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Evaluation of Uncertain International Markets The Advantage of Flexible Organization Structures

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  • Michael Christensen
  • Thorbjørn Knudsen
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    Abstract

    The present article is concerned with organizational flexibility in transnational corporations (TNCs), i.e., larger firms that operate in multiple national markets. Contrasting prior research into entry modes (e.g. joint ventures, greenfield investments, or acquisitions), the present article examines the way the organization of evaluation teams can influence entry and exit decisions of business units. Empirical studies broadly support the claim that TNCs experiment with flexible organizational structures in response to increased levels of turbulence and uncertainty in international markets. However, these advances in the description of TNCs, and more generally in the literature on new organizational forms, have been largely ignored in our theories about evaluation of market opportunities in TNCs and multi-national corporations (MNCs). To address this gap in our knowledge, the present article examines the effects of flexible evaluation teams when TNCs assess the viability of international markets characterized by high levels of uncertainty. Remarkably, we show that TNCs employing flexible teams of (very) fallible evaluators can obtain profits at levels that asymptote optimality. Our main result supports the claim advanced in recent empirical studies. Structural flexibility can help TNCs employing (very) fallible evaluators achieve high levels of performance in conditions of turbulence and uncertainty.

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    Bibliographic Info

    Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 06-04.

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    Date of creation: 2006
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    Handle: RePEc:aal:abbswp:06-04

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    Web page: http://www.druid.dk/

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    Keywords: Multinational corporations; entry modes;

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    1. Raaj Kumar Sah & Joseph E. Stiglitz, 1984. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
    2. Barrie R. Nault, 1998. "Information Technology and Organization Design: Locating Decisions and Information," Management Science, INFORMS, vol. 44(10), pages 1321-1335, October.
    3. Charness, Gary & Levine, David I., 2002. "Changes in the employment contract?: Evidence from a quasi-experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 47(4), pages 391-405, April.
    4. Levinthal, Daniel & March, James G., 1981. "A model of adaptive organizational search," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 307-333, December.
    5. Sah, Raaj Kumar & Stiglitz, Joseph E, 1985. "Human Fallibility and Economic Organization," American Economic Review, American Economic Association, vol. 75(2), pages 292-97, May.
    6. Barrie R. Nault & Rajeev K. Tyagi, 2001. "Implementable Mechanisms to Coordinate Horizontal Alliances," Management Science, INFORMS, vol. 47(6), pages 787-799, June.
    7. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan, vol. 19(3), pages 411-432, September.
    8. Erik Brynjolfsson & Haim Mendelson, 1997. "Information Systems and the Organization of Modern Enterprise," Working Paper Series 200, MIT Center for Coordination Science.
    9. Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-70, June.
    10. Jeffrey J Reuer, 2000. "Parent Firms across International Joint Venture Life-Cycle Stages," Journal of International Business Studies, Palgrave Macmillan, vol. 31(1), pages 1-20, March.
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