The optimal performance of the global firm: formalizing and extending the integration-responsiveness framework

Abstract

With the increasing globalization of business, there has been growing interest in how to create and manage a successful international enterprise. Although researchers and practitioners have grappled with the issue of globalization for some time, there is no one model that encompasses the range of phenomena we observe in the global economy, nor have those models that do exist been precisely formalized. This paper provides an expanded approach to thinking about the organizational forms and linkages that exist in international business operations. Building on the popular integrationresponsiveness framework of international strategic orientation, we develop a more expansive approach that is better able to account for the diversity of organizational forms and strategic choices open to managers. By adding a third set of environmental pressures, incorporating the beliefs of managers, and by employing the idea of efficient frontiers, we reformulate the integration-responsiveness framework, making it more consistent with modern economic models of the firm. Our integrationresponsiveness-completeness (IRC) model argues that global firms can respond to these fundamental and competing pressures by configuring themselves in a variety of ways—rather than normatively prescribing that the transnational form is optimal. In addition, our model has methodological ramifications. Its formal structure suggests that empirical techniques that focus on the best rather than average performance are necessary to adequately investigate the performance differences among alternative organizational forms. This may explain the paradoxical lack of empirical support for a link between organizational form and performance.