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The multinational corporation as a multilingual community: Language and organization in a global context


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This paper develops a framework for analyzing the multinational corporation (MNC) as a multilingual community in which parent functional language and subunit functional languages are concurrently used and recursively linked through an intra-corporate communication network. The unit, breadth and intensity of an MNC's language system are designed to apply global strategies within the context of evolving environmental and organizational realities. To the extent that language design is the product of deliberate choice, we suggest that headquarters functional language is determined by the MNC's international strategy, organizational structure, and transnationality, while subunit functional language is designed in accordance with organizational form, strategic role, and expatriate deployment. Aligning language systems with organizational strategy and dynamics improves MNC communication, coordination, and knowledge-sharing. Journal of International Business Studies (2006) 37, 321–339. doi:10.1057/palgrave.jibs.8400197
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The multinational corporation as a multilingual
community: Language and organization in a
global context
Yadong Luo
Oded Shenkar
Department of Management, School of
Business Administration, University of Miami,
Coral Gables, Florida, USA;
Fisher College of
Business, Ohio State University, Columbus,
Ohio, USA
Correspondence: Yadong Luo, Department
of Management, School of Business
Administration, University of Miami, 414
Jenkins Building, Coral Gables,
FL 33124-9145, USA.
Tel: þ 1 305 284 4003;
Fax: þ 1 305 284 3655;
Received: 30 June 2002
Accepted: 12 August 2005
Online publication date: 13 April 2006
This paper develops a framework for analyzing the multinational corporation
(MNC) as a multilingual community in which parent functional language and
subunit functional languages are concurrently used and recursively linked
through an intra-corporate communication network. The unit, breadth and
intensity of an MNC’s language system are designed to apply global strategies
within the context of evolving environmental and organizational realities. To
the extent that language design is the product of deliberate choice, we suggest
that headquarters functional language is determined by the MNC’s interna-
tional strategy, organizational structure, and transnationality, while subunit
functional language is designed in accordance with organizational form,
strategic role, and expatriate deployment. Aligning language systems with
organizational strategy and dynamics improves MNC communication, coordi-
nation, and knowledge-sharing.
Journal of International Business Studies (2006) 37, 321339.
Keywords: language design; global strategy; multilingual system
The need to balance a growing tension between multiple forces
(geography, product, market, and technology) across distant loca-
tions has been an ongoing concern for the multinational corpora-
tion (MNC). Accelerated globalization as well as attempts to capture
higher synergies from far-flung operations has called attention to the
communication network and internal knowledge flow within the
MNC (Nobel and Birkinshaw, 1998; Govindarajan and Gupta, 2001).
Situated in the midst of a diverse discourse community, language is a
key ingredient in this flow, which can shape organizational change
processes, information exchange, competitive activities, global
coordination, and intra-corporate value creation.
The MNC consists of diverse and geographically dispersed
subunits, which encounter language barriers when communicating
with their local business community as well as within their
network (Triandis, 1982; Adler, 1983; Herbert, 1984; Ronen and
Shenkar, 1985; Hofstede, 2001; Brannen, 2004). As an example,
60% of Citigroup employees worldwide do not speak English,
challenging the dissemination of headquarter policy, the commu-
nication of local concerns, and value creation across subunit
boundaries. Language barriers between the home and host country
Journal of International Business Studies (2006) 37, 321339
2006 Academy of International Business All rights reserved 0047-2506 $30.00
are part of the liability of foreignness, an impedi-
ment to effective negotiations and alliance evolu-
tion. Language can also have an impact on conflict
management in cross-cultural teams (Von Glinow
et al., 2004), headquarters–subsidiary relations
(Gupta, 1987), training effectiveness (Tung, 1982),
knowledge transfer and diffusion (Ghoshal and
Nohria, 1989), and the efficiency of the global
value chain (Govindarajan and Gupta, 2001). It is
via language that MNC executives develop their
strategies and policies, disseminate and implement
Previous research considered language use within
an MNC network a predetermined construct, and
research efforts were directed at diagnosing how
language barriers adversely affect organizations or
how such barriers can be mitigated through staff-
ing, training and development (Von Glinow, 1988;
Gibson and Hodgetts, 1991). Language, however,
has yet to be addressed in a strategic context. This is
what we attempt in the present paper, which views
the MNC as a multilingual community in which
language, while socially evolving, is also deliber-
ately selected and structured as part of an interna-
tional strategy, design, and organization.
We view language design as a strategic tool with
which to align operations with MNC strategy across
the shifting multiple environments in which it
operates. This design involves the development of a
language system in which parent functional lan-
guage and subunit functional languages are con-
currently used and recursively related through the
MNC’s communication network. Proper language
design can improve intra-network communication,
inter-unit learning, parent–subsidiary coordination
and integration, and intra-unit value creation
within a geographically dispersed network. To
achieve these gains, however, an MNC needs to
build a globally integrated language system so that
its parent functional language aligns properly with
its strategy, structure, and level of internationaliza-
tion, while each subsidiary’s functional languages
configures with its strategic role, organizational
positioning, and expatriate deployment. We use the
resource dependence perspective, in conjunction
with other theoretical lenses, to illustrate the
strategic role and organizational design of language
systems and delineate implications for MNC strat-
egy, operations and dynamics.
Theory development
Single-country language studies assume that lan-
guage is predetermined, static and exogenous,
placing emphasis on communicative actions and
interpretive issues such as discourse and metaphor
to facilitate managerially relevant processes and
outcomes. In a global or multicultural setting,
though, languages evolve and, most importantly,
become endogenous to the firms operating in those
environments. This requires MNC managers to
decide language choice and usage within a corpo-
rate communication system. Hence our point of
departure is that language systems in an MNC
constitute a variable mechanism that needs to be
designed to balance global integration with local
adaptation in line with corporate strategy and an
evolving global environment. The ability to make
and properly execute language design decisions will
in turn affect MNC operations and performance.
In the international strategy literature, language
is generally portrayed as imposing barriers that
impair market entry, local operations and overall
coordination (Brannen, 2004); however, the rela-
tion between language design and global strategy is
not addressed (Triandis, 1982; Graham, 1985;
Hofstede, 2001). One reason for this vacuum is
that the language construct has no direct represen-
tation in the theoretical frameworks that are
currently employed to explain key MNC decisions
such as market entry and subsidiary control. In
those frameworks, language is at best implicit, a
distant proxy for core theoretical constructs. In
transaction cost economics, for instance, language
diversity can be said to add to the cost of a
transaction that cuts across national boundaries,
though it is not clear how and to what extent.
Language, to the extent that it is acknowledged at
all in the transaction costs argument, is embedded
within the broader construct of cultural distance
(Kogut and Singh, 1988), itself a proxy for uncer-
tainty in the organizational environment. Lan-
guage diversity within an MNC increases the cost
of transactions, from scanning host country infor-
mation to exchanging information with stake-
holders such as customers, suppliers, competitors,
and regulators (Hymer, 1979; Kostova and Zaheer,
1999), which in turn affects MNC choices on
whether to internalize certain activities. The trans-
action costs approach does not consider, however,
the direct role that language plays in influencing
corporate communication and coordination across
national boundaries. The same is true for other
theoretical frameworks. For instance, in agency
theory terms it may be argued that by using a
different language an agent will be able to escape
monitoring by principals when one or both parties
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
are unable to decipher the other’s messages
(Shenkar and Zeira, 1992). Yet in this theory too
language, while not directly treated, would be
positioned as a handicap rather than as a deliberate
strategic choice.
To deal effectively with the role of language in an
MNC, an underlying theory should make it possible
to balance external diversity and evolution with
internal demands for integration and control,
rather than, say, assume a scalar hierarchical fiat,
as a transaction cost approach would suggest, or
focus solely on the potential conflict between
entities, as an agency approach would imply. Such
a platform is available in the resource dependence
framework, which, while also largely silent about
the role of language, provides a base on which such
a role can be contemplated. The theory (Pfeffer and
Salancik, 1978) views organizations as dependent
on their environments for critical inputs, indicating
a possible role for language beyond facilitating
effective communications. A corollary to the
resource dependence perspective the resource-
based theory of the firm (e.g., Barney, 1997) is
focused on the firm’s assets, implying that the
choice and execution of language systems underpin
global capabilities. Below, we describe how lan-
guage can affect control, strategy and performance.
Information, in the resource dependence frame-
work, is a way to control interdependencies.
Organizational language affects the extent to
which MNC subunits are aware of their interde-
pendencies, and such awareness is a precursor for
contemplating how to control those interdepen-
dencies. Language choice and usage affect informa-
tion circulation, presentation, and interpretation,
which in turn allows corporate headquarters to
control global planning and inter-unit coordina-
tion. Language also influences the process of
enactment in which organizational members inter-
nalize environmental information (Daft and Weick,
1984; Phillips et al., 2004). Individuals interact and
make interpretations within their cultural and
linguistic context (Von Glinow et al., 2004), with
language serving as ‘a cultural system of significa-
tion’ (Brannen, 2004, p 597). Language also plays a
role in the way seemingly standard elements of the
organizational environment are enacted. For
instance, Gibson and Zellmer-Bruhn (2001) show
how members of diverse cultures use different
definitions of ‘teamwork’, while Von Glinow et al.
(2004) note that certain words, particularly those
expressing emotions, do not have an equivalent in
other languages. This lack of equivalence can
distort understanding of organizational strategies
(Schneider, 2002), while using the original lan-
guage can serve to highlight and preserve sensitiv-
ities to local variations. Using language as a
strategic tool implies that this decision, like other
language design choices, will be driven by MNCs’
Language affects strategy because subunit lan-
guage design influences local responsiveness while
parent language design influences global integra-
tion. The resource dependence theory maintains
that organizational design must cope with the
firm’s external and internal dependencies (Pfeffer
and Salancik, 1978). In a global setting, this
dependency is an increasing function of the
requisite local adaptation and responsiveness (Pra-
halad and Doz, 1987), while interdependency is a
positive function of global integration (Bartlett and
Ghoshal, 1989). The use of appropriate languages at
the subunit level helps an MNC establish legitimacy
in, and remain tuned to, the various local environ-
ments in which it operates, while the use of a
uniform language at the parent level enables it to
manage the demands of key constituencies by
controlling access to communication channels.
Using a language that members of a given consti-
tuency do not master, or one that limits their
ability to converse, lowers their information access
and hence power within the organization. A
constituency or subunit that is denied information
on the nature of a given dependency is deprived of
the opportunity to defend or hedge against it (Salk
and Shenkar, 2001).
When a subunit faces greater local responsiveness
requirements (e.g., its role is to seek local market
share, its ownership is shared with a local partner,
and/or its management is dominated by local
talent), it will depend more heavily on external
resources in a host country (Rosenzweig and Singh,
1991). Language design for this subunit (i.e.,
subunit functional language) should line up with
a local language or use a language that can facilitate
local adaptation. In contrast, if a subunit faces
limited requirements for local adaptation but
substantial requirements for global integration, its
dependence on host country resources weakens,
and its functional language needs to align with a
parent language or use a language that supports
global integration.
The resource dependence logic is that an organi-
zation’s dependency on its internal (parent)
resources buffers its dependency on external (host
country) resources. When resource sharing within a
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
globally diversified MNC is a must, a common
language that promotes internal communications
becomes critical to reducing hazards (Zaidman,
2001). Because resource sharing within an MNC is
coordinated largely by headquarters (Bartlett and
Ghoshal, 1989), parent functional language is
crucial to intra-corporate collaboration and syner-
getic value creation. This internal coordination is
even more important when tight global integration
is planned. Therefore the design of the parent
functional language must align with the entire
network’s strategic needs for global integration as
reflected in strategy, structure, and transnationality
(Cray, 1984; Herbert, 1984; Egelhoff, 1988; Von
Glinow et al., 2004). The need to simultaneously
balance local responsiveness and global integration
(Bartlett and Ghoshal, 1989) requires integration of
parent and subunit languages so that these lan-
guages are concurrently used and recursively linked
through an intra-MNC communication network.
Global language design affects corporate perfor-
mance via several channels. First, it improves inter-
unit and intra-network communication, enhancing
the accuracy, speed and effectiveness of intra-
corporate information exchange (Cossette, 1998;
Varner, 2000). Second, global language design
improves coordination (March and Olson, 1982)
and integration, which are compounded by the use
of multiple languages and their cultural correlates
(Donnellon, 1986; Sackmann, 1989). When a
language system is incorporated into a global
information system, headquarters can better cali-
brate local feedback and integrate globally allocated
Coordination costs are reduced directly
as a result of lower translation requirements and
indirectly via minimization of the misinterpreta-
tions associated with linguistic barriers. Third,
global language design improves inter-unit learn-
ing, which is essential to capturing synergies from
inter-unit collaboration and knowledge transfer
(Sundaram and Steward, 1992; Schulz, 2001). This
transfer is influenced in part by the commonality of
languages used by various subunits, as well as the
breadth and intensity of the functional language.
Knowledge-sharing and development between peer
subunits necessitate multi-directional information
flows, which in turn requires strategic planning of
language system and language-related human
resource management (motivation, leadership,
training, expatriate policy, and learning). Finally,
global language design improves intra-unit value
creation, encourages intra-unit business commu-
nication and socialization (Wiseman and Shuter,
1994) and reduces cultural distance between man-
agers (Zaidman, 2001). This is especially evident in
cross-cultural joint ventures in which personal and
structural attachments play a critical role in build-
ing trust and collaboration (Luo, 2001).
Finally, we should note that language choice, as
other strategic decisions, is not made in a vacuum.
Languages are constantly evolving, infused with
new vocabularies and language usages by flows of
immigration, trade and investment, creating new
jargons and dialects that represent mixtures of
diverse languages. While language design is a
deliberate process underpinned by economic or
strategic rationality, it is also an evolutionary
process, as we assume in the general framework
depicted below (see Figure 1). Language choice can
be evolutionary and progressive over time to
corroborate an MNC’s international experience,
strategic needs and globalization scale. As
explained in subsequent sections, such experience,
needs and scale are reflected in an MNC’s structure,
1. Information
2. Power
1. Global integration
2. Local responsiveness
1.Intra-network communication
2.Coordination effectiveness
3.Inter-unit learning
4.Intra-unit value creation
Figure 1 Theoretic logic of global language design for MNCs.
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
strategy and transnationality. For instance, as the
MNC grows over time, its language choice may
evolve from a home country language to a global
functional language that is more widely shared by
all subunits. The evolutionary pace, of course,
varies. Some MNCs are more deliberate in their
strategic use of language design, while others may
muddle through toward a workable solution over
Moreover, language choice, like other strategic
decisions, is made in the context of bounded
rationality, influenced by traditions, heritages,
experience and stereotypes. While senior execu-
tives have considerable leeway over selecting,
designing and implementing language systems,
such bounded rationality constraints language
design choice. For instance, Japanese MNCs are
known to insist on using their home language
throughout their operations, largely because of
their tradition and culture, for example, their high
need for control.
Figure 1 schematically links an MNCs global
language design with its antecedent factors such as
strategic rationality, evolutionary path and
bounded rationality constraints, and with its con-
sequences such as corporate control, strategy and
performance implications within an integrated
Language system in a multilingual
Functional language
We begin by introducing functional language as the
language formally designated for verbal and written
use by an MNC’s focal unit (headquarters or
overseas subunit) within this unit and with the rest
of the MNC network. This is the language appear-
ing in major organizational documents (e.g., min-
utes of board meetings), used in major events (e.g.,
senior management forums), and required from
managerial personnel as a prerequisite for hire.
Three scenarios on subunit functional language can
1. functional language is the local language
Siemens’s subsidiary in the US uses English);
2. functional language is the parent’s language
(e.g., Matsushita’s subsidiary in the US uses
Japanese); and
3. functional language is a third language (e.g., a
Mexican subsidiary of Airbus, headquartered in
Toulouse, France, uses English).
In scenarios (2) and (3), functional language
differs from the local language.
It is possible, though not common, that the
subunit’s functional language, the local language,
and the parent language will overlap (Nokia’s
subsidiary in the US uses English for all three
purposes); or that they will all vary (in Fujitsu’s
joint venture in Brazil, English is the functional
language, Portuguese the local language, and
Japanese the parent language). More often, MNC
subunits use the parent’s functional language as
their own. The probability of using the local
language as the functional language increases,
nonetheless, as a function of subunit localization
that is, the extent to which the subunit is
strategically designed to seek local market dom-
inance by improving local adaptation and legiti-
macy and utilizing local resources and talents. If a
subunit is jointly owned with a local partner, a
shared common language such as English may be
designated as functional. On some occasions, some
cooperative ventures might use two functional
languages local or shared language to commu-
nicate with the local partner, and parent language
to communicate with the rest of the MNC network.
At the parent level, functional language may
(more often) or may not be the same as the home
language (language of the home country).
home language, for example, is Finnish, but its
parent functional language is English. Similarly,
Philips’s home language is Dutch but it uses English
as a functional language. Generally, parent func-
tional language is chosen to facilitate global
coordination, streamline intra-network communi-
cation, and bolster transferability of information,
knowledge, and expertise. Parents elect their func-
tional language to satisfy organizational need for
internalization. If the functional language is not
the home language, parents will use a language that
can be shared by all subunits around the world. It is
the functional language, rather than home or local
languages, that ought to be globally designed. The
functional language needs to be carefully selected
for use in intra-network communications because it
is set to embody the concerns, requests and
knowledge of subunits with different national
Language breadth and intensity
The functional language system concerns not only
the functional language choice (unit) but also the
breadth and intensity of its use. In an MNC’s
headquarters, language breadth refers to how wide-
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
spread is the use of the parent functional language
across geographically dispersed units. In a foreign
subunit, breadth is about how widespread the
subunit’s functional language is in communica-
tions with other corporate members (peer subunits,
regional headquarters, and the head office). Lan-
guage intensity means how frequent and intense
(e.g., containing rich messages) is the use of a
functional language by organizational members. At
the parent level, language intensity refers to the use
of the parent functional language between head-
quarters and subunits and among geographically
dispersed subunits. At the subunit level, this refers
to the use of the subunit functional language
between the focal subunit and other corporate
When language breadth matches an MNC’s
degree of internationalization (in terms of the
number of countries of operations and the volume
of activities in those countries) and its integration
level (in terms of global planning, coordination and
control by headquarters), the functional language
will foster network communication. If a match is
lacking, the firm will incur higher transaction costs
or fail to optimize information sharing. Language
breadth matters because MNCs are increasingly
reliant on a coordinated, global value chain
(Govindarajan and Gupta, 2001). The global value
chain, in turn, is dependent on cross-border
business teams (e.g., R&D units) and centers of
excellence (e.g., a subsidiary in China serves as the
OEM center for the entire network) communicating
via a harmonized functional language. Meanwhile,
offshore subunits are increasingly differentiated
internally (Ghoshal and Nohria, 1989), allowing
different subunits to play different roles in global
integration. Breadth design can facilitate the
implementation of such differentiated roles.
At the headquarters level, language’s intensity
will increase to meet the needs for an MNC’s
expanded globalization or heightened integration.
At the subunit level, intensity will change in
accordance with local adaptation and strategic
positioning. Intensity will increase if subunits
engage in more complex transactions, necessitating
more resource commitment from and monitoring
by the parent firm and requiring rich messages for
explication and clarification purposes. Creating
dynamic capabilities (Zahra, 1999) requires intensi-
fied information reporting, sharing, and internal
exchanges within the MNC community; however,
escalating such exchange across the board will raise
coordination costs and create information jams and
bottlenecks. As a result, the intensity of using a
functional language will vary based upon the need
for knowledge dissemination, information transfer,
and strategic positioning.
Parent and subunit languages
The MNC is a multilingual community because it
contains a group of subunits that are dispersed
across a variety of national locales, each with a
workforce having its own native language, form of
discourse and cultural environment (Adler, 1983;
Babcock and Babcock, 2001; Phillips et al., 2004).
Language boundaries are not clear cut; however,
multiple languages are often concurrently used
within a subunit, between subunits, and between
subunits and headquarters.
Subunits can take
several forms, such as wholly owned subsidiaries,
branch or representative offices, or joint ventures.
Large MNCs, for example, Ford Motor Company,
IBM or Samsung, employ all of those unit types;
moreover, those units vary in their dependencies,
producing variation in the strategic and organiza-
tional context for communications. The MNC’s
language system consists of parent functional
language, whose role is to support global coordina-
tion, and subunit functional languages, geared
towards the fulfillment of subunit roles. These
two levels are concurrently used and recursively
linked through a globally coordinated intra-orga-
nizational communication network. Functional
languages at different levels are set to satisfy the
balance between global integration and local
responsiveness and facilitate the accomplishment
of strategic objectives.
Although MNCs dispatch expatriates overseas,
the majority of subunit employees are host country
nationals. For example, in 1997, Texaco Indonesia
had 6000 local employees and 15,000 local con-
tractors but only 80 expatriates. The indigenous
workforce plays an increasingly important manage-
rial role as MNCs seek to cut costs and emphasize
localization and adaptation as part of their strategic
response to a globally competitive marketplace (Ely
and Thomas, 2001; Hofstede, 2001). This reality
produces a multitude of linguistic cultures, as
reflected in idiosyncratic communicative actions,
discursive structures, rhetorical enthymemes, and
hermeneutic schemes (Donnellon, 1986; Heracl-
eous and Barrett, 2001; Zaidman, 2001). The extent
and impact of linguistic diversity are also deter-
mined by geographic spread (Wiseman and Shuter,
1994) and level of transnationality as well as by
industry and product lines. For example, US
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
publishers such as John Wiley and Prentice Hall
initially expanded within Anglo-Saxon countries,
which, though dispersed across multiple conti-
nents, share a language (though not dialects,
metaphors and underlying meanings).
Figure 2 summarizes the conceptual model in
which an MNC’s functional language system is
positioned as an organizational variable that
reflects internal communication requirements
among multiple subunits embedded in their respec-
tive environments. The language system requires
global design, based on various contingencies, for
the unit, breadth, and intensity of functional
language(s). Although these levels may in some
cases involve the same language (especially for US-
based MNCs), they often diverge, especially when
subunits depend on local resources or local part-
ners, or where headquarters are based in non-
English speaking nations. MNC managers need to
refine global management information system
(e.g., double-language book-keeping system) and
train key personnel who routinely deal with
coordinating and monitoring overseas subunits so
as to accommodate the duality of languages used in
the network as a whole or in specific regions or
Organizational dynamics and parent
language design
In this section, we explore how organizational
conditions influence internal language design with-
in the MNC, suggesting how global language design
(unit, breadth, and intensity) within an MNC
network (parent and subunits) should be config-
ured. Because a typical MNC is composed of
headquarters (parent) and foreign subunits, we
address this link at parent and subunit levels,
recognizing that a parent firm and its subunits do
not share the same contingencies that influence
language design, because they operate in assorted
environments with different organizational
dynamics and strategic missions. At the parent
level, global language design is shaped by interna-
tional strategy, organizational structure, and level
of transnationality. A globally harmonized lan-
guage system (unit, breadth, and intensity) should
facilitate strategy implementation, streamline
information flows, and support globalization. At
the subunit level, global language design is shaped
by subunit form, strategic role, and management
make-up. The language system for an overseas
subunit should help control, fulfill its predeter-
mined role and minimize communication-related
costs. At the parent level, language design depends
on the balance between global integration and local
responsiveness as shaped by strategy, structure and
environment. International strategy influences
how headquarters and subunits are linked, which
in turn determines how the language system is
structured to support this link. MNCs using a
centralized, harmonized, and integrated strategy
will require a single functional language through-
out their network to support standardization and
coordination. Organizational structure establishes
network channels for information flows and report-
ing systems and determines the intensity and
breadth of each unit’s communication with the
rest of the network. These, in turn, establish the
institutional framework for the design of parent
functional language. Finally, under high transna-
tionality, pressure towards the use of multiple
languages builds, increasing the breadth and inten-
sity of functional languages. We detail these below.
language system
Unit – Breadth – Intensity
Parent functional
Subunit functional
Figure 2 A model of global language design for MNCs.
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
MNC strategy
MNC parents use three core strategies to compete
globally: multidomestic, global, and hybrid or
transnational (Bartlett and Ghoshal, 1989). Multi-
domestic strategy focuses on competition within
each country and emphasizes the segmentation of
foreign markets by national boundaries. Strategic
and operating decisions are delegated to subunits in
order to custom-tailor products and services to local
markets. The strategy creates pressure for using
multiple functional languages, implying that sub-
units in different language zones may be allowed to
use local or zone languages to communicate with
the MNC network. Because a multidomestic strat-
egy requires high local adaptation (Prahalad and
Doz, 1987), using local or zone languages will
improve managerial efficiency and expedite deci-
sion-making within a subunit. Using the local
language may also promote competitive respon-
siveness to the host market. When subunits within
the same zone or region use the same language to
communicate with one another, information
exchange and sharing will be augmented (Ghoshal
and Nohria, 1989; Babcock and Babcock, 2001).
Finally, a multidomestic strategy requires less intra-
network communication, coordination, and inte-
gration, and thus weakens the demand for using a
uniform language.
In contrast, global strategy assumes more stan-
dardization of products across national markets.
Foreign subunits are presumed interdependent,
with headquarters focused on attaining integration
among them (Prahalad and Doz, 1987; Yip, 1995).
This strategy leverages economy of scale and
opportunities for utilizing innovations developed
at home. A uniform functional language will better
fit this strategy as it can improve intra-network
communication within a harmonized network in
which headquarters dictates operational strategies.
Using a uniform functional language enhances
parent ability to design global production and
new investments, integrate global value-chain
activities, avoid translation-related costs, and com-
bine information and reports. It also improves the
consolidation of financial statements across sub-
units, facilitates transfer pricing, and streamlines
internal risk-hedging policies (Salter and Niswan-
der, 1995).
The hybrid strategy is situated between the
multidomestic and global strategies. It seeks to
achieve both global efficiency and local responsive-
ness, and requires a shared vision and individual
commitment using an integrated yet flexible net-
work. In a hybrid strategy, language design fulfills
two key purposes: to minimize conflicts between
integration and localization, and to expand the
discretion of foreign subunits. The parent’s func-
tional language may be either single or multiple. If
a multi-language system is adopted, the number of
functional languages will be less than under multi-
domestic strategy. This arrangement fits well with a
situation in which subunits must be sufficiently
differentiated to confront diverse cultures and
markets. If global strategy denies subunits a lan-
guage choice, hybrid strategy provides them with
some language options or the concurrent use of
dual languages.
Both the breadth and the intensity of using
functional language are expected to be lower in a
multidomestic strategy and higher in a global
strategy, with hybrid strategy in between. Multi-
domestic strategy involves establishing a complete
value-creation chain in each major national mar-
ket. Accordingly, the firm focuses more on com-
munication with external customers than within
the network, resulting in narrow breadth and low
intensity of functional language use. Headquarters
maintain lesser control over local units, reinforcing
this tendency. In contrast, MNCs using global
strategy place different functions in different
locations, seeking operational synergies from
inter-unit collaborations in primary value-chain
activities (Yip, 1995). This internalized system,
accompanied by intensified cross-subunit commu-
nication as well as heightened subunit-headquar-
ters communication, generates high levels of
intensity and breadth of language use. Firms using
hybrid strategy must transfer distinctive competen-
cies within the network while heeding pressures for
local responsiveness (Bartlett and Ghoshal, 1989).
Competence building and global learning do not
reside in the home country alone but can emerge in
any of the MNC’s worldwide operations. Conse-
quently, MNCs maintain a multi-directional flow
of skills and information (i.e., from any unit
to others). Under a hybrid strategy, breadth and
depth will fall between the other two strategies.
Proposition 1: MNCs with a multidomestic
strategy are likely to use multiple functional
languages, whereas those with global strategy
are likely to use a uniform functional language.
MNCs with a hybrid strategy are likely to use one
or a few languages that foreign subunits can
choose from or concurrently use.
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
Proposition 2: The breadth and intensity of using
functional language are likely to be greater under
global strategy than under multidomestic strat-
egy, with hybrid strategy in between.
MNC structure
To organize international business activities, MNCs
choose between a departmental structure (an inter-
national division is in charge of all foreign
activities), a divisional structure (each product
division manages its own international activities),
a matrix structure (headquarters and product divi-
sions co-manage foreign subunits), or a geographi-
cal structure (regional headquarters manage all
activities within a region). Firms using geographic
or matrix structures are generally more diversified
and complex than those using divisional and
departmental structures (Stopford and Wells,
1972; Herbert, 1984). Under geographic or matrix
structures, regional headquarters have the author-
ity to plan and monitor investments and produc-
tion in their region. Consequently, the MNC
network may have multiple functional languages,
reflecting regionally dispersed business needs. A
French MNC, for example, may use French as
functional language in the West African region,
English in North America, and Spanish in South
America and the Caribbean region. Each region
constitutes an independent language zone using a
functional language that is shared by local sub-
units. This approach mitigates language and cultur-
al distances, and stimulates intra- and inter-unit
communication within the region. To consolidate
information from region-based language zones,
MNC headquarters use either home language or a
commonly shared language such as English,
depending on the degree of transnationality. A
French MNC may substitute English for French if
the company is geographically diversified and
The geographic structure differs from the matrix
structure in the breadth and intensity of using a
functional language. In a typical matrix MNC,
horizontal differentiation intersects product and
regional division. Responsibility for operational
decisions is shared by both (Ghoshal and Nohria,
1989). Individual subunits thus belong to two
hierarchies. This duality, present in the matrix but
absent in the geographic structure, implies a broad-
er scope for using the functional language. This is
reinforced when most information reported to one
hierarchy is concurrently submitted to the other
(Herbert, 1984). Moreover, direct communication
between two hierarchies is more intense in a matrix
structure than in a geographic structure because of
the need for bi-directional coordination between
the matrix dimensions.
Compared with regional and matrix structures,
divisional and departmental structures tend to be
more centralized, which enables headquarters divi-
sions or departments to exercise greater control
over foreign operations (Sundaram and Steward,
1992). Under a divisional structure, each product
division is a self-contained, largely autonomous
entity with overall responsibility for its own global
activities. In a departmental structure, interna-
tional activities are grouped in an international
department, relegating country managers to a
secondary role. The common feature of these two
structures is that global value-creation activities are
overseen by parent managers (Cray, 1984), who
provide an organizational context in which it is
easier to consolidate and integrate value-creation
activities while realizing location and experience
curve economies (Stopford and Wells, 1972). Parent
functional language tends to be uniform to support
consolidation and integration, for example, har-
monization of the informational and financial
systems. Whether this uniform functional language
is a home language or a shared language will
depend on geographical diversity, language accep-
tance, and communication requirements. When an
MNC’s business is diversified across foreign mar-
kets, English, as lingua franca, is likely to be used
whether it is the home language or not because it
better fits market diversity. If foreign markets are
narrow, home language may be used, because it
would be easier for headquarters and expatriates to
communicate in it.
Divisional and departmental structures may dif-
fer, however, in the breadth and intensity of using
the functional language. The divisional structure is
designed to underpin value-creation activities that
take place across nations, facilitating the transfer of
core competencies within a division’s worldwide
operations. Competence transfer and capability
building necessitate a great deal of intra-network
communication and coordination (Cray, 1984;
Gupta, 1987; Prahalad and Doz, 1987). Several
studies demonstrate that innovation under the
divisional structure is a positive function of the
intensity of such communication and coordination
(Quinn, 1996; Nobel and Birkinshaw, 1998; Tsai
and Ghoshal, 1998; Ulijin et al., 2000; Schulz,
2001). Thus language intensity is likely higher in a
divisional than in a departmental structure. The
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
opposite, however, may be true for breadth. In a
departmental structure, worldwide activities are
coordinated and integrated by the international
department. The functional language is used within
every subunit, between each subunit and head-
quarters, and between peer subunits. In a divisional
structure, breadth will be relatively narrow because
subunits communicate only with peer subunits in
the same product division. Cross-communication
between different divisional subunits is rare. There-
fore breadth may be greater in a departmental than
in a divisional structure.
Proposition 3: MNCs using regional or matrix
structure are likely to use multiple functional
languages throughout language zones, but the
breadth and intensity of each functional lan-
guage will be stronger in a matrix than in a
geographic structure.
Proposition 4: MNCs using divisional or depart-
mental structure are likely to use a single func-
tional language (home or shared language). The
intensity of using the functional language will be
stronger in divisional structures while breadth
will be stronger in departmental structures.
Transnationality is the extent to which an MNC has
internationalized its major businesses and diversi-
fied globally. The United Nations’ UNCTAD uses an
index of transnationality that is the sum of three
ratios foreign to total revenues, foreign to total
assets, and foreign to total employees: the higher
the sum, the more transnational the firm. (Other
ingredients, for eample, the extent to which the
MNC operates in culturally diverse environments,
can be added.) Transnationality shapes global
language design in four ways. First, it affects
language selection and preference by foreign sub-
units, indicating a firms interdependence with
foreign markets and resources (Davidson, 1980;
Johanson and Vahlne, 1977), which, in turn, will
pressure headquarters to opt for multiple func-
tional languages. Second, transnationality influ-
ences the extent to which language forms a
communication barrier to MNC managers: the
larger the number of different cultures and nations
in which the firm operates the greater the potential
language diversity in the MNC network. Using a
single functional language throughout a culturally
diversified network is difficult and probably coun-
terproductive. Third, transnationality influences
the global learning process and knowledge-sharing
within an integrated structure. Transnational firms
maintain greater inter-unit integration to jointly
exploit existing knowledge or explore new knowl-
edge (Zander and Kogut, 1995), making informa-
tion sharing critical. Lastly, transnational firms
depend more on information and communication
systems for coordination (Ghoshal and Nohria,
1989), in which the language system plays a crucial
part (Leininger, 1997).
As MNCs become more transnational, pressures
to consider multiple functional languages increase.
Firms may choose not to do so, however, because of
the need to balance global integration and local
responsiveness. The decision will be influenced by
international strategy and organizational structure.
For instance, transnational MNCs with a geogra-
phical structure may adopt a multi-language system
whereas those structured by product may use a
uniform functional language. Transnationality cre-
ates pressure towards using a functional language
that can be shared by subunits regardless of the
MNC’s home base. For those based in English-
speaking countries, it is natural to use English to
plan, coordinate, monitor, and evaluate global
businesses that are highly diversified, integrated,
and complex. For MNCs based in non-English-
speaking countries, high transnationality will trig-
ger consideration of English or another shared
language. For instance, when Swedish MNCs
become more transnational, English becomes the
only feasible functional language.
As transnationality increases, the breadth and
intensity of using functional language will grow.
Diversity increases language breadth while depth
enhances intensity. When businesses are globally
dispersed, the scope of intra-network communica-
tion is broader, widening the use of functional
language (Victor, 1992; Wiseman and Shuter,
1994). In any organizational structure, global
market diversity confers greater coverage of intra-
MNC transfer of information and resources
(Herbert, 1984; Dunning, 1995). To cope with this
need, the functional language will be shared by
units associated with the same global value chain
(vertical) or with the same process or value creation
function (horizontal). When revenues or returns
rely more on foreign markets, enhancing depen-
dence upon them, intra-network communication
will strengthen, increasing the intensity of func-
tional language usage. The more transnational the
MNC, the more difficult it is for headquarters to
exercise control, whether output or bureaucratic
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
(Cray, 1984; Roth and Morrison, 1992). Conse-
quently, MNCs will emphasize corporate culture,
information sharing, cross-functional coordina-
tion, and activity configuration (Sundaram and
Steward, 1992) each of which needs intensified
communication via a designated functional lan-
Finally, the impact of transnationality on lan-
guage usage will be mitigated by a number of
factors. One such factor is the staffing policy
undertaken by the MNC. An ethnocentric staffing
policy that reserves senior positions for members of
the MNC’s home country (Perlmutter, 1969),
typically found in cultures that are more concerned
with value homogeneity, score higher on power
distance, and put less premium on foreign language
fluency (e.g., Japan, France), will veer towards
preference for home language beyond what its
transnationality level would suggest. This explains,
for instance, why Japanese MNCs tend to use
Japanese throughout globally dispersed subsidiaries
despite the scarcity of locals fluent in the language.
Proposition 5: The more transnational the MNC,
the more likely it is to use a shared language as a
parent’s primary functional language except
where firms have strictly ethnocentric staffing
Proposition 6: The more transnational the MNC,
the higher the breadth and intensity of func-
tional language use.
Organizational dynamics and subunit
language design
So far we have discussed language systems at the
parent level from a corporate perspective. This top-
down system is only a part of an MNC’s overall
language system, the other being the subunit level.
This is a bottom-up system on which a specific
subunit relies to foster communication within the
subunit and with the rest of the MNC network. The
language used by the subunit may or may not be
the same as the parent’s functional language (e.g., a
Japanese MNC’s subunit in Singapore uses English
but the headquarters uses Japanese); nor is it
necessarily the local language (e.g., a Japanese
MNC’s subunit in Puerto Rico uses English rather
than Spanish). Operating in a different environ-
ment, subunits and headquarters face different
organizational needs for communications, making
subunit language design contingent on unique
organizational dynamics.
We argue that subunit language design is shaped
by subunit form, strategic role, and expatriate
deployment. Subunit form refers to governance
type (wholly owned subsidiary, joint venture, or
branch/representative office); it influences lan-
guage design by underpinning the purpose and
channels for communication. A subunit’s strategic
role determines its decision-making discretion,
inter-organizational relationships with the net-
work, and dependency on local resources, all of
which can influence language design. Expatriate
deployment, defined as the proportion of expatri-
ates in a subunit’s top management team, affects
human resource proficiency in and language pre-
Subunit form
Foreign subunits adopt different organizational
forms and identities to meet local government
requirements and/or achieve various strategies and
objectives (Dunning, 1995). These forms can be
broadly categorized into wholly owned subsidiaries,
cooperative or joint ventures, and branches or
representative offices (Root, 1994). These entities
differ in several ways, including decision-making
autonomy and process, ownership type and struc-
ture, and governance mechanisms (Hill et al.,
1990). The wholly owned subsidiary offers the
MNC tighter control and freedom of operation
without having to consult a partner, reducing
communication and transaction costs and being
able to focus on its own strategic objectives (Hill
et al., 1990). The communication network within
the subsidiary depends largely on the parent firm’s
needs. We expect that a wholly owned subsidiary
will use parent functional language, utilized at
headquarters or regional headquarters. Offshore
activities conducted by wholly owned subsidiaries
are often internalized within the MNC network,
making them less reliant on local resources and
integrated with the rest of the MNC (Hill et al.,
Branch or representative offices are simple exten-
sions of home operations or services to a host
country. The branch office offers a simple and low-
cost means for establishing or expanding a presence
in a target country. Its business scope generally
replicates home activities. By law, representative
offices cannot directly engage in profit-making
activities; instead, they emphasize non-commercial
services such as business communication, market
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
research, liaison, and local government contact.
Because of the relatively codified nature of those
activities and the limited responsibilities they
entail, communication within a branch or repre-
sentative office and between these offices and the
MNC network is not a top priority. Generally, such
offices need only to communicate with headquar-
ters or regional headquarters, with very few con-
tacts with peer subunits in other countries. These
offices thus may use the functional language of the
parent’s headquarters or that of regional head-
quarters as their functional language.
The cooperative or joint venture is a subunit form
in which commitments, profits, and responsibilities
are assigned to each party according to contract
and/or equity share. Inter-partner communication
barriers are considered one of the fundamental
reasons for the failure of many ventures in both
developed and developing economies (Tallman and
Shenkar, 1994). Ventures with better communica-
tions tend to be more cooperative and maintain
higher inter-organizational trust or boundary span-
ner attachment (Luo, 2001). The choice of a
functional language will affect inter-partner com-
munication as managers come from different
nations, which implies different cultures, lan-
guages, modes of discourse, and linguistic-related
emotions or conflicts (Von Glinow et al., 2004). In
cooperative ventures, the functional language is
selected by agreement of multiple parties and is
viewed as a control mechanism (Root, 1994).
According to the resource dependence logic, if a
venture uses party As native language as the
functional language, party A will be in a stronger
bargaining position than party B in controlling
information and reporting systems and in influen-
cing decisions. This language-related dependence
also empowers party A to control functional
management and administrative process through
superior communications. Whether the venture
actually uses party As language will depend on its
relative bargaining power vis-a
-vis the other party.
We expect that if the local partner dominates the
venture (via greater bargaining power or higher
equity ownership), the venture is likely to use local
language as the functional language. If the foreign
party (MNC) dominates the venture, the venture is
likely to use English or other shared language as the
functional language.
Parties from countries whose home language,
most often English, is most dominant will enjoy an
advantage when their language is adopted as the
working knowledge of the venture. Salk and
Shenkar (2001) report a case of a British-Italian
venture established in a third country so as not to
give an advantage to any of the party. English was
chosen as the functional language in this venture as
a matter of convenience because the Italians had
some command of English while none of the
Britons spoke Italian. The adoption of English led
to the importation of multiple organizational
practices (e.g., performance evaluation) from the
British parent because it had ready-made instru-
ments in the venture’s working language, contri-
buting to the Italians’ viewing the venture as being
‘taken over by the British.
We expect that the breadth and intensity of using
a functional language will vary among subunits
according to form. The branch or representative
offices are likely to have the lowest breadth and
intensity. Compared with joint ventures, wholly
owned subsidiaries generally require greater coor-
dination with headquarters and peer subunits, and
involve greater resource commitment and contri-
bution from headquarters. Further, value-chain
integration with the MNC network is generally
higher in wholly owned subsidiaries than in joint
ventures. Because of inter-party resource depen-
dence and decision-making sharing, it is less
feasible for the MNC to integrate joint venture
operations with the global network as it does with a
wholly owned subsidiary. This suggests that the
intensity and breadth of using functional language
will decrease from wholly owned subsidiary to joint
venture. Thus:
Proposition 7: The functional language used by a
wholly owned subsidiary or a branch or repre-
sentative office will be the parent’s functional
language used by headquarters or regional head-
Proposition 8: The functional language used by a
cooperative or joint venture will be the local
language if the local partner dominates the
venture, or a shared language such as English if
the MNC dominates the venture.
Proposition 9: The intensity and breadth of
functional language use will increase from branch
or representative office to cooperative or joint
venture to wholly owned subsidiary.
Strategic role
The strategic role of foreign subunits has been
classified into that of global innovator, integrated
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
player, and local market seeker (Gupta, 1987;
Bartlett and Ghoshal, 1989; Gupta and Govindar-
ajan, 1991; Root, 1994; Dunning, 1995). A global
innovator serves as the fountainhead of knowledge
for other units, providing knowledge and expertise
to peer subunits while receiving little knowledge
or expertise from them. Such knowledge could
be input (e.g., purchasing skills), throughout
(e.g., product designs), or output processes
(e.g., marketing expertise). The global innovator
serves as a platform for developing and building
dynamic capabilities that can sustain the MNC’s
competitive advantages (Gupta, 1987). Integrated
players also take a responsibility for creating knowl-
edge that can be utilized by other subunits.
However, they are not self-sufficient in fulfilling
their own knowledge needs, relying on knowledge
inflows from either the parent or peer subunits.
Their strategic focus is to facilitate value creation
from global integration (Gupta and Govindarajan,
1991). Lastly, local market seekers emphasize
economic benefits arising from local market devel-
opment and concentration (e.g., market share,
competitive position, long-term profitability). They
provide very little knowledge to peer subunits.
Their activities are intertwined with the local
business community and are shaped by local
market conditions (Prahalad and Doz, 1987; Root,
Strategic role influences language design because
it offers a framework in which communication
priority and channels are defined. For integrated
players, intra-network communication will be
higher than for global innovators and local market
seekers. Integrated players engage in knowledge
creation of their own while relying on knowledge
inflows from a parent and sister subunits. To align
with such bi-directional dynamics, the functional
language should promote internal communications
and knowledge-sharing. As a result, an integrated
player’s functional language is likely to be the
parent’s. If the parent decentralizes global business
along major regions, then regional headquarters’
language will likely be its functional language.
Similarly, consistency with parent functional lan-
guage is important for global innovators who are
assigned global mandates to develop the MNC’s
new capabilities (technologies, processes, and
skills). Since they need to get market requirements
and feedback from peer subunits, and capital and
human resources from the parent, global innova-
tors are closely interconnected with headquarters
and peer subunits by means of flexible and varied
coordination mechanisms and information systems
(Govindarajan and Gupta, 2001). Using the parent’s
functional language can streamline a global inno-
vator’s knowledge development and dissemination.
Finally, local market seekers may adopt local rather
than parent language. Market motives include
seizing market opportunities in foreign countries
through investments (offensive motive) and pro-
tecting and holding the firm’s market power or
competitive position in a host country threatened
by new rivals (defensive motive). Given these
motives, subunits must continuously adapt to
changing market conditions and remain responsive
to heterogeneous consumer needs (Ghoshal and
Nohria, 1989). Using local language as the func-
tional language avoids the need to use dual
languages (local and parent) in documentation
and reporting systems; it also helps internal
communication between managers with different
lingual background and expedites subunit’s deci-
Strategic role also shapes the breadth and inten-
sity of language usage. Of the three roles, integrated
players assume the broadest and strongest commu-
nication with the MNC network. They play a key
role in integrating a global value chain and in
leveraging cross-unit cooperation (Bartlett and
Ghoshal, 1989). As this chain involves both
primary (vertical integration with peer subunits)
and supporting activities (horizontal integration
with parent functions), integrated players need to
deal with a wide scope of subunits, teams, divisions,
and departments with intensified coordination and
communication. Internal use of the functional
language is also heightened because these players
need to build an effective and transparent informa-
tion-sharing system across functions (Zander and
Kogut, 1995). In contrast to integrated players,
local market seekers are not closely linked to peer
subunits, reducing the breadth and intensity of
network communication. When a subunit empha-
sizes local responsiveness, normally equipped
with strong power delegated by the parent, its
communication via the local language with
headquarters will be the lowest among the three
roles. Global innovators maintain stronger and
wider communications with the network than
local market seekers as they assume a global
mandate for knowledge outputs and new innova-
tions. They, nevertheless, maintain weaker and
narrower network communications than integrated
players because they engage in one-directional
knowledge flow (provider) whereas the latter are
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
both providers and recipients of communications.
Proposition 10: Subunits with an integrated
player or global innovator roles will use parent
functional language as their functional language.
Subunits with a local market seeker role are likely
to use local language as their functional language.
Proposition 11: The breadth and intensity of
using functional language will increase from local
market seekers to global innovators to integrated
Expatriate deployment
We define expatriate deployment as the proportion
of expatriate managers in a subunit’s total number
of senior and functional managers. Expatriates are
often necessary owing to the unavailability of local
talent that is crucial to achieving predetermined
objectives and/or for control purposes (Tung, 1982;
Von Glinow, 1988).
When expatriates dominate
subunit management, pressure builds towards
using a functional language that is consistent with
the parent’s language. It is logical that expatriates
would prefer parent language as functional lan-
guage so as to more conveniently and effectively
communicate with the parent and network. Man-
agerial dominance provides expatriates with the
power to opt for such choice. Other things being
equal, the greater the resource commitment to the
subunit, the more important the intra-network
communication will be to ensure optimal alloca-
tion and exploitation of committed resources
(Wiseman and Shuter, 1994).
When local talent dominates subunit manage-
ment, however, the local language may be desig-
nated as functional language. First, managerial
dominance empowers local managers to select the
functional language. When the local language is
used, local managers can better design, monitor,
and appraise internal organization and external
operations. Second, local dominance in subunit
management is often the result of an MNC’s
localization strategy. Human resource localization
through such dominance becomes a common
policy in many MNCs to improve local responsive-
ness (Pucik, 1992; Zahra, 1999). MNCs allow,
sometimes even encourage, subunits to use local
language as an expression of commitment to
adaptation. This commitment will likely be appre-
ciated by local management as well as by local
authorities, buyers, competitors, and regulators.
Finally, using local language as functional language
enables the subunit to recruit better local managers.
If parent language is used, high-caliber managers
well versed in their professions but poor in this
language will be unlikely to get in (MacIntyre and
Charos, 1996).
Finally, we expect that functional language will
be more broadly used in a subunit dominantly
made up of expatriate managers rather than of local
managers. Dispatching expatriates overseas indi-
cates an MNCs commitment to and control over
globally dispersed transactions and investments
(Pucik, 1992). The dispatch becomes more essential
when subunits in various countries are operation-
ally interlinked through global value chain or
financially interrelated through global transfer
pricing (Salter and Niswander, 1995; Manev and
Stevenson, 2001). Dispatching expatriates is an
important part of cross-border transfer of intangible
resources needed for firm growth in a competitive
environment (Yip, 1995; Ulijin et al., 2000). A
subunit with more expatriates is expected to
maintain more frequent contacts with the parent
and subunits elsewhere. When management is
localized, a subunit is presumably less dependent
on network or requires less communication with a
broad range of members within the same network.
Proposition 12: When subunit management is
dominated by expatriates, parent language will be
used as functional language. When subunit
management is dominated by local managers,
local language will be used as functional lan-
Proposition 13: The breadth and intensity of
using functional language will be higher for a
subunit dominated by expatriates than for one
dominated by local managers.
Discussion and conclusion
This study addresses how MNCs design language
systems to meet strategic and organizational
requirements for coordination, integration, and
expansion. In line with the functional stream of
language research, language-based communica-
tions are considered in this study to be purposefully
utilized by actors to achieve their ends or meet their
needs (Ford and Ford, 1995; Heracleous and Barrett,
2001). To extend extant research on language and
communication, we focus on language in a global
context and discuss the link between language and
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
organization in a multilingual community (MNC).
We cast language in a different role than the one it
has been traditionally assigned in the international
business literature. In its traditional role, language
alternates as a consideration in instrument design
(e.g., questionnaire translation), as one of many
expatriate capabilities, and the like. What we
propose is to treat language as a macro variable
within the broader context of the firm and its
environment. This also requires that language be
decoupled from the construct of culture with which
it is undoubtedly correlated. Unlike national cul-
ture, language is a strategic choice, however,
embedded in culture and evolving institutional
While this paper has leveraged the resource
dependence perspective as a theory platform, it
has potential ramifications for other theoretical
perspectives. For instance, as noted earlier, lan-
guage is a significant component in the cost of
transactions carried across national boundaries
(and in the case of multilingual societies, even
within those boundaries). This paper not only spells
out this cost, but also suggests that it is determined
not only by the nature of a transaction but also by
the nature of the transacting parties, and, in
particular, their strategy. Similarly, this paper offers
directions towards a better understanding of agency
problems associated with language differences
across principals and agents. For instance, it
suggests that the probability of a player becoming
more of a principal than an agent, reducing
monitoring costs, is, among other factors, a product
of a firm’s language strategy. The paper also
contributes to the resource-based approach by
highlighting the role of language in supporting
key capabilities in global integration and local
adaptation that contribute to firm performance.
Suggestions for further research
There are several avenues for future research on the
issue on language in MNCs. First, the present study
focused on design and did not address the subse-
quent process of implementation that is crucial to
global value creation. Since language is a human
medium, global human resource management is
inextricably linked with the process and practice of
language systems. Future research should diagnose
how training, motivation, recruitment and rota-
tion, among others, can help improve the effec-
tiveness of language systems. Research should also
examine the role played by employee groups who
bring into the affiliate different levels of mastery of
national languages as well as different proficiencies
with the terms and nuances of corporate functional
language. For instance, what impact on the lan-
guage system is produced by the increasingly
widespread use of third country vs parent country
Second, while we assume that language and
information systems are mutually reinforcing, we
do not yet know how these two systems intersect,
nor do we fully understand the implications for
corporate strategy and structure. For instance,
should MNCs harmonize their entire management
information systems that are differentiated across
divisions or functions if functional languages are
unified? If dual languages are to be used by
headquarters or subunits, how would management
and accounting information systems be affected?
And, given the limited overlap between language
and culture (Ryan et al. (1999), is there a coordina-
tion and control risk involved in using a common
language that will have shared meanings for some
but be misinterpreted by others? Is the risk greater
for persuasive discourse (e.g., Johnstone, 1989)
than for more informative exchange?
Third, a language is both context and content.
While we have argued that language systems are
context-specific, hinging on organizational
dynamics at parent and subunit levels, we know
very little about their content aspects. Future
research may ask whether different functions such
as marketing, accounting, finance, R&D, manufac-
turing, and supply chain present different commu-
nicative requirements and whether such differences
transcend cross-culturally. A related issue is the
content of the communications for instance, its
level of codification. Although this study did not
incorporate codification in the theoretical frame-
work, it merits further investigation to see how
codification affects information and knowledge
diffusion within a culturally diverse community.
The rhetorical theory of diffusion (Green, 2004)
holds that the more codified the message, the less
likely are misunderstandings relating to the use of
diverse languages. The level of codification
becomes crucial in the case of cooperative ventures,
which are typically viewed as ideal vehicles for the
transfer of tacit knowledge. Similarly, early studies
on communication patterns identified task com-
plexity as a key variable determining the effective-
ness of different communication networks (e.g.,
Porter and Roberts, 1976). Future research should
examine how variably codified messages perform
under the conditions described in this paper.
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
Fourth, while we have discussed linguistic
differences, we did not attempt to measure
such differences. While MNEs with global strategies
are likely to use a uniform language, the pressure
to do so might be lower when the languages
used in diverse locations are less dissimilar
(e.g., French and Italian). In contrast, languages
from different families (e.g., English and
Chinese) involve fundamentally different discourse
forms, which might undermine understanding
even when an interpreter is used, and thus create
much greater challenge for an MNE that needs to
transcend national boundaries. In a similar vein to
measures of cultural and institutional distance
(Kogut and Singh, 1988; Kostova, 1999), West and
Graham (2004) recently offered a measure of
linguistic distance based on their family trees. The
global priority of a language that is, how
important it is considered in economic and demo-
graphic terms (Feely and Harzing (2003) could
also make a difference in that, other things being
equal, the higher the priority the more likely a
language is to be used as a functional language. A
related issue is the use of non-verbal communica-
tions. In cultures where non-verbal communica-
tions are paramount, intense interpersonal
interaction is required even if all subunits share
the same language (e.g., Singapore, Taiwan, and
mainland China).
Related to the issue of ‘language distance’ is the
evolution of bicultural and multicultural enclaves
where imported languages mix with a native
language to create a localized amalgam. A case in
point is a city such as Miami, where English and
Spanish combine to create ‘Spanglish’, combining
inputs from both. The impact of such a mix on the
MNCs that base their headquarters or regional
headquarters in that city remains to be explored.
For instance, does the use of such a mix (which is
probably limited to verbal communications) assist
in the integration of regional activities? Does it
hamper integration beyond the specific region
(Latin America in this example)? How does the
MNC adjust over times as such mixes develop and
incrementally gain legitimacy, or does this con-
strain its language design choices?
Fifth, this study has taken a macro approach,
focusing on organizational strategy and design.
It is evident, however, that there are important
correlates at the micro level that affect as
well as are influenced by language design.
For instance, Speitzer et al. (2002) discuss
individual differences among members of
transnational teams that, unless properly tended,
have the potential to erode the synergetic potential
of such teams (see also Von Glinow et al., 2004).
It can be said that not only is language one
of the key differences, but also the choice of
language can impact on inter-member trust, which
the authors pinpoint as a key ‘adhesive’ among
members. The possibility, as well as other potential
macro–micro relations involving language, is yet to
be explored.
Sixth, this study did not elaborate on institu-
tional variables that may influence the dynamics of
language choice and their effectiveness. For
instance, certain languages have strong constitu-
encies that tend to view them as fundamental to
national identity and hence are to be protected.
France and the Canadian province of Quebec are
cases in point where language is considered of such
importance that regulatory constraints are put in
place to minimize usage of other languages. In
those locations, as well as in others, the use of a
foreign language, particularly English, is often
considered ‘cultural imperialism’. In contrast, some
foreign languages are considered attractive because
they embody desirable attributes, for example,
modernity. How such attitudes affect the efficacy
of global language networks, as well as the impact
of multiple languages at the subunit level (e.g.,
Canada, Switzerland, Singapore), is yet to be
Finally, this study has touched on several prac-
tical implications for MNCs (such as staffing), but
did not extend to issues such as language capabil-
ities and training. The present study implies that,
by virtue of its combination of strategic and
socializing roles, language is a key to both local
adaptation and global integration. From this per-
spective, language proficiency is not only a critical
organizational capability but also a strategic career
asset whose importance varies with organizational
strategy, structure and language design. To address
this issue, future research could target the firm and
individual value of language training, enabling,
among other benefits, a more accurate cost–benefit
analysis of language training programs. The knowl-
edge already available suggests that, in a global
business environment, foreign languages and cross-
cultural communications are a competitive impera-
tive and should become a requirement in business
school curricula. A Wall Street Journal (May 18,
2004, pp. B1–4) article based on interviews
with MNC executives, quoted here as the ending
remark of this article, clearly states such imperative
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
and requirement for parent and subsidiary lan-
yFailing to speak the native language of a parent company
could hamper a manager’s advancement and even his or her
ability to do a current job well. And whether at companies
based in the US or overseas, executives can miss out on
informal conversations or risk being misinterpreted, lit-
erally, if they don’t speak the local knowledge.
We thank Professor Mary Ann Von Glinow and the
anonymous reviewers for their insightful comments.
CEMEX is a good example illustrating this. Founded
in Mexico in 1906, CEMEX has grown from a small
regional player into a top global cement company,
positioned in the most dynamic markets around the
world. The company calibrates local feedback from
various host countries by using a standard template,
especially for assessing potential merger and acquisi-
tion targets. The use of these standardized reporting
systems is one of the mechanisms used to manage
linguistic diversity.
In some culturally diverse countries, such as India
and China, there are multiple different languages used
by different ethnic groups within a single country. For
the convenience of discussion, we assume one
language in a nation in this study.
In some countries there may be several official
home languages. Singapore, for example, uses Eng-
lish, Chinese, and Malay, while Puerto Rico uses
Spanish and English as home languages. This study
refers the home language as the primary one used by
most people and institutions nationwide.
When an MNC simultaneously globalizes and
localizes, it would be ideal to have two or more
languages as functional languages shared by the
parent firm and its overseas subunits. This, however,
requires the majority of the workforce, especially
executives and managers, to be bilingual or even
multilingual, an ideal state that, however, has not
been reached by most MNCs.
Some large MNCs also build and use regional
headquarters. In this conceptual part we did not
separately address language design for regional head-
quarters. Instead we treat a regional headquarters as
the special case of an MNC’s headquarters, which
means in this case that an MNC may have ‘several’
headquarters that are largely independent. MNCs with
such regional headquarters generally use English as the
functional language for the top headquarters. We
elaborate regional headquarters in the hypothesis
In this study we did not include environmental
conditions in subunit language design. As functional
language design focuses on intra-organizational com-
munication, rather than with external stakeholders
(naturally via local language), environmental condi-
tions only indirectly affect language design. For
instance, we expect that local environments influence
strategic role and subunit form, which then affect
language design.
When bargaining power maintained by each party
is balanced, or when a venture’s equity ownership is
split into halves (50–50%), English or other shared
language is also expected to be designated as the
functional language used by the venture.
Research on expatriate deployment suggests that
expatriate presence is a function not only of the
unavailability of local talents but also of the strategic
importance of a focal subunit, current performance and
management of this subunit, life cycle stage of subunit
evolution (e.g., more expatriates used in start-ups), and
company and national tendencies to use personal
control (e.g., Japanese MNCs tend to use more
expatriates to coordinate and control offshore activ-
ities). We are indebted to a reviewer for this insight.
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About the authors
Yadong Luo (PhD, Temple University) is the Emery
Findlay Distinguished Chair in Graduate Business
Studies and Professor of Management in the School
of Business Administration, University of Miami.
His research interests include global corporate
strategy, foreign direct investment, international
joint ventures, and management in transition
Oded Shenkar (PhD, Columbia University) is the
Ford Motor Company Chair in Global Business
Management and Professor of Management and
Human Resources at the Fisher College of Business,
the Ohio State University. Among his areas of
interest are comparative and international manage-
ment, cross-border alliances and the Chinese busi-
ness system.
Accepted by Mary Ann Von Glinow, Departmental Editor, 12 August 2005. This paper has been with the author for three revisions.
The multinational corporation as a multilingual community Yadong Luo and Oded Shenkar
Journal of International Business Studies
... According to Luo and Shenkar (2006), functional language can be defined as "the language formally designated for verbal and written use by an MNC's focal unit (headquarters or overseas subunit) within this unit and with the rest of the MNC network." As Bialystok (1981) suggested, functional language focuses on the use of language for conversations, information, etc. ...
... How functional language is used in organizations may be more important, as it focuses more on the actual language use process and the problems that may occur during this process. However, most existing studies focus on the "whether or not" part of functional language, for instance, the willingness to adopt a functional language (Bordia and Bordia, 2015), the effectiveness of using a single functional language (Fredriksson et al., 2006), and the strategy of building a better functional language policy (Luo and Shenkar, 2006). Very few studies have focused on exploring the actual process of using a functional language. ...
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Effective intercultural business communication depends upon the application of a mutually understandable language; a prerequisite that is almost non-existence in numerous businesses within and across our borders. Language is identified as one of the most austere operational problems for most intercultural business. The study with the use of Shannon and Weaver's theory approached the barriers caused by language and its implications to intercultural business transactions. In order to gain insight into various ways in which language could impede effective intercultural business communication, the study explored various published research studies on the problem statement. Findings from the content analysis of the reviewed literature provided an exhaustive and precise discourse of the effects and implications that language barrier could have on intercultural business. Furthermore, the review highlighted how language affects the way by which business organisations deal with their tasks and their relationship with foreign counterparts. The study concluded that inability to communicate effectively in intercultural business-related transaction could pose challenges to business. The study therefore, recommends multilingual employees, language training and repetition of information for clarification as ways to curb language barriers.
Communication tools such as email facilitate communication and collaboration between speakers of different languages, who use two primary strategies-English as a common language and machine translation (MT) tools-to help them overcome language barriers. However, each of these communication strategies creates its own challenges for cross-lingual communication. In this paper, we compare how people's interpretations of an email sender's social intention, and their evaluation of the email and the senders, differ when using a common language versus MT in email communication. We conducted an online experiment in which monolingual native English speakers read and rated request emails written by native English speakers, emails written by bilingual Chinese speakers in English, and emails written in Chinese then machine-translated into English. We found that participants interpreted the social intentions of the email sender less accurately for machine-translated emails than for emails written by non-native speakers in English. Participants also rated the senders and emails less positively overall for machine-translated emails compared to emails written by non-native speakers in English. Based on these findings, we suggest design possibilities that could better aid multilingual communication.
Although multiculturalism has drawn increasing attention in international business research, relatively little is known about multiculturalism beyond individuals who have immigrated to a new host country. This study uses interviews with 79 assigned expatriates in two host countries – China and Japan – to develop a cultural and language identification-based typology of monocultural, cosmopolitan, integrated bicultural, and conflicting bicultural expatriates. We also use the interview findings to demonstrate the workplace manifestations of each expatriate type. This study contributes by deepening research on multicultural employees in situ, moving beyond the assumption of monocultural identification in expatriate research, and discussing workplace manifestations of both culture and language identification.
Strategic management aims at ensuring organizational survival and performance in the long term. Uncertainty has been perceived as a factor exacerbating strategic management. To foster long-term decision-making despite uncertainty, scenario planning has been proposed as a strategic management tool. Up until today, scenario planning has however gained little attention from the academic community. Hence, there is only limited general research on scenario planning and a lack of an in-depth assessment of scenario planning’s cultural sensitivity. The main objective of this study is to examine whether scenario planning can be used as a tool for strategic management in a standardized manner worldwide, or whether, due to different cultural conditions in the host countries, the scenario planning process needs to be adapted to these specific cultural profiles in order to be able to use the technique efficiently and effectively. This is conducted from the point of view of a multinational corporation.
Language situations vary in different nations. In some countries, a variety of languages are spoken; in others, a single language is used. People who have the linguistic competence to speak several languages are multilingual. What role does multilingualism play in multinational corporations? Is multilingualism a problem or a solution for international business? Does English as a lingua franca play a role in international business? How business leaders react to multilingualism or Englishization? Opinions are divided. Multilingualism has been the focus of interest in recent decades due to globalization, tourism, technology advancement, international trade, and so forth. Language barriers and linguistic diversity surfaced which may impact corporate communications in international business. Specific language policies might be needed for corporate communications. The aims of this chapter are to explore the roles of multilingualism and Englishization in international business, and to seek approaches for better corporate communications. Associated issues and problems as well as solutions and recommendations will be explored and discussed.
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The policies and practices of U.S., West European, and Japanese multinationals differ with respect to the procedures used for selecting personnel to fill positions overseas and the training programs used to prepare candidates.
A comparative model of organizations as interpretation systems is proposed. The model describes four interpretation modes: enacting, discovering, undirected viewing, and conditioned viewing. Each mode is determined by (1) management's beliefs about the environment and (2) organizational intrusiveness. Interpretation modes are hypothesized to be associated with organizational differences in environmental scanning, equivocality reduction, strategy, and decision making.
Tomorrow's global marketplace will reward companies that value entrepreneurial risk-taking, invest heavily in developing their intellectual capital, promote individual growth, and adopt policies that are environmentally friendly. Successful competitiveness in the 21st century will demand the use of visionary and dedicated leadership, a balanced scorecard that enhances corporate accountability, and sustained investment in creating dynamic capabilities. It will also require the effective management of intangible resources and assets to achieve growth. A number of important conclusions are evident from the articles appearing in this special issue.
Multinational enterprises (MNEs) serve as catalysts for reconceptualizing organization-environment relations because they operate simultaneously in multiple nations. We argue that subsidiaries of MNEs face dual pressures: They are pulled to achieve isomorphism with the local institutional environment, and they also face an imperative for consistency within the organization. We develop hypotheses regarding the factors that influence the structures and processes of MNEs. Based on an examination of the pressures imposed on MNEs, we offer a refined concept of organizational environments as complex and fluid, and we suggest implications for future research in organization theory.