This edited volume strives to explore and explain embeddedness of multinational corporations (MNCs) in their environment and provide both policymakers and firms with tools for enhancing and benefiting from embeddedness. As the editor notes, the book is “deliberately designed as a conversation among authors with distinct but intersecting perspectives” (p. xix), rather than delivering a unified message using an overarching framework.
Embeddedness is understood as the link between the MNC and its economic, social, cultural and political environment. An MNC is embedded in its environment at multiple levels, from the supranational to national, regional and any industrial cluster it may be part of. Embeddedness is seen as both a driver and an outcome of MNC activities.
The book contributes to a lively debate on both the academic and practitioner sides. On the academic side, the chapters explore the role of subsidiaries, as well as knowledge and innovation capabilities of the MNC. They also explore links between institutions and international business. These are major current topics in international business and corporate strategy studies, among other fields. From the practitioner perspective, the book contributes to arguments over the role of MNCs today, particularly on their impact on national and regional economies. Do MNCs contribute to the development of these economies? Or do they just reap any economy-specific advantages and move on? Even when such questions are not explicitly asked in the chapters, they generally get a positive response for the MNC: MNCs do contribute, at least, to innovation capabilities of economies, in part, by transferring knowledge between their locations. However, some chapters take exception with this positive portrayal of MNCs. Some MNCs may opportunistically exploit advantages in their environment and move on with little reciprocal contribution. This is discussed for both core and new members of the European Union (EU), in Chapters 10 and 13, respectively.
The breadth and depth of the selection of chapters are impressive. Industry sectors, methods and units of analysis are widely represented here. Issues faced by MNCs that are treated in the chapters are up-to-date and relevant. It is also clear that the editor put significant effort into structuring and organizing this volume to create a coherent book out of contributions by diverse authors. As a result, the book is split into three parts by the level of analysis, from company-level view in part I to the regional and national level in part II to the supranational level in part III.
Going into specific sections, in Chapter 2, Martin Heidenreich and Jannika Mattes set off the debate by advancing several issues that are fleshed out in subsequent chapters. They provide a classification of MNC embeddedness in regions, which are understood as subnational units (as opposed to supranational regions such as the EU). An interesting insight in the chapter is that it attributes the embeddedness of an MNC in a region not only to internal MNC factors (e.g. inter-subsidiary relations, MNC’s learning capabilities) but also to external factors (e.g. business associations, qualified workforce and supplier relationships). Thus, the chapter raises interesting questions about the extent to which the MNC strategy is guided by its own actions versus environmental factors.
Örjan Sölvell develops this theme of the balance of external and internal factors in Chapter 3. This chapter describes the challenge of integrating knowledge into the MNC from a cluster-integrated subsidiary. Such subsidiaries may, thus, become more integrated into the cluster than into the MNC. The solution for the MNC is to develop several relatively autonomous divisional “home bases” that tailor their division’s strategies and capabilities to individual locations and thus better integrate them into the MNC. Further, this chapter advances the view of MNCs’ innovation capabilities as specialized and contextualized. The author argues that they should be viewed separately from MNCs’ other operational and strategic functions, which have largely become standardized and are located based on efficiency considerations.
Similarly, in Chapter 4, Bjørn Asheim, Bernd Ebersberger and Sverre Herstad also view the MNC as a network of units. A major insight in this chapter is that one of the most important roles of such a network is to identify organizations that would provide useful collaborations, as the MNC is able to extend the creation of knowledge from internal to foreign contexts as well. Using the example of Norwegian companies from a variety of sectors, the authors suggest that identifying and engaging collaboration partners abroad lead to richer collaboration patterns and thus potentially to higher knowledge spillovers.
Chapter 5, by Philip Cooke, picks up on a major idea from Chapter 2 on the extent to which MNC strategy is shaped by its own agency. Similar to conclusions from Chapter 4, this chapter shows that MNC innovation capabilities, to a large extent, depend on external resources and competencies. The chapter paints a broader picture of economic and environmental changes at the beginning of the twenty-first century as drivers of the location choice of MNC innovation capabilities. One example is the purported shift in customer preferences to fuel-efficient and hybrid cars. The chapter cites an automotive cluster of Konya in Turkey, which, as of the chapter’s writing, had not developed capabilities to produce such vehicles. The author conjectures that this might prevent automotive MNCs from locating in this cluster in future.
Bringing the debate to the national and regional levels, Chapter 6 by Petra Ahrweiler, Michel Schilperoord, Nigel Gilbert and Andreas Pyka opens part II. Taking the case of the Irish economy, the authors model the effect of MNC presence on knowledge flows between firms using a computer-run simulation. The authors show that despite limited innovation spillovers to the Irish economy, attracting MNCs increased knowledge flows and innovation performance in the industries with MNC presence and thus has been beneficial for local firms.
In Chapter 7, Simona Iammarino, Jan-Philipp Kramer, Elisabetta Marinelli and Javier Revilla Diez investigate the interplay between internal processes for organizing R&D activities on one hand and external opportunities for innovation on the other. They identify several ways in which MNCs leverage environmental capabilities, including R&D collaboration with other firms and relationships with educational institutions for training purposes. Insights from this chapter on regional-level opportunities for innovation complement well the firm-level lessons from Chapter 4, where MNCs are advised to develop collaboration networks with other firms.
Chapter 8, by Simone Strambach and Benjamin Klement, investigates a sample of German software firms with the goal of understanding where they locate their R&D activities and how they manage the creation and use of knowledge across these different locations; in this case, Germany and India. The results suggest that most firms create knowledge in their German locations and use it in Indian subsidiaries. The authors, however, note a trend toward upgrading capabilities for knowledge production at Indian subsidiaries, and a corresponding upgrading of knowledge management capabilities at German locations.
Knut Koschatzky and Elisabeth Baier bridge the national and supranational levels in Chapter 9. They argue that the quality of the environment matters for MNCs. The chapter presents a taxonomy of regional clusters in Europe based on knowledge intensity and manufacturing capabilities, among other factors. This taxonomy is then used to show that regions where MNC headquarters and R&D subsidiaries are located typically exhibit higher than average knowledge and qualifications endowments, as well as higher population density. For example, in the most innovative regions such as Stockholm or Île-de-France, the proportion of workers in knowledge-intensive services is twice as high, and gross domestic product per capita is 1.8 times higher, than the European average.
Chapter 10, by Dieter Rehfeld, opens part III by discussing the differences in the strength of embeddedness of MNCs into the regions they are present in. It shows that MNCs tend to be bound to their regions, which provides benefits for all companies present in that region. At the same time, MNCs may try to avoid commitments to long-term actions and instead pursue shorter-term activities. Thus, coordination and distribution of aggregate benefits may present the need for policymakers to intervene, as can the need to formulate a long-term regional strategy.
In Chapter 11, Christoph Barmeyer and Katharina Krüth provide a case study of competitiveness clusters in France. These are regional clusters composed of MNCs, small- and medium-size enterprises (SMEs) and research and education facilities brought together to promote collaborative innovation activities. The chapter describes interesting characteristics of these clusters, such as the degree of influence of the French national government, the dominance of French MNCs and the lack of SMEs in these clusters.
Bob Hancké, in Chapter 12, takes a contrasting position on coordination and discusses firm-driven, rather than government-driven, coordination. This chapter focuses on the extent to which MNC coordination is spurred by their actions, rather than being imposed from outside, as in the preceding chapter. Such coordination appears to be facilitated by long time frames of recouping costs of investment, as well as by the development of skills or supplier base. Both of these factors force MNCs to increase their coordination efforts.
Chapter 13, by Rajneesh Narula and José Guimón, paints a dynamic picture of the increasing role of MNCs in innovation processes in the new members of the EU that joined in 2004 and 2007. The authors note that R&D expenditure of MNC subsidiaries in these countries is now much higher than that in the old EU members, despite being lower in early 1990s. However, policymakers in these countries seeking deeper embeddedness of MNCs in their countries should not take these developments for granted, as the failure to develop national innovation systems may cause MNCs to relocate elsewhere. Authors offer specific recommendations in that regard, including matching innovation capabilities of the country with drivers of required foreign direct investment, providing incentives for MNCs to engage in innovation activities with local partners and developing appropriate innovation infrastructure.
With its mix of theory- and case-driven analysis, the book is highly recommended to scholars, managers and policymakers. It provides an excellent overview of the state of the art in the various interactions of the MNC with its environment, while also going into insightful details in specific cases, which offer valuable lessons. At the same time, there are several areas where the book could have gone further.
One is the balance between theoretical insights and case examples, which, in this book, is tilted toward cases. Readers, particularly those from academia, might expect a greater number of theoretical insights that would further our understanding of MNCs and their environment. Two most prominent areas that somewhat lack theory development are institutions and the concept of the MNC.
An interesting issue that could be developed much deeper is that of “footloose” MNCs that opportunistically exploit advantages in their environment without embedding themselves and contributing to that environment. This issue is raised in a few chapters (e.g. Chapters 10 and 13); however, none offers a comprehensive analysis. An in-depth and critical discussion of this issue would be a valuable addition to the book, as this issue is central to MNC embeddedness and the book’s topic.
The institutional perspective is rarely addressed explicitly, except in Chapter 1. It would be interesting to see a comparison of different institutional perspectives (e.g. the new institutional economics, institutional insights from organizational studies and sociology) and how these conceptualizations of institutions may shape MNC embeddedness. The concept of institutions in most chapters is assumed as given and is manifested in governmental, educational, regulatory and other institutions. While a discussion of the influence of these institutions on embeddedness is undoubtedly important, a more formal and diverse discussion of institutions would be welcome. This is especially so because institutions feature in the book’s title.
The definition of an MNC is also taken for granted in most chapters of the book. With the notable exceptions of Chapters 3 and 4, the book rarely acknowledges new perspectives on MNCs. One such perspective is the network view that sees MNCs as a network of loosely connected and relatively autonomous actors. This has significant implications for relationships, on one hand, among MNC sub-units and between its headquarters and subsidiaries and between the MNC and its environment on the other hand. The latter point is central to discussions in the book, and a more thorough and systematic treatment of MNC conceptualizations would be a good addition to the book’s insights.
Looking at embeddedness through other contemporary theoretical perspectives would have enriched the debate. Transaction cost economics, resource-based view and dynamic capabilities, to name just a few, are relevant and often central to the issues of MNC embeddedness. Transaction costs of an MNC’s interactions with institutions might facilitate or significantly hamper MNC embeddedness and thus yield interesting insights and recommendations. Resources controlled and, more importantly, not controlled by the firm are important considerations in the firm’s location choice and embeddedness. Finally, dynamic capabilities provide an explicitly temporal view of how MNCs may reconfigure the extent of their embeddedness under fast-paced technological change. However, for the most part, such perspectives are not explicitly discussed in the book. While the book explicitly focuses on the institutional perspective, comparing the influence of institutions on embeddedness with that of other perspectives would be instructive.
A wider geographical scope would also be beneficial. All chapters (except, to some degree, Chapter 8) are rooted in Europe. This undoubtedly allows the volume to investigate issues in greater detail by keeping constant the geographic, cultural and institutional variances. However, this somewhat tacit European focus may have prevented authors from addressing embeddedness in light of some exciting current developments. These include the rise of emerging market MNCs and the increasing propensity of MNCs in general to spread their value chain activities across a diverse mix of developed and emerging countries. In a more critical vein, instances of poor labor conditions and a string of industrial incidents in developing countries in recent years might have encouraged authors to consider what can be called “indirect embeddedness.” MNCs that do not own or control operations in particular countries, nevertheless, face calls to strengthen institutions of these countries to prevent such incidents in the future. Examining embeddedness from this angle would have been timely and important.
On balance, this is a highly engaging book that many audiences will appreciate. It offers new theoretical insights and, to an even larger extent, lessons from cases to be learned. Interactions of MNCs with their environment are treated at a variety of levels. At the same time, the book could have benefited from deeper theoretical discussions and a wider geographic scope.
