Journal of International Management 13 (2007) 231–234

Book review

Mats Forsgren, Ulf Holm and Jan Johanson, Managing the Embedded Multinational: A BusinessNetwork View, Edward Elgar, Cheltenham, UK, Northampton, MA, USA, 2005, ISBN 1845426150

This book contains the latest research on business networks from the Department of Business,Uppsala University and takes the concept of business networks a stage further by looking at the‘embedded multinational company’, where the subsidiaries are embedded in their own networksof business relationships with customers and suppliers. Their theory of the embeddedmultinational (MN) is developed chapter by chapter and tested empirically using an extensivedatabase of 20 Swedish multinationals involved in industry and their 98 subsidiaries. There is aclose link between theory elaboration and empirical testing in most chapters. The challenges thebusiness network evidence poses for managing the multinational are investigated and includeheadquarter (HQ) control and influence, subsidiary power, the transfer of knowledge and learningin the MNC.

The authors' argument is that business networks cause MNCs to be heterogeneous and loosely

coupled organizations. HQ control is seen as limited and HQs involved in a continuous process oftrying to understand what is going on in the organization and struggling for influence incompetition with other MNC units. This runs contrary to the traditional management view thatHQs have more or less full control of their operations. Indeed, each chapter challenges traditionalviews that MNCs can design appropriate control systems and manage successfully in a top–downfashion.

Part 1, covering the first 5 chapters, provides a general introduction to the MNC from a businessnetwork perspective. Chapter 1 argues that they are complex organizations in a complex world,embedded in networks of business relationships whilst chapter 2 goes on to investigate how thesebusiness relationships develop and their characteristics including knowledge transfer, the exercise ofpower relations between business parties and the joint creation of an enhanced resource base. A casestudy in chapter 3 looks at the development of business relationships in one company over a 50-yearperiod, showing how business relationships can go on to become business networks marked by agrowing level of ‘connectedness’. Business relationships and networks then go on to influence theinternationalization of a firm or its embedding in foreign markets. Whilst traditional approaches tointernationalization focus on psychic and cultural distance issues, Forsgren et al. focus on the slowdevelopment of business relationships with foreign customers and suppliers over time. They see themain role ofMNC subsidiaries as the management of their particular business network, whichmay ormay not overlap with their corporate role of managing operations in specific markets. This leadssubsidiaries to strive for autonomy in relation to the parent to take advantage of opportunities in theirown network and for power to influence the parent to support their business network.

doi:10.1016/j.intman.2007.03.003

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Part 2 of the book focuses on the concept of the embedded multinational itself. The traditionalview of internationalization — ‘extending ownership across borders’ (p. 90), measured byemployment, sales, production and investment figures— is contrasted with two other dimensionsbased on the business network approach i.e. the internationalization of the subsidiary's externalbusiness network and the internationalization of its corporate business network via businessrelationships with sister units in other countries. An empirical investigation shows how acompany may be viewed as highly internationalized using the traditional dimension but scoresquite low when using business network dimensions, suggesting that production within thedifferent countries may be very localized. Chapter 7 looks at subsidiary behaviour and argues thatit is shaped more by the subsidiary's business networks than the corporate network. A keyinfluence on the degree of business network embeddedness of subsidiaries is the age of thebusiness relationships rather than the particular industry, products or technology.

Part 3 investigates the management issues associated with the business network approach toMNCs. The authors question traditional views like Ghoshal and Nohria's (1997) that formal HQauthority is dominant even though HQs do not have extensive knowledge of the subsidiaries. Thepossibility of goal congruence between the different units in MNCs is also seen as wishfulthinking: since the values and interests of the subsidiaries are rooted in their unique businesscontexts, they will exhibit differentiated value structures. External business networks are animportant source of subsidiary power and this can be reinforced by the subsidiary's role in itsbusiness with sister units (so-called ‘corporate embeddedness’). Empirical testing showed thatexternally embedded subsidiaries were more able to avoid HQ control but for actual intra-organizational influence the position of the subsidiary in the functional system of the MNC wasimportant — so-called ‘systemic power’. This type of power is interdependent and operates inconjunction with other subsidiaries in the MNC. On the transfer of knowledge in MNCs, theauthors challenge traditional views that shared values promulgated as an edict from the HQ canenhance knowledge transfer with their own view that business networks are more important in thegeneration of shared values. These values emerge over time and develop into local rationalitiesbased on the different business networks. A high degree of subsidiary embeddedness is also seenas necessary for mutual problem solving with those subsidiaries giving priority to learningthrough close business relationships being the key ones in terms of knowledge transfer. Theimportance of embeddedness for this process is seen as posing problems for companiesemphasizing standardization and cost efficiency, since these operate on the basis of arms lengthrelationships.

In conclusion, the business network view of the MNC sees their management as an even moredifficult task than traditional management approaches. The asymmetry of information betweenthe subsidiaries and HQ is even more marked from a business network perspective. The authorsargue that HQs have a better chance of acquiring knowledge about the institutions and laws in thedifferent countries in which the MNC operates (the focus of traditional approaches to managingforeign subsidiaries) than about their subsidiaries' business relationships. Such knowledge canonly be acquired by HQ co-presence in the subsidiaries' business networks, which is rare. MNCsare seen therefore as heterogeneous and loosely coupled, with the HQ having restrictedknowledge and being subject to contradictory isomorphic pulls from the different environmentsthe subsidiaries operate in.

The book is well written, clearly presented and provides an interesting and thought engagingmix of theoretical, case study and quantitative investigations to support the central argumentsabout business networks. The arguments presented provide a useful counterbalance to traditionalmanagement approaches to multinationals and their subsidiaries, reflecting the more complex

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reality of managing such organizations. Indeed the authors state in the conclusion that forefficiency's sake the HQ may need to take autocratic decisions despite its limited knowledgeabout its subsidiaries (p. 191). This perhaps lies behind traditional management thinking in theWest and the oversimplification of the management task to make it at all manageable. Theauthors' assessment of the degree of embeddedness of subsidiaries in chapter 8 underlines theirview that it is a complicated concept to investigate. They focused on just one dimension,technological development, and a maximum of 6 relationships in each of their 98 subsidiaries,which produced 516 customer–supplier relationships to investigate.

The description of business networks and the embedded multinational reflect what many havecome to understand as a Continental European model of manufacturing: stable business networksbuilt over decades, which promote new technologies and solutions due to the large inputs from allthe partners, an organic view of business development including internationalization taking placethrough business relationships over time and the primary focus on problem solving and transfer ofknowledge rather than just standardization and cost efficiency. All of the subsidiaries investigatedwere in control of their production and sales (p. 197), reflecting a decentralized approach to HQcontrol often associated with Continental European manufacturers. In contrast, the traditionalviews on management espousing top management driven strategies, which are challenged in thebook, can be seen as reflecting Anglo-American business realities. These include factors such asarms length, short-term market relations based on self interested profit seeking behaviour and theemphasis on standardization and cost efficiency. We would expect Anglo-American MNCsubsidiaries to have low levels of embeddedness in their external business environment. In suchcases formal HQ authority would be more dominant and perhaps the possibility of goalcongruence more likely since the local rationalities of subsidiaries would be weaker. In suchcompanies growth is less likely to be organic than via mergers and acquisitions.

The central argument of the book that ‘a common business logic’ overrides cultural andinstitutional differences (p. 193) is, however, problematic. As seen above, Continental Europeancompanies and Anglo-American companies often pursue quite different business logics becausewhat is logical in specific national business contexts varies. Even where MNC managementappears to be adopting a similar logic such as shareholder value, this canmean very different thingsin practice in different national contexts. Ferner and Varul (2001), for example, show howGermanMNCs have made moves to adopt some Anglo-American terms in order to appeal to internationalinvestors but in practice retain many elements of their German business culture. Differences innational business contexts help to shape the way business is done, including who companies workwith and how they work with them as Deakin et al.'s (2000) work on customer–supplier relationshas shown. Using a comparative institutionalist perspective, Swedish MNCs and their subsidiarieswould be expected to yield more evidence of business networks, internationalization through suchnetworks rather than through merger and acquisition decided on at corporate levels and greaterlevels of external embeddedness rather than corporate embeddedness. Studies, such as thosementioned above, have shown that different societies promote different types of relationships —the Anglo-American societies promoting fragmented market transactions and low levels ofembeddedness, Continental European societies promoting more tightly embedded relationships.This affects the way companies conduct their business relationships. Comparative institutionalistresearch therefore underlines the continuing importance of national systems of education, finance,industrial relations and law in shaping the way business is done not only nationally but alsointernationally (Geppert et al., 2003; Morgan et al., 2001).

The business network approach is a useful addition to comparative institutionalist research onMNCs. The findings of this particular book support many of the results of the cultural/

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institutionalist approaches and help to provide a rich detail about the construction and operation ofembedded business relationships. However, just as the traditional views tend to overstate thegovernability of MNCs, the business network approach tends to overstate their ungovernability.As the authors themselves argue, HQs may make autocratic decisions for efficiency's sake andoverrule their subsidiaries. Increased international competition is likely to lead to HQ attempts tocontrol subsidiary operations in more detail to facilitate the creation of standard global productsand services. The effect of this on business networks needs further investigation.

It would also be interesting if the authors next use their business network theories to studyBritish or US MNCs and their subsidiaries. This would demonstrate whether the theory is mainlyapplicable to MNCs from Continental European countries or has a wider applicability acrossdifferent MNCs.

References

Deakin, S., Lane, C., Wilkinson, T., 2000. Performance standards in supplier relations: relational contracts, organisationalprocesses and the institutional environment in a cross-national perspective. In: Quack, S., et al. (Ed.), NationalCapitalisms, Global Competition and Economic Performance. John Benjamins Publishing Company, Amsterdam.

Ferner, A., Varul, M.Z., 2001. The national embeddedness of ‘corporate culture’: a comparison of German and US MNCsin Britain. Anglo-German Workshop, Tubingen, June.

Geppert, M., Matten, D., Williams, K., 2003. Change management in multinational companies: how global convergenceintertwines with national diversities. Human Relations 56 (7), 807–838.

Ghoshal, S., Nohria, N., 1997. The DifferentiatedMNC: OrganizingMultinational Corporation for Value Creation. Jossey-Bass, San Francisco, CA.

Morgan, G., Kristensen, P.H., Whitley, R. (Eds.), 2001. The Multinational Firm-Organizing Across Institutional andNational Divides. Oxford University Press, Oxford.

Karen WilliamsSchool of Business and Economics, University of Wales,Swansea, Singleton Park, Swansea SA2 8PP, Wales, UK

E-mail address: k.williams@swan.ac.uk.