Accenture Emerging Markets Create Global Operating Models

Are Emerging-Market Multinationals CreatingThe Global Operating Models of the Future?

Stéphane J.G. Girod, Joshua B. Bellin and Robert J. Thomas

May 2009

Research Report

Are Emerging-Market Multinationals Creating The Global Operating Models of the Future?

2 | Accenture Institute for High Performance | Copyright © 2009 Accenture. All rights reserved.

3 Executive summary

Chapters

7 1. Rising interest in global operating models

9 2. What is a global operating model?

13 3. Diverging and converging global operating model configurations

17 4. How global operating models may work according to the literature

27 5. Remaining questions

30 About the research

32 About the authors

32 About Accenture

32 About the Accenture Institute for High Performance

32 Notes

Executive summary

For multinational enterprises (MNEs),the rise of the multi-polar world createsan additional layer of complexity thatmakes global operating model config-urations and organizational capabilitiesmore important than ever. A recentAccenture survey shows that 95 percentof senior executives say that theydoubt their companies have the rightoperating model to support theirinternational strategy. Consequently,they are seeking to strengthen theirorganizational capabilities to achievebetter performance.

Accenture defines a global operatingmodel as the set of organizationalcapabilities that allow multinationalmanagers to coordinate the relation-ships between the multinational’sheadquarters and the geographicbusiness units to effectively supportthe company’s international strategy.These capabilities include the config-uration of five organizational compo-nents which need to work in synergy.Two components—leadership andpeople—are more intangible and oftenmore invisible; as such we call them“soft components”. Three components—organizational structure, processesand technology, and metrics—aremore formal, so we call them “hardcomponents”.

The rise of the multi-polar world raisesa number of questions related toglobal operating models. Is there onemodel that is best suited? How dodeveloped-market and emerging-market multinationals’ operating modelsdiffer? What can they learn fromeach other? Accenture is researchingthe answers. Ahead of the full results—scheduled for publication in August2009, this research report comparesthe literatures on emerging- anddeveloped-market MNEs and sets outthe six core research-based hypothesesthat the Global Operating Modelsprogram is testing.

Hypothesis 1Developed-market multina-tionals tend to emphasize hardoperating model components

Developed-market MNEs’ global oper-ating model configurations tend toemphasize hard components, meaningthat their distinctive strengths lie inorganizational architecture, processesand technology, and performancemanagement metric capabilities.

Developed-market MNEs tend tothrive on the multi-divisional, decen-tralized hierarchy which allows topmanagers to concentrate on strategy.This architecture is associated withexplicit control processes based on highformalization. It includes comprehen-sive rules and policies. Even if they



have to change often, roles need to beprecisely defined to avoid ambiguityand chaos in execution.

Processes and technology are also anessential component of their globaloperating models. When they gainedan edge in innovation processes inthe 1980s, Japanese MNEs pioneeredsophisticated knowledge managementprocesses to make knowledge moreexplicit and broadly shared by orga-nizational members. On-demandworkplace portal sites—for example,at General Electric and at BP— becomeessential knowledge managementtools to support human resourcemanagement practices where highlymobile employees can connect andcommunicate all around the world.Supply chain and innovation processescan even lead to fundamentally neworganizational structures, for examplein multinational pharmaceuticalcompanies.

Metrics for assessing the performanceof their global operating model arecommon among developed-marketmultinationals. They routinely measurethe quality of human resource man-agement, innovation processes, supplychain effectiveness, knowledge man-agement and leadership. In short, devel-oped-market MNEs’ global operatingmodels appear to be geared to stability

Are Emerging-Market Multinationals Creating The GlobalOperating Models of the Future?

and a reduction of uncertainty.Architecture, process and metrics arecritical for anticipation, forecasting,risk-limitation and prevention ofthreats to the core. Their organiza-tional culture relies on formalizedorganizational components and empha-sizes the reassurance of investors whoare risk- and uncertainty-averse.In other words, their model is gearedtowards complexity reduction and wellsuited to developed countries wherethe level of turbulence and complexitycan be comparatively lower than inemerging economies—for example, clearand enforceable intellectual propertyregimes, relative homogeneity incustomer tastes and behavior due to on-going processes of regional integration.

Hypothesis 2Emerging-market multinationalstend to emphasize softoperating model components

By contrast, emerging-market MNEs’distinctive strengths stand on softcomponent capabilities in leadershipand people. Research suggests thattheir leadership tends to be strongand highly personalized, as opposedto institutionalized in processes andstructure as in many developed-marketmultinationals. The fact that manyemerging-market MNEs are privatelyowned leads to a greater unity ofownership and control than in developed-

market MNEs. Their CEOs, who haveoften a very “hands on” style, tend toconcentrate much more power in thecentre, which results in individual-basedleadership structures more than inteam-based leadership structures,where power is more distributed. Theirleadership is also more entrepreneurial,more risk-oriented and prone to acceptlong-termmore than immediate returns.

A distinctive strength of emerging-market MNEs seems to be their people’sexpertise for creating powerfulinter-personal networks. In supportof a leadership style based on highlypersonalized interactions, networkingis second nature and deeply ingrainedin emerging-market MNEs’ culture andoften reflected in the home-countryculture as well. The effective manage-ment of inter-personal networks canbe a critical capability to securethe success of inter-organizationalnetworks (particularly in knowledgeand resource intensive industries);by contrast, many developed-marketmultinationals seem to struggle tomake these networks work.

Because their home-market conditionshave been rather volatile, emerging-market MNEs are at ease with volatility,risk taking, change and flux. In con-trast with developed-market multi-nationals, their global operating modelis geared to complexity absorptionand this is perfectly appropriate toconduct business in other emergingmarkets. For this reason, this type ofconfiguration requires little adapta-tion when emerging-market MNEsoperate in other emerging economies.



Hypothesis 3Operating models must beassessed in the context ofMNEs’ international strategies

There is no “one best way” to configurea global operating model. A globaloperating model configuration, thatis the specific combination of organi-zational components, need to fit thecontext of a MNEs’ home market andthe characteristics of its host marketsas defined by its international strategy.

Regarding the home market, wedistinguish between MNEs comingfrom emerging countries and MNEscoming from developed countries. Asregards host markets, we distinguishbetween (a) multinationals that operatein regions with levels of developmentsimilar to those in their home country(i.e., developed-to-developed oremerging-to-emerging); and (b)multinationals that operate in regionswith similar and different levels ofdevelopment to their home country(developed-to-emerging and emerg-ing-to-developed). The former can besaid to result in a “narrow” multi-polarfootprint and the latter can be said tolead to a “broad” multi-polar footprint.The breadth of a multinational’s multi-polar footprint can vary greatly—thusinfluencing the configuration of aglobal operating model. Thus, it isboth where the MNE “starts” fromand where it goes to that influencesthe choice of an appropriate globaloperating model configuration.

Hypothesis 4Configurations which followhome-country characteristicscan be appropriate for narrowmulti-polar internationalstrategies

When their multi-polar footprint isnarrow, emerging-market and devel-oped-market multinationals may suc-cessfully internationalize and yet relyon global operating model configura-tions which vary little from those theyhave always used in their home envi-ronments. Indeed, in this case, theyoperate in regions whose economic,cultural and institutional characteristicsare similar to those of their homeenvironment. These multinationals canthen emphasize cross-border stan-dardization over local adaptationsince there is only a minimal needfor adaptation.

Since we hypothesize that emerging-market MNEs rely mostly on softglobal operating model componentsand developed-market multinationalsmay tend to rely mostly on hardglobal operating model components,we conclude that it might be onlywhen their multi-polar footprint isnarrow that they might be ableto configure their global operatingmodels in this way and achieve highperformance. Consequently, we canexpect that emerging and developed-market multinationals’ global operatingmodel configurations will differ inthe most significant ways when theirmulti-polar footprint is narrow.

Hypothesis 5Home-country based configu-rations need to change asmultinationals’ internationalstrategies become more global

When both developed- and emerging-market multinationals expand beyondregions similar to their own, and tryto operate in regions with differentlevels of institutional and economicdevelopment simultaneously, theywill face significant hurdles if theytry to manage based on their intrinsicstrengths alone. For example, it isfar from certain that managers andemployees of developed-market unitsowned by an emerging-market MNEwill accept very hands-on and inter-ventionist CEOs. Conversely, employeesat home may aspire to benefit fromsome of the human resource, supplychain or knowledge managementprocesses that make the strengths oftheir colleagues in the developed-market units. For developed-marketmultinationals, there is already someevidence that they are working toimprove their networking skills byrelying more on local managers ratherthan on expatriates, for example tofacilitate the relationships with localauthorities and other local companies.Yet, their efforts remain inconclusivebecause their rigidly standardizedstructure and processes hamper therequired emphasis on people andnetworking talent.

When multinationals broaden theirmulti-polar footprint, their managershave to face the more challengingtask of adapting to more varied localconditions and environments. Theynot only have to deliver a high levelof cross-border economies of scale,but they also have to be more locallyresponsive and adaptable at the same.These combined pressures increase the



complexity that their global operatingmodel needs to accommodate. Neitherhighly independent geographic subunitsnor highly centralized operationsare satisfactory. Operating in moreheterogeneous host markets createsmore uncertainty and risks.

For such situations, studies of devel-oped-market multinationals haveestablished that global operatingmodel configurations which emphasizeonly hard components cannot addressthis complexity. A broad multi-polarstrategy requires a networked globaloperating model configuration whichbalances the soft and the hard com-ponents because here, the potentialpay-offs of such complex arrangementswill compensate for their costs. Thisnetworked global operating modelis based on the high differentiationbut also high integration of cross-border resources that a multi-polarstrategy requires:units and people inter-dependence,high knowledge exchanges, revisionof the headquarter roles, centresof excellence for supply chain andinnovation, global talent pools.

Consequently, we propose that whenemerging- and developed-marketmultinationals become more global,the differences may start fading.Indeed, they may need to convergetowards a relatively similar configu-ration which dynamically balanceshard and soft components. Emerging-market MNEs may have to increasefocus on the hard components of theirdeveloped-market competitors, whilethe latter may need to adopt the softcomponents of their emerging-marketpeers. For this reason, we see anopportunity for two-way learning.

Hypothesis 6In the medium-term, emerg-ing-market MNEs may have acompetitive advantage dueto their advance in softcomponent capabilities

We should not expect emerging-market MNEs to resemble their devel-oped-market peers in the short-term.Indeed, they may retain some oftheir home-country characteristics,particularly when the latter exerts astrong influence, as it is in the casefor Chinese, Indian, Russian, andBrazilian multinationals. In particular, iftheir source of competitive advantagerelies on their ability to orchestratethe soft components better thantheir developed-market counterparts,they should have an advantage whenthey start implementing a networkedglobal operating model. Indeed, thelatter is highly based on people andleadership capabilities. If these multi-nationals succeed in maintainingthis advantage, extending it to theirdeveloped-market units, and strength-ening hard operating model compo-nents simultaneously, then they willbecome more threatening for theirdeveloped-market counterparts.

This advantage might only be tempo-rary, however. The history of multina-tionals’ evolution illustrates that asnew organizational models emerge,the most successful incumbentshave always learned from their newchallengers, sometimes even defeat-ing them at their own game.

Conclusion

By testing these hypotheses, thisresearch project will be able to provideanswers to the following strategicquestions:

How can developed-market multina-tionals retain their strengths in hardcomponents and at the same timeremedy some of their weaknesses ifthey adopt some of their emergingcompetitors’ organizational practices?

Should developed-market multina-tionals learn the lessons of theiremerging-market peers only whenit comes to managing in emergingmarkets, or would changing theirentire global operating model conferadvantages in developed markets aswell? In other words, what aspect of thenew practices should stay local andwhat aspect should become global?

Which aspects of developed-marketMNE’s architecture, processes andtechnology and metrics should emerg-ing-market MNEs emulate? How canthey reconcile those with their currentstrengths and try to retain them?

By providing a ground-breaking empiri-cal analysis of global operating modelsfor both developed world and emerg-ing-market multinationals, this studywill provide key lessons for MNEs asthey go about seeking global expan-sion in an increasingly challengingmulti-polar world.



Globalization was once characterizedby developed-market multinationalslooking for low-cost factories andcall centers. Now it is a complexgame of chess played by developed-and emerging-market multinationalenterprises (MNEs) encroaching on oneanother’s home turf and employingwhat could be dramatically differentoperating models. In this new phaseof globalization—what Accenture callsa “multi-polar world”—economic poweris more broadly distributed across allregions of the globe and the searchfor growth now extends well beyondthe developed markets. As moreand more mature-market MNEs areexpanding into faster-growingemerging economies, they are con-fronting increasingly powerful localcompetitors. And these emergingchampions are now competing inmore affluent economies.1 As theinternational strategies become moreglobal, the geographic, cultural andinstitutional distance between homeand host-countries widens and putsnew pressures on MNEs’ ability toachieve high performance throughtheir global operating models.2

A global operating model is the set oforganizational capabilities that allowsmultinational managers to coordinateoperations between the corporatecenter and the geographic businessunits. In addition to the more tangible“hard” components such as organiza-tional structure, metrics, and man-agement processes and technology, aglobal operating model also includes

somewhat invisible yet still important“soft” components such as leadershipand people.3

In this new phase of globalization, itis perhaps not surprising that nearly95 percent of senior executives sur-veyed recently by Accenture doubtwhether their companies have theright operating model to support theirinternational strategies and, ultimately,achieve high performance.4 Managersin developed- and emerging-marketmultinationals are anxious to getanswers to critical questions. Developed-market MNE managers primarily wantto know whether emerging-marketmultinationals have pioneered theglobal operating models for the futureand if so, what they should change notonly to succeed better in emergingmarkets, but also to operate differ-ently at the global level. For theirpart, emerging-market multinationalmanagers want to know how theycan maintain their advantage, if theirglobal operating models are indeedgiving them an edge. Or, if they are ata competitive disadvantage in relationto the developed-market MNEs’ globaloperating models, they will want toknow how they can close the gap.

Attempts to answer these questionsare complicated by a lack of empiricalresearch on emerging-market multi-nationals.5 As this report will makeclear, a great deal of literature existson how developed-market multina-tionals should configure their globaloperating models in order to competewith one another.6 However, little hasbeen written about the organizational



challenges that developed-marketmultinationals face when competingin emerging economies.7 To furthercomplicate matters, researchers high-light the radically new and highlyflexible business models of someemerging-market champions butdon’t explain how these companiesachieve this flexibility.8 In other words,researchers provide little detail abouthow emerging-market multinationalsorganize themselves to enable differ-ent types of international strategy.

Objectives of this report

The principal objective of this reportis to assess what is currently knownabout global operating models indeveloped-market and emerging-market multinationals. In reviewingthe existing literature on MNEs, weextract several hypotheses.

1. There is no “one best way” toconfigure a global operating model. Toachieve high performance, managersof emerging market MNEs need toconfigure their companies’ globaloperating models to fit with theirinternational strategy and specificcompetitive and economic environ-ments, just as it is the case for man-agers of developed-market MNEs.

1. Rising interest in global operating models

2. A MNE’s international strategy ischaracterized by its geographicscope—that is, by the type and rangeof host and home countries it operatesin. We refer to this scope as an enter-prise’s “multi-polar” footprint. Wedistinguish between multinationalsthat operate in regions of similardevelopment (i.e., developed-to-developed or emerging-to-emerging)and multinationals that operate inregions of both similar and differentdevelopment (developed-to-emergingand emerging-to-developed). Thebreadth of a multi-polar footprint canvary greatly—thus influencing the con-figuration of a global operating model.

3. Fundamental differences betweendeveloped-market and emerging-marketMNEs appear when they operate inregions with similar development.Developed-market MNEs that operatesolely in developed markets emphasizethe hard components of their operat-ing model (structure, processes andmetrics). Conversely, emerging-marketMNEs that operate solely in emergingmarkets emphasize the soft compo-nents (leadership and people).

4. As MNEs’ broaden their multi-polarfootprint—and operate in markets muchdifferent than their home market—their global operating models arelikely to converge. Developed-marketMNEs will need to strengthen theirsoft components in order to be moremarket-responsive in emerging nations.Meanwhile, emerging-market MNEswill need to strengthen their hardcomponents in order to consolidatetheir international business on a globalscale. But this convergence will notbe total and neither should it be.

In the next phase of our research,we will test these four hypotheses inan empirical study of the wirelesstelecommunications and oil and gasindustries. Based on the results ofthat study, we will then come up witha set of recommendation for MNEmanagers about how to reconfiguretheir global operating models, ifindeed they need to.

This report is organized as follows: inthe next section, we will define globaloperating models and introduce thenotions of configuration and fit. Inthis section, we will also explain howboth environment and location strategydetermine the configuration of globaloperating models needed for highperformance. In the third section, wewill explain why we think the global



operating model configuration of bothemerging-market and developed-market MNEs with narrow multi-polarfootprints will not converge and whythe configurations of emerging anddeveloped-market MNEs with broadmulti-polar footprints will converge.In the fourth section, we will explainthe logic behind these hypotheses byexamining past research about globaloperating model configurations inMNEs. And finally, in the fifth section,we will speculate on what the impli-cations of these hypotheses could be,if they are empirically supported.

Home-countryenvironment

Operating model components

Leadership

People

Metrics Organizationalarchitecture

International strategyAlignment

Execution

Superior business results

Processes &technology

“Soft” components “Hard” components

At the core of business today are twohigh-level challenges: strategy andexecution. At the heart of strategy is abusiness model or value propositionthat answers the question, “How do wemake money?” At the heart of executionis a global operating model that answersthe question “Are we properly organizedand aligned to execute that strategyacross geographic borders?” To succeedin a multi-polar world, a company’sglobal operating model must be asrobust as its business model is sound.

For a global operating model tosucceed, it needs five organizationalcomponents working in synergy withone another. These components mustalso be aligned with the MNE’s inter-national strategy which influences itshost country environments and withits home country environment.

Five organizational components

Management researchers have proposeda number of different frameworks andterminologies to characterize the com-ponents of a global operating model.



Accenture’s framework combinesmany of these theories and stressesthe importance of five core compo-nents (see Figure 1.)

We make a distinction betweenthe more formal, hard components(shown in light green) and the moreinformal (often invisible) soft compo-nents (shown in dark green).10 Thecontent and the relative importancegiven to each of the five organiza-tional components characterize theglobal operating model configuration.The meaning of the term “configuration”may be clearer if you think of each

Figure 1: Global operating model according to Accenture

2. What is a global operating model?

component as a dial that can be setat different levels (high or low, forexample); the configuration is theunique combination of five dial settings.

Leadership. Accenture defines this firstsoft component as “the senior teamof people and associated governancethat substantially influence and serveas an example for how an organizationshould operate”.11 This component hasseveral characteristics: the personalitiesof a company’s leaders; the number ofleaders there are; their position in theMNE (are they at headquarters, in thegeographic subunits or both); howdiverse they are; who makes decisions;how the decisions are made; and theleaders’ communication and leadershipstyles.12 Ownership structure influencesthe leadership component and conse-quently the other components. Researchshows that private companies tend tohave more long-term oriented andbolder decision-making styles becausecontrary to publicly listed firms, they areshielded from the regular and short-termoriented stock markets’ sanction.13

People. This second soft componentrefers to “the individuals in anorganization in terms of their skills,capabilities, experience, and individualcompetencies”.14 It refers to howtalent is managed internationally (forexample, sourcing, training, developingand retaining talent); how engagedemployees are; and how networkedthey are across geographic boundaries.15

This soft component also includes thecultural dimension of the organization—that is the beliefs, norms and sharedvalues that bind its members, evenacross geographic locations16—and eveninternal politics (power, coalitions,succession and promotion games, etc.).

Organizational architecture. This hardcomponent refers to “the way in whichresponsibility, reporting, and account-abilities are defined”.17 It includes themechanisms of differentiation andintegration a MNE uses to connectgeographic business units and thecorporate center, including the orga-nizational structure, the degree ofcentralization and formalization, andthe control mechanisms utilized.18

Processes and technology. Accenturedefines the processes and technologycomponent as “the clusters of activitiesand enabling technologies that pro-duce measurable outputs”.19 This secondhard component includes all the man-agement processes that help coordinateinput-output activities in the valuechain across geographic subunits. Someexamples of processes are strategicplanning, resource allocation, knowledgemanagement, innovation management,customer relationship management, andsupply chain management. Enterpriseresource planning software and intranetknowledge portals help to supportthese management processes.20

Metrics. This last hard component tiestogether all aspects of the operatingmodel and drives organizationalbehavior.21 Metrics include the strategicand operational, financial and nonfinancial indicators that reflect how theglobal operating model is performing.For instance, measuring the directionand intensity of trade between geo-graphic business units will tell howwell they are operating as a network;it may indicate whether managers needto strengthen inter-unit cooperation todevelop synergies across locations. Anoperational metric that can tell if thecompany generates a sufficient numberof economies of scale across boundariesis the ratio of central purchases overlocal purchases for each geographicunit. A non financial measure used



to assess whether the global operatingmodel is performing well is the toptalent geographic rotation metric, whichmeasures how effectively the mosttalented employees are assigned inforeign units. Multinationals can use itto tell if their top talent has a broadinternational exposure and a sufficientunderstanding of all key businesses.

Internal alignment

Conventional research focusing ondeveloped-market MNEs has estab-lished that to enable high perfor-mance, the configuration must beinternally aligned—that is, all fivecomponents must work in synergywith one another.22 Indeed, a globaloperating model is a holistic systemwhere the decisions about onecomponent also affect the others.For example, when a MNE seeks toimplement a cooperative, network-based global organizational structure,but the incentives and rewards (HRprocesses) are based on countries’individual performance and results, thedesired inter-unit cooperation mightnot be achieved. This is a frequentcause of company underperformance.23

Internal alignment does not meanthat each component plays an equalrole in the configuration. A MNEs’international strategy as well as itshome and host-country environmentsmay require more emphasis on someorganizational components than others.For example, studies of developed-market MNEs have demonstratedthat successful MNEs which operatein fairly homogenous host marketscompared to the home market, maygive a greater role to the organiza-tional structure to coordinateforeign operations.24

External alignment

To enable high performance, a globaloperating model must be externallyaligned too—as we have noted, it mustfit the MNE’s home-country environmentand its international strategy whichshapes the host-country environments.For example, when a MNE operates inhost markets that are relatively similarto one another and to its home market,it can apply a global operating modelthat emphasizes economies of scale overthe creation of highly locally responsivestrategies. In this case, a more cen-tralized hierarchy will outperform adecentralized organizational structure.25

MNEs’ international strategy consists ofthe market entry choices and locationdecisions that determine their geo-graphic footprint, i.e. the number andtype of host markets used for sourcingand/or selling.26 Consequently, interna-tional strategy shapes the nature ofa MNEs’ host environments. Locationdecisions are crucial since they can makeinternationalization easier or moredifficult depending on the countriesselected. We use the term “narrowmulti-polar” footprint to describe MNEswhose international strategy focusessolely in regions of similar economic andinstitutional development. For example,China National Petroleum Corporationwhich operates mostly in Africa andSouth-East Asia and Deutsche Telekomwhich operates in Western Europeand the United States have a narrowmulti-polar footprint. Their host envi-ronments are relatively similar to theirhome environment. This creates fewerpressures on the domestic operatingmodel to accommodate foreign oper-ation specificities. We also use theterm “broad multi-polar” footprint todescribe MNEs whose internationalstrategy is positioned in regions of

similar and different economic andinstitutional development. For example,Petrobras operates in Latin America,Africa and the United States; FranceTelecom operates in Western Europe,Eastern Europe and Africa. In these cases,the host-market environments are morediverse and sometimes drasticallydifferent from the home-market envi-ronments, creating the need for morecomplex global operating models.

We also argue that where MNEs comefrom also shapes their global operatingmodels. The home country, with itseconomic, cultural and institutionalspecificities, embodies much of theidentity that subsequently influencesglobal operations. Bartlett and Ghoshalrefer to the home country’s lastingeffect on the global operating modelas MNEs’ “administrative heritage”.27



Many MNEs still derive the majorityof their revenues and profits from theirhome country, particularly if the homecountry is large (Chinese, Indian, andAmerican MNEs derive most of theirrevenues at home compared withSwedish, Singaporean, or South AfricanMNEs which generate a majority oftheir revenues overseas).28 Thus, thehome country may have a variableinfluence on global operating modelconfigurations when the companyinternationalizes. When referring tohome countries, we do not want todismiss the important differencesbetween, say, Japan and the UnitedStates in the developed world andbetween China and India in theemerging world. Yet, some commoncharacteristics among countriesallow us divide them into two groups(see Table 1). Consequently, we could

Table 1: A comparison of emerging and developed countries

Emerging countries Developed countries

Wealth: low GDP per capita Wealth: high GDP per capita

Growth rate: rapid, usually Growth rate: slow, usually below 3above 6 per cent per year per cent per year

Growth volatility: high; markets Growth volatility: low;are promising but volatile markets are mature

Institutional context: in phase of Institutional context: relatively stablederegulation; partial privatization;reduction of state bureaucracies

Institutions: weak legal, accounting, Institutions: very strong and establishedintellectual property and labor legal, accounting, intellectual propertymarket institutions and labor market institutions

Consumers: very segmented and Consumers: very segmented anddifferentiated with prevailing poor demanding with predominance ofclass but rising middle classes middle classes

Adapted from Luo (2002)29

expect to find differences of globaloperating model configurations betweenMNEs originating from the developedworld and from the emerging world.

Comparing global operatingmodel configurations

To reiterate, we suggest that bothhome country and host countryconditions (associated with theinternational footprint) influence aMNE’s choice of a suitable globaloperating model configuration. Weuse Figure 2.—which shows threescenarios of interaction betweencountry of origin and internationalfootprint—to hypothesize how MNEs’global operating model configurationsmay vary to be externally alignedand generate high performance.

We hypothesize that MNEs that want toachieve higher performance will wantto align their global operating modelconfiguration with their environmentaland location strategy conditions. Thus,within each cell, MNEs will seek toadopt a similar configuration to fitsimilar home and host country effects.But across cells, due to the differencescreated by home and host countryeffects, the configurations will bemore likely to differ. This hypothesisalso hints that as its location strategychanges (the home country is usuallymore immutable, unless a MNE relocatesitself to another country), a MNE’sglobal operating model will also need tochange. This study will highlight how.

The notion that the configuration ofcomponents as well as internal andexternal alignments matter for high



performance remains a hypothesisbecause it has been tested only indeveloped-market MNEs. It is notentirely clear whether this rule is alsorelevant for emerging-market MNEs.Some researchers argue that western-based theories are not relevant tounderstand emerging-market organi-zations’ behavior.30 They explain thatthe notion of internal and externalalignment for high performance isbased on models where economicperformance is a primary driver oforganizational behavior. But theyexplain that in China, for example,politically driven behavior is as impor-tant as—or maybe more importantthan—performance-driven behavior.However, other researchers arguethat China has substantially shiftedtoward performance.31 Moreover,some researchers indicate thatthe notion of alignment is equallyapplicable to emerging-marketMNEs that want to achieve highperformance. As Cantwell andBarnard32 put it:

Whether outward-foreign directinvestment is directed to a neighboringdeveloping country, to a developingcountry in another region (South-South development) or to thedeveloped world, the destination offoreign direct investment is likelyto affect the types of challengesfaced by firms, and therefore alsothe types of corporate learningthat may affect their continuingcompetitiveness. (p 56)

On this basis, our hypothesis is thatthe configuration perspective is alsoapplicable to emerging-market MNEs.

Developed

Emerging

Multi-polar footprintwidenarrow

Location strategy (host-country effects)

Grou

pof

orig

in(h

ome-

coun

try

effe

cts) Similar Diverse

Operates only indeveloped markets

Operates only inemerging markets

Operates in bothdeveloped andemerging markets

Figure 2: A framework for comparing global operating models

We now delve deeper into the hypoth-esis just presented—and Figure 2—bycomparing the different global oper-ating model configurations that resultfrom different interactions betweenthe home environment and the loca-tion strategy (host environments). Onthe basis of an in-depth review of theliterature, we believe that successfulMNEs operating only in regions ofsimilar development can retain most oftheir home-country global operatingmodel configuration. We note that theglobal operating models of emerging-market MNEs, particularly those witha narrow multi-polar footprint, areconfigured predominantly around softcomponents. Conversely, developed-market MNEs—again, particularly thosewith a narrow multi-polar footprint—emphasize hard components in theirconfigurations. Thus, we hypothesizethat if a “narrow multi-polar” footprintenables MNEs to retain more charac-teristics of their home region in theirglobal operating model, we will observediverging configurations betweendeveloped and emerging-marketMNEs which are “narrow multi-polar”.

However, when MNEs start operatingin regions that are economically andinstitutionally different from theirhome countries, relying predominantlyon existing soft or hard componentsmay not be sufficient to manage theincreasing level of complexity imposedby a broader global footprint.Consequently, we hypothesize thatemerging-market MNEs with a broadmulti-polar footprint may have to

strengthen the hard components intheir global operating model configu-ration. Likewise, developed-marketMNEs with a broad multi-polar foot-print may need to strengthen their softcomponents which seem to be keysuccess factors in emerging economies.In doing so, we may observe a two-direction convergence process. However,this convergence may be partial onlybecause MNEs may still retain speci-ficities from their home country (forexample, emerging-market MNEs mayretain an advantage in their commandof soft components). These ideas aresummarized in Figure 3.

Global operating modelimperatives for narrowmulti-polar MNEs

MNEs with a narrow multi-polarfootprint tend to have a firm graspof their particular foreign marketsand host environments. For example,developed-market MNEs doing businessin the U.S., Japan and the EU benefitfrom equally predictable intellectualprotection and contract enforcementregimes. And while different, theconsumer tastes and market mecha-nisms in these regions have con-verged following regional integrationprocesses in North America and theEU in particular. Therefore, an Americanmultinational will have more oppor-tunities to easily standardize variousoperations across geographies whenit operates in other developed coun-tries. For this reason, a vast majorityof developed-market MNEs have a“narrow multi-polar” footprint andare home-region based.33



Similarly, it is easier for emerging-market MNEs to do business in otheremerging countries rather than indeveloped markets where institutions,human resource behavior, marketstructures and consumer preferencestend to differ from those in theirhome markets. Researchers note thecultural similarities across emergingmarkets: acceptance of powerdistance and hierarchical differences;acceptance of benevolent paternalism;and collectivism.34 They also notethat because consumers tend to havemore homogeneous expectationsthan in developed markets (theemerging middle classes are stillvery price-sensitive and value theconvenience that overcome poorinfrastructures), innovations thatoriginate in one emerging countrycan be more easily transferred intoother emerging countries than intodeveloped nations.35 For example,MTN, the leading South-Africanmobile phone operator, is able to rollout across its African markets conve-nient banking services that enablecustomers to conduct banking opera-tions in the absence of such bankingbranches around them. For thesereasons, emerging-market MNEs tendto make foreign direct investmentin other emerging economies.36

Because their host-markets oftenresemble their home market, MNEs witha narrow multi-polar footprint canfavor economic integration andminimize local adaptation. They can

3. Diverging and converging global operating model configurations

Developed-marketMNEs

Transition

Multi-polar footprint

Emerging-marketMNEs

widenarrow

Leadership

Metrics

Architecture

Processes &technology

People

Components of greaterimportance are in darker shade

emphasize synergies and the stan-dardization of their competitivestrategy across countries. Consequently,many do not need to significantlyalter their global operating modelsfor their host environments. In fact,studies on developed-market MNEshave concluded that when MNEs canfavor economic integration, theirglobal operating models can largelyreproduce the model implementedat home.37 Thus, emerging-marketMNEs which thrive on soft compo-nents for home-country reasons, anddeveloped-market MNEs which succeedmostly with hard components—aswe will demonstrate below—mayreproduce this model when theyinternationalize towards economicallyand institutionally similar regions—and still be economically successful.

As a result, we expect to find thegreatest global operating model dif-ferences across emerging and devel-oped-market MNEs with a narrowmulti-polar footprint (see Figure 3.)

Global operating modelimperatives for broadmulti-polar MNEs

When a MNE’s multi-polar footprintbroadens, managers have to face themore challenging task of adaptingto much more varied local conditionsand environments. These variationsbetween developed and emergingmarkets are felt in the geographicspread or concentration of customers;regulated or deregulated labor andcapital markets; the strength of intel-lectual property right regimes; the



availability of utility infrastructures;the presence or absence of businessschools; the presence or absenceof accounting, law and advertisingsuppliers, etc.38 For example, it seemsthat to secure access to resources inemerging economies, internationaloil companies (IOCs) need to changetheir approach to government rela-tionships in these countries. Theyneed to forge different relationshipswith national oil companies (NOCs)and the states that control them.39

At the same time, technological,competitive and institutional pressuresare forcing MNEs with broad multi-polarfootprints to develop more economiesof scale and scope across countries.As Table 2 shows, wireless telecom-munications and oil and gas MNEs are

Figure 3: Emerging-market and developed-market MNEs’ global operating model configurations

facing several industry-specific pressuresto increase the economic integrationof their international operations.40

In general, the MNEs in these twoindustries will not succeed with eitherhighly independent geographic sub-units or highly centralized operations.Operating in more heterogeneous hostmarkets will require global operatingmodel configurations that balance softand hard components.41 For developed-market MNEs that operate in hetero-geneous host markets, leading researchsuggests that they need to movebeyond their traditional reliance onhard components. In addition to those,they need strong soft components too.42

They should not only:

Create an organizational architecturebased on the differentiated network ofinterdependent geographic subunits.This means that some subunits arehighly autonomous and can adaptstrategy to the local market (in marketswhich are highly different from thehome market); they can also receivea global mandate for developingstrategies or innovations in their areasof expertise. Other subunits simplyimplement the strategy decided byheadquarters (in markets that aremore similar to the home market);they are less autonomous.

Build this differentiated networkaround an efficient supply chain andlearning-focused knowledge manage-ment and communication processes.

Create the right metrics capable ofcontinually spotting and correctinginternal and external misalignments.

But they should also:

Foster employees’ interpersonal net-works by sourcing talent globally androtating talent between geographic

subunits and headquarters; ensure thatinformal and formal networks stimulateemployee commitment; introduce morediversity into the strategy formulationstage and enhance the exchange ofbest practices across borders.

Rely on trusted, charismatic leaderswho will take risks and who canalso empower others and appreciatediversity. Such leaders can foster anentrepreneurial culture in whichchange and adaptability are the norm.

The recommendation of balancing softand hard components was developedand tested solely for developed-marketMNEs. But as they become more global,emerging-market MNEs may need toincrease their local responsivenesssince operating in developed marketswill be different from operating in



other emerging markets. Meanwhile,they also need to leverage their scalemore effectively across heterogeneousmarkets as their internationalizationprogresses. To achieve this doubleobjective, they might have to relymore on formal coordinating processes,on standardized technologies, on adifferentiated-network organizationalstructure, etc—that is on hard compo-nents. Building a differentiated networkstructure in particular, highly dependson interpersonal networking capabilities—that is, on soft components. So, whenstrengthening their hard components,emerging-market MNEs will also haveto retain their soft component strengths,in which they may have an edge.

Thus, to create a more balancedglobal operating model configurationdeveloped-market MNEs with a broad

Table 2: Pressures for economic integration on MNEs with a global footprint

Wireless telecommunications Oil and gas

Convergence of handset and technological Expectations from institutionalinvestors offerings around the world for higher returns quarter after quarter

The need for building scale and buying Sustainability pressures related topower around the world to countervail climate changehandset manufacturers’ larger size

Technological convergence towards More cross-geographic coordination“cloud information technologies” which using information technologiesintegrate network providers, IT equipmentmanufacturers, software and Internetservice providers and other related serviceproviders around the world

Globalization of innovation processes Increasingly sophisticated and costlyand cycles exploration and production techniques

Increased competition from ever-largerIOCs and more assertive NOCs

multi-polar footprint may have toconverge toward the more soft-com-ponent-oriented configuration ofemerging-market MNEs. Conversely,the latter may have to convergetoward the more hard-component-oriented configuration of developed-market MNEs. We may then observea two-way convergence process.

To summarize, we hypothesize thatwhile we will observe more globaloperating model configuration diversityfor “similar multi-polar” strategies,the configurations will converge for“diverse multi-polar” strategies tocope with the additional complexityentailed by a broader internationalfootprint. This also means that glob-alization substantially influencesmultinationals’ operating modeltrajectories so that the direct impactof home-country specificities, whilenot disappearing altogether, willhave less impact on global operatingmodels as globalization progresses.

Empirical uncertainties

As it can be observed, we assumehere that emerging-market MNEs doalready have some global operatingmodel strengths. But it is importantto point out that several researcherswould disagree with us. Dunning andcolleagues write (p 177):

Unlike yesterday’s developed-countrytransnational corporations, today’semerging-market transnationalcorporations rarely have the firm-specific ownership advantages(notably organizational and man-agement skills) to ensure success intheir foreign direct investment.43

To comply quickly with the “go global”directive in 1999, Chinese state-ownedenterprises (SOEs) had to international-ize even before they had the operatingcapabilities.44 Chinese SOEs would notseriously pioneer new global operat-ing models because they don’t havethis type of firm-specific advantages,in particular compared with Chineseprivate firms.45

Yet, we can cite examples to thecontrary. In the light of the noticeableinternational success of some emerging-markets MNEs, other researchersargue that emerging-market MNEshave begun to develop distinctiveorganizational capabilities, such asbeing able to rapidly adapt and toanticipate market changes, makesavvy acquisitions, and think uncon-ventionally.46 Moreover, Chinese SOEshave already undertaken deep trans-formations since the mid-1990s andthe acceleration of corporate reformshas developed their organizationalcapabilities.47 So, it might be a mistaketo complacently ignore these strengths.In the late 1970s, many Westernersdismissed the rise of Japanese MNEson the basis that they merely copiedWesterners and benefited fromcheaper labor costs.

Some researchers think that emerging-market MNEs should not convergetowards developed-market organiza-tional practices because many Chineseand Indian global firms have providedthem with successful alternativemodels.48 It may be that emerging-market MNEs’ soft component skillsare sufficient to achieve flexibility ina more uncertain multi-polar world,and that these MNEs will not need toadd hard components, even to operatein developed markets. What’s more,the notion of alignment may not berelevant to them if nonalignmentallows for more agility. Emerging-



market MNEs may be better off com-pletely relying on their peculiar orga-nizational form.

However, a recent Accenture analysisfound that 25 of China’s highest-performing companies (they are China’smost international companies) stillunderperform their developed-markethigh performer counterparts in termsof profitability, an indication thattheir growth may not be sustainable.49

We believe that a new emphasis byChinese MNEs on hard global operat-ing model components may changethat picture. In fact, there are signsthat Chinese multinationals are alreadylearning in that direction. Some havebeen keen to benchmark themselvesagainst developed-market MNEs andto learn from them, for examplethrough alliances, joint-ventures andstudy visits in developed-marketMNEs.50 Many Chinese MNE leaderslook to people like Jack Welch andMichael Porter as role models—makingtheir companies an interesting mixof Western management techniques,Confucian philosophy, communistindoctrination and discussion groups,and Japanese-style executive training.51

In the following section, we turnto explaining the hypotheses ofdivergence and two-way convergencehypotheses just proposed. We alsoexplain that while many emerging-market MNEs with a diverse multi-polarfootprint are successfully adoptingaspects of developed-market MNEsglobal operating models, total conver-gence has not taken place. We ques-tion whether that should be the case.

We now turn to explain the previous-ly developed hypotheses by reviewingin detail the existing literature dealingwith the five operating model com-ponents and their role in the configu-ration of MNEs from the developedand emerging worlds. For each of thefive operating model components, wehighlight first why we believe thatemerging-market MNEs and devel-oped-market MNEs differ most whenthey have a narrow multi-polarfootprint. We conclude with the bur-geoning evidence that global operat-ing model configurations partiallyconverge to support more globalfootprints. It is important to remem-ber that this evidence is challenged.It is also scarce and does not discussthe implications of a relative two-wayconvergence for global competitors.

Leadership

Today’s business literature suggeststhat the global operating modelsof emerging-market MNEs stronglyrely on the leadership component.Leadership at these companies ispersonalized and centralized; it is alsomore entrepreneurial in that topexecutives make fast, bold decisionsand are oriented toward long-termrisk. Yet, we observe that the mostmulti-polar emerging-market MNEshave introduced a more formalizedand structured leadership style, bor-rowing from their developed-marketcounterparts. We also observe thatdeveloped-market MNEs’ under-

emphasis on entrepreneurial leader-ship might be a disadvantage to themoperating in emerging economies.They may have to learn from theiremerging-market counterparts.

Centralized versus institutionalizedleadership structure. Because manyemerging-market MNEs are privatelyowned, they often have greaterunity of ownership and control thandeveloped-market MNEs do.52 TheCEO, who is often the owner, usuallyhas more power than the CEO ofdeveloped-market MNEs. This resultsin individual-based leadership struc-tures more than in team-based lead-ership structures where power is moredistributed.53 The CEO is also highlyvisible throughout the companyand top executives are often familymembers or members of the samepolitical party (ownership-related) orclan (political clan); by contrast, indeveloped-market MNEs, the leader-ship is almost exclusively composed ofprofessionals.54 There are exceptions,of course, in which leaders have onlyprofessional links to one another(Tata Sons; Sasol).55

The tendency to centralize power isoften embedded in traditional values.In China for example, it is importantthat leaders do not lose face, soemployees rarely contradict them.56

It does not mean that leaders behavelike tyrants. By the contrary, manyIndian CEOs are extremely active inpromoting social welfare for India.57

In Confucian cultures (China, SouthKorea), the CEO is associated with thebenevolent father and “father knows



best”.58 In Islamic countries, the dis-course of democratic leadership isnot as important as the discourse ofjustice—employees expect a powerfulbut just ruler.59 For this reason, decisionmaking can be highly consultative(structured in the very personalizednetworking process called “diwan”)but not participative. In China,although strategizing includes bot-tom-up consultations, decisions areconcentrated at the top where man-agement by consensus apparentlyprevails but where the ability tocreate powerful networks amongleaders, within and outside the firm(in the communist party), is even moredeterminant to influence decisions.60

By contrast, leadership in developed-market MNEs tends to be more insti-tutionalized: the CEO’s personalitysurely counts, but it influencesemployees’ collective thinking andbehavior less than in emerging-marketMNEs (clearly, there are some excep-tions: Steven Jobs at Apple, JackWelch at General Electric to name acouple). In most developed-marketMNEs, leaders’ personalities are notas important as rules, processes andorganizational structure. Leadershipin these companies revolve aroundplanning and structured and formaldecision making more than arounddirect interactions and personal con-tacts with employees.61 Leadershipis not concentrated just at the verytop but distributed throughout thehierarchy and the top-management

4. How global operating models may work according to the literature

team.62 Like the democratic societiesthey usually operate in, developed-market MNEs tend to diffuse authorityand to create an operating modelthat emphasizes empowerment anddecision-making.63 They also offertalent management programs thatidentify, train and develop leaders toensure the succession of good leaders.These programs emphasize interna-tional assignments in which leaders areencouraged to network and to draw amore holistic view of the company.64

Entrepreneurial versus conservativeleadership style. Possibly becausemany emerging-market MNEs arestate-owned or privately-held anddon’t need to meet the short-termdemands of shareholders, their topleaders are more comfortable with risksand look more to the long-term.65

But even leaders from publicly-listedemerging-market MNEs seem to bemore comfortable with stretch goalsthan Westerners are66, probably becausethey know that stock markets aremore willing to accept the emergingworld’s performance volatility com-pensated by higher growth prospects.For example, in the mid-1990s, againstindustry rationales, Russia’s Lukoildecided to establish strong upstreamfootholds in unexplored areas and tosacrifice immediate gains in produc-tion growth.67

This entrepreneurial leadership styleis precisely what has led many emerg-ing economies to take off. Prahaladexplains that fast decision making andlow risk-avoidance led to the inversionof the decision-criteria pyramid.68

Taking the opposite view of theirmature-market competitors, emerging-market MNE leaders foresaw and

decided that the poor can be targetcustomers, that emerging-marketconsumers can appreciate and pay fornew technologies, and the bottom ofthe pyramid is important for a multi-national’s long-term survival. Theamount of red-tape and bureaucracythat emerging-market leaders havehad to deal with in their home coun-tries is also a sign of their leaders’strong entrepreneurial spirit.69 It hasequipped them with a superior abilityto create networking skills withintheir ecosystem and to deal withpolitical stakeholders. They are muchless politically naïve than their devel-oped-market counterparts, and thiscan help them in their efforts tointernationalize.70 They tend to lever-age their ecosystem and their net-work to quickly solve problems.71

Thanks to their political connectionswith the Chinese state, for example,CNPC, Sinopec and CNOOC havebeen able to include resource-accessnegotiations as part of larger bi-lat-eral talks. They have entered Africanmarkets with all-encompassing dealsthat include development aid, educa-tion programs and social infrastruc-ture financing, which most IOCs havenot been able to do.72

In developed countries, stock marketpressures lead to more emphasis onthe short term as weel as a moreconservative attitude toward risk.73

Cascading committees also tend todelay decisions despite distributedleadership structures created to fosterindividualized organizations.74 Thedecentralized approach, which givesconsiderable discretion to businessunit managers and which is expectedto foster internal entrepreneurship,often results in fiefdoms and rivalryat the top.75 This structure can stifle



innovation, entrepreneurship andflexibility—a serious problem whenhost markets are very different andparticularly dynamic.

Convergence. Indeed, although theserespective leadership styles may workwell for narrow multi-polar strategies,there is some, albeit limited, researchand anecdotal evidence suggest bothcan limit MNEs as they become moreglobal. To overcome these limitations,some emerging-market MNEs witha “broad multi-polar” footprint areintroducing Western-based leadershippractices. And although few developed-market MNEs have adopted emerging-market practices, they should do wellto consider a more entrepreneurialleadership style. In China, for example,the leaders of SOEs are using a morestructured strategic agenda. Strategy-formulation includes more bottom-upinitiatives and leaders are using portfoliomanagement based on performancemetrics and core-capability analysisto make strategic decisions.76

We should note, however, that thepropensity of emerging-market CEOsto centralize decision making—apossible flipside of their personalizedleadership style—could be a handicapto their success in developed markets.The autonomy of subsidiaries might bestifled when they need it the most.For example, Hyundai has sufferedimportant setbacks recently in theUnited States (market share loss, highexecutive turnover) due to the feudalleadership style of its CEO.77 Evolvingpartially toward the more Westerndistributed-leadership model mightthen make sense.

Because family, cultural or politicalclan relationships matter for leader-ship selection and appointment, andbecause the clan is likely to be homecountry-based78, leadership in emerg-ing-market MNEs also needs tobecome more geographically diverseto manage a broad multi-polar foot-print. More global emerging-marketMNEs are beginning to understandthis. Companies like Tata manage thecareer of future leaders with multipleforeign assignments, which createsmore sensitivity to internationalmarkets.79 At Orascom, the top teamincludes non-Egyptian citizens tomeet the more specific needs of theirdeveloped markets.

Developed-market MNEs, on the otherhand, may have problems becauseof excessively structured leadership.Some experts argue that the Westneeds to move from an emphasis onmanagement, in which good managersproduce predictable results, to anemphasis on leadership, where leadersare charismatic, risk-taking, fastmoving and far sighted. Granthamand colleagues explain this shift:

If your strategy is to deliver break-through performance, you need adifferent type of leader to makethat happen. Seems logical enough;but the problem, we believe, lieswithin existing workplace structuresand business processes that are con-structed not for breakthroughs, butfor predictable performance. Simplyput, successful leaders of the 2000swill not be cut from the cloth ofmanagers of the old. Can’t you justsee General Motors recruitingRichard Branson as its new CEO (asif he would want the job)?80 (p 244)

In other words, developed-marketMNEs might be wise to look to lead-ers like Pat Davies (Sasol), the Ambanibrothers (Reliance Communications andReliance Industries), Carlos Slim Helu(Telmex), and Naguib Sawiris (Orascom).It needs to be further explored.

Thus, emerging-market MNEs with abroad multi-polar footprint seem toembrace some of structural leadershipattributes of their developed-marketcounterparts. Although there arecurrently no signs that their leadershave become less bold, charismatic,visionary, and inspiring as theyimplement some Western leadershippractices, we still don’t know howthey will be able to reconcile morestructure and their current agility andspeed of decision making. There aresigns that these features mightbecome more important, not less ina multi-polar world. So, despite sometwo-way convergence, emerging-market MNEs may well have a leader-ship advantage that they shouldconsolidate, not lose.

People

Past research suggests that the globaloperating models of emerging-marketMNEs’ typically rely heavily on peopleskills. These companies excel at foster-ing and leveraging wide inter-personaland interorganizational networks,although we don’t know if and howthey replicate these skills globally. Fordeveloped-market MNEs, the emphasison people means extensive, formalinternational human-resource man-agement processes. Some researchsuggests that more global emerging-market MNEs have started to implementthese processes, yet we don’t knowwhether a full convergence towards



the Western model would be desirable.Developed-market MNEs that want tosucceed in emerging economies maywell have to learn from their emerg-ing-market counterparts how todevelop their internal and externalnetworking capabilities.

Networking as second nature versusnetworking as second best. In align-ment with a leadership style basedon highly personalized interactions,networking is second nature anddeeply engrained in emerging-marketMNEs’ corporate and national cultures.Called “guanxi” in China or “wasta”in Islamic countries, interpersonalnetworks are at the root of all corpo-rate operations and of extensiveinterorganizational relationships. Infact, relationships between organiza-tions are essentially seen as extendedinterpersonal networks, i.e. as rela-tionships between individuals, whichis more personal and less abstract.As Zhang explains:

Interpersonal relations are not aprerequisite for inter-firm networkingin the West, while in China, personalnetworks are particularly importantas they set the premise and form thebasis of institutional networks.81 (p 60)

In emerging-market MNEs, networksare based on reciprocal obligations,long-term commitments, kinship andtrust. The criteria for being part ofa network vary from region to region:in Asia, the Middle-East and Africafamily and political ties are important82,while in Latin America, class andeducation are key.83 Since exclusion

from a network can have severe con-sequences, emerging-market MNEscommit themselves to promotingand extending their networks. Inthe automobile sector, for instance,Chinese carmakers are very loyal totheir suppliers. Instead of subjectingthem to strict competition, theyprovide them with the monopoly ofsupply, which stimulates trust on bothsides.84 By contrast, in developed-market MNEs, networks tend to berational and calculated, which limitstrust due to the higher risk of freeriding and opportunism. One exceptionis Japan. Though Japanese MNEs relyheavily on the processes and structuralelements of their global operatingmodel—which their North Americanand European counterparts borrowedfrom them—they also have a networkculture that is much like that of otherAsian countries. This global operatingmodel balance may be one of the factorsof their current world domination.

While interpersonal networks can becritical to the success of interorgani-zational networks (particularly inknowledge and resource-intensiveindustries), many developed-marketMNEs seem to struggle to make themwork. That is a significant disadvan-tage because research shows that theability to manage alliances and part-nerships provides multinationals with:

greater access to resources and withkey opportunities for learning,85

easier international expansion by help-ing them to reduce capital investmentexposure in some markets and to over-come institutional impediments in hostcountries—for example, those relatedto hidden protectionist barriers,86

a stronger local image in consumers’and employees’ minds, especially if theimage is linked to a strong local partner.

Despite these advantages of buildingeffective networks, developed-marketMNEs like IOCs find it difficult tomanage a portfolio of relationshipsand to change their transaction-based mindset.87 On the other hand,NOCs—mostly from emerging markets—are more comfortable dealing withone another because they trust oneanother more and identify more withone another’s cultures. Gaining thesenetworking skills might be key forIOCs’ long-term survival.

Reliance of developed-market MNEson extensive, formal internationalHR processes. By contrast, the peoplecomponent in developed-marketMNEs is typically focused on humanresource processes. According to Luo,successful developed-market MNEsemphasize international humanresource management processes thatcreate a “culture of human resources”.88

Contributing to this strong culture are:

Performance-based promotions andincentives. These processes encourageforecasting and tracking of individuals’performance. To increase commitment,stock option plans across bordersbecome a norm so that financial ties,perhaps more than personal ties,shape employees’ engagement.

Empowerment and accountability.The assumption is that talent requiresnew challenges and some autonomy.Empowering employees provides themwith leaning and growth opportunities.

Broader job content. Job content isexpanded (for example, through moredelegation) to increase employees’skills and commitment to the company.



It is also formally specified so thatemployees always know what andwhat not to do.

Continuous training and development.Knowledge and experience are pre-requisites for internal promotions butalso for external job mobility incountries where job markets institu-tions tend to be efficient.89 Thus, theemployer institutionalizes continuouslearning opportunities.

Rotation of managers and keyemployees across geographies.

Convergence. Recent studies indicatethat emerging-market MNEs withmulti-polar footprints are convergingtoward the human resource culture oftheir developed-market counterparts.90

As they acquire developed-marketcompanies, engage with them intojoint ventures, or recruit their talentin Western business schools, they areincreasingly implementing career-development training, annual reviews,performance-based rewards andinternational job assignments as partof their practices. More multi-polarChinese MNEs, for example, use thenormative and systematic Japanesemanagement style which includesmotto recitations and experienceexchanges in ritual morning sessions.91

By introducing more standardizationand transparency, these practicescan prevent emerging-market MNEsfrom focusing too much on the innergroups within their networks. Whenthe strategy is more global, exclusionand lack of diversity may hampertheir adaptation to local markets.

This convergence in relation to thepeople component may have excep-tions and vary by market. In theirdeveloped-market business units, forexample, Chinese MNEs converge morecompletely toward developed-marketpractices. But in their domestic oper-ations, Chinese multinationals seemto retain their local specificities: carefor employees, strong union-practices,paternalistic style for harmony inthe society, a culture of face-saving.92

These modifications indicate thatglobal Chinese MNEs are able to dif-ferentiate their human resource man-agement between the home and hostcountries—a positive sign for theirperformance.93

Furthermore, convergence towardmore systematic international HRprocesses does not—nor should it—entail the loss of networking skillsand original specificities. Despite aprogressive adoption of Westernhuman resource practices, the emerg-ing-market networking capabilityseems enduring. It influences bothorganizational and individual perfor-mance. Against expectations, “thehistorical importance of networks inChinese organizations remains largelyunchanged by the corporatization”—a convergence process toward moredeveloped-market style managementthat began in the mid-1990s.94

Anecdotal evidence suggests thatmore global emerging-market MNEslike Tata are using internationalnetworking extensively to leverageknowledge across borders.95 They notonly keep the senior management ofacquired foreign companies but alsoconnect them with all employees inand outside India who hold valuable

knowledge. These strong interpersonalnetworks have the added benefit ofcreating strong identifications withthe company and of fostering theemerging-market entrepreneurialculture that helps employees becomemore comfortable with change.

Research suggests that more multi-polar developed-market MNEs aretrying to emulate these networkingcapabilities. Some researchers actuallyfind that while developed-marketMNEs in China tend to use networkingties as much as their Chinese com-petitors (an indication that they haveseemingly converged towards thispractice), an increase in the numberof ties for these developed-marketcompanies produces diminishingreturns. It cannot equal the skills ofthe Chinese. One explanation is thatnetworking “requires a differentmind-set that is incompatible with theentrenched, efficiency-based routinesof foreign firms”96 (p 386). Indeed, ifbroad multi-polar MNEs from devel-oped-markets do not realign theirglobal operating model thoroughly(for example by developing employee’sability to network, by letting ties tobe created by local people and not bysenior expatriates, by creating struc-ture and performance metrics whichallow foreign subsidiaries to leadmore initiatives that go out from thecorporate standard), the convergencetowards one soft practice may notbe sufficient. This relative lack ofsuccess highlights the need for newalignments and new configurationsfor broad multi-polar strategies.Although the benefits of networkshave been largely publicized97, deepglobal operating model impedimentsprevent many developed-marketMNEs to reap their benefits.



Of course, once again, empirical evi-dence is scarce and focuses on a limitednumber of emerging nations, whichhampers generalizations. But it seemsthat more global emerging-marketMNEs keep the interpersonal net-working advantage of their countryof origin. Reciprocally, more globaldeveloped-market MNEs are willingto converge towards networkingpractices but they do not necessarilysucceed. They may have to try harderand differently. In this two-way con-vergence, convergence is partial only.

Organizational architecture

We still know little about emerging-market MNEs’ organizational architec-ture (See Table 3 for a description ofwhat constitutes organizationalarchitecture).

Most of the literature on the organi-zational architecture of emerging-market MNEs focuses on how thesearchitectures support domestic oper-ations. The literature suggests thatorganizational architecture is not themost developed component of theirglobal operating models, even whenthey have a diverse multi-polar foot-print. Developed-market MNEs withbroad global footprints, on the otherhand, have begun implementing net-work-based organizational structuresthat both create cross-border synergiesand respond to local market specifici-ties. We observe that emerging-marketMNEs’ emphasis on hierarchicalstructures might not be ideal whenthey have broad multi-polar strate-gies. They may have to adopt some oftheir developed-market competitors’

more sophisticated structuralarrangements. The competitiveadvantage emerging-market MNEsmay have over their developed-market counterparts, however, is thatthe former already possess the softcomponent skills that are essentialto coordinate these networks.

Centralized versus decentralizedhierarchies. As explained earlier, inemerging-market MNEs where CEOsand top managers seem to concen-trate more authority, organizationalstructures are more centralized andhierarchical than in developed-marketMNEs.98 High power-distance accep-tance and benevolent paternalism arecommon traits of emerging countrieswhich could explain this reality.99 InRussia, for example, intracorporateknowledge exchanges tend to be pre-dominantly horizontal because peopleare reluctant to share knowledge withorganizational members they considerto be inferior in the hierarchy. Theyalso fear punishment from their supe-riors.100 In Latin America, despitesome exceptions such as Embraer’ssuccessful flat multidivisional struc-ture101, companies seem to remainhighly hierarchical and centralized.102

Anecdotal evidence suggests thatsome emerging-market MNEs maylack the lateral structures necessaryto formally coordinate internationaloperations. These structural difficul-ties seem to be a problem for rapidlygrowing Middle-Eastern telecommu-nication MNEs like Zain and SaudiTelecom: as their global footprintshave become wider, it has become

more difficult for them to rely oninformal contacts only.103 In Indiaas well, innovation efforts seem tobe based on individual efforts ratherthan on teamwork, which stronglycontrasts with Western and Japanesecross-divisional and cross-geographicinnovation styles.104

By contrast, developed-market MNEstend to rely more heavily on theirorganizational architecture to coordi-nate their international operations.Since Chandler105 highlighted thebenefits of operational decentraliza-tion to business units functioning assemi-autonomous profit centres,developed-market MNEs have primar-ily relied on this type of organization-al architecture.106 This multi-divisionalarchitecture, which first appeared inthe United States in the 1920s and



spread around the developed worldbetween the 1950s and the 1980s, isbased on highly formalized controlprocesses around supervision.107

Supported by elaborate financialand budgeting control mechanisms,the multi-divisional has favored theconvergence in the developed worldtowards a transparency and account-ability culture where governance dependson precise role definitions.108 Even if theyhave to change often, roles need to beprecisely defined to avoid ambiguityin execution and chaos.109

The multi-divisional architecture indeveloped-market MNEs has changedconsiderably over time with wavesof delayering to empower employeesat home and abroad110, periodicorganizational restructurings and reg-ular modular reconfigurations of busi-

Table 3: Organizational architecture

1. Organizational structure:

Vertical axes of differentiation and integration which shape the hierarchy.For example the extent of hierarchical, hierarchical structure or flatter, networkconfiguration of interdependent elements.

Horizontal axes of differentiation and integration. This is the way activities areregrouped, for example around geography, customers, products, functions, etc.

2. Centralization or decentralization: extent to which power and authority areconcentrated (centralized) or distributed (decentralized)

3. Formalization and standardization: written policies, rules, job descriptionsand standard procedures.

4. Output and behavior control: financial performance, technical reports, salesand marketing data and direct supervision.

5. Lateral and cross-departmental relations: direct managerial contact,temporary or permanent teams, task forces, committees, integrative functionsor departments across geographic locations.

Adapted from Martinez and Jarillo (1989) and Girod (2008)

ness units. These changes indicate howimportant formal structure is in devel-oped-market MMEs.111 Despite moredecentralization, the multi-divisionalarchitecture remains relatively hierar-chical, with strategy and knowledgeoriginating mostly from headquarters.112

This architecture is appropriate wheneconomic integration is more impor-tant than local adaptation, as is oftenthe case when MNEs have narrowmulti-polar footprints.

Convergence. Following influentialresearch on new organizational mod-els for multinational enterprises, suchas the “transnational multinational,”the “multi-focal multinational,” andthe “heterarchy,”113 many developed-market MNEs with broad multi-polarfootprints have strived to implementa network-based architecture to

replace their multi-divisional archi-tecture. This new architecture is basedon more horizontal and inter-dependentrelationships between headquartersand geographic subunits, and betweenthe subunits themselves (see Figure 4.).114

The result is that some responsibilitieslike knowledge and learning don’tnecessarily originate from headquartersyet still flow throughout the network.In function of their distinctive capa-bilities and their host-country specificadvantages, some subunits becomecentres of excellence and becomelargely autonomous, generating strate-gies not only for their own marketbut for markets globally.115 This type ofarchitecture (differentiated network)fosters local autonomy and entrepre-neurship and generates synergiesacross geographic operations.116 For



example, in the 1990s, Ford choseAustralia to lead its development infour-wheel drive vehicles; in the early2000s, Nokia chose China to developlow-cost handset capabilities.Meanwhile, less-strategic subsidiaries,or those where local adaptationis not as necessary, remain morecentrally controlled.

In these networks, developed-marketMNEs often balance the local and theglobal by using sophisticated matrixstructures that combine two or eventhree organizing principles. Indeed,the matrix usually seeks a balancebetween global products or functionsand geographic responsiveness. Nokiaand Procter & Gamble are examplesof multinationals that use successfulmatrix structures. Cisco currently usesa front-back structure that subordi-nates technological platforms depart-ments to customer-facing businessunits themselves organized by type ofcustomer and geography.117 Otherdeveloped-market MNEs with a globalmulti-polar footprint now organizetheir operations according to theeconomic development of their markets.For example, in 2004, Kimberly-Clarkpioneered a structure that regroupsits operations for the “North Atlanticmarkets” and for the “emergingmarkets”. Relying more on formalstructural arrangements than oninformal coordination with keyexpatriates, many developed-marketMNEs have also created regionalheadquarters that are closer to the localoperations than world headquarters:this prevents geographic subunitsfrom gaining too much power.118

To create these networks and foster amore entrepreneurial culture, moreglobal MNEs from developed-markets

Figure 4: Multinationals as networks

have also increased collaboration byestablishing rapidly reconfigurableproject management teams and cross-unit and functional project manage-ment teams, and by favoring intensemanagers socialization across geo-graphic locations.119 To create moresynergies across the globe, they alsoincreasingly rely on central functionsand shared services for the supplychain, information and knowledgemanagement and technology man-agement. This structure givesmore customer-facing autonomy tothe subsidiaries yet centralizes theback-office and reduces costs.

Despite these impressive efforts,many developed-market managersstill struggle with the complexity andcosts that these arrangements entail.A network organizational architecturerequires then to reconfigure theirglobal operating models sot thatmore informal, soft components canplay the necessary lubricating role.120

For example, it has been well docu-mented that networks require intenseinter-personal communication121, acapability well found among emerg-ing-market MNEs. This is where moreglobal developed-market MNEs whichre-balance their configuration toinclude more of the soft componentswill gain.

We cannot determine the extent towhich global emerging-market MNEshave begun converging toward thisnetwork model. It seems that mostof them still rely on a variant ofthe multi-divisional form. While thisvariant also departmentalizes func-tions and creates more autonomousbusiness units, it is more hierarchicaland uses more central control mecha-nisms. A limited amount of research

seems to suggest that emerging-market MNEs have not yet imple-mented the differentiated network,even when they are more global.Ownership structure and leadershippeculiarities hamper further convergence.According to Zhang, in Chinese SOEs

The roles of HQ are changeable atall times, depending on their owngovernment’s needs, which makesit difficult for their subsidiaries tocarry out responsibilities and causesnumerous problems in their strategicdevelopment.122 (p 239)

Thus, a tight hierarchy among emerging-market MNEs with wide multi-polarfootprints may be hindering integra-tion and responsiveness. On the otherhand, as the strong interpersonalnetworks of these companies maysomeday be an advantage in helpingthem to manage the differentiatednetworks needed to manage success-fully broad multi-polar footprints, wemay expect emerging-market MNEsto progressively converge towardsthis arrangement.

Again, both groups of MNEs can learnfrom one another, though we believeat this time that developed-marketMNEs have a stronger organizationalarchitecture capability.

Processes and technology

Research indicates that processes andtechnology have a smaller space inthe global operating model configu-rations of emerging-market MNEs witha narrow multi-polar footprint thanin those of developed-market MNEswith narrow footprints. This compo-nent is also less important than theirleadership and people components.But research also indicates that more



global emerging-market MNEs arematching their Western counterpartsin processes and technology deploy-ment. However, if convergence takesplace, emerging-market MNEs shouldbe careful to retain their distinctivestrengths.

Little versus strong emphasis onprocesses and technologies. Someresearchers argue that when emerg-ing-market MNEs have not beenexposed to Western process-basedmanagement (as is often the case forMNEs that do not have operations inthe developed world), these MNEs havevery few skills related to processesand the technologies underpinningthem. For example, some observersargue that weak processes of China’s“new dragons’” prevent these compa-nies from coordinating and runningcomplex, systemic businesses, includ-ing international supply chains.123

In India as well, “there are no longestablished rules to treat knowledgeas a resource.”124 (p 114) One of thereasons is that emerging-marketMNEs tend to subordinate processesto people. In countries that make upthe former Soviet Bloc, for instance,knowledge management is treatedwith suspicion because explicitknowledge is often associated withrepression and top-down authority.Knowledge and information, which ismostly implicit in these firms, flowsthrough personalized networks withwell-chosen partners rather thanthrough more impersonal, process-driven exchanges.125

By contrast, processes and technologyin developed-market MNEs are anessential component of their global

operating models, even when theseMNEs operate in regions of similareconomic development. When theygained an edge in innovation processesin the 1980s, Japanese MNEs pioneeredsophisticated knowledge-managementprocesses to make information moreexplicit and broadly shared by organi-zational members.126 Many otherlarge companies like General Electricand BP – and Accenture for that matter—have created on-demand-workplaceportal sites that have become essentialknowledge management tools: theportals support emergent humanresource management practices wherehighly mobile employees can connectand communicate all around theworld.127 The result is that planningand strategic processes no longerbegin and end with corporate head-quarters.128 Emphasizing the predom-inance of processes in developed-market MNEs, supply chain and inno-vation processes can even becomethe paradigms of new organizationalarchitectures, for example in multina-tional pharmaceutical companies.129

Convergence. While many globalemerging-market MNEs will need toincrease the role of processes andtechnologies, some are already usingthe newest and most sophisticatedtechnologies and organizationalprocesses to coordinate their interna-tional operations. They have repro-duced those used by developed-marketMNEs and sometimes beaten themat their own game.130 For example:

Tata implements the “Tata BusinessExcellence Model” across its businessunits and newly acquired divisions.This model is based on the Malcom

Baldrige Award standard and on Kaplanand Norton’s balanced scorecard for thedevelopment of strategic initiatives.131

Samsung was a very early adopterof Japanese quality circles.

Cemex was the first cement companyin the world to use GPS technologiesin its product delivery, giving themmore speed than its competitors.

Infosys thrives on quality and processobjectives, quality performance moni-toring and improvement initiativeprocesses.

Yet, most studies find that emerging-market MNEs have a long way to go.For example, many leading BrazilianMNEs have not established global anddiversified supply chain networks, evenamong their operations in developednations.132 As a result, they are notsufficiently integrated and responsivein those markets. To what extent,however, should the processes ofemerging-market MNEs with a moreglobal footprint converge toward thoseof their developed-market peers? Itseems that while emerging-marketMNEs may need to strengthen therole of processes and technologies intheir configuration, they should alsobe wary of the rigidities that processescan create. In fact, we believe emerg-ing-market MNEs should continue tosubordinate processes to people.Although formal processes and tech-nologies are important in a differenti-ated network, excessive reliance onthem can inhibit the creation ofinterpersonal ties133 and thus, hinderthe creation of customer intimacyand the adaptation to local markets.Examples of customer dissatisfactionwith call centers abound. Many Britishservice firms have been forced to



relocate their call centers to Scotlandor Ireland from India because Britishcustomers were resenting a servicethat was too distant from their reality.Customer relationship processes thatare too complex or fragmented cande-personalize the company-clientrelationship. That is because manyof these highly formalized and rigidprocesses don’t allow for non-standarddecisions that customer interactionssometimes call for.

Perhaps, developed-market MNEswith diverse multi-polar footprintsshould work to balance processes andpeople, in particular to succeed inemerging markets. The key for themmight be to differentiate where stan-dard processes work best (for efficiencymaximization) and where they shouldrely more on people’s skills and net-works. In other words, in some locations,human-based solutions might be theleast expensive and most satisfyingto customers.134

Metrics

Accenture places metrics at the centerof the global operating model becausethey help to determine whether theglobal operating model is performingwell and whether each of the compo-nents is internally and externallyaligned. Table 4 presents examples oftwo common metrics used to measurethe effectiveness of the leadershipcomponent and the people component.

We know little about whether metricsmatter for emerging-market MNEs’global operating model alignment, and

if so, which type of metrics they use.But it seems that emerging-marketMNEs do not use metrics as muchas developed-market MNEs136 wherethe adage “what gets measured getsdone” is popular and where competingon analytics is important.137

Low versus high importance ofmetrics. It is perhaps not surprisingthat emerging-market MNEs use fewermetrics than developed-market MNEssince the former may have fewertracking processes in place to generatethe metrics. In the oil and gas industry,for instance, emerging-market NOCsdo not seem to rely as systematicallyon the strict net-present-value metricthat IOCs use in their decision-makingprocess—which is consistent with amore-risk conscious leadership style.Rather than adopting this metric, NOCs

change the game by creating dealsthat involve aid and infrastructurepackages.138 This signals a market-development mind-set as opposed toa market-exploitation mind-set.

In our review of the literature, wealso found differences in how metricsare used to measure the alignmentbetween leadership, people andorganizational structure. In emerging-market MNEs, metrics used tomeasure individual performance andproductivity do not seem to be asimportant as they are in developed-market MNEs. Emerging-marketMNEs appear to place more emphasison loyalty, kinship and political con-nections for talent management andincentives, rewards and promotionsdecision more than on formal individ-ual performance metrics.139



Developed-market MNEs typicallyuse metrics to assess the quality ofhuman resources, innovation, supplychain effectiveness, knowledgemanagement and leadership. Someexamples are time and cost compli-ance of new product development,teamwork effectiveness, learning,and supplier performance.140

Convergence. We have not foundany literature comparing the use ofmetrics in emerging- and developed-market MNEs that have broad multi-polar footprints. Yet, if our hypothesisis correct that the alignment of globaloperating model components will beincreasingly important to emerging-market MNEs’ performance, moreemerging-market MNEs whose foot-print is more global may also needto employ more metrics.

Metrics

Decision-mapping (leadership)

Time to decision

Degree and diversity ofmanagers involved

Time on value

Number of strategic decisionsdivided by costs

Density: percentage ofexisting relationships in thegeographic subunits

Cohesion: average number ofsteps to reach any other personin the geographic subunits

Centrality: average number ofrelationships per person acrossgeographic subunits

What they tell us

Time necessary for decisions

Where decisions are made

Elapsed time

Productivity ofdecision-mapping

How work really gets done

Levels of cross-geographiccollaboration

Measurable Costs

Time wasted

Unnecessary people involved

Resources used

Failed execution

Resources used to buildnetwork

Measurable Benefits

Competitive advantage fromdecisiveness

Savings in time and resources

Increased leadership capacity

Increased innovation capability

Adapted from Accenture135 (2006)

Table 4: Examples of metrics for global operating model alignment

Organizational network analysis (people)

The first systematic comparison of theglobal operating model configurationsof emerging and developed-marketMNEs in function of their internalfootprint shows that researchers stillknow little about how successfulemerging-market MNEs sustain theirinternationalization. For example, wecould find no literature on how theymake decisions about what should belocal, regional and global in theirglobal operating models—what arethe rules. Moreover, the current liter-ature does not explain if or how thecomponents of their global operat-ing models work in synergy with oneanother. These gaps make the newAccenture research project based on anexploratory case study methodologyin the energy and wireless telecom-munication industries (see “Aboutthe research”) highly necessary. Forthis reason, our conclusions remainmostly hypotheses:

To achieve high performance, bothdeveloped-market and emerging-marketMNEs may have to configure theirglobal operating models according totheir location strategy—in order to fitthe constraints of their host markets—and on their home-market specificities.They may also need to align the globaloperating model components withone another.

When their multi-polar footprint isnarrow, emerging-market and developed-market MNEs may successfully rely ona global operating model that largelyfollows the characteristics of theirhome environment. Indeed, the globaloperating model used in the homemarket is appropriate in regions whichare rather similar to those of the homeenvironment. Since emerging-marketMNEs with narrow multi-polarfootprints tend to rely mostly on softglobal operating model components(leadership and people) and developed-market MNEs with narrow multi-polarfootprints rely mostly on hard com-ponents (architecture, processes, andmetrics), we can expect these twogroups of MNEs to have very differentglobal operating model configurations.

The current business literatureindicates that the global operatingmodels of developed-market MNEsare configured to create stability andreduce uncertainty. (See Figure 5.)These MNEs emphasize forecasting andrisk-management and are wary ofthreats to the core. Some researchershave argued that their model is gearedtowards “complexity reduction”.141

Because the home-market conditionsof emerging-market MNEs are oftenunpredictable, these MNEs are atease with volatility, risk and change.In contrast with mature-marketMNEs, their model is geared toward“complexity absorption”.142



Due to various constraints, the modelsused by developed- and emerging-market MNEs may converge towardone another. In the case of emerging-market MNEs, home-market employees.May begin to question the broaddifferences in empowerment or benefitsbetween them and their host-marketcolleagues in the developed world. Inthe case of developed-market MNEs,managers will begin to feel theneed for more radical innovation andstrategic renewal by means of anentrepreneurial operating model.What’s more, all MNEs with a broadmulti-polar footprint will experiencethe difficulties of operating inregions with different economic andinstitutional structures. To managethese constraints, emerging-marketMNEs may implement some of the hardcomponents of their developed-marketcompetitors, while developed-marketMNEs may adopt some the soft com-ponents of emerging-market MNEs.

Even if the global operating model ofsome emerging-market MNEs beginsto converge with the global operatingmodels of developed-market MNE’s,the convergence will be only partially.The competitive advantage of emerging-market MNEs, as far as their organi-zational model is concern, is in their

5. Remaining questions

Traditional model of developed-market MNE

• Configuration emphasizes hardcomponents

• Anticipate• Forecast• Prepare• Prevent threats to core (complexity reduction)

Culture: systems geared toward stability and reassurance ofinvestors

Constraints / sustainability:• Radical innovation• Expansion into emerging markets

New model of emerging-market MNE

• Configuration emphasizes softcomponents

• Embrace volatility• Keep things in flux• Don’t buffer• Complexity absorption• Home country as incubator for “learning to cope”

Culture geared toward risk-taking; investors expect volatility

Constraints / sustainability:• Demographics• Attracting and retaining talent (employee satisfaction)• Expansion into developed markets

ability to orchestrate the soft com-ponents better than their developed-market counterparts. Thus, even ifthey adopt some hard componentskills, they should retain some oftheir original strengths.

We believe that emerging-marketMNEs represent a new organizationalform whose capability to managethe required open organizationalboundaries (alliances, joint-ventures),and the interpersonal and interorga-nizational networks necessary tosustain a global strategy, is superior.They try to combine previous genera-tions’ best practices while avoiding

their mistakes and inventing newsolutions to new problems. This capa-bility has incubated in their morevolatile domestic environments.

As doing business in a multi-polar worldbecomes imperative for companies,emerging-market MNEs that aresuccessfully going global may providesome solutions to the complexities ofdoing business in emerging economies.Just as European models had to catch-up with American global models inthe middle of the last century, andAmerican models had to catch up withthe Japanese in the 1980s—they werebetter able at fostering cross-borderinnovation and at combining localresponsiveness and economies ofscale, today’s international companieswill need to look to global emerging-market MNEs for answers to new



complex international problems—thenecessity to succeed in faster growingemerging economies. (See Figure 6.)

Managers of more global developed-market MNEs cannot afford to remaincomplacent. In industries wherenetworking and alliance managementcapabilities are important (for examplein energy and wireless telecommuni-cations) and where creating networked-based organizational structures requiresnew leadership and people capabilities,developed-market MNEs will have tolearn from emerging-market MNEs. Butfirst, it will be important to determineexactly how developed-market MNEscan retain their strengths in hardcomponents while adopting their

Figure 5: Traditional and new models of multinational enterprises

Europeanmultinationals

Americanmultinationals

Japanesemultinationals

Emerging-marketmultinationals ?

Multi-local model

• Decentralized,independently run markets

• Key goal: local profitmaximization

Global model

• Centralized, integratedmarket

• Increased formalization

Distributed model

• Excellence in supply-chainand innovation process

• Growing role ofregional units

• Constellation of partners

Multi-polar model

• Global and local• Networked operations• Global integration of

back-office activities• Growing role of

centralized functions• Decentralization of

customer operations

Com

plex

ity

1910s-1940s 1950s-1970s 1980s-1990s 2000s

Catch-up process/convergence

Exit/decline

emerging competitors’ soft practices.And it will be interesting to knowwhether they should continue usingexisting global operating model inregions of similar economic and insti-tutional development and convergetowards emerging-market forms fortheir emerging-market operations only.

In other words, what aspect of thenew practices should be local andwhat aspect global?

Finally, it’s important for managers tounderstand how to change their globaloperating model configurations astheir international strategy changes.This study is a step in this direction.



Figure 6: Evolution of global operating models

We have selected a case studymethodology because it is the mostsuitable for exploring a new phenome-non—the organizational models ofemerging-market MNEs.143 Thismethodology involves:

Selecting industries and companiesthat are relevant to test the frame-work just developed (see decisionscriteria below),

Gathering data through a number ofmethods in order to triangulate andcontrast different sources of information,

Analyzing the data for each case andacross cases in order to identify pat-terns of similarities and differences.

Industry selection

We have chosen to look at differenttypes of multinationals withintwo industries. This approach hastwo advantages. First, it allows us toaccount for specific industrial contexts.Second, we can control for similarindustry trends and factors whichmay compete with our hypothesesand explain the findings.



After a detailed analysis of all industry-groups, we decided to focus on thewireless telecommunications and theoil and gas industries, because theysatisfy several criteria of comparability:

Industry diversity. We have selectedindustries with a sufficient numberof players per country so that if oneMNE does not grant access, we canstill have a relevant alternative.

Multi-polar industries. The wirelesstelecommunications and oil andgas industries are truly multi-polar.The number of directly comparableMNEs is evenly spread across allregions of the world so that there isno asymmetry between contendersfrom the triad and those fromemerging economies. There are largeand directly comparable players allaround the emerging world, not justin China and India.

Transnational industries. Bothindustries experience similar forces(although to a different extent). Inboth industries, MNEs need to buildsynergies and economies of scale, aswell as be locally responsive andadaptive. This double and conflictingchallenge makes the pressures onglobal operating models more acute.Since transnational forces willbecome stronger as industries becomemore multi-polar, we are focusing ontwo trend-catching industries.

Network industries. Both industriesrequire extensive networking skills inorder to gain market access. In theoil and gas industry, networks arerequired for resource access; in wireless

About the research

Sample

Similar Multi-polar(multinationals operating in marketsof similar economic development)

Diverse Multi-polar(multinationals operating in bothdeveloped and emerging markets)

Wire-less TelecomIndustry

Energy Industry

Kuwait TelecomEtisalatMTNChina MobileAmerica MovilMTSDeutsche Telecom

SasolLukoilONGCCNPC

OrascomHutchinson WhampoaTata CommunicationsSingapore TelecomNII HoldingsTelefonicaFrance TelecomTelenorVodafone

CNOOCPetronasPetrobrasKuwait PetroleumChevronBGTotalExxonMobileBPENIStatoil Hydro

Emerging markets Developed market origin

telecommunications, networks arerequired to create beneficial roamingagreements and serve clients seamlesslyacross countries.

Company selection

We selected our companies on thebasis of the following criteria:

Size and age comparability. We choseemerging- and developed-marketMNEs that are comparable in size andage. Smaller and younger firms tendto be more agile and entrepreneurialwhile older and larger ones tend tobe more conservative and to favorthe status quo. We want to be certainthat our findings are not affected bydifferences in size and age.

Multinationality. Since this is a studyabout global operating models, ourcompanies have to be multinational—that is they need to operate throughdirectly owned subsidiaries in at leasttwo countries and generate more than5 percent of their total sales abroad.144

Industry leadership. The selectedMNEs we have selected are marketleaders in their home country andin several other host countries.

Matched comparisons. To controlfor home-country specific effects, wehave sought to create three matched-paired comparisons of MNEs from asimilar home region or home countrybut with a different internationalfootprint: Kuwait Telecom (similarmulti-polar) and Orascom (diversemulti-polar); Deutsche Telekom(similar multi-polar) and Telefonica(diverse multi-polar); and CNPC(similar multi-polar) and CNOOC(diverse multi-polar).

In the following table, we presentthe complete list of target MNEsbut we aim to study eight MNEsin each industry.

Data collection

In the empirical phase of our research,we gather data from three sources.First, we interviews eight to ninesenior executives in each selectedMNE and obtain rich descriptions oftheir companies. Each interview lastsone hour each and is recorded forsubsequent content analysis withspecialized software.

Following a multi-layer interviewstrategy where some of the questionsare common and some of the questionsdiffer in function of the respondent’sposition, at each company we interview:

The chief executive officer, theexecutive chairman and the chiefoperating officer who provide uswith an overview of their company’sglobal operating model and of itsinternal and external alignment.They are also primary respondentsto inform us about the leadershipcomponent in their global operatingmodel configuration.

Two to three heads of the maingeographic business units give ustheir perspectives on how theircompanies’ global operating modelsaccommodate the differencesbetween local and global operations.Contrasting the possible perceptiondifferences between headquartersand the geographic subunits isimportant to understand how theglobal operating model works.

The heads of the main corporatefunctions—the head of humanresources, the chief technology officer,



the chief strategy officer, the chiefinformation officer, the chief financialofficer—help us understand the globaloperating model in greater depth.

The primary data also include anycompany proprietary material thatthe interviewees entrust us to read.

Second, we complement these inter-views with interviews of Accenturesenior executives and of their collab-orators who are in charge of thesampled companies’ accounts.

Third, to check the validity of theinterviewees’ responses, to embedourselves in the deep context ofeach case, and to control for the biasintroduced by the interviewer-inter-viewee relationship145, we triangulatethese primary data with externallyavailable information. Before each casestudy begins, we prepare a detailedcompany profile that includes:

The interviewees’ biographies.

Companies’ international journey thatretraces the dates of country entriesor exits, the modes of entry, theevolution of international sales, andthe moments of crisis or success thatfollow these steps.

A detailed historic performanceanalysis of the company againstindustry benchmarks (total return toshareholders, growth and efficiency).

Details of corporate and businessstrategies: company history; strengthsand weaknesses; and opportunitiesand threats.

Published articles and case studiesabout the company.

About the authors

Stéphane J.G. Girod, PhD, is a researchfellow with the Accenture Institute forHigh Performance. He is based in London.

Joshua B. Bellin is a senior research associ-ate with the Accenture Institute for HighPerformance in Boston. He is based in Boston.

Robert J. Thomas, PhD, is the executivedirector of the Accenture Institute forHigh Performance. He is based in Boston.

Acknowledgement

The authors gratefully acknowledgethe contributions of Professor EleanorWestney (M.I.T. and York University) andof Professor Mauro Guillen (Universityof Pennsylvania, The Wharton School).

About Accenture

Accenture is a global managementconsulting, technology services andoutsourcing company. Combiningunparalleled experience, comprehensivecapabilities across all industries andbusiness functions, and extensiveresearch on the world’s most successfulcompanies, Accenture collaborateswith clients to help them becomehigh-performance businesses andgovernments. With more than 181,000people serving clients in over 120countries, the company generated netrevenues of US$23.39 billion for thefiscal year ended August 31, 2008.Its home page is www.accenture.com.



About the Accenture Institutefor High Performance

The Accenture Institute for HighPerformance creates strategic insightsinto key management issues throughoriginal research and analysis. Itsmanagement researchers combineworld-class reputations with Accenture’sextensive consulting, technology andoutsourcing experience to conductinnovative research and analysis intohow organizations become and remainhigh-performance businesses.

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