Long accustomed to playing a pivotal role in corporate expansion overseas, traditional country managers began to fall from favor in the 1980s, branded as an obstacle to the spread of globalization. Seeking to exploit the promises of worldwide communication, product standardization, and economies of scale, many multinationals reduced their country managers’ responsibility for decision making and profit and loss. Geographic power gave way to worldwide strategic business units or product directors operating from central headquarters.
In managing this transition, many companies adopted the transnational model.1 It held that customer needs were growing more homogeneous throughout the world, so companies should no longer duplicate their manufacturing and product development in each national market, but should instead leverage their capabilities across borders to achieve global economies, respond to local markets, and transfer best practices. To implement the model, senior managers were expected to think, operate, and communicate along three dimensions: product, geography, and function.
The transnational model appealed to corporate management as a means of both rationalizing costs and increasing control over far-flung overseas subsidiaries. It also represented a golden opportunity to root out entrenched country managers who behaved like potentates in their local markets, blocking headquarters’ efforts toward standardization,...