Ulf Holm: Eyeing multinationals

In the research community, the International Business research group is better known as the “Uppsala School”. The article that remains to this day the most cited ever in the Journal of International Business Studies, USA’s top journal in its field, was published in 1977. This article came to form the basis of what, much later, came to be known internationally as the Uppsala School.

Researchers had long been interested in how multinational corporations (MNCs) emerge, and the article’s authors Jan Johanson and Jan-Erik Vahlne spotted their stepwise behaviour.

“A few case studies supported the observation that Swedish multinationals have expanded internationally in stages. This expansion often began in neighbouring countries. Companies often started cautiously, with limited investments in markets at a short geographical and cultural distance from Sweden, to reduce their risks. Having progressively expanded in these markets, they then, step by step, advanced on increasingly distant markets. Experience became an explanation for their successive development,” Holm says.

In the 1980s, when Holm joined the research group, he studied foreign subsidiaries that had grown and themselves embarked international expansion.

“We call it ‘internationalisation of the second degree’ and it’s an important precondition for the multinational’s further expansion. The subsidiaries form new centres that drive innovation, development and international expansion from their own starting points and geographical locations.”

To understand the MNCs’ organisation, the researchers viewed the companies as a network. The subsidiaries are dependent on one another in a complex network; they manufacture products for each other, and jointly develop knowledge. At the same time, the subsidiaries form networks with customers and suppliers outside the company in each market.

“So headquarters and others should try to govern and understand a model of internal and external networks. We’re talking about a lot of subsidiaries and numerous customers and suppliers. And these networks are not always obvious. For example, there might have been a business relationship with the CEO of a company in Germany for 15 years. But do they know about it at head office? Do they understand what it means, or what role it has for the future?”

As a result of the network perspective, the research group began to ask questions about when and how a headquarters can govern an MNC.

“How should we interpret governance of the multinational corporation? Should we attribute to the headquarters the powerful role, as the literature on strategy does? Or should we ask, instead, when and how we can expect head office to govern?”

Holm and his colleagues travelled around Europe by rail to interview representatives of subsidiaries.

“We tried to understand what was creating governance problems and how people were working in the networks. When we started, it was all very new. It was odd to study subsidiaries at all – people studied the headquarters and strategies. We used theories and arguments from sociology in our models, and after 10–15 years our theories and models were established in the research community.”

Holm now heads the research group, and his work includes developing a number of new research areas. Examples are globalisation and, not least, the emerging markets in China, India and Brazil.

“What’s the benefit of experience, which drives how we view the internationalisation process, when we’re dealing with markets that differ significantly from those where the company has its historical base? When and in what way does experience come into play in this expansion?”

Another channel of globalisation is expansion from, for example, China.

“The expansion from China is happening quickly. The difference is that they have the state, with its immense resources, behind them.”

To explore Chinese companies’ international expansion, two PhD students in the research group have travelled around China and interviewed staff at head offices. Their focus has been on how strong the headquarters’ political relationships are and how this affects their actions.

“The business leaders at Chinese headquarters focus on the political rather than the business world. The more political links, the more expansion, but at the same time the head offices are losing business understanding. Their lack of it leads to reduced knowledge transfer to China from the subsidiaries, and makes it harder for the headquarters to govern the subsidiaries.”

Another new research area is internationalisation and democracy. There, research has barely begun.

“We’ll investigate how and where democracy affects companies’ expansion. In business administration, the connection between internationalisation and democracy is extremely limited and has been studied only vaguely. If we can get this research going, we’ll really have broken new ground in understanding companies’ internationalisation.”