Key value adding activities, like R&D, design, and the manufacture or processing of critical items containing proprietary source of knowledge, competence and competitive advantage, are concentrated in the home country. Oversea subsidiaries are (initially) established as assembly (screwdriver) sales, distribution and service operations.
ii. The Decentralised Federation:
Here the MNC takes the form of a ‘federation’ of decentralised companies and subsidiaries owned in full or in part by the parent. Multidomestic strategies are followed. High degree of autonomy is granted to the subsidiary and the parent company would interact only on the matters relating to corporate and business strategy, major capital expenditure, inter-company finances, and appointment of senior managers. The advantage of this form lies in its ability to respond to the local requirements.
iii. The Coordinated Federation:
It is similar to the immediately above described form with some additional features. Each constituent has access to continuing flow of new concepts, new products, new brands, new process technologies, and new manufacturing and distribution opportunities. This flow is treated as a total capability which all may share, and from which all should benefit.
Asia Brown Boweri, Ford Motor Company, Shell, and British Petroleum are examples of coordinated federations.
iv. The Transnational Organisation:
This is an integrated network of interdependent organisations and capabilities. Each constituent is capable of adding value independently, but at the same time contribute to the synergy represented by the whole.