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Corporate Governance: The international journal of business in society Managing legitimacy issues in global supply chains: the case of the athletic footwear industry André Nijhof Dai Forterre Ronald Jeurissen

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André Nijhof Dai Forterre Ronald Jeurissen, (2008),"Managing legitimacy issues in global supply chains: the case of the athletic footwear industry", Corporate Governance: The international journal of business in society, Vol. 8 Iss 4 pp. 506 - 517 Permanent link to this document:
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Managing legitimacy issues in global
supply chains: the case of the athletic
footwear industry

Downloaded by University of Plymouth At 15:41 14 November 2014 (PT)

Andre´ Nijhof, Dai Forterre and Ronald Jeurissen

Andre´ Nijhof is Associate
Professor at the Nyenrode
Business University,
The Netherlands.
Dai Forterre is based at
ASICS Europe, Amsterdam,
The Netherlands.
Ronald Jeurissen is
Professor of Business
Ethics at Nyenrode
Business University,
The Netherlands.

Purpose – This paper aims to explore new forms of control that can address the legitimacy problems of globally-integrated enterprises.
Design/methodology/approach – In a conceptual analysis the characteristics of the globally-integrated enterprise are used to put forward apt strategies of control. These proposals are examined and illustrated in a case study of the strategies in use in the athletic footwear industry. Findings – This paper argues that command-and-control strategies will be ineffective for globally-integrated enterprises. In order to behave like a global corporate citizen companies need to stress controls based on belief systems and interactive systems. Certain features of this shift in control are visible within the athletic footwear industry although many strategies in use are still based on thinking like a multinational.

Research limitations/implications – This paper is explorative in nature. More empirical research is needed to test the proposals this paper puts forward.
Practical implications – The results of this paper can be used as a framework to develop control strategies for companies working from a transnational perspective. Originality/value – The functioning of globally-integrated enterprises creates both tremendous economic possibilities as well as new problems of legitimacy. This paper is one of the first systematic attempts to provide a framework for dealing with these legitimacy problems and also serves as an illustration of this framework in the athletic footwear sector. Keywords Globalization, Footwear industry, Supply chain management, Legal process Paper type Case study

1. The globally-integrated enterprise
The globalization thesis maintains that our world is facing the progressive eroding of the relevance of territorial bases for social, economic and political activities, processes and relations (Crane and Matten, 2007, p. 17). If we apply the globalization thesis to the way business is organized in this world, we should expect the paradigm of the ‘‘multinational corporation’’ (MNC) with its peculiar territorial characteristics to be superseded by a new and truly ‘‘global’’ organizational form (Held et al., 1999). The ‘‘traditional’’ MNC is still dominated by territorial characteristics in several respects. Most of the world’s large MNCs and brands still have a clear national identity and foundation. Coca Cola is still largely perceived as an American brand, and Royal (!) Philips is clearly a Dutch company, even though most of its production takes place in East Asia and Eastern Europe. The dominant model for the MNC today is still the ‘‘hub and spoke’’ model, where the hub represents the company’s country of origin and where the headquarters are situated, and the spokes represent the company’s outlets and locally-operating companies on all continents (see McDonald’s, Starbucks, Unilever and Shell, for example), the ring of suppliers in other countries (see Airbus and IKEA, for example) or the international bundle of subsidiaries, joint ventures and investments (see Heineken and Tata, for example).

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VOL. 8 NO. 4 2008, pp. 506-517, Q Emerald Group Publishing Limited, ISSN 1472-0701

DOI 10.1108/14720700810899239

Downloaded by University of Plymouth At 15:41 14 November 2014 (PT)

Following Palmisano (2006a, b) we put forward the concept of the ‘‘globally-integrated enterprise’’ (GIE) as the theoretical and practical heir to the MNC concept of thinking about the organization of business on a world scale. A GIE is not just characterized by its global operation; this is not a new phenomenon for many companies (Scholte, 2000). The predominant characteristic of GIEs is that state borders no longer define the boundaries of corporate thinking and practice in a radical way. Compared with the influential typology of multinationals by Bartlett and Ghoshal (1989) our conceptualization of the GIE comes closest to what they call the ‘‘transnational company’’. However, following Palmisano we believe that we should be more sensitive to the paradigmatically revolutionary innovation of a GIE type of company, when compared to an MNC. Palmisano, for instance, contends that the standardization of technologies and information processing facilitates integration of components from all over the world to such an extent that territorial base becomes irrelevant. Using Giddens’ terms we might say that the GIE represents a spatio-temporally ‘‘dislocated’’ form of business organization. The dislocation of time and space enables the development of value chains without a dominant system integrator, resulting in a network of rather loose customer – supplier relationships (Harzing, 2000). The GIE is a global organizational form of business without a hub and spokes, but with chains, made up of chains. At present many multinational companies still depend largely on sales within their region of origin. Rugman and Verbeke (2004) have shown that in 2001 only 9 of the 500 largest companies in the world were truly global in the sense that they each had at least 20 percent of their sales in Europe, North America and Asia. The vast majority still has on average 80 percent of their sales concentrated in only one of these regions. This is why Rugman (2003, p. 412) claims that the globalization of business does not exist. The rise of the Sovereign Wealth Funds also underscores the resilience of the territorial base as an important characteristic of world business. People are afraid that through Sovereign Wealth Funds (which are state-controlled investment funds) national governments might acquire too much influence over other countries’ strategic economic assets. When push comes to shove, the national unit of organization obviously still dominates our economic worldview. But this should not blind ourselves to important evidence to the contrary. To understand the functioning of GIEs the localization of sales and investments is of only relative importance. GIEs see the world as their working area and focus their strategy, management and operations on the integration of production worldwide. In order to estimate how many companies can be perceived as GIEs, especially deterritorialization should be taken into account (Scholte, 2000). However, empirical support for this is scarce (Rugman, 2003). Although in one of the most extensive studies Harzing (2000) was able to show that different types of multinationals exist, she could not demonstrate the relative importance of each type (see also Leong and Chin, 1993).

For this article the most important thesis is that the nascent shape of the GIE will increasingly prove to be a viable theoretical concept for understanding international business. At present, no single dominant model of the GIE has emerged, if it ever will. Just as multinationals exist in kinds, so too will GIEs. Their typological order, however, is likely to be that of a family resemblance, each individual company showing a specific individuation of a more general pattern (see also Harzing, 2000). Table I presents an overview of the characteristics of the GIE compared to more traditional multinationals – labeled as multidomestic companies by Bartlett and Ghoshal (1989).

2. New problems of legitimacy
In order to remain competitive, GIEs seek maximum freedom in choosing how and where they operate. At the same time, in order to perform efficiently at the local level, a certain degree of legitimacy is required from local stakeholders such as national or regional governments, workers, communities, and civil society organizations (Freeman, 1984; Donaldson and Preston, 1995). Legitimacy is understood as a ‘‘generalized perception or assumption that the actions...

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