Evaluation of Uncertain International Markets The Advantage of Flexible Organization Structures

Michael Christensen and Thorbjørn Knudsen

No 06-04, DRUID Working Papers from DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies

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.

Keywords: Multinational corporations; entry modes (search for similar items in EconPapers)
JEL-codes: D81 F23 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cse
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