Uncertainty and vertical control: An international investigation

This research investigates the effect of the environment on levels of vertical control in the international business arena. Both organizational economics and resource dependency perspectives emphasize, among other things, the impact of environmental uncertainty on organizational structures. Political economy models, in turn, incorporate these two perspectives, and emphasize the interaction between economic and sociopolitical forces in the environment. Although environmental uncertainty has been developed from a conceptual or theoretical standpoint, it has not received sufficient attention from an empirical standpoint. In short, empirical studies in this area have often presented a simplistic, one-dimensional picture of the business environment [Achrol, R.S. and Stern, L.W. (1988) Environmental determinants of decision-making uncertainty in marketing, Journal of Marketing Research, 25, 36-50]. The present study not only explores empirically the intricacies of environmental uncertainty from an international perspective, but also considers if uncertainty affects the likelihood of vertical governance. Data from 60 Norwegian-owned export companies operating in Poland and Germany indicate that market uncertainty in the host country and behavior-based (fixed) compensation systems induce vertical control, and that positive work force culture (e.g. low levels of shirking behavior and/or high levels of motivation) mitigates the need to control foreign subsidiaries.

[1]  J. Stopford,et al.  Ownership and Control of Foreign Operations , 1976 .

[2]  Tom R. Burns,et al.  The Management of Innovation. , 1963 .

[3]  L. Stern,et al.  Environmental Determinants of Decision-Making Uncertainty in Marketing Channels , 1988 .

[4]  Robert N. Stern,et al.  The External Control of Organizations: A Resource Dependence Perspective. , 1979 .

[5]  P. Kaufmann,et al.  Relational Exchange Norms, Perceptions of Unfairness, and Retained Hostility in Commercial Litigation , 1988 .

[6]  Donald L. Mccabe.  Buying Group Structure: Constriction at the Top , 1987 .

[7]  J. Nunnally.  Psychometric Theory (2nd ed), New York: McGraw-Hill. , 1978 .

[8]  The effects of risk preference, uncertainty, and incentive compensation on salesperson motivation , 1991 .

[9]  William Diebold,et al.  The European Multinationals , 1977 .

[10]  R. Lusch,et al.  Environmental Uncertainty Regarding Inventory Ordering , 1984 .

[11]  R. Dahlstrom,et al.  MULTINATIONAL COMPANY STRATEGY AND HOST COUNTRY POLICY , 1992 .

[12]  Lars-Erik Gadde,et al.  Stability and change in network relationships , 1987 .

[13]  G. John,et al.  Performance Outcomes of Purchasing Arrangements in Industrial Buyer-Vendor Relationships , 1990 .

[14]  J. Arndt.  The Political Economy Paradigm: Foundation for Theory Building in Marketing , 1983 .

[15]  R. Dahlstrom,et al.  Market structure and integration in the Norwegian oil industry , 1993 .

[16]  Srinivas K. Reddy,et al.  Marketing channels: Relationships and performance , 1986 .

[17]  Kathleen M. Eisenhardt,et al.  Control: Organizational and Economic Approaches , 1985 .

[18]  Barton A. Weitz,et al.  An Organizational Coordination Model of Salesforce Compensation Plans: Theoretical Analysis and Empirical Test , 1987 .

[19]  J. F. Gaski.  The Theory of Power and Conflict in Channels of Distribution , 1984 .

[20]  W. Dugger.  The Economic Institutions of Capitalism , 1987 .

[21]  H. Gatignon,et al.  The multinational corporation's degree of control over foreign subsidiaries : an empirical test of a transaction cost explanation , 1988 .

[22]  G. John.  An Empirical Investigation of Some Antecedents of Opportunism in a Marketing Channel , 1984 .

[23]  E. Anderson.  Strategic implications of Darwinian economics for selling efficiency and choice of integrated or independent sales forces , 1988 .

[24]  L. Franko,et al.  The multinational company in Europe: some key problems , 1972 .

[25]  A. V. D. Ven,et al.  On the Nature, Formation, and Maintenance of Relations Among Organizations , 1976 .

[26]  J. K. Benson.  The Interorganizational Network as a Political Economy , 1975 .

[27]  How to service a foreign market under uncertainty: A real option approach☆ , 1992 .

[28]  A. V. D. Ven,et al.  Perspectives on organization design and behavior , 1983 .

[29]  F. Dwyer,et al.  Environmental Relationships of the Internal Political Economy of Marketing Channels , 1985 .

[30]  Harbir Singh,et al.  The Effect of National Culture on the Choice of Entry Mode , 1988 .

[31]  Leslie Kren,et al.  The Effect of Behaviour Monitoring and Uncertainty on the Use of Performance-Contingent Compensation , 1993 .

[32]  James Leontiades,et al.  European research in international business , 1978 .

[33]  Jakki J. Mohr,et al.  Collaborative Communication in Interfirm Relationships: Moderating Effects of Integration and Control , 1996 .

[34]  Robert W. Ruekert,et al.  The Organization of Marketing Activities: A Contingency Theory of Structure and Performance , 1985 .

[35]  James D. Thompson.  Organizations in Action , 1967 .

[36]  O. Williamson,et al.  Markets and Hierarchies: Analysis and Antitrust Implications. , 1977 .

[37]  Gary L. Frazier,et al.  A Transaction Cost Analysis Model of Channel Integration in International Markets , 1990 .

[38]  Jeffrey L. Bradach,et al.  Price, Authority, and Trust: From Ideal Types to Plural Forms , 1989 .

[39]  R. Lusch.  Sources of Power: Their Impact on Intrachannel Conflict , 1976 .

[40]  Barton A. Weitz,et al.  Forward Integration into Distribution: An Empirical Test of Transaction Cost Analysis , 1988 .

[41]  James A. Brickley,et al.  The choice of organizational form The case of franchising , 1987 .

[42]  H. Gatignon,et al.  Modes of Foreign Entry: A Transaction Cost Analysis and Propositions , 1986 .

[43]  R. Caves,et al.  Multinational Enterprise and Economic Analysis: Preface , 2007 .

[44]  Paul R. Milgrom,et al.  Economics, Organization and Management , 1992 .

[45]  Barton A. Weitz,et al.  Determinants of Continuity in Conventional Industrial Channel Dyads , 1989 .

[46]  J. Arndt.  Toward a Concept of Domesticated Markets , 1979 .

[47]  S. Shane,et al.  The Effect of Cultural Differences in Perceptions of Transaction Costs on National Differences in the Preference for Licensing , 1992 .

[48]  A. Coughlan,et al.  International Market Entry and Expansion via Independent or Integrated Channels of Distribution , 1987 .

[49]  M. Bergen,et al.  Agency Relationships in Marketing: A Review of the Implications and Applications of Agency and Related Theories , 1992 .

[50]  Peter J. Buckley,et al.  The theory of the multinational enterprise , 1985 .

[51]  Erin Anderson,et al.  Control System and Task Environment Effects on Ethical Judgment: An Exploratory Study of Industrial Salespeople , 1993 .

[52]  Amiya K. Basu,et al.  Salesforce Compensation Plans: An Agency Theoretic Perspective , 1985 .

[53]  Saeed Samiee,et al.  The Influence of Global Marketing Standardization on Performance , 1992 .

[54]  Gabriel R. G. Benito,et al.  Ownership structures of norwegian foreign subsidiaries in manufacturing , 1996 .

[55]  Jan B. Heide,et al.  Controlling Supplier Opportunism in Industrial Relationships , 1996 .

[56]  G. Walker,et al.  A Transaction Cost Approach to Make-or-Buy Decisions , 1984 .

[57]  Edward J. Mitchell,et al.  Vertical Integration in the Oil Industry , 1986 .

[58]  W. Dill.  Environment as an Influence on Managerial Autonomy , 1958 .

[59]  M. C. Jensen,et al.  Theory of the Firm , 1976 .

[60]  B. Wernerfelt,et al.  Competitive strategy under uncertainty , 1987 .

[61]  Jacob Cohen,et al.  Applied multiple regression/correlation analysis for the behavioral sciences , 1979 .

[62]  L. Stern,et al.  Distribution Channels as Political Economies: A Framework for Comparative Analysis , 1980 .

[63]  L. Stern,et al.  The Environment of Marketing Channel Dyads: A Framework for Comparative Analysis , 1983 .

[64]  Michael Etgar,et al.  Channel Environment and Channel Leadership , 1977 .

[65]  H. Simon,et al.  A Behavioral Model of Rational Choice , 1955 .