of the three measures

of flexibility, and each includes the resultant redeployment options. These are the

constraints imposed on MNCs by an assets characteristics. We have located several

of Ghemawat and del Sols two-dimensional examples into the new matrix to

demonstrate the discriminatory effects of location. For example, Nucors plants

(labeled earlier as firm- and use-specific) are constrained to their physical locations,adapted to the peculiarities of U.S. labor relations, and reliant on geographically

distinct value chain relationships with suppliers, distributors, and customers. In con-

trast, Gillettes blade technologies (firm- and use-specific) are much more location-

flexible, able to be rolled out to affiliates and markets across the MNC. Similarly,

Disneys brands (firm-specific and use-flexible) are also location-flexible, whileguanxi

relationships of East Asian conglomerates (also firm-specific and use-flexible) are

likely to be constrained to those specific countries in which such firms operate.11

Building Decision Trees and Asset Maps

Using Table 3, we can now see the interactivity of the three dimensions

on an assets flexibility. Assets that fall into the top right hand corner of the table

TABLE 3. Mixes of Specificity/Flexibility across the Three Dimensions of Location, Firm, and Use

Location-Specific Location-Flexible

Firm-Specific Firm-Flexible Firm-Specific Firm-Flexible

Use-Specific Can only be usedin-house, in current

application and in-situ

e.g., Nucors plants

Can only be soldin-situ to local firms

with same use needs

e.g., Taxicab

medallions, mining

leases

Scope to redeployelsewhere, but

in-house and only

in current use

e.g., Gillettes blade

technology

Scope to redeployelsewhere, and to sell

to other firms with

same use needs

e.g., Product designs

using common

technologies, such as

Systems on a Chip

(SoC) integrated circuits

Use-Flexible Can only be used

in-house, in various

applications and

in-situe.g., Guanxi

Can only be sold in-

situ to local firms with

various applications

e.g., Warehouses

Scope to redeploy

elsewhere in various

uses, but only

in-housee.g., Disneys brand

Scope to redeploy

elsewhere in various

uses, and to sell to

other firmse.g., Money, IT

hardware



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(specific along all three dimensions) cannot be reconfigured into alternative applica-

tions without considerable adaptation and expense. Assets that fall into the bottom

left hand cell of the table are extremely flexible, but, by definition, provide little sus-

tainable competitive advantage to the MNC.

Decision trees provide a systematic procedure for determining the overallflexibility of an asset or groups of assets along the three dimensions. Figure 1 frames

FIGURE 1. A Decision Tree for MNC Managers Assessing the Value of Assets and

Scope for Reconfiguration from a Location Perspective

Can we move the

asset around?

(Location)

Does the asset have

multiple uses?

(Use)

Is it equally valuable to other firms?

(Firm)

YES (LF) Scope to

move

NO (LS) Constrained

to current locale

YES (LF, UF) Many

buyers across many

locations

NO (LF, US) Fewer

buyers across many

locations

YES (LS, UF) Many

buyers in currentlocation

NO (LS, US) Fewer

buyers in current

location

YES (LF, UF, FF) Able to sell into manymarkets across manylocations (or

redeployin-house)

NO (LF, UF, FS) Able to redeployin-house

across MNC

YES (LF, US, FF) Able to sell into same

markets across manylocations (or

redeployin-house)

NO (LF, US, FS) Able to redeployin-house

within function acrossMNC

YES (LS, UF, FF) Able to sell into many

markets in current location (or redeploy

in-house)

NO (LS, UF, FS) Able to redeployin-house

within local affiliate

YES (LS, US, FF) Able to sell into one

market in current location (or redeploy

in-house)

NO (LS, US, FS) Only valuable in-house in

current role and current location



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the questions set out above in terms of a decision tree built around a core question

for each dimension that an MNC executive might ask of an asset or bundle of assets:

Can it be moved?

Does it have multiple uses?

Is it equally valuable (or more so) to other firms?

Given we are particularly interested in key MNC strategic decisions, this

decision tree starts from the perspective of location.12 As the GM example amply dem-

onstrates, location may well be the most difficult dimension for executives to assess.

It involves considering the decision making and behavior of many stakeholders

customers, governments, suppliers, competitors, not-for-profits, and activist groups

across multiple cultural, economic, and political divides. The value of operating in a

given location is hard to price. Assets transplanted into new markets and distinctive

from local host-market competitors are often an MNCs prime source of competitive

advantage. For example, McDonalds and Starbucks transfer valuable routines andofferings into each new market, helping to build their brand with consumers. Over

time, these assets are adapted to better suit local conditions. New flavors are added

to menus, employment practices are adapted to local industrial relations require-

ments, and new supply relationships are built within the host country (or region).

Each of these adjustments embeds the assets more deeply within the local environ-

ment. This may have a multiplicative effect on the interplay between firm- and loca-

tion-specificity. In this new location, there may be few firms similar to the MNC in

terms of their asset mix, culture, structure, or practices, reducing the scope to find

host-country buyers for unwanted assets. Adaptation to local factors may also reduce

the scope or attractiveness of within-MNC asset transfer.Ideally, an MNC would use such decision trees to dynamically map and remap

its operations in terms of its assets, linkages between these assets, and jointly utilized

technologies, routines, and knowledge. Figure 2 charts a hypothetical reconfigura-

tion scenario (i.e., showing the Now and projecting a Future) for an MNC oper-

ating in six countries with three product lines. Hard circles represent country

boundaries; the various shapes represent bundles of assets owned by the firm as dedi-

cated to various activities, such as manufacturing and assembly of several products,

distribution, R&D, data and service support, repairs, and corporate HQ. The lines

reflect value-chain connections. Assets may stretch across a border, as between

Countries A, B, and D with respect to corporate HQ functions (for example, shared

finance and currency trading functions). Others may be linked by an international

value chain, such as the service center/repairs linkage between Countries E and F

in the Firm (Now) illustration. These linking relationships are just as important as

the particular location of the assets in question, as they are key determinants of the

assets firm- and use-flexibility.

This hypothetical MNC has a relatively simple configuration. Nevertheless,

the Now and Future maps capture a range of reconfiguration moves, from

divestments to consolidations, new market entries, and relocation of R&D activities.

The footprints of many MNCs will be substantially more complex than Figure 2,as here assets are aggregated into functional domains (the shapes), and missing

i t ibl h d t h l i d t b d h S



13/27

can be constructed at multiple layers of analysis: product groups and divisions,

individual value chains, individual countries or regions, as well as for the MNC

as a whole.

At each level of analysis, the maps can be used as inventories of assets, each

with a score for flexibility/specificity. Such scores would allow the firm to ask a

range of different strategic questions:

Should we remain in country H?

If we entered country J, what assets would we transfer, acquire, share,

divest, or write-off?

Is Country K better than Country L for activity X?

Should we continue to manufacture product N?

Which functions should we still undertake in doing so?

The primacy of a given question or perceived choice set will determine the

nature of the inventories and scoring. An executive focused on product choices will

be assessing assets on the basis of their contribution to the value chain of the given

product, while conscious of the shared elements of the value chain (or contingent

scores of particular assetse.g., due to economies of scope, this asset is more valuable

when three value chains are in operation, less so otherwise). For example, Figure 3

outlines the evaluation process for an MNC contemplating diversification or product

market strategy, for which the primary consideration will be use-flexibility. For firms

considering outsourcing questions or divestment of whole divisions, the relevant

FIGURE 2. The Reconfiguration of a Multinational Corporation (MNC)

Component manufacturing and assembly

(Product Z)


(Product Y)


(Product X)Data warehousing

Corporate HQ

Call/service centre

Repairs

R & D

Retail Warehousing

& Distribution

Firm (Future)

A

B

D

E

F

G

Firm (Now)

A

B

C

D

E

F



14/27

Utilizing the concepts and tools outlined above, an MNC manager can track

where assets are located, their links to other assets within and outside the firm,

and their scope for alternative uses. More importantly, by focusing on the interac-

tions between the three dimensions, strategic flexibility will remain in the front of

FIGURE 3. A Decision Tree for MNC Managers Assessing the Value of Assets and

Scope for Reconfiguration from a Use Perspective

Does the asset

have multiple uses?(Use)

Is it equally valuable

to other firms?(Firm)

Can we move the asset around?

(Location)

YES (UF) Scope to

redeploy in a

different function

NO (US)

Constrained to

current function

YES (UF, FF) Many

buyers across

industries

NO (UF, FS) Able to

redeploy in-house

YES (US, FF) Buyers

with same use

requirements

NO (US, FS) Only

valuable in current

role and in-house

YES (UF, FF, LF) Able to sell into many

markets across many locations

(or redeploy in-house)

NO (UF, FF, LS) Able to sell into many

markets in current location


YES (UF, FS, LF) Able to redeploy

in-house across MNC

NO (UF, FS, LS) Able to redeploy

in-housewithinlocal affiliate

YES (US, FF, LF) Able to sell into samemarkets across many locations


NO (US, FF, LS) Able to sell into same

market in current location


YES (US, FS, LF) Able to redeploy

in-housewithin function across MNC

NO (US, FS, LS) Only valuable in-house

in current role and current location



15/27

do in light of its current asset mix. This is more than merely understanding whether,

in the next quarter, production levels can be varied, inputs sourced from an alterna-

tive supplier, or the channel mix altered. Rather, pursuing strategic flexibility means

retaining or increasing the MNCs ability to change the medium- to long-term direc-

tion of the firm. Following are three recent examples of MNCs facing tough and far-

reaching strategic decisions. In each instance, flexibility (or lack thereof) was a key

constraint, driver, and/or goal in the decision-making process.

Applying Decision Trees

Divesting Saab

To illustrate how the logic of decision trees can be used to evaluate reconfigu-

ration options, Tables 4 and 5 apply our framework to GMs Saab business. Table 4

sets out three potential reconfigurations. GM initially pursued option 3 (sale as a going

concern) as the easiest mechanism to release capital and end its relationship to anunderperforming affiliate.13 As a wholly owned and relatively free-standing, bolt-

on operation, Saab was an obvious candidate for divestment. The independence

of the brand and the minimal number of value chain linkagesin which other GM

operations were buyers, rather than suppliers of know-how, components, or technol-

ogies (GM supplied the power-train assemblies and the 9-4x crossover model had

Cadillac underpinnings)meant it was a far easier unit to separate from the corporate

parent than the much larger Opel business discussed earlier.

TABLE 4. Divestment Options for Saab as Free-Standing, Bolt-On Operation

Option 1: Mothballing of

Production

Option 2: Sale of Some

Assets

Option 3: Sale of Business

as Going Concern

Shut down Saab production but

retain the Saab brand

Leaves open the opportunity for

GM to revive the Saab brand at a

later date

May include selling some assets

while retaining the brand, service

and repair of Saab vehicles(potential overlap with Option 2)

Sell individual assets to multiple

firms

Possible since many assets are firm-

flexible (FF)

Broadens market of buyers (e.g.,

production facilities may be sold to a

non-automotive buyer in the same

locale, while productiontechnologies may be sold to an

automotive manufacturer located

elsewhere, or re-deployed in-house)

Sell group of assets to a single firm

Possible since many assets are firm-

flexible (FF)

Market limited to automotive

companies in the same locale since

some assets are use-specific and

location-specific

Demonstrative Deals:

GM finalized the individual sale of

production technologies for Saab

models 9-3 and 9-5 to Beijing

Automotive Industry Holdings in

November, 2009

GM announces sale of remaining

Saab assets to Dutch specialistsports car manufacturer Spyker in

January, 2010.

GM attempt to sell Saab to

Koenigsegg, a Swedish sports

car manufacturer collapsed in

Nov, 2009.



16/27

However, applying the Box 1 checklist, many of these assets (such as ware-

houses, land, production plant) were location-specific (see Table 5), particularlygiven that most of the production assets were in a small Swedish town away from

major industrial centers. This location-specificity of Saabs core assets counter-

balanced its stand-alone organizational structure. While the Swedish Government

was willing to support GMs efforts to sell the business as a going-concern, there were

few local firms able, and few MNCs willing, to acquire it. Put differently, GMs asset

map indicated Saab should have been easy to decouple from the MNCs other assets.

The challenge was finding a suitor, who saw strategic value in bolting these assets onto

their map.

The effect of location-specificity became clear in the protracted efforts to find

new owners. A deal for full sale (i.e., Option 3) with Swedish carmaker Koenigsegg

collapsed after months of negotiations. Facing the unpalatable choice of winding

down the business, GM sold some of the firm- and location-flexible technology

and production equipment for Saabs 9-5 and 9-3 models to the Beijing Automotive

Industry Holdings Corporation of China (i.e., Option 2).14 A last-minute sale in early

2010 of the remaining assets (including the brand) to the small Dutch specialist sports

car manufacturer, Spyker, brought GM about $74 million in cash, $100 million of

Saabs operating capital and a tranche of preference shares.

GMs experiences with Saab underline the influence of location-specificity in

determining the value of MNC assets and its often constraining influence on other-wise firm-flexible assets. GMs struggles to reconfigure its worldwide value chains

demonstrate the complexity of the task that confronts managers in large, multi-

locational and multi-divisional corporations. GM was one of several car-makers that

had long espoused a global rhetoric, yet its efforts to configure globally efficient

value chains and minimize costly local variations had not engendered the hoped

for level of strategic flexibility.

Reconfiguring Qantas to Compete with Low-Cost Carriers

Operating in a service industry, Australian airline Qantas faced a less complex

set of value chains than GM, but still found its asset mix strategically constraining.

After decades of stable competition and regulation, by the early 2000s, the full-

TABLE 5. Summary of Assets Associated with Saab Sweden

Assets Firm Use Location

Brand (60 year history) FF US LF*

Production Facilities (land, warehouses, office space, factories) FF UF LSProduction Technologies (equipment, machinery, blueprints, patents, etc.) FF US LF

Employees (approximately 3,000-4,000) FF*** US LS

Supplier Relationships FF US** LS**

Dealer Network (e.g., 80 dealers in the UK) FF US LS

* This is somewhat uncertain as customers may have a strong attachment to the Swedish connections/connotations of the brand.

** Saab is located in a company town and as such, suppliers are location-specific. Suppliers are also use-specific since their

output is targeted to the automotive industry.

*** FF if sale of business as a going-concern, otherwise employees are primarily FS.



17/27

of Southwest Airlines in the U.S., Ryanair and EasyJet in Europe, and Air Asia in

Southeast Asia had demonstrated the viability of the no frills model. Qantas exec-

utives felt it was likely an existing overseas carrier would enter the Australian mar-

ket and challenge their highly profitable domestic and international businesses.15

Meanwhile, the rise of budget travel in neighboring Southeast Asia (and the longer-

term prospects of China and India) was an enticing source of significant poten-

tial growth. Counterbalancing this attraction were the well-publicized failure of

Continentals budget brand Continental Lite and KLMs similarly disastrous foray

with Buzz.16

Qantas faced a two-fold strategic issue: how to compete domestically against

a well-funded budget competitor, while also tapping into fast-growing international

routes not viable with a full-service model. While Qantas had successfully used

short-term pricing tactics to see off several no frills domestic start-ups, this was

not sustainable internationally. Hamstrung by relatively high home-country wages,

restrictive industrial relations, and Qantass existing full-service business model, onealternative was to build a low-cost affiliate. Ideally, this business would target the

budget customer, be scalable across rapidly growing regional markets, footloose

geographically, and able to be spun-off to other airlines or via an IPO. Qantas faced

a risk trade-off. On one hand, its valuable full-service brand could be damaged by a

cheap offshoot with an uncertain future. Yet, without a viable product offering,

Qantas risked considerable loss of market share to new competitors both domesti-

cally and throughout Asia.

While the nature of the industry meant use-flexibility was effectively fixed

for most assets, substantially boosting firm- and location-flexibility was possible.

As shown in Figure 4, five asset groups demonstrate this approach. The brand

needed to be new, and culturally neutral, with a simple and easily produced logo

and visual identity. The cost of the air fleet could be held down with limited livery

and painting, rendering them more firm-flexible, while the IT platform and main-

tenance arrangements needed to be simple and scalable. Human resources could

be contracted via franchise master agreements.

In 2004, Qantas launched the Jetstar business to a receptive domestic market.

Jetstars business model started from the basis of minimizing crew and facilities cost.

While the Qantas fleet was dispersed around the country every evening to ensure all

major cities had early morning business flights, the Jetstar fleet returned to centralfacilities, minimizing the costs of storing fuel, maintenance, hangar facilities, and

accommodating and scheduling crew. The Jetstar business focused on budget travel-

ers, who were less time-fixated and willing to forgo in-flight meals, video entertain-

ment, and on-ground facilities. Fast turn-around times were ensured by enforcing no

check-in within 30 minutes of departure and reducing luggage allowances. Jetstars

terminal facilities, staff uniforms, and low-cost advertising campaign adopted a sim-

ple three color-scheme of orange, black, and a prominent white star.

The Jetstar business was distinct from the parent in its positioning, branding,

and identity. As shown in Figure 4, the firm- and location-specificity of its assets were

minimized to ensure that it could be spun-off as a separate entity and scaled into

overseas markets with minimal adaptation. This maximization of flexibility was



18/27

the new business on a variant of the parent brand, with its established reputation forreliability and safety. Jetstar was soon flying on a variety of international routes, in

several instances replacing previously marginal Qantas runs. Achieving the scalabil-

ity goal, the Jetstar Asia business subsequently added numerous within-Asia routes

inaccessible to an Australia-based airline, due to reciprocal air-service agreements

between regional governments. Being vigilant of the strategic flexibility implications

of each asset configuration choice granted Qantas a nimbleness many of its fellow,

entrenched international carriers lack. Building location- and firm-flexibility

allowed Qantas to respond to load changes in booming (but volatile) Asian markets,

without encroaching on or diminishing the value of the parent brand and business

model.17

This example illustrates how our framework can identify existing assets that

FIGURE 4. The Qantas-Jetstar Decision

Qantas faced a decision between launching: an in-house brand (e.g., Qantas Lite) using predominantlyexisting assets; or a distinct entity. Consider the implications for specificity-flexibility of five key asset

groups:

i. In-House Brand (e.g., Qantas Lite)


Brandlegacy of prior government ownership andnational carrier status restricts route access

FS US LS

Fleet aging, owned from delivery, parent branded FS UF LF

HR unionized FS US LS

Maintenance unionized, central to parent safety reputation FS US LS

IT systems legacy systems* FS US LS

* Individual IT system components are clearly separable, but the overall network is highly tailored to the firm, its processes

and the industry requirements.

ii. Distinct Entity (e.g., Jetstar)


Brand new, no Australian link FF UF LF

Fleet unpainted, standard FF UF LF

HR lowly unionized, multi-skilled, partially off-shored FF US LF

Maintenance lowly unionized, partially off-shored FF US LF

IT systems stand alone FF US LF



19/27


20/27

The Mineralco team went through a process of assessing their capacity to

leverage existing assets into new locations, and identifying the assets gaps within

the firms portfolio:

[We] look[ed] to say well, what assets do we want that fit us? Ive sold assets as

well, as I said, and you look to, well

who would make logical sense? Who wouldwant to buy these assets?Board Director, 5 countries, 6 FDI decisions

The key results of these deliberations are summarized in Table 6.

Mineralco was a very effective low-cost producer, with the PNG mine in the

lowest quartile globally for costs-to-output. The firm was also well-respected for its

efforts in avoiding community conflict in recent years, in a country notorious for

its difficult relations with foreign MNCs.20 In describing the value of these assets,

the managers identified key characteristics in line with the questions in Box 1. For

example, good relations with local stakeholders were crucial to the supply-chain of

Mineralco (for renewal of its mining leases, and ensuring access to key infrastructure

and inputs, such as roads, ports, and labor):

Our whole right to operate comes from the locals, notwithstanding that, at the end

of the day, the government puts a stamp on a piece of paper for you. That doesnt

count for anything if you have the locals offside.CFO, 7 countries, 6 FDI decisions

Mineralcos management and board particularly focused on the scope to

utilize its PNG community relations practices elsewhere. While these were identi-

fied as firm-specific (reliant on knowledge and learning other firms may lack) and

use-specific assets, Mineralco identified the scope for location-flexibility:

The tools that they use for interaction with the local people, the community typeissues, I think, are eminently transferable. There may be some differences at the

margin, because of the different responses they might get to various initiatives . . . In

terms of technical skills, they are almost without exception 100 per cent transferable.

Director, 16 countries, 18 FDI decisions

As Mineralco was keen to expand quickly, they focused on acquiring an

operational mine (or close to), with strong exploration potential. Again, the analysis

centered on the available suites of assets:

First and foremost, [we looked for] strategic fit: What does it do for us? What s the

combination of assets? What are the assets? Where are they located? Does it give usa step change in terms of pursuing that diversification strategy? Are we taking on

TABLE 6. Summary of Three Key Assets in Mineralcos acquisition of Petcib

Assets Firm Use Location Strategic Implication

Mineralcos community relations

management in PNG

FS US LF Can be leveraged into West Africa

Petcibs exploration rights

within West Africa

FF (now)

FS (future)

US LS Acquire, then leverage in future to

build advantage in West AfricaPetcibs government relationships

within West Africa

FS US LS Acquire and work hard to retain



21/27

assets that are well developed and mature, or risky and wrong end of that develop-

ment pipeline?CFO

A friendly approach from a small miner, Petcib, brought a set of assets into

play, but complicated by their location in a highly risky and unfamiliar part of West

Africa. As the Board chair observed,

in West Africa if anything goes wrong you areright out on your own on the edge of the Atlantic Ocean and the French couldn t

give a bugger. Two key sets of assetsexploration rights and government relations

dominated much of the assessment process.

Petcib had identified a viable seam of ore and their medium-sized mine was

about to commence operations. For the Mineralco team, the most valuable assets

were the targets extensive exploration rights over large tracts of land within a few

hundred miles of the mine site. While clearly location-specific, these rights were rec-

ognized as firm-flexible, with Mineralcos geologists able to quickly engage in surveys

and test drilling.21 Petcib assets, combined with Mineralcos expertise in low-cost

mining and community relations, represented the potential to build a large presence

in this under-developed region. Once in place, Mineralcos initial mine and supply

chain infrastructure would give it a firm- and location-specific suite of assets that later

entrants would lack. Being physically close to the numerous junior exploration

companies testing the areas geology would also give Mineralco a head-start on iden-

tifying, negotiating with, and acquiring (or at least partnering) successful prospects.

The logic of Box 1 was evident here, with recognition that the assets of such local tar-

gets would be more valuable to Mineralco, given its unique local supply chain, than

potential competitors:

[We can expand] either by discovering more ore or alternatively finding one or twolittle operations that we can operate in the vicinity and leverage off the assets includ-

ing the people that we have at [the acquired mine site] so that it s worth more to

Mineralco than it is to anyone else.Director, 16 countries, 18 FDI decisions

The Mineralco decision makers also paid close attention to Petcibs govern-

ment relations. In such an unfamiliar political environment, it was crucial that

Mineralco retain the key Petcib employee, a location-specific asset, with a history

of positive dealings with local officials:

Now we have one key person there who seems to be well in with the current rulers,

whether they be from the bureaucracy or the political set up

you have to keepthat skill in these countries.Director, 13 countries, 15 FDI decisions

Mineralco management recognized that assessing the substance and integ-

rity of these relationships from a distance was difficult. Retaining the employee

could be a challenge, given the relative firm- and use-flexibility of his connections.

Considerable effort was exerted to observe the interactions in person, including

several executives and board directors travelling to West Africa to meet the indi-

vidual, government ministers, and bureaucrats. It became apparent that Petcib

had built a reputable brand with government officials over its decade in the

country, amassing considerable goodwill by continuing to operate during the civil

war. This goodwill appeared to extend beyond the specific employee, reducing

concerns about possible loss of value through his exit. Overall, these good relations



22/27

in-country expansion, including the development of supply chain infrastructure

and exploration options that competitors would lack.

Mineralcos deliberations highlight the dynamics of balancing the three di-

mensions of flexibility and specificity. Mineralco saw value in acquiring Petcibs

location-specific but firm-flexible exploration rights, because their location-flexiblecommunity relations capabilities from PNG plus Petcibs location-specific govern-

ment relations in West Africa would combine to add considerable value. Overtime,

it was hoped that these synergies would translate into firm- and location-specific

advantages that later entrants would find difficult to replicate.

Implementing Asset Mapping

Changes to MNC value chains rest on the ability of executives to renegoti-

ate external and internal relationships, as well as to identify the constraints and

opportunities to realize new value creation opportunities. Reconfiguring value

chains frequently creates winners and losers. Research has highlighted the scope

for affiliate managers to massage information fed to parent executives through

formal and informal channels.22 For example, a decision to consolidate compo-

nent manufacturing or service support may be good for the overall MNC, but,

for the affiliates and units that lose value-adding activities, the change is dramatic.

Reduced activity entails lower levels of managerial responsibility and prestige,

workforce reductions, and possible market share losses, as tailored local output

gives way to standardized product. Meanwhile, other subsidiaries and regional

divisions may reap greater rewards, scale, and status by securing global product

mandates, project leads, and support roles. Affiliate and unit-level managers face

strong incentives to lobby parent executives and engage in information distortion

to sway such decision making.23

One mechanism to mediate the effect of information filtering is the develop-

ment of specialist templates and teams. Research we conducted with colleagues on

new foreign market entries revealed the highly formalized processes employed by

some leading MNCs. Template documents specify the type and source of informa-

tion for collection. The completed documents are then analyzed and compared

against competing growth options by a specialist market investigation unit in the

parent HQ, and then presented to the senior executive and board of directors forfinal determination. Similar teams, information templates, and boundary or enve-

lope conditions can be developed that are MNC-specific to guide re-appraisals of

its global, regional, country, or product-specific footprint.

While the initial mapping of the MNCs footprint may be time-consuming,

once established, routine audits and updates can be used to separate data collection

from the decision processes and negotiations parent executives must engage in to

reconfigure an asset, a value-chain, or an affiliates role. These audits, which may

be undertaken by specialist teams tasked with maintaining asset inventories or maps,

would then limit the ability of affiliates to filter information and engage in political

game plays. Development of these capabilities should also help to limit the impact

of individual biasesbe it of an affiliate head, divisional director, or even fellow



23/27

Decision makers mental models, or the cognitive frameworks they use to seek and

analyze information, can lead to distortions. These constraints reflect both the limited

bandwidth of individuals to accurately forecast all possible scenarios, and the biases

(or pre-dispositions) that executives bring to decisions.24

Allocating attention to current operational demands and to medium to long-term strategic decisions is a tough balancing act. The attention of MNC executives

is a particularly scarce resource and the sheer volume of information confronting

them can overwhelm and force short-cuts in decision making. Executives who

have spent time in a particular subsidiary, or have been closely involved in the

development of major new markets, potentially bring rich insights into the on-

going value proposition of these activities. However, they may also be clouded by

loyalty to former colleagues or fear damage to their reputation, if a project or busi-

ness is scaled down or spun-off.25 As one of the Mineralco directors observed:

I saw the destruction when you dont manage your portfolio actively. Everybody is

so excited about acquiring something, but people are just not this ready to put

down the ones that really ought to be good to go.

As the Mineralco executives and directors sought to determine the suitabil-

ity of the West Africa investment, our analysis consistently revealed that execu-

tives and directors with extensive breadth and depth of international experience

were keenly attuned to both the nuances of location-specificity and to the interac-

tivity of firm, use, and location dimensions.26 For example, a highly experienced

director (worked in 13 countries, 15 FDI decisions) observed:

This [misunderstanding] happens across a lot of developing countries, in particular,

where on face value there seems to be a structure you can recognize. But it s sort of

a very thin sliver over the top of something that is far more complex and when you

delve down into itthe typical thing you say to people operating in these countries

is, you ask a question three waysquite different questions and if you get similar

answers back then youve probably understood the issue.

In contrast, one of the executives, who had worked at an operational and

functional level in mines in 11 countries, but had no executive-level experience

with foreign investment decisions, commented:

I guess I took it pretty well as read that we would operate in a certain manner, just

like we operate in PNG in a certain manner, and that Petcib hadnt operated in a

manner that was contrary to how we would operate, and therefore it was all okay.

I was unprepared, probably naively so, for the amount of interrogation [from the

Board] that I got on that aspect.

For those with at least medium international work and strategic decision-

making experience, the importance of maintaining an awareness of and sensitiv-

ity to these cross-country nuances was clear:

Even in our board recently I heard people saying . . . this is so great because now we

can just be in Senegal, be in Guinea, be in Mali, be in Burkina Faso. Every one of these

countries is different . . . people make the mistake of thinking that all West Africa s

homogenous . . . well get some synergies of the management weve got over there

but each one will have to stand on its own merits.Director, 5 countries, 6 FDI



24/27

MNCs that are able to develop processes and expertise in mapping their assets

and value chains will be able to quickly respond to changing external conditionsbe

it a global change to economic conditions, new technological opportunities, or failure

of a location-specific competitor. Similarly, decision-making groups, with greater lev-

els of international experience and cultural backgrounds, should also be better placed

than more homogenous teams to understand markets beyond home borders, seek

appropriate information sets, and formulate new global footprints.27

Conclusion

MNCs operate in dynamic, uncertain, and challenging settings. Allocating

executive attention to current operational demands and to longer-term growth deci-

sions is a tough balancing act. Parent executives in multi-business and multi-location

companies are responsible for determining the set of businesses that will comprise

the corporate portfolio and for coordinating these businesses to ensure they create

more value under common ownership than as stand-alone operations. Encrust-

ments from prior investment decisions may constrain the ability to expand or shrink

an MNCs global footprint. Recognizing the limitations of current business models

and configurations can be an important step in building new businesses that strike

a better flexibility-specificity trade-off or enable expansion into different markets.

The addition of location to Ghemawat and del Sols dimensions of use and

firm-specificity explicitly extends the concept of strategic flexibility to the decisions

faced by MNCs. Without close scrutiny and recognition of the MNCs asset portfolio

along all three dimensions, there is a danger that strategic choices made today willhamstring future options. While significant advantage may rest on adapting to the

needs of local customers and tapping into valuable differences in resource availabil-

ity across locations, MNC strategists must remain mindful of the flexibility implica-

tions of any such choices.

Our three cases highlight the complexity of international business decisions.

While automakers grapple with the intricacies of globally distributed supply chains

and multiple product lines, airlines face a world of shifting consumer behavior and

more open skies. Other MNCs, such as miners, chase location-bound inputs in

unfamiliar environments. International business research has long understood the

trade-off of local and global advantages. Our framework and analysis reveal the

importance of honing in on the asset level when pursuing strategic flexibility and

competitive advantage in international markets.

Notes

1. P. Ghemawat and P. del Sol, Commitment vs. Flexibility, California Management Review, 40/4

(Summer 1998): 26-42. A firm-specific asset would have lower value to another firm. A use-

specific asset would have lower value in any other use. A location-specific asset would have

lower value in any other locale.

2. M.A. Hitt, B.W. Keats, and S.M. DeMarie, Navigating in the New Competitive Landscape: Build-

ing Strategic Flexibility and Competitive Advantage in the 21st Century, Academy of ManagementExecutive, 12/4 (November 1998): 22-42, at p. 22. Other prominent contributions to the strategic

flexibility discussion include H W Volberda Building the Flexible Firm: How to Remain Competitive



25/27

zational Preparedness to Reverse Ineffective Strategic Decisions, Academy of Management Executive,

18/4 (November 2004): 44-59. Calls for organizational ambidexterity argue very similar points.

See M.L. Tushman and C.A. OReilly, Ambidextrous Organizations: Managing Evolutionary and

Revolutionary Change, California Management Review, 38/4 (Summer 1996): 8-30; C.B. Gibson

and J. Birkinshaw, The Antecedents, Consequences, and Mediating Role of Organizational

Ambidexterity, Academy of Management Journal, 47/2 (April 2004): 209-226.

3. There is an intersecting literature, mainly in operations management, which distinguishes strate-gic, tactical, and operational flexibility. The distinctions typically lie in the speed, frequency,

locus, and substantiveness of the flexibility. Strategic flexibility is thus defined by Upton, as the

ability to make one-way, long-term changes that involve significant change, commitment or cap-

ital and which occur infrequently, say every few years or so. Tactical flexibility often occurs at the

product or plant level, is more reversible, faster and more frequent. Operational flexibility is the

ability to change day to day, or within a day as a matter of course . . . [for example] a flexible trans-

fer line on which changeover time is minimal. See D.M. Upton, The Management of Manufac-

turing Flexibility, California Management Review, 36/2 (Winter 1994): 72-89, at p. 79. This work

represents an attempt to delineate further the flexibility arguments initially put forward by Ansoff

and by Aaker and Mascarenhas. See H.I. Ansoff, Corporate Strategy (New York, NY: McGraw Hill,

1965); D.A. Aaker and B. Mascarenhas, The Need for Strategic Flexibility, Journal of Business

Strategy, 5/2 (Fall 1984): 74-82. We view operational and tactical flexibility as precursors or subsets

of strategic flexibility. An MNCs capacity to act in a strategically flexible fashion will build upon its

capacity to also make operational and tactical decisions.

4. Ghemawat and del Sol refer to resources, but use the term in the sense of an asset, encompass-

ing both resources and capabilities. Decisions around retaining, reconfiguring, and/or jettisoning

assets are inherently questions of strategic flexibility, as they tend to be one-way and infrequent

with long-term impacts. Ghemawat and del Sol, op. cit.

5. Hitt, Keats, and DeMarie, op. cit., p. 30.

6. These elements of location-specificity are discussed at length in the international business litera-

ture, yet typically overlooked in discussions of strategic flexibility. See J.J. Boddewyn, M.B.

Halbrich, and A.C. Perry, Service Multinationals: Conceptualization, Measurement and Theory,

Journal of International Business Studies, 17/3 (Fall 1986): 41-57; J.H. Dunning, Internationalizing

Porters Diamond, Management International Review, 33/2 (1993): 7-15; A.M. Rugman and A.

Verbeke,

A Note on the Transnational Solution and the Transaction Cost Theory of MultinationalStrategic Management, Journal of International Business Studies, 23/4 (1992): 761-771.

7. D. Bailey, S. Koyabashi, and S. MacNeill, Rover and Out? Globalisation, the West Midlands

Auto Cluster, and the End of MG Rover, Policy Studies, 29/3 (September 2008): 267-279.

8. See, for example, L.G. Franko, The European Multinationals (Stamford, CT: Greylock, 1976);

S. Humes, Managing the Multinational: Confronting the Global-Local Dilemma (New York, NY:

Prentice Hall, 1993).

9. As quoted in That Sinking Feeling, The Economist, November 21, 2005.

10. Saab had been unprofitable since 2001 and accounted for less than one percent of GMs production

output. See V. Fuhrmans, GM to Shut Saab Unit, Quirky Icon of the Road, Wall Street Journal,

December 19, 2009.

11. This may extend to countries with influential communities of East Asian migrants.

12. These decision trees and questions could be considered as simple (yet powerful) strategic rules,

in a similar vein to those identified by K.M. Eisenhardt and D.N. Sull, Strategy as SimpleRules, Harvard Business Review, 79/1 (January 2001): 106-116.

13. In 1989, GM paid $600 million for 50% of Saab Automobile AB, but only needed to pay a fur-

ther $125 million to purchase the remaining shares in 2000. By 2002, GM had lost $4 billion

on the venture. See P. trach and A.M. Everett, Brand Corrosion: Mass-Marketings Threat to

Luxury Automobile Brands after Merger and Acquisition, Journal of Product & Brand Manage-

ment, 15/2-3 (2006): 106-120.

14. Mothballing (i.e., Option 1) was not practical for GM in its perilous financial condition.

15. This information comes from authors discussion with a then member of Qantas executive team.

16. For more on Continental Lite, see R. Doganis, The Airline Business, 2nd edition (New York, NY:

Routledge, 2006), p. 156. The Dutch carrier KLMs failed Buzz off-shoot is discussed in P.

Ormerod, Why Most Things Fail: Evolution, Extinction and Economics (London: Faber & Faber,

2005), pp. 27-28.

17. As a separate entity, Jetstar could more easily enter joint ventures in host countries, such as

Vietnam. Such strategic choices were unavailable to Qantas given its location-specific roots

A t li G t d i It l ll d Q t t di t it lf f



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18. Within months of a significant international acquisition, we conducted multiple interviews with

the entire executive team and the Board directors. We also obtained extensive data on each

executive and directors prior work experience and education, including the number, location,

and type of overseas assignments and prior involvement in international investment decisions.

Each semi-structured interview was conducted from one and a half to two hours. As self-

reported information can be subject to a number of biases, we sought to confirm the internal

and construct validity of the data through triangulation with the board papers, press releases,and media reporting. While the board papers remained confidential, a sample set was triangu-

lated with the transcripts, confirming the accuracy of both the timing of decisions and recollec-

tions of discussions.

19. In Mineralcos home country, the positions of Board Chair and Chief Executive Officer were

separate positions.

20. Violence and militia activity forced the mining giant Rio Tinto to abandon its copper opera-

tions in Bougainville in 1989, while BHP was embroiled in years of legal dispute with the

PNG Government over its Ok Tedi operations. C. Ballard and G. Banks, Resource Wars:

The Anthropology of Mining, Annual Review of Anthropology, 32 (2003): 287-313.

21. The rights were fairly use-specific, in that they pertained to exploration for minerals. Discovery

of deposits of other minerals beyond their specialty could potentially be on-sold to other miners.

22. C. Bouquet, Building Global Mindsets: An Attention Perspective(London: Palgrave, 2005); C. Bouquet

and J. Birkinshaw, Weight versus Voice: How Foreign Subsidiaries Gain Attention from Corpo-

rate Headquarters, Academy of Management Journal, 51/3 (June 2008): 577-601; J. Birkinshaw,

C. Bouquet, and T.C. Ambos, Managing Executive Attention in the Global Company, MIT Sloan

Management Review, 48/4 (Summer 2007): 39-45.

23. In addition to the references in the above note, see G.R. Benito, Divestment and International

Business Strategy, Journal of Economic Geography, 5/2 (April 2005): 235-251; J. Birkinshaw,

How Multinational Subsidiary Mandates are Gained and Lost, Journal of International Business

Studies, 27/3 (1996): 467-495; R. Mudambi and P. Navarra, Is Knowledge Power? Knowledge

Flows, Subsidiary Power and Rent-Seeking within MNCs, Journal of International Business

Studies 35/5 (September 2004): 385-406.

24. Decision processes and outcomes necessarily reflect the experiences and thought patterns of the

individuals involved. Myopic decision making can include the classic managerial traps of focus-

ing on the short- over the long-term and near events to those at a distance; see, D. Levinthal andJ. March, The Myopia of Learning, Strategic Management Journal, 14 (Special Issue, Winter

1993): 95-112; W.K. Smith and M.L. Tushman, Managing Strategic Contradictions: A Top

Management Model for Managing Innovation Streams, Organization Science, 16/5 (September/

October 2005): 522-536. Studies have shown that MNC managers typically struggle to break

free of geography, tending to favor the home market to all others, followed by markets closest

to home, largest in size, and most popular with competitors. See, T.P. Murtha, S.A. Lenway, and

R.P. Bagozzi, Global Mind-Sets and Cognitive Shift in a Complex Multinational Corporation,

Strategic Management Journal, 19/2 (February 1998): 97-114.

25. See, for example, B.M. Staw and H. Hoang, Sunk Costs in the NBA: Why Draft Order Affects

Playing Time and Survival in Professional Basketball, Administrative Science Quarterly, 40/3

(September 1995): 474-494; C. Camerer and D. Lovallo, Overconfidence and Excess Entry:

An Experimental Approach, American Economic Review, 89/1 (March 1999): 306-318; R.G.

McGrath, Falling Forward: Real Options Reasoning and Entrepreneurial Failure, Academyof Management Review, 24/1 (January 1999): 13-30.

26. We used various count measures to distinguish depth of experience (years working overseas),

breadth (the number of countries the individual had worked in), diversity (the standard devi-

ation in a political risk index of each country they had worked in), and specific FDI decision

experience (number of decisions they had been directly involved in). We have provided the

breadth and decision data when identifying quotes from interviewees. On either counts, we

regard 9 or more as highly experienced, 4-8 medium, and less than 4 low.

27. See, for example, T.P. Murtha, S.A. Lenway, and R.P. Bagozzi, op. cit.; M.A. Carpenter and

J.W. Fredrickson, Top Management Teams, Global Strategic Posture, and the Moderating

Role of Uncertainty, Academy of Management Journal, 44/3 (June 2001): 533-545.

California Management Review, Vol. 54, No. 2, pp. 92117. ISSN 0008-1256, eISSN 2162-8564. 2012

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