This 5th edition of Transnational Management is dedicated to Sumantra Ghoshal, a longtime friend, colleague, and coauthor whose name has been on the cover of this book since it was first published more than 15 years ago. During our 20-year research and writing partnership, Sumantra was always concerned about how to bring knowledge into the classroom. In our field research, he wanted to ensure that we could create powerful teaching material out of the data and stories we were uncovering and the conclusions we were reaching. Indeed, he believed that it was impossible to unravel to twin strands of teaching and learning, claiming that together they created a much stronger cord of knowledge. To Sumantra, discussion in the classroom raised questions that drove him into the field, and the findings from the field created teaching materials that did much more than provide insight for students; they provoked more questions for research.

To the outside world, the numerous awards Sumantra won as an outstanding teacher and case material developer were a testimony to his lifelong commitment to the classroom. But for those of us fortunate enough to have worked with him personally, whether as a student, a colleague, or a consulting client, Sumantra was much more than a gifted teacher. His brilliant questioning and insightful challenges pushed us to think harder and deeper but were complemented by his bold imagination and supportive encouragement that gave us the courage to take risks. Although he passed away in 2004, we list him as a coauthor in this new edition not only to honor his memory but also to reflect the significant and lasting contribution he made to the concepts, perspectives, and materials that are at the core of this book.

To ensure that this and future editions of Transnational Management keep alive the sprit of challenge and excitement that Sumantra brought to it, I am delighted to be joined by Paul Beamish as a new coauthor of this 5th edition. Paul is an old friend whose reputation as a researcher, course developer, and teacher in the field of International Business and International Management he is so widely known that he hardly needs an introduction in these pages. His extensive work on international joint ventures and alliances is well known, as is his expertise in managing in the Asian region. At the University of Western Ontario’s Ivey School of Business, Paul has served as Associate Dean for Research, as well as the founding director of Ivey’s Asian Management Institute. In the broader academy, he has gained widespread respect not only for his own research, but also as the editor Journal of International Business Studies (JIBS) for five years. To this book, he brings an even and more valuable skill however: the commitment to translate his extensive knowledge and experience into first-rate classroom materials. He is a welcome edition to Transnational Management. His contribution to this edition will be evident in the following pages and undoubtedly continue through many future editions of this text.

What makes the study of the MNE unique? The most fundamental distinction between a domestic company and an MNE derives from the social, political, and economic context in which each exists. The former operates in a single national environment where social and cultural norms, government regulations, customer tastes and preferences, and the economic and competitive context of a business tend to be fairly consistent. Although within-country local variations do exist for most of these factors, they are nowhere near as diverse or as conflicting as the differences in demands and pressures the MNE faces in its multiple host countries.

The one feature that categorically distinguishes these intercountry differences from the intracountry ones, however, is sovereignty.1 Unlike the local or regional bodies, the nationstate generally represents the ultimate rule-making authority against whom no appeal is feasible. Consequently, the MNE faces an additional and unique element of risk: the political risk of operating in countries with different political philosophies, legal systems, and social attitudes toward private property, corporate responsibility, and free enterprise.

A second major difference relates to competitive strategy. The purely domestic company can respond to competitive challenges only within the context of its single market; the MNE can, and often must, play a much more complex competitive game. Globalscale or low-cost sourcing may be necessary to achieve a competitive position, implying the need for complex cross-border logistical coordination. Furthermore, on the global chessboard, effective competitive strategy might require that the response to an attack in one country be directed to a different country—perhaps the competitor’s home market. These are options and complexities a purely domestic company does not face.

Third, a purely domestic company can measure its performance in a single comparable unit—the local currency. Because currency values fluctuate against each other, however, the MNE is required to measure results with a flexible measuring stick. In addition, it is exposed to the economic risks associated with shifts in both nominal and real exchange rates.

Finally, the purely domestic company must manage an organizational structure and management systems that reflect its product and functional variety; the MNE organization is intrinsically more complex because it must provide for management control over its product, functional, and geographic diversity. Furthermore, the resolution of this three-way tension must be accomplished in an organization that is divided by barriers of distance and time and impeded by differences in language and culture.

Historically, the study of international business focused on the environmental forces, structures, and institutions that provided the context within which MNE managers had to operate. In such a macro approach, countries or industries rather than companies were the primary units of analysis. Reflecting the environment of its time, this traditional approach directed most attention to trade flows and the capital flows that defined the foreign investment patterns.

During the 1970s and 1980s, a new perspective on the study of international management began to emerge, with a far greater emphasis on the MNE and management behavior rather than on global economic forces and international institutions. With the firms as the primary unit of analysis and management decisions as the key variables, these studies both highlighted and provided new insights into the management challenges associated with international operations.

This book builds on the company- and management-level perspective. More specifically, we adopt what is often called the administrative point of view. In other words, in order to make sense of the practice of managing the MNE, it is necessary to see the world through the eyes of the executive who is in the thick of it—whether that is the CEO of the corporation, the global account manager, the country subsidiary manager, or the frontline business manager. The most powerful way to do this is to employ cases that require decisions to be made, and most provide the reader not only with data on the business context but also with detailed information about the characters involved, their roles, responsibilities, and personal motivations. In many instances, videos and follow-up cases lead to further insight.

We have also chosen to focus on managerial processes such as the entrepreneurial process (identifying and acting on new opportunities), the integrative learning process (linking and leveraging those pockets of entrepreneurial initiative), or the leadership process (articulating a vision and inspiring others to follow). It would be easy to build our structure around the traditional functions of the company—R&D, manufacturing, marketing, etc.—and many texts have done so. But we find such an approach limiting because almost all real-world problems cut across these functional boundaries. They require executives to understand all the disparate parts of the organization, and they demand integrative solutions that bring together, rather than divide, the people working in their traditional functional silos. (This is a reality reflected in the multidimensional organizations most MNEs have developed.) A process perspective is more difficult to grasp than a functional one, but ultimately it provides a more fulfilling and realistic approach to the management of today’s MNE.

By adopting the perspective of the MNE manager, however, we do not ignore the important and legitimate perspectives, interests, and influences of other key actors in the international operating environment. However, we do view the effects of these other key actors from the perspective of the company and focus on understanding how the various forces they influence shape the strategic, organizational, and operational tasks of MNE managers.

The book is divided into three parts (see figure on page x). Part 1 consists of three chapters that examine the development of strategy in the MNE. In Chapter 1, we focus on the motivations that draw—or drive—companies abroad, the means by which they expand across borders, and the mind-sets of those who built the worldwide operations. Understanding what we call a company’s “administrative heritage” is important because it shapes both the current configuration of assets and capabilities and the cognitive orientations of managers toward future growth—attitudes that can either enable or constrain future growth.

In Chapter 2, we examine the political, economic, and social forces that shape the business environment in which the MNE operates. In particular, the chapter explores the tension created by political demands to be responsive to national differences, economic pressures to be globally integrated, and the growing competitive need to develop and diffuse worldwide innovation and learning.

In Chapter 3, the focus shifts from the global business environment to MNEs’ competitive responses to those external pressures. Building on the themes developed in Chapter 2, we examine the various approaches an MNE can use to generate competitive advantage in its international context. We identify three traditional strategic approaches—global, international, and multinational—each of which focuses on a different source of competitive advantage. We then go on to describe the transnational strategy, which combines the benefits of the other three models.

Chapter 5 focuses on one of the most important processes to be developed in a transnational organization. The need to manage effective cross-border knowledge transfer and worldwide learning is creating new organizational demands, and in this chapter, we explore how such processes are built and managed.

Then, in Chapter 6, we lift our organizational analysis up a level to examine the boundary-spanning structures and processes needed to create alliances and interfirm networks in a global context. In this chapter, we explore how such partnerships can be built and managed to develop strategic capabilities that may not be available inside any single MNE.

Finally in Chapter 8, we ask some broad questions about the present and future role of the multinational enterprise in the global economy. The powerful forces unleashed by globalization have had a largely positive impact on economic and social development worldwide. But like all revolutions, the forces of changes have acted unevenly, and there have been casualties. As the divide between the “haves” and “have nots” expands, the challenge facing MNEs is to determine what role they can and should play in mitigating some of the unintended consequences of the globalization revolution. It is a challenge that should confront every current executive and be central to the task of the next generation of leadership in global companies.

Finally, in our continual commitment to keep this book current, more than half of the case studies and half of the readings are new to this edition. In addition, we have enriched the overall conceptual framework of the book by adding a new final chapter that addresses some important challenges for the MNE of the future. We hope these changes show our ommitment to keep this book current and relevant while recognizing the need for continuity in the broad concepts and frameworks in which the material is presented.

Once again, Transnational Management has greatly benefited from the comments, uggestions, and insights provided by many of our colleagues at the hundreds of institutions around the world that have adopted this book. In particular, we would like to acknowledge the role played by the Editorial Advisory Board listed previously. However, in addition to those individuals who committed significant effort to providing a detailed critique of the last edition, we have also had extraordinary support from our colleagues in other institutions who have provided valuable feedback and suggestions for improvement. In particular, we would like to acknowledge Michael Mulford, Buena Vista University; Michael Wakefield, Colorado State University; Ernst Verwaal, Eramus University; Phillip Bryans, Napier University; Laura Whitcomb, California State University-Los Angeles; Carol Howard, Oklahoma City University; George Redmond, Franklin University; Nikos Bozionelos, University of Durham; and Cinzia DalZotto, Jonkoping University—Sweden.

Next, we are extraordinarily grateful to the researchers and colleagues who have contributed new materials to this edition. In addition to our own case materials, new case studies were provided by Pankaj Ghemawat, Linda Hill, Tarun Khanna, and Allan Morrison. Articles new to this edition and focused on important research have been contributed by Julian Birkinshaw, Diana Farrell, Pankaj Ghemawat, Larry Houston, Walter Kummerle, and C. K. Prahalad.

We must also acknowledge the coordination task undertaken by our respective administrative assistants who worked over many months to coordinate the flow of manuscript documents back and forth among Boston, Sydney, and London, Ontario. To Ian Simmons and Mary Roberts, we give our heartfelt thanks for helping us through the long and arduous revision process. To Ryan Blankenship, our sponsoring editor, and Allison Belda, our editorial coordinator, at McGraw-Hill, as well as Beth Baugh, our developmental editor at Carlisle Publishing, we thank you for your patience and tolerance through this long process and look forward to a long a productive working relationship.

Despite the best efforts of all the contributors, however, we must accept responsibility for the shortcomings of the book that remain. Our only hope is that they are outweighed by the value you find in these pages and the exciting challenges they represent in the constantly changing field of transnational management.