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At the time of this writing, the world was experiencing its worse recession and financial crisis since the Great Depression of the 1930s. After half a century of world growth and two decades of transformation to capitalism by much of Eastern Europe and Asia, world national product and trade will fall this year. For the first time since the postwar growth miracle, multinational enterprises (MNEs) are restructuring, cutting their foreign investments and subsidiary operations. Many senior expatriate managers, particularly those working in the global finance industry, have lost their jobs or been repatriated. All eyes are on the upcoming G20 meeting in April, where the new U.S President Barack Obama will be meeting his counterparts from China, the United Kingdom, Germany, Japan, and other member nations to discuss and formulate globally coordinated fiscal and monetary policies to help reverse the course of the current world economic turmoil.

This chapter addresses an unresolved theoretical issue in international business: the impact of existing, committed assets in a host location on parent and subsidiary decisions regarding the configuration of future value-adding activities for the location. We develop a measure of investment committedness, or the degree of flexibility versus specificity of existing assets in a host location, to explore this issue. The measure assesses whether assets, such as brands, human capital, process technologies, and supplier relations, retain only scrap value outside their current application or they can be redeployed to alternative value-adding activities in the host location or shifted offshore, either within the multinational enterprise (MNE) or to another user. The measure is a key step in developing a model of strategic choice for the future configuration of value-adding activities by MNEs in host locations. Drawing on firm-specific data from 237 MNE subsidiaries operating in Australia, we first present a traditional integration-responsiveness classification of subsidiary activities. This static snapshot of the subsidiaries’ current profiles is then compared with the measure's preliminary findings on the levels of investment committedness and strategic flexibility available to the sample MNEs and how this may shape strategic allocation decisions, including divestment and withdrawal.

Joseph L. C. Cheng is Professor of International Business and Management and Director of the Illinois Global Business Initiative (IGBI) in the College of Business at the University of Illinois, Urbana-Champaign. During the 2008–2009 academic year, he was a visiting professor at the University of Hong Kong on leave from the University of Illinois.

Taken together, these three chapters cover three important building blocks in the effective management of headquarters–subsidiary relations: corporate structure, executive attention, and resource allocation. A common theme across the three chapters is their focus on system flexibility and how this can be achieved for the MNE. Specifically, their research suggests that through the use of matrix structures coupled with conflict resolution training for managers, promoting subsidiary initiatives and profile building to capture headquarters attention, and allocating resources with limited committedness to foreign operations would enable the MNE to better scan and respond to a fast-changing external environment. This system flexibility is particularly important for MNEs that adopt the differentiated network model, which among other things, requires subsidiaries to share knowledge and resources in the formulation and implementation of company-wide response actions as demanded by the circumstance.

Using a managerial cognition lens, we investigate the organizational design issues facing multinational corporation (MNC) managers. We apply concepts hitherto untested in the international management (IM) literature to a longitudinal study of reconfiguration efforts within a large, Asian MNC. We focus on how organizational design outcomes can be affected through mental interventions that provoke changes in senior executives’ mental representations of what the MNC is and can be to achieve a strategic redirection and redesign. We draw on extensive interview and other qualitative data. Our study contributes to the literatures on MNC design and to our understanding of the important, but largely neglected, micro-foundational role of cognition in IM. This field research on executive judgment and decision-making in real time offers unique insights into the dynamics of MNC design.

One of the major conceptual dilemmas of international management has been issue of the liability of foreignness. The multinational enterprise (MNE), as it expands internationally, faces two fundamental problems: does it continue to do abroad what it does well at home, or does it change its approach to adapt to the differing conditions in its new markets? Additionally, the option of changing its approach confronts a major constraint: how to cover the costs of organizational complexity brought on by multinationality. Together, these problems and this constraint imply that multinationals face complexity and strategic-fit costs that quickly overwhelm the gains from economies of scale and scope that are derived from moving abroad into what are, for them, new markets. We know by the fact that multinationals exist and thrive that they are able to overcome these concerns. However, the question of why and how remains something of a mystery, although one we can conceptually work around this with a bit of theoretical and semantic legerdemain.