For many years, multinational corporations could compete successfully by exploiting scale and scope economies or by taking advantage of imperfections in the world’s goods, labor and capital markets. But these ways of competing are no longer as profitable as they once were. In most industries, multinationals no longer compete primarily with companies whose boundaries are confined to a single nation. Rather, they go head-to-head with a handful of other giants that are comparable in size, in their access to international resources and in worldwide market position. Against such global competitors, it is hard to sustain an advantage based on traditional economies of scale and scope.
Consider the oil industry. The industry is dominated by a handful of global players such as Exxon Mobil, BP, Shell and ChevronTexaco. They each have global exploration, refining and distribution operations, leaving little room for any company to gain competitive advantage with economies of scale. Similarly, they each have brands that are more or less equally well recognized the world over, reducing opportunities for a company to seize competitive advantage with an economy of scope based on its brand power. Such relative parity among multinational corporations can also be observed in consumer electronics, information technology, pharmaceuticals, banking, professional services and even retailing.
Under these circumstances, MNCs must seek new sources of competitive advantage. While multinationals in the past realized economies of scope principally by utilizing physical assets (such as distribution systems) and exploiting a companywide brand, the new economies of scope are based on the ability of business units, subsidiaries and functional departments within the company to collaborate successfully by sharing knowledge and jointly developing new products and services.1 Multinationals that can stimulate and support collaboration will be better able to leverage their dispersed resources and capabilities in subsidiaries and divisions around the globe.
Collaboration can be an MNC’s source of competitive advantage because it does not occur automatically — far from it. Indeed, several barriers impede collaboration within complex multiunit organizations. And in order to overcome those barriers, companies will have to develop distinct organizing capabilities that cannot be easily imitated.
Interunit collaboration is not only difficult to achieve but also poorly understood. However, a framework that links managerial action, barriers to interunit collaboration, and value creation in MNCs can help managers “unpack” the concept.