Governance of Foreign Affiliates as a Distinctive Choice between Networks, Market and Hierarchy

Abstract

I argue that distinctive attributes of foreign affiliates, arising from their foreignness and multinationality, affect their choices between networks, market and hierarchy as alternative modes of governance. Comparative analyses of 193 foreign and local professional services firms in London confirm these theoretical expectations. Market relationships are the preferred mode of foreign affiliates, challenging the view of the MNEs hierarchy as a major source of resources of affiliates. I outline direction for future research that follow from this study, including further inquiry into the distinctiveness of the MNE and the study of international activities of professional services firms.

Keywords: Foreign affiliates’ choice of governance modes, market versus hierarchy versus networks, professional services, global cities