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date: 27 January 2022

Global Strategy and Multinational Corporation Capabilitiesfree

Global Strategy and Multinational Corporation Capabilitiesfree

  • Donald R. LessardDonald R. LessardMIT Sloan School of Management, Massachusetts Institute of Technology
  •  and D. Eleanor WestneyD. Eleanor WestneyMIT Sloan School of Management, Massachusetts Institute of Technology

Summary

Strategy in a global setting involves competition in industries that extend across national boundaries and among firms with different national home bases that may tap into strategic resources in more than one location. The resources that the firm accesses from its home country provide it with international competitive advantage only if they are relevant in other markets, if the value they create is appropriable, and if they are transferable to those markets (RAT), These resources include tangible assets and factors of production, but, importantly, also the capabilities the firm develops. Similarly, the resources that it taps from other contexts provide it with further competitive advantage only if these resources are complementary to the firm’s existing resources, appropriable, and transferable to the locations where it can exploit them (CAT). These two sets of factors—RAT and CAT—provide a framework for international strategic decisions that emphasizes developing, acquiring, and transferring capabilities.

Subjects

  • Business Policy and Strategy
  • International Business
  • Organization Theory

Introduction

More than 6 decades ago, Hymer (1960, 1976) posed a question that became a key element of international business strategy: What advantage enables a firm to expand internationally, competing successfully with local firms despite its disadvantages as an outsider? The answer, for Hymer and for other pioneering international business scholars including Behrman (1969), Dunning (1977), and Vernon (1966), was that a firm developed tangible and intangible resources in its home country that enabled it to become international and to create and capture value in other markets. A quarter century later, scholars focusing on large established multinational corporations (MNCs) asked a second question: What advantage does an MNC derive from being international, enabling it to compete successfully with both local firms and other established MNCs (Bartlett & Ghoshal, 1987, 1989; Ghoshal, 1987; Hedlund, 1986; Kogut, 1989). Their answer was that MNCs develop resources not only in their home country but also in their dispersed subunits, resources that MNCs can leverage to create and capture value in other locations, even in their home countries.

Much of the work on global strategy in the late 1980s and early 1990s focused on how MNCs could foster the development of new resources and innovations from their geographically dispersed network of subunits (Bartlett & Ghoshal, 1989). The resource-based view (RBV) approach to strategy (e.g., Barney, 1991; Wernerfelt, 1984) developed largely independently of this earlier work on global strategy, but the conceptual link is apparent, and the connection is even stronger with the dynamic capabilities (DC) approach of Teece (e.g., Teece et al., 1997). This article draws on both the RBV and DC perspectives to develop a framework for understanding the dynamics of creating and capturing value both through home country–based resources and through the resources that emerge in the MNC network, and for addressing the strategic challenges of delivering value in a geographically dispersed network. The framework developed and applied in this article is the RAT/CAT model. RAT refers to those characteristics of resources that allow a firm to project itself into different locations—that its resources are relevant to the target market/clients/location, that they are appropriable, and that they are transferable. CAT refers to those resources that the firm can access in other locations that are complementary to its existing set of resources, and once again, are appropriable and transferable.

This article is organized in four parts. It first introduces the RAT and CAT concepts and relates them to resource-based views of the MNC. It then uses these two concepts to examine internationalization processes involved in using a RAT to expand internationally and in developing CATs to enhance the MNC’s core resources as a result of its international reach. The next section looks at the different internationalization pathways taken by MNCs from Europe, the United States, Japan, and, most recently, emerging market (EM) MNCs, and the different pace and balance of RATs and CATs as MNCs expanded internationally in different global contexts. It then looks at the orchestration of RATs and CATs and the associated organization of the MNC. The final part examines the implications of recent changes in the global business environment for the RAT/CAT framework, especially the global diffusion of intangible capabilities and the physical decoupling of national economies already underway before COVID, but accelerated and transformed by it, and the implications for future research.

The RAT and CAT Frameworks

One of the core research areas in international business (IB) is the internationalization process: the sequence of initiatives and activities by which firms expand into new locations and through which they change the kinds of activities they conduct in each location. Another, one that straddles the strategy, IB, and organization studies fields, is the strategy, organization, and management of the MNC, which focuses on how MNCs create, capture, and deliver additional value by virtue of operating in many places, including arbitrage, specialization and flexibility across locations, and enhanced learning. The RAT/CAT framework provides a way of integrating decades of research in these two areas in a way that makes this research comprehensible and actionable by practitioners and helps identify promising new topics of research that not only address “gaps in the literature” (the rationale for much management research) but can also, more important, illuminate how firms’ strategies, processes, and outcomes evolve in interaction with the rapidly changing global business context.

RAT is an organizing framework for understanding the strategic decisions that a firm makes when it expands into a new location using resources it has developed in its home country (Lessard, 2021). These resources include both tangible ones that the firm owns or to which it has privileged access (such as home country natural resources, plant and equipment, and competitively priced skilled labor) and intangibles, particularly its capabilities for knowing and doing, its networks, and its reputation. RAT indicates whether a particular home country–based advantage can be applied in a new geographic market, or to a new product or service in its existing geographic markets. Framing this home country–based competitive advantage as a “RAT” recasts well-established theories of value creation, delivery, and capture for a particular market/location in the form of three simple questions:

1.

Is the offering relevant? Does it create value for customers in this location?

2.

Is it appropriable? Are we able to capture value in this location?

3.

Is it transferable? Are we able to deliver value in this location?

“Relevant” points to the value proposition for customers and how it is enhanced by the application of particular resources or capabilities—the firm’s “special sauce.” It relates to concepts of value creation such as “willingness to pay, price, cost” following Brandenburger and Stuart (1996), the cost-differentiation frontier of Porter (1980), Hax’s Delta Model (2009), and any number of other customer-facing frameworks. “Appropriable” links directly to the factors that allow the firm to capture this additional value, and can be framed in terms of Porter’s five forces and the possibility that expanding across borders will expose the firm to different sets of complementors—suppliers, distributors, and intermediaries who can capture much of the value generated in the new market. It also builds on the concept, common to both the RBV and the dynamic capabilities approaches (Teece et al., 1997), that complex capabilities represent a barrier to entry since competors find them difficult to imitate. “Transferable” addresses whether the firm can deliver the enhanced product or service in the target location. Does this require inputs and complementary resources that do not exist there at the same level and quality on which the firm draws at home, or can these be accessed only by incurring significant transaction costs?

CAT poses key strategic questions for determining whether and how a firm should seek to capture and internalize new resources that it generates, or simply encounters, in markets outside of its core. For an early stage international company, this will effectively be anywhere outside of its headquarters country. For MNCs with subunits in a large number and wide range of countries, it may involve a core of countries that develop and share key resources that, in turn, are exploited throughout the firm (Lessard et al., 2016).

CAT again presents three questions:

1.

Is the new resource or capability complementary? Can we tap resources and capabilities in this location that are complementary in the sense that they are synergistic—do they add more value in combination with the firm’s existing resources than they would on their own?

2.

Is it appropriable? Are we able to capture the additional value of the new combination?

3.

Is it transferable? Are we able to integrate the new resources into our core?

Complementary focuses explicitly on the value creation potential of the resources, which requires assessing whether they will improve the firm’s offering in other locations; this takes the analysis back to customers and products.

Resource-seeking CAT activities, in contrast with exploiting RATs, require active, generative capabilities in the country where they are developed or discovered and a high degree of integration between these operations and the center. This typically requires internalization, though it could take place within a close partnership or alliance. A virtuous cycle of RAT and CAT, of course, requires both.

RAT and CAT resonate with Teece’s “sensing, seizing, and transforming” opportunities and the resources to unlock them in a cross-border context, thus supporting “entrepreneurial” activity rather than just economizing. Again quoting Teece (2014, p. 13):

In short, in endeavoring to build a theory of the firm, neither Coase nor Williamson focused on the important role the business enterprise plays in searching for and/or developing new opportunities, either at home or abroad. . . . In reality, however, entrepreneurs and entrepreneurial managers working in an organizational context discover and create new knowledge and help commercialize new technologies at home and abroad. They learn about new opportunities, and sometimes help create them and transfer technologies as needed.

RAT and CAT taken together provide a theory-based checklist for this “search and capture” and provide visibility and accountability for intangibles and the strategies they enable. And for those who use Rugman’s firm specific advantages (FSAs) and country-specific advantages (CSAs) (e.g., Rugman & Verbeke, 2001) as organizing concepts, RAT and CAT can be seen as providing a framework for “curating” FSAs.

The RAT and CAT framework harkens back to Penrose’s vision (1959, 2009) of exploration, exploitation, and enhancement of capabilities in a continuous learning cycle; to Vernon’s product life cycle that captures the interaction of home and host countries and the changing advantages of co-location and location; and to Dunning’s Ownership, Location, Internationaliztion (OLI) paradigm. It provides a logical guide to internationalization and a first step toward global integration for firms at all stages of development. While comprising tried and true elements, the synthesis provides a sharper focus for addressing questions of international strategy and organization.

Internationalization Processes and the RAT/CAT Framework

Process models that trace the pathways by which firms expand across borders have long been among the core areas of theory and research in international business. The most enduring and influential is the internationalization process model developed by Johansson and Vahlne (Vahlne, 2021; Johanson and Vahlne, 1977, 2009. Vahlne and Johanson, 2017), originally based on the experience of Swedish firms in the 1960s. This model portrayed internationalization as a learning process and identified two incremental aspects of this process: the choice of countries (beginning in those perceived by managers as less distant from the home country, a concept they termed “psychic distance”) and the choice of mode in terms of local presence (extending up the value chain, export through an agent, sales office, production, R&D) and ownership mode (minority joint venture, equal joint venture, majority joint venture, whole-owned subsidiary). Most of the large body of empirical research that built on this work over the ensuing decades focused on the effects of distance (psychic, cultural, institutional) between the home country and target countries on the likelihood of entry and on the choice of mode. What much of the research on the internationalization process tends to ignore is the nature of a firm’s competitive advantage and in which markets that potential advantage adds value.

The RAT model addresses this aspect of the internationalization process. Firms should choose locations based on whether they have a competitive advantage that can create, capture, and deliver value there, and especially on the Relevance of their value proposition in those markets. They should choose the mode of entry depending on their assessment of how they can best capture and deliver value, how much of a presence they need there to deliver value and whether they need a local partner to do that (Transferability), and whether they can capture sufficient value even if they engage a local partner (Appropriability).

As Welch and colleagues (2016) pointed out, Johansson and Vahlne’s model is, at its core, a learning-process model, and the kind and sequence of learning Swedish firms experienced in the 1960s could be—and likely is—different in different international business contexts. A recent reanalysis of Johanson and Vahlne’s original Swedish data using current techniques of statistical analysis, for example, found a much more ambiguous relationship between entry and distance, suggesting that firms expanded in a wave pattern, testing a variety of countries and expanding in those where their products or services were better received, some of which were much more distant than locations in which they did not expand (Hakanson & Kappen, 2017). There are surprisingly few in-depth studies of the learning processes of firms as they internationalize. Those we do have strongly suggest, however, that firm-level learning about target locations has very specific focuses that are only tangentially related to country-level measures of cultural, institutional, or psychic distance. Those focuses of learning are encapsulated in the RAT model: developing a clearer understanding of what value the firm’s offering has in a particular market, and for whom; learning whether the firm can appropriate enough value from its operations in that location and whether or not it can improve its value capture; and determining whether it can transfer its value proposition into the new context and what level and kind of adjustments improve that value delivery.

Learning what value a firm’s offering has in a new location, and for whom, is more challenging than many studies of internationalization acknowledge. An example that became a touchstone for the model of emergent strategy was that of Honda, which famously discovered, almost by chance, that, although it was failing in its efforts to sell its heavier motorcycles in the established U.S. market, its small, low-end model developed for the Japanese domestic market had unexpected appeal to a new U.S. market of casual users (Mintzberg, 1996; Pascale, 1984, 1996). An example of deliberate rather than emergent learning is IKEA: in a study of IKEA’s internationalization process, Jonsson and Foss (2011) found that, in the early stages of its internationalization in the 1970s, IKEA tested a range of European markets with what would now be called “pop-up stores” and focused on those where the interest from consumers was greatest.

The IKEA case study (Jonsson & Foss, 2011) focuses on IKEA’s learning processes over 5 decades of internationalization and provides an illuminating example of how the firm learned to take its RAT—essentially Swedish modern design, immediately available to the customer at a low cost—into countries across Europe, North America, and Asia. IKEA adopted an approach the researchers called “flexible replication”—developing a standardized core around which it tolerated and even encouraged (but tightly controlled) limited localization (leveraging its RAT), but also developing processes and systems for cross-unit learning to facilitate improvements in efficiency internally and among its suppliers (tightly focused CAT capability).

The first challenge in developing CATs can be building the capacity in the home country organization to recognize that it might have something to learn from its subunits abroad. Despite having a network structure with bridging members who knew the core technologies and were embedded in various geographic markets, Akamai Technologies, a B2B company based in Cambridge, Massachusetts, missed a major “sleeping CAT” (Lessard & Reavis, 2017). Mobile phone–enabled Internet interfaces emerged in Japan well before they become mainstream in the United States, and the Akamai team in Japan was aware of them (and used them in its services). When, in 2010, a centrally developed application was presented to subsidiaries, including Japan, for their uptake, not surprisingly, the response of the Japanese unit was “We’ve had this technology since 2002. We don’t need it” (Lessard & Reavis, 2017, p. 9). Had the American headquarters recognized that Japan’s status as a lead market in mobile telephony might make it a potential source of innovations and leveraged its CAT, it could have been a leader in the new applications in its home country, rather than playing catch-up to some of its rivals.

A different set of organizational challenges is involved in learning how to change the discovery of CATs from a serendipitous discovery to a dynamic capability. This requires the development of systematic organizational processes for identifying and leveraging CATs, discussed in the following sections.

Internationalization Pathways: Timing and Context

By the end of the 20th century, strategy and IB researchers agreed, based on several decades of studying European, U.S., and Japanese MNCs, that a firm’s pathway to internationalization began with a home-based competitive advantage—a RAT—and that, after the firm developed a network of increasingly capable subunits in different countries, it might begin to discover CATs that it could leverage in other locations within that geographically dispersed network. Some of these CATs are the outcomes of subunit efforts to localize the products, services, or routines drawn from the home country, combining them with external resources accessed through the subunit’s local network. Many of these local innovations stay local: they add value to RATs in that location, but are not seen as complementary to the MNC’s resources in other units. When competitive environments change, however, some of these local adaptations are recognized as potential CATs and leveraged in other locations in the MNC network. A classic example is the development of small copiers in the Japanese subsidiary of Xerox, Fuji-Xerox, which Xerox tolerated as a response to local conditions but which became an important product for Xerox in its other markets as Japanese competitors made serious inroads into Xerox’s market share in North America in the 1980s (Gomes-Casseres, 1996). Bartlett and Ghoshal (1989) identified this kind of “local for global” innovation as one of two types of transnational innovation processes. The other is the “globally linked” innovation process: initiatives that combine people and resources from two or more locations in the MNC network to develop an innovation for which no single location had the resources.

Japanese MNCs, as Bartlett and Ghoshal pointed out, had internationalized later than their U.S. and European competitors but were able to take advantage of falling trade barriers and declining transport costs to build export markets, and to maintain strongly home country–centric production networks when they reluctantly moved into overseas production. However, Japanese MNCs were far from slow in developing capabilities related to searching out and developing CATs, although they took a very different path than did Western MNCs. They dispatched Japanese engineers on both short- and long-term postings to foreign universities and centers of science and technology, lead users and customers, alliance partners, and their own subsidiaries in various countries. These “scouts” identified technologies, market needs, and even ways of innovating that they took back for further development in Japan (Westney, 1994). From the late 1980s on, Japanese MNCs set up R&D labs in Europe and North America that were of two types: those closely integrated with a specific business division, targeted at localizing home country–based products and technologies for specific countries, and basic R&D centers in areas of science and technology where Japan lagged behind (Asakawa & Westney, 2013). The home-centric nature of this approach to leveraging international networks to develop and deliver sources of value was the focus of much popular as well as scholarly attention in the late 1980s and 1990s (e.g., Mansfield, 1988), and it prefigured the growing reliance on external networks in innovation that has characterized the 21st-century MNC.

Researchers have observed a somewhat different pathway to internationalization in many emerging market (EM) companies in the 21st century (e.g., Ramamurti, 2009), one that included the pursuit of capabilities (CATs) very early in the internationalization process, as well as the exploitation of RATs (Cuervo-Cazurra et al., 2018; Kumar et al., 2020). As regulatory barriers to inward foreing direct investment fell and the global financial infrastructure for mergers and acquisitions (M & A) expanded in the late 1990s and into the 21st century, cross-border M & A came to rival and surpass greenfield investments as the selected mode for companies to expand their international presence. EM firms took advantage of this to acquire companies that possessed capabilities and knowledge that could be leveraged to improve the EM firms’ competitiveness both at home and in further international expansion (Ramamurti, 2009). EMNCs were not alone in doing this: since the turn of the 21st century, established MNCs based in Europe, the United States, and Japan have also been using M & A to acquire strategic resources and capabilities. What distinguishes the EMNCs is the speed at which they have moved to expand their international presence and their resources and capabilities through the use of cross-border M & A.

Many EMNCs followed a “dual international expansion path” (Deng, 2012). They not only expanded into more advanced markets to add resources and capabilities that they lacked in their home countries (e.g., Buckley et al., 2014; Cuervo-Cazurra & Ramamurti, 2017), but they also followed the RAT to CAT pathway in other emerging and less developed markets, leveraging their home-based competitive advantages (Cuervo-Cazurra & Genc, 2008). Some emerging-market MNCs also seem to be quicker in identifying and leveraging CATs, especially in the course of post-acquisition integration. The Mexican cement firm CEMEX, for example (Lessard & Lucea, 2009), initially developed (somewhat) unique M & A capabilities in line with Mexico’s transformation from a set of regional economies to a national economy, and the emergence of branded cement as a consumer product (Lessard & Lucea, 2009; Lessard & Reavis, 2009). When it expanded from Mexico to Spain in 1992, it leveraged the capabilities it had built in its series of domestic acquisitions—operational excellence rooted in IT systems and common metrics, a well-practiced post-merger integration (PMI) process (Lessard & Reavis, 2009). The plants it acquired in Spain used alternative fuels and advanced combustion technologies that CEMEX took back to Mexico to improve the performance of its plants there. When the performance of the company’s home country operations began to falter, it applied its PMI process, honed in a series of expansions in Europe and in Latin America, to the Mexican “mother ship” as if it had been acquired—clearly demonstrating that this capability had been transformed to an enterprise-level capability. It also took the RAT of selling cement in bags for self-builders, including not only the packaging and branding but also the multi-product distribution model, from Mexico to other countries with similar construction practices.

The CEMEX example suggests that simply acquiring “uphill”—buying firms based in more advanced markets—does not guarantee that an EMNC will develop CATs. To do so, it must actively seek them out and have processes in place to combine them with its existing resources. In the case of CEMEX, the PMI process provided this platform.

The pathways to internationalization change as the global context changes, including the regulatory constraints on cross-border flows of people, goods, information, and capital; the transport and communications technologies available; and the competitive dynamics of industries and locations. Those changes are ongoing, and the final section of this article returns to this theme and its implications for future research.

Organizing and Orchestrating MNCs: Finding and Delivering RATS and CATS

Since Bartlett and Ghoshal’s model of the transnational MNC (Bartlett, 1986; Bartlett & Ghoshal, 1989), MNC researchers have associated the organizational capabilities for discovering and developing CATS with an integrated network organization, in which the headquarters coordinates networks of learning and innovation across country subsidiaries, including the home country. Bartlett and Ghoshal contrasted this integrated network model with the classic “hub-and-spoke” structure of MNCs that relies on the home country organization to develop RATs that are then exploited in geographically distributed subsidiaries dependent on the parent for innovation. In this model, the home-country center dominates the flows of communications and learning, with the country subsidiaries essentially reporting back to the center and with little or no direct communication among the subsidiaries. Bartlett and Ghoshal predicted that, in a growing number of industries, MNCs would face competitive environments in which the pressures for innovation and cross-border learning (i.e., for developing CATs) were increasing and in which MNCs would increasingly converge on the integrated network model. Many MNCs explicitly embraced the transnational model in the 1990s, from Unilever (Mees-Buss et al., 2019) to APV (the British-based MNC in food processing equipment studied by Kristensen & Zeitlin, 2005).

Since the turn of the 21st century, MNCs have indeed adopted very similar integrated network architectures. However, that architecture is very different from the network of country subsidiaries portrayed by Bartlett and Ghoshal, in two ways. One is that the units of the internal MNC networks have changed: the country subsidiaries that were the key nodes of the transnational network model have been broken up into highly specialized subunits focused on one part of one specific value chain, such as production, marketing, R&D, or logistics (Birkinshaw, 2001). The other is that the networks have expanded to include a wide range of external organizations, including suppliers, partners, key customers, universities, and research institutes (Hakanson et al., 2021; Monteiro & Birkinshaw, 2017). As one recent case study of a major manufacturing MNC described it, the multi-business MNC is “essentially a collection of individual product-specific GVCs [Global Value Chains]” (Ryan et al., 2020, p. 501). The internal fine-slicing of activities paralleled the external fine-slicing of global value chains and facilitated the interactions with specialized external suppliers of technology and components. It also increased the ease with which acquired companies could be integrated: they could more quickly be disaggregated into specialized subunits and slotted into established reporting lines. This structure was made possible by rapid advances in information and communications technologies (ICT) that enabled the immediate exchange of a volume and depth of information unimaginable in the 1980s, when ABB’s ABACUS system was seen as revolutionary because it gave top executives access to monthly profit and loss statements from subsidiaries (Taylor, 1991). It is a structure that allows relatively easy reorganizations into different business units or different regional structures, and relatively easy integration of acquired companies and quick spin-offs for sale as MNCs shift their strategic focus.

In organization design, this architecture is called the “front/back” structure (Galbraith, 2000), referring to its key structural feature: a division into a customer-facing set of subunits (the front end) and a technology and production-focused “back end,” which are connected by a variety of processes and boundary-spanning roles. It originated in ICT companies in the 1990s, but, in the first decades of the 21st century, it has become an increasingly common form for MNCs across industries and regardless of country of origin (Mees-Buss et al., 2019). This similarity of architectures means that the organizational capabilities for finding and delivering RATS are not distinguishable from CAT capabilities in terms of formal structure. Like other dynamic capabilities, they involve complex organizational systems and processes, including flows of information and people, political and influence processes (“voice”), and the complex balance between shared and locally anchored norms and ways of seeing.

While some MNCs (particularly relatively early in their internationalization) rely almost exclusively on home country–based resources (RATs), most geographically dispersed MNCs develop varying combinations of RATs and CATs to maintain their competitiveness over time. There is little research exploring the relative weight of RATs and CATs in individual MNCs, and even less on the differences between the organizational systems and processes that MNCs use for successfully developing and deploying RATs and those involved in “catching CATs.” In one of the very few empirical studies to address these processes, Doz and colleagues (2002) conducted a set of detailed case studies that provides valuable insights into the differences between MNCs that rely primarily on RATs and those that have come to rely primarily on CATs. Their research focused on MNCs that were “born in the wrong place”—headquartered in a country that is not one of the world’s advantaged locations in their industry. Porter’s advice to such companies was, notoriously, that they should move (or at least move that particular business) to an advantaged location (Porter, 1990). Doz et al. decided to focus their research on companies that were highly successful in their industries despite their location disadvantages (including France’s STMicroelectronics, the Japanese cosmetics and perfume company Shiseido, and the U.K. semiconductor firm ARM). They found that these MNCs developed capabilities for drawing together resources, both external and internal, from a number of locations and for combining them in innovations that could be leveraged throughout their networks—capabilities for finding and leveraging CATs that they called “metanational” capabilities. These capabilities were grounded in organizational systems and processes that included prospecting for new technologies and untapped market needs globally, not just in countries where the MNC has established operations; local embeddedness in key locations (which may be achieved not only internally, in the local subunit, but by drawing on customers and suppliers); the use of projects or platforms for innovation activities, involving a small number of critically important locations; a culture of “learning from the world”; and a cosmopolitan management team, defined not by passport but by each member having experience in a range of countries. They contrasted this with the “projector” MNCs that rely on competitive advantages developed in their home countries and rolled out to geographically distributed subunits.

The complexity of the coordination tasks involved in mobilizing resources distributed across geographically distributed subunits within the MNC and its external networks has led scholars to use the concept of “strategic orchestration” (Wallin, 2006) in analyzing MNC management (Lessard et al., 2016; Pitelis & Teece, 2018). Defined as the ability to select and combine technologies, individuals, and other resources in new products and processes “regardless of location and across organizational boundaries” (Lessard et al., 2016, p. 214), orchestration is a useful concept for describing the particular form that internal entrepreneurship takes in the complex MNC of the 21st century. As Pitelis and Teece (2018) have pointed out, orchestration is a metaphor and, for MNCs, orchestration also involves an ability to change the score or even to improvise. It also involves the capability of capturing elements of improvisation for future use. Orchestration of RATs likely involves a score (i.e., the networks, the processes and routines, and the level of input from geographically dispersed subunits and partners) that is more stable over time. Orchestration of CATs, as Doz et al. (2002) have pointed out, can require a greater array of scores and improvisation: CATS can emerge in a wider range of locations and require different networks, levels of input (“voice”), and forms of learning.

The Changing Global Context and Future Research

At the time this article was written, the world is only beginning to return to normal from the human toll and economic disruption caused by COVID. The United States under the Biden administration seems to be trying to reengage with the rest of the world and to recognize the importance of international institutions. It is unclear whether this reengagement will reinvigorate international coordination to deal with climate change, global health challenges, and rising global inequalities. However, as the challenges of responding to a volatile global context increase, the development, management, and curation of capabilities are likely to become an even more central focus of MNC strategy, and the RAT and CAT frameworks are ideally suited to support this focus.

In its early years—1960s–1990—the focus of the field of international business was largely on “managing in (strange) places,” where places were usually defined as countries. With the transformation of transport and communications technologies and the integration of a much greater number of countries into the global economic system, especially the entry of China into the World Trade Organization, the focus shifted toward managing integrated operations and supply chains across the globe. With the emergence of the Internet and the digital business models that it enables, together with the rapid forced uptake of virtual work by most firms, “virtual” synchronous communication is likely to become the norm, allowing teams to coinvent, a critical element of the RAT/CAT process, though perhaps characterized by regions defined by time zones. Further, the fallout of COVID and the populist-driven de-globalization that was already underway will likely continue to restrict the movement of people, including managers, and pose barriers and risks to the movement of physical goods. It does not require a great leap to see that many MNCs will find that, in such a world, their sustainable competitive advantage comes from their abilities to: (a) develop unique value propositions and quickly exploit them in the multiple markets in which they pass the RAT “test,” where markets may be defined as particular global customers, regions, cities, and so forth, and not just countries; (b) actively seek out CATs in these and other lead user contexts; and (c) build a core of capabilities that can be drawn on continuously and opportunistically throughout the firm.

The systems of organizing and orchestrating to do this could take many forms. Structural steps could include the appointment of a chief RAT/CAT officer, assigning members of the top management team different RAT/CAT dimensions, placing bridging managers and organizations between the front and back of MNCs, and so on. Of course, structure alone will not guarantee a vibrant RAT and CAT cycle. It also requires incentives, mindsets, and processes, and further research is needed to identify these more clearly, as well as how they differ and change as contexts (including technologies) change.

RAT and CAT are an ideal focus/set of threads for longitudinal “observational research” regarding firms’ strategies, capabilities, and processes. Individual RATs and CATs can be identified, and their development and exercise can be traced across the MNC organization over time. The CEMEX case (Lessard & Lucea, 2009; Lessard & Reavis, 2009) provides one such example and, while Jonsson and Foss (2011) did not explicitly use RAT and CAT in their study of IKEA, these concepts are clearly visible. The same is true of the pathbreaking observational study by Flaherty (1996) of MNC operations seen from multiple organizational perspectives, or Kristensen and Zeitlin’s in-depth tracing of an MNC from multiple vantage points (2005).

In tracing a RAT/CAT thread, it is important to note where and when the new practice/capability is encountered or developed, where else it is applied, and where it is “recombined” with other capabilities (Riviere et al., 2020) or, in Teece’s terms, where it (or the opportunity it opens) is sensed, where the resources are seized/internalized, and where they are transformed. At this point, it can be viewed as a new RAT, and traced through a new RAT/CAT cycle.

RAT and CAT could also be the basis for experimental research, “treating” some units with knowledge or support regarding a particular RAT, or developing and bringing in CATs, while not doing so for other units, and, of course, observing outcomes. RAT/CAT is harder to incorporate into the outcome-based quantitative research model typical of IB, but this, too, can be done: see Helfat (1997), for example, on the impact of capabilities on outcomes in the oil and gas sector. Capabilities can be proxied by R&D expenditures or patents, and one could envision coding units by organizational or leadership features such as whether the local top management team is (a) deeply embedded in local context and (b) tightly linked to the relevant core (technology development, marketing, or operations).

Some of the many research question to be explored include:

Do companies that have embarked on internationalization in the second decade of the 21st century still begin with RATs, or do they also seek out CATs in their initial international expansion? Is this different for MNCs based in advanced versus emerging markets? Does this depend on the internationalizing firm’s stage in its life cycle relative to the predominant local and/or global industry life cycle?

Is there a particular set of organizational processes and systems that fosters exploiting RATs, capturing CATs, or building a virtuous cycle between the two?

Do digitalized firms (firms with digital business models?) emphasize RATs over CATs? Does this depend on whether the country in which they are based is a leading location in core technology on which they are building?

Does the increasing potential for a “virtual presence” in a country reduce the potential for local emergent innovations, or does it mean that the system picks up on local market and supplier base changes more quickly? Does the continued success of digitalized firms hinge primarily on network effects (number of users) or does the difficulty in emulating their complex capabilities and relationships play an important role?

The RAT and CAT frameworks were developed with managers in mind, but they also can serve as research frameworks. Management research should be relevant to managers, and RAT and CAT provide a framework for linking research and practice in a way that is operational and user-friendly for both.

Further Reading

  • Ghoshal, S. (1987). Global Strategy: an organizing framework. Strategic Management Journal, 8(5): 425–440.
  • Kogut, B. (1989). A note on global strategies. Strategic Management Journal, 10(4): 383–389.
  • Lessard, D. R. (2021). Global strategic analysis and multi-level institutional change. In A. Verbeke, R. Van Tulder, E. Rose, & Y. Wei (Eds.), The multiple dimensions of institutional complexity in international business research (pp. 45–62). Bingley, UK: Emerald.
  • Lessard, D. R., & Lucea, R. (2009). Mexican multinationals: insights from CEMEX. In R. Ramamurti & J. Singh (Eds.), Emerging multinationals in emerging markets (pp. 1–26). Cambridge University Press.
  • Lessard, D. R., Lucea, R., & Vives, L. (2013). Building your company’s capabilities through global expansion. MIT Sloan Management Review (Winter), 61–67.
  • Lessard, D. R., Teece, D., & Leih, S. (2016). The dynamic capabilities of meta-multinationals. Global Strategy Journal 6(3): 211–224.
  • Mees-Buss, J., Welch, C., & Westney, D. E. (2019). What happened to the transnational? The emergence of the neo-global corporation. Journal of International Business Studies, 50(9):1513–1543.
  • Teece, D. J. (2014). A dynamic capabilities-based entrepreneurial theory of the multinational enterprise. Journal of International Business Studies, 45, 8–37.

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