Module 3 (ism)


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Module 3 (ism)

  1. 1. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 1 AAPPPPRROOAACCHHEESS TTOO SSTTRRAATTEEGGIICC PPLLAANNNNIINNGG 1. Economic Imperative  Economic imperative focused MNCs employ a worldwide strategy based on cost leadership, differentiation, and segmentation  They often sell products for which a large portion of value is added in the upstream activities of the industry’s value chain  Research and development  Manufacturing  Distribution  Strategy also used when the product is regarded as a generic good and therefore does not have to be sold based on name brand or support service 2. Political Imperative  MNCs using the political imperative approach to strategic planning are country- responsive; their approach is designed to protect local market niches  Success of the product or service depends heavily on  Marketing  Sales  Service  These MNCs often use a country-centered or multi domestic strategy.
  2. 2. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 2 3. Quality Imperative  Two paths of quality imperative  Change in attitudes and a raising of expectation for service quality  Implementation of management practices designed to make quality improvement an ongoing process “Total quality management,” (TQM)  Cross-training personnel to do the jobs of all members in their work group  Process re-engineering designed to help identify and eliminate redundant tasks and wasteful effort  Reward systems designed to reinforce quality performance 4. Total Quality Management  Quality is operationalized by meeting or exceeding customer expectations  The quality strategy is formulated at the top management level and is diffused throughout the organization.  Deliver quality products or services to internal and external customers.  TQM techniques  Traditional inspection and statistical quality control.  Cutting-edge human resource management techniques, such as self-managing teams and empowerment. Approaches to Strategic Planning Administrative Coordination  Administrative coordination approach  MNC makes strategic decisions based on merits of the individual situation rather than using a predetermined economic or political strategy
  3. 3. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 3  Least common approach to formulation and implementation of strategy because of the firm’s desire to coordinate its strategy both regionally and globally  Globalization  Production and distribution of products and services of a homogeneous type and quality on a worldwide basis  Many customers of MNCs have homogenized tastes, which helps spread international consumerism  National responsiveness  Understand different consumer tastes in segmented regional markets  Respond to different national standards and regulations imposed by autonomous governments and agencies  Adapt tools and techniques for managing the local workforce Global Integration vs. National Responsiveness Summary of Approaches to Strategic Planning  The appropriateness of each strategy depends on pressures for cost reduction and local responsiveness in each country served
  4. 4. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 4  A global strategy is a low-cost strategy which attempts to benefit from scale economies in production, distribution, and marketing  A transnational strategy should be pursued when there are high cost pressures and high demands for local responsiveness  Pressures for cost reduction and local responsiveness put contradictory demands on a company because localized product offerings increase cost  Organizations that can find appropriate synergies in global corporate functions can leverage a transnational strategy effectively EELLEEMMEENNTTSS OOFF SSTTRRAATTEEGGIICC PPLLAANNNNIINNGG FFOORR IINNTTEERRNNAATTIIOONNAALL MMAANNAAGGEEMMEENNTT 1. External Environmental Scanning for MNC Opportunities and Threats  Provide management with accurate forecasts of trends that relate to external changes in geographic areas where the firm is currently doing business or considering setting up operations  These changes relate to the economy, competition, political stability, technology, and demographic consumer data.
  5. 5. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 5 2. Internal Resource Analysis of MNC Strengths and Weaknesses  Evaluate the MNC’s current managerial, technical, material, and financial strengths and weaknesses  Assessment then is used to determine its ability to take advantage of international market opportunities  Match external opportunities (gained through the environmental scan) with internal capabilities (gained through the internal resource analysis  Key factors for success  The key question for the MNC is: Do we have the people and resources that can help us to develop and sustain the necessary KFSs, or can we acquire them? 3. Strategic Planning Goals  Goal formulation often precedes the first two steps of environmental scanning and internal resource analysis  However, more specific goals for the strategic plan come out of external scanning and internal analysis  These goals typically serve as an umbrella beneath which the subsidiaries and other international groups operate  Profitability and marketing goals almost always dominate the strategic plans of today’s MNCs  Once the strategic goals are set, the MNC will develop specific operational goals and controls for the subsidiary or affiliate level
  7. 7. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 7 5. Implementation  Provides goods and services in accord with a plan of action  Often, this plan will have an overall philosophy or series of guidelines that direct the process  Considerations in selecting a country  Advanced industrialized countries because they offer the largest markets for goods and services  Amount of government control.  Restrictions on foreign investment.  Specific benefits offered by host countries Local issues  Once the country has been decided, the firm must choose the specific locale  Important factors influencing this choice include  Access to markets  Proximity to competitors  Availability of transportation and electric power  Desirability of the location for employees coming in from the outside Production  When exporting goods to a foreign market, the production process traditionally has been handled through domestic operations.  More recently MNCs have found that whether they are exporting or producing the goods locally in the host country, consideration of worldwide production is important.  A recent trend has been away from multi-domestic approach and toward global coordination of operations Finance  Transferring funds from one place in the world to another, or borrowing funds in the international money markets, often is less expensive than relying on local sources  Issues include
  8. 8. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 8  Re-evaluation of currencies  Privatization  Strategies for the base of the pyramid  International New Ventures and “Born-Global” Firms  Strategies for the “base of the pyramid” (BOP)  Emerging market customers  People at the bottom of the economic pyramid (4 billion)  Marketing at BOP forces consideration of smaller-scale strategies  Building relationships with local governments, small entrepreneurs, and nonprofits  Less dependence on established partners such as central governments and large local companies  International New Ventures and “Born-Global” Firms  firms that engage in significant international activity a short time after being established  Successful born-global firms leverage a distinctive mix of orientations and strategies  Global technological competence  Unique-products development  Quality focus  Leveraging of foreign distributor competences Planning and Strategy: • Planning – Identifying and selecting appropriate goals and courses of action for an organization. • The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals. • Strategy – The cluster of decisions and actions that managers take to help an organization reach its goals.
  9. 9. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 9 • Mission Statement – A broad declaration of an organization’s overriding purpose – Identifies what is unique or important about its products – Seeks to distinguish or differentiate the organization from its competitors Three Steps in Planning Planning Process Stages 1. Determining the Organization’s Mission and Goals: – Defining the organization’s overriding purpose and its goals. 2. Formulating strategy: – Managers analyze current situation and develop the strategies needed to achieve the mission. 3. Implementing strategy: – Managers must decide how to allocate resources between groups to ensure the strategy is achieved.
  10. 10. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 10 The Nature of the Planning Process To perform the planning task, managers: 1. Establish where an organization is at the present time 2. Determine its desired future state 3. Decide how to move it forward to reach that future state Why Planning is Important? 1. Necessary to give the organization a sense of direction and purpose 2. Useful way of getting managers to participate in decision making 3. Helps coordinate managers of the different functions and divisions of an organization 4. Can be used as a device for controlling managers Which part of planning is most important? A. Unity B. Continuity C. Accuracy D. Flexibility Why Planning is Important? • Unity - at any one time only one central, guiding plan is put into operation • Continuity – planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels • Accuracy – managers need to make every attempt to collect and utilize all available information at their disposal • Flexibility – plans can be altered and changed if the situation changes
  11. 11. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 11 Levels of Planning at General Electric Levels and Types of Planning
  12. 12. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 12 Levels of Planning • Division – business unit that has its own set of managers and departments and competes in a distinct industry • Divisional managers – Managers who control the various divisions of an organization • Corporate-Level Plan Top management’s decisions pertaining to the organization’s mission, overall strategy, and structure. Provides a framework for all other planning. • Corporate-Level Strategy A plan that indicates in which industries and national markets an organization intends to compete • Business-Level Plan: – Long-term divisional goals that will allow the division to meet corporate goals – Division’s business-level and structure to achieve divisional goals • Business-Level Strategy – Outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry • Functional-Level Plan – Goals that the managers of each function will pursue to help their division attain its business-level goals • Functional Strategy – A plan of action that managers of individual functions can take to add value to an organization’s goods and services Time Horizons of Plans Time Horizon – Period of time over which they are intended to apply or endure. • Long-term plans are usually 5 years or more.
  13. 13. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 13 • Intermediate-term plans are 1 to 5 years. • Short-term plans are less than 1 year. Types of Plans: • Standing Plans – Use in programmed decision situations • Policies are general guides to action. • Rules are formal written specific guides to action. • Standard operating procedures (SOP) specify an exact series of actions to follow. • Single-Use Plans – Developed for a one-time, non programmed issue. • Programs: integrated plans achieving specific goals. • Project: specific action plans to complete programs. • Scenario Planning (Contingency Planning) – The generation of multiple forecasts of future conditions followed by an analysis of how to effectively respond to those conditions. Three Mission Statements
  14. 14. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 14 Determining the Organization’s Mission and Goals • Defining the Business – Who are our customers? – What customer needs are being satisfied? – How are we satisfying customer needs? • Establishing Major Goals – Provides the organization with a sense of direction – Stretches the organization to higher levels of performance. – Goals must be challenging but realistic with a definite period in which they are to be achieved. • Strategic leadership – the ability of the CEO and top managers to convey a compelling vision of what they want to achieve to their subordinates Formulating Strategy • Strategic Formulation – Managers work to develop the set of strategies (corporate, divisional, and functional) that will allow an organization to accomplish its mission and achieve its goals. • SWOT Analysis – A planning exercise in which managers identify: – organizational strengths and weaknesses. • Strengths (e.g., superior marketing skills) • Weaknesses (e.g., outdated production facilities) – external opportunities and threats. • Opportunities (e.g., entry into new related markets). • Threats (increased competition)
  15. 15. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 15 Planning and Strategy Formulation The Five Forces… • Hypercompetition Competitive Forces Level of Rivalry Increased competition results in lower profits. Potential for Entry Easy entry leads to lower prices and profits. Power of Suppliers If there are only a few suppliers of important items, supply costs rise. Power of Customers If there are only a few large buyers, they can bargain down prices. Substitutes More available substitutes tend to drive down prices and profits.
  16. 16. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 16 – industries that are characterized by permanent, ongoing, intense, competition brought about by advancing technology or changing customer tastes and fads and fashions. Formulating Business-Level Strategies • Low-Cost Strategy – Driving the organization’s total costs down below the total costs of rivals. • Manufacturing at lower costs, reducing waste. • Lower costs than competition means that the low cost producer can sell for less and still be profitable. • Differentiation – Distinguishing the organization’s products from those of competitors on one or more important dimensions. • Differentiation must be valued by the customer in order for a producer to charge more for a product. • “Stuck in the Middle” – Attempting to simultaneously pursue both a low cost strategy and a differentiation strategy. – Difficult to achieve low cost with the added costs of differentiation. • Focused Low-Cost – Serving only one market segment and being the lowest-cost organization serving that segment. • Focused Differentiation – Serving only one market segment as the most differentiated organization serving that segment. Principal Corporate-Level Strategies 1. Concentration on a single industry 2. Vertical integration 3. Diversification 4. International expansion
  17. 17. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 17 Formulating Corporate-Level Strategies • Concentration in Single Business – Organization uses its functional skills to develop new kinds of products or expand its locations – Appropriate when managers see the need to reduce the size of their organizations to increase performance Vertical integration – strategy that involves a company expanding its business operations either backward into a new industry that produces inputs (backward vertical integration) or forward into a new industry that uses, distributes, or sells the company’s products (forward vertical integration) Stages in a Vertical Value Chain FFOORRMMUULLAATTIINNGG CCOORRPPOORRAATTEE--LLEEVVEELL SSTTRRAATTEEGGIIEESS • Diversification – strategy of expanding a company’s operations into a new industry in order to produce new kinds of valuable goods or services • Related Diversification – strategy of entering a new industry and establishing a new business division that is linked to a company’s existing divisions because they share resources that will improve the competitive position
  18. 18. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 18 • Synergy – Obtained when the value created by two divisions cooperating is greater than the value that would be created if the two divisions operated separately and independently • Unrelated Diversification – Firms establish divisions or buy companies in new industries that are not linked to their current business or industry – Portfolio strategy • Apportioning resources among divisions to increase returns or spread risks IINNTTEERRNNAATTIIOONNAALL EEXXPPAANNSSIIOONN • Basic Question: – To what extent do we customize products and marketing for different national conditions? • Global strategy: – Undertaking very little customization to suit the specific needs of customers in different countries. • Standardization provides for lower production cost. • Ignores national differences that local competitors can address to their advantage. • Multi-domestic Strategy: – Customizing products and marketing strategies to specific national conditions. • Helps gain local market share. • Raises production costs. • Exporting: – Making products at home and selling them abroad • Importing: – Selling at home products that are made abroad • Licensing:
  19. 19. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 19 – Allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee. • Franchising: – selling to a foreign organization the rights to use a brand name and operating know- how in return for a lump-sum payment and a share of the profits • Strategic alliance: – managers pool resources with those of a foreign company – Organizations agree to share risk and reward • Joint venture: – strategic alliance among companies that agree to jointly establish and share the ownership of a new business • Wholly Owned Foreign Subsidiary: – managers invest in establishing production operations in a foreign country independent of any local direct involvement Choosing a Way to Expand Internationally • Opportunities – opening new markets, reaching more customers, and gaining access to new sources of raw materials and to low-cost suppliers • Threat – encountering new competitors, and responding to new political, economic, and cultural conditions Functional-level Strategies A plan that indicates how a function intends to achieve its goals – Seeks to have each department add value to a good or service. Marketing, service, and production functions can all add value to a good or service through: • Lowering the costs of providing the value in products. • Adding new value to the product by differentiating.
  20. 20. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 20 – Functional strategies must fit with business level strategies. Planning and Implementing Strategy 1. Allocate implementation responsibility to the appropriate individuals or groups. 2. Draft detailed action plans for implementation. 3. Establish a timetable for implementation 4. Allocate appropriate resources 5. Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals. Movie Example: Blackhawk Down How well did the General’s plan meet the criteria of unity, accuracy, continuity, and flexibility? OORRGGAANNIIZZAATTIIOONNAALL SSTTRRUUCCTTUURREE There is no permanent organization chart for the world. . . . It is of supreme importance to be ready at all times to take advantage of new opportunities. —Robert C. Goizueta, (Former) Chairman and Ceo, Coca-Cola Company Organizational structures must change to accommodate a firm’s evolving internationalization in response to worldwide competition. Considerable research has shown that a firm’s structure must be conducive to the implementation of its strategy. In other words, the structure must “fit” the strategy, or it will not work. Managers are faced with how best to attain that fit in organizing the company’s systems and tasks. Evolution and Change in MNC Internationalization is the process by which a firm gradually changes in response to international competition, domestic market saturation, and the desire for expansion, new markets, and diversification.
  21. 21. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 21 Structural Evolution (Stages Model) occurs when managers redesign the organizational structure to optimize the strategy’s changes to work, making changes in the firm’s tasks and relationships and designating authority, responsibility, lines of communication, geographic dispersal of units and so forth Basic Organizational Structures A number of basic structures exist that permit an MNC to compete internationally – Structure must meet the need of both the local market and the home-office strategy of globalization – Contingency approach • Balances the need to respond quickly to local conditions with the pressures for providing products globally – Most MNCs evolve through certain basic structural arrangements in international operations Organizational Consequences of Internationalization
  22. 22. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 22 Global Structural Arrangements – Global Product Division • Structural arrangement in which domestic divisions are given worldwide responsibility for product groups – Global Area Division • Structure under which global operations are organized on a geographic rather than a product basis – Global Functional Division • Structure which organizes worldwide operations primarily based on function and secondarily on product – Matrix Organization Structure • Structure that is a combination of a global product, area, or functional arrangement Typical ways that firms organize international activities Domestic structure plus export department Domestic structure plus foreign subsidiary International division Global functional structure Global product structure Global Geographic Structure
  23. 23. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 23 Domestic Plus Foreign Subsidiary To facilitate access to and development of specific foreign markets, the firm can take a further step toward worldwide operations by reorganizing into a domestic structure plus foreign subsidiary in one or more countries (see Exhibit 8-1). To be effective, subsidiary managers should have a great deal of autonomy and should be able to adapt and respond quickly to serve local markets. This structure works well for companies with one or a few subsidiaries located relatively close to headquarters.
  24. 24. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 24 Global Product Division For firms with diversified product lines (or services) that have different technological bases and that are aimed at dissimilar or dispersed markets, a global product (divisional) structure may be more strategically advantageous than a functional structure. In this structure, a single product (or product line) is represented by a separate division. Each division is headed by its own general manager, and each is responsible for its own production and sales functions.
  25. 25. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 25 Global Geographic Structure In the global geographic (area) structure—the most common form of organizing foreign operations—divisions are created to cover geographic regions. Each regional manager is then responsible for the operations and performance of the countries within a given region. In this way, country and regional needs and relative market knowledge take precedence over product expertise. Local managers are familiar with the cultural environment, government regulations, and business transactions. In addition, their language skills and local contacts facilitate daily transactions and responsiveness to the market and the customer. While this is a good structure for consolidating regional expertise, problems of coordination across regions may arise. With the geographic structure, the focus is on marketing, since products can be adapted to local requirements.
  27. 27. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 27 Multinational Matrix Structure Integrated Global Structures The global functional structure is designed on the basis of the company’s functions – production, marketing, finance, and so forth. Foreign operations are integrated into the activities and responsibilities of each department to gain functional specialization and economies of scale. Matrix Structure is a hybrid organization of overlapping responsibilities – it is used by some firms but has generally fallen into disfavor recently Organizing for Globalization If you misjudge the market [by globalizing], you are wrong in 15 countries rather than only in one. —Ford European Executive Two opposing forces in structural decisions – The need for differentiation (focusing on and specializing in specific markets) – The need for integration (coordinating those same markets) Globalization – a specific strategy that treats the world as one market by using a standardized approach to products and markets
  28. 28. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 28 The way the firm is organized along the differentiation–integration continuum determines how well strategies—along a localization–globalization continuum—are implemented. This is why the structural imperatives of various strategies such as globalization must be understood to organize appropriate worldwide systems and connections. Organizing to facilitate a globalization strategy typically involves rationalization and the development of strategic alliances Organizing for global product standardization necessitates close coordination among the various countries involved The problem facing companies in the future is that the structurally sophisticated global networks leave the organization exposed to the risk of environmental volatility from all corners of the world To achieve rationalization, managers choose the manufacturing location for each product based on where the best combination of cost, quality, and technology can be attained. It often involves producing different products or component parts in different countries. Typically, it also means that the product design and marketing programs are essentially the same for all end markets around the world— to achieve optimal economies of scale. The downside of this strategy is a lack of differentiation and specialization for local markets. Global product standardization also requires centralized global product responsibility (one manager at headquarters responsible for a specific product around the world), an especially difficult task for multi-product companies. Henzler and Rall suggest that structural solutions to this problem can be found if companies rethink the roles of their headquarters and their national subsidiaries. Managers should center the overall control of the business at headquarters, while treating national subsidiaries as partners in managing the business—perhaps as holding companies responsible for the administration and coordination of cross-divisional activities. Comparative Management Focus: Chinese Global Network The Chinese commonwealth is a form of global network that has become the envy of Western multinationals – Network of entrepreneurial relationships in Asia primarily
  29. 29. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 29 – Includes mainland China, 1.3 billion citizens, and more than 55 million Chinese in Taiwan, Indonesia, Hong Kong, and Thailand – Estimated to control $2 Trillion in liquid assets Most observers believe that this China-based informal economy is the world leader in economic growth, industrial expansion, and exports Comprises most mid-sized, family-run firms linked by transnational network channels Channels move information, finance, goods, and capital Network alliances bind together and draw from the substantial pool of financial capital and resources available in the region The Overseas Chinese, now models for entrepreneurship, financing, and modernization for the world, and in particular for Beijing, are refugees from China’s poverty, disorder, and communism. Business became the key to survival for those Chinese emigrants faced with uncertainties, hardships, and lack of acceptance in their new lands. The uncertainties, a survivor mentality, and the cultural basis in the Confucian tradition of patriarchical authority have led to a way of doing business that is largely confined to family and trusted friends. This business mentality and approach to life has led to many self-made billionaires among the Overseas Chinese. Among Emergent Structural Forms Inter-organizational networks The global e-corporation network structure The transnational corporation (TNC) network structure Companies are increasingly abandoning rigid structures in an attempt to be more flexible and responsive to the dynamic global environment. Some of the ways they are adapting are by transitioning to formats known as inter organizational networks, global e-corporation network structures, and transnational corporation network structures, as described below.
  30. 30. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 30 Choice of Organizational Form Two major variables in choosing the structure and design of an organization are the opportunities and need for (1) globalization and (2) localization. This slide depicts alternative structural forms appropriate to each of these variables and to the strategic choices regarding the level and type of international involvement desired by the firm. This figure thereby updates the evolutionary stages model to reflect alternative organizational Organizational Change and Design When does a company need to make a change in organizational structure? – Makes a change in goals or strategy – Makes a change in scope of operations – Indications of organizational inefficiency – Conflicts among divisions and subsidiaries – Overlapping responsibilities – Complaints regarding customer service
  31. 31. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 31 Determining how many and what types of decisions can be made and by whom can have drastic consequences; both the locus and the scope of authority must be carefully considered. This centralization–decentralization variable actually represents a continuum. In the real world, companies are neither totally centralized nor totally decentralized: The level of centralization imposed is a matter of degree. continuum and the different ways that decision making can be shared between headquarters and local units or subsidiaries. In general, centralized decision making is common for some functions (finance; research and development) that are organized for the entire corporation, whereas other functions (production; marketing; sales) are more appropriately decentralized. Two key issues are the speed with which the decisions have to be made and whether they primarily affect only a certain subsidiary or other parts of the company as well. Control Systems for Global Operations The establishment of a single currency makes it possible, for the first time, to establish shared, centralized accounting and administrative systems. —Francesco Caio, CEO, Merloni Elettrodomestici
  32. 32. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 32 To complement the organizational structure, the international manager must design efficient coordinating and reporting systems to ensure that actual performance conforms to expected organizational standards and goals. The challenge is to coordinate far-flung operations in vastly different environments with various work processes, rules, and economic, political, legal, and cultural norms. The feedback from the control process and the information systems should signal any necessary change in strategy, structure, or operations in a timely manner. Often, the strategy, the coordinating processes, or both, need to be changed to reflect conditions in other countries. Monitoring Systems The design and application of coordinating and reporting systems for foreign subsidiaries and activities can take any form that management wishes. MNCs usually employ a variety of direct and indirect coordinating and control mechanisms suitable for their organization structure. Some of the typical control methods used for the major organizational structures discussed here are shown on this slide.
  33. 33. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 33 Direct Coordinating Mechanisms  Design of appropriate structures  Use of effective staffing practices  Visits by head-office personnel  Regular meetings In-Direct Coordinating Mechanisms  Sales quotas  Budgets  Other financial tools  Feedback reports Appropriateness of Monitoring and Reporting Systems Factors likely to affect the appropriateness of monitoring systems include: – Management practices – Local constraints – Expectations regarding: Authority, Time, and Communication Managing Effective Monitoring Systems In deciding on appropriate monitoring and reporting systems, additional factors to be considered include: • The role of information systems (adequacy of management information systems in foreign affiliates, non-comparability of performance data across countries) • Evaluation variables across countries
  34. 34. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 34 Inter-organizational networks Views the various companies, subsidiaries, suppliers, or individuals as a relational networks Allows the different network partners to adopt unique structures that are adapted to the local context Whether the ever-expanding transnational linkages of an MNC consist of different companies, subsidiaries, suppliers, or individuals, they result in relational networks. These networks may adopt very different structures of their own because they operate in different local contexts within their own national environments. By regarding the MNC’s overall structure as a network of interconnected relations, we can more realistically consider its organizational design imperatives at both global and local levels. The network framework makes clear that the company’s operating units link vastly different environmental and operational contexts based on varied economic, social, and cultural milieus. This complex linkage highlights the intricate task of a giant MNC to rationalize and coordinate its activities globally to achieve an advantageous cost position while simultaneously tailoring itself to local market conditions (to achieve benefits from differentiation). Global E-Corporation Network
  35. 35. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 35 The organizational structure for global e-businesses, in particular for physical products, typically involves a network of virtual e-exchanges and “bricks and mortar” services, whether those services are in-house or outsourced. This structure of functions and alliances makes up a combination of electronic and physical stages of the supply chain network, as depicted in this slide. As such, the network comprises some global and some local functions. Centralized e-exchanges for logistics, supplies, and customers could be housed anywhere; suppliers, manufacturers, and distributors may be in various countries, separately or together, wherever efficiencies of scale and cost may be realized. The final distribution system and the customer interaction must be tailored to the customer-location physical infrastructure and payment infrastructure, as well as local regulations and languages. Global Structural Arrangements Transnational Network Structures • Multinational structural arrangement that combines elements of function, product, and geographic designs, while relying on a network arrangement to link worldwide subsidiaries – Dispersed subunits » Subsidiaries that are located anywhere in the world where they can benefit the organization – Specialized operations » Activities carried out by subunits that focus on a particular product line, research area, or market area » Designed to tap specialized expertise or other resources in the company’s worldwide subsidiaries – Interdependent relationships » Share information and resources throughout the dispersed and specialized subunits Transnational Corporation Involves linking foreign operations to each other and to headquarters in a flexible way – Leverages local and central capabilities
  36. 36. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 36 Not a matter of boxes on an organizational chart; it is a network of company units and a system of horizontal communication Requires the dispersal of responsibility and decision making to local subsidiaries Effectiveness is dependent on the ability and willingness to share current and new learning and technology across the network To address the globalization–localization dilemma, firms that have evolved through the multinational form and the global company are now seeking the advantages of horizontal organization in the pursuit of transnational capability—that is, the ability to manage across national boundaries, retaining local flexibility while achieving global integration. Strategies for Competing in Foreign Markets The Four Big Strategic Issues in Competing Multinationally:  Whether to customize a company’s offerings in each different country market to match preferences of local buyers or offer a mostly standardized product worldwide.  Whether to employ essentially the same basic competitive strategy in all countries or modify the strategy country by country.  Where to locate a company’s production facilities. distribution centers, and customer service operations to realize the greatest locational advantages.  How to efficiently transfer a company’s resource strengths and capabilities from one country to another to secure competitive advantage.
  37. 37. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 37 Why do Companies Expand into Foreign Markets? International Vs Global Competition
  38. 38. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 38 Factors Shaping Strategy Choices in Foreign Markets: Cross-country differences in cultural, demographic, and market conditions Gaining competitive advantage based on where activities are located. Risks of adverse shifts in currency exchange rates. Impact of host government policies on the local business climate. Cross-Country Differences in Cultural, Demographic, and Market Conditions:  Cultures and lifestyles differ among countries  Differences in market demographics and income levels  Variations in manufacturing and distribution costs  Fluctuating exchange rates  Differences in host government economic and political demands How Markets Differ from Country to Country?  Consumer tastes and preferences  Consumer buying habits  Market size and growth potential  Distribution channels  Driving forces  Competitive pressures One of the biggest concerns of companies competing in foreign markets is whether to customize their product offerings in each different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide.
  39. 39. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 39 Different Countries have Different Locational Appeal:  Manufacturing costs vary from country to country based on  Wage rates  Worker productivity  Inflation rates  Energy costs  Tax rates  Government regulations  Quality of business environment varies from country to country  Suppliers, trade associations, and makers of complementary products often find it advantageous to cluster their operations in the same general location. Fluctuating Exchange Rates Affect a Company’s Competitiveness:  Currency exchange rates are unpredictable  Competitiveness of a company’s operations partly depends on whether exchange rate changes affect costs favorably or unfavorably.  Competitive impact of fluctuating exchange rates  Exporters always gain in competitiveness when the currency of the country where goods are manufactured grows weaker.  Exporters are disadvantaged when the currency of the country where goods are manufactured grows stronger.
  40. 40. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 40 Differences in Host Government Trade Policies:  Local content requirements  Restrictions on exports  Regulations on prices of imports  Import tariffs or quotas  Other regulations Technical standards Product certification Prior approval of capital spending projects Withdrawal of funds from country Ownership (minority or majority) by local citizens Two Primary Patterns of International Competition: 1. Multi-country Competition 2. Global Competition 1. Characteristics of Multi-Country Competition  Market contest among rivals in one country not closely connected to market contests in other countries.  Buyers in different countries are attracted to different product attributes.  Sellers vary from country to country  Industry conditions and competitive forces in each national market differ in important respects. Rival firms battle for national championships –winning in one country does not necessarily signal the ability to fare well in other countries! 2. Characteristics of Global Competition  Competitive conditions across country markets are strongly linked a. Many of same rivals compete in many of the same country markets. b. A true international market exists  A firm’s competitive position in one country is affected by its position in other countries Competitive advantage is based on a firm’s world-wide operations and overall global standing
  41. 41. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 41 SSTTRRAATTEEGGYY OOPPTTIIOONNSS FFOORR CCOOMMPPEETTIINNGG IINN FFOORREEIIGGNN MMAARRKKEETTSS::  Exporting  Licensing  Franchising strategy  Strategic alliances or joint ventures  Multi-country strategy  Global strategy 1. Export Strategies Involve using domestic plants as a production base for exporting to foreign markets Excellent initial strategy to pursue international sales. Advantages a. Conservative way to test international waters b. Minimizes both risk and capital requirements c. Minimizes direct investments in foreign countries An export strategy is vulnerable when  Manufacturing costs in home country are higher than in foreign countries where rivals have plants.  High shipping costs are involved  Adverse fluctuations in currency exchange rates occur. 2. Licensing Strategies  Licensing makes sense when a firm Has valuable technical know-how or a patented product but does not have international capabilities to enter foreign markets Desires to avoid risks of committing resources to markets which are
  42. 42. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 42  Unfamiliar  Politically volatile  Economically unstable  Disadvantage Risk of providing valuable technical know-how to foreign firms and losing some control over its use 3. Franchising Strategies  Often is better suited to global expansion efforts of service and retailing enterprises  Advantages Franchisee bears most of costs and risks of establishing foreign locations Franchisor has to expend only the resources to recruit, train, and support franchisees  Disadvantage Maintaining cross-country quality control Achieving Global Competitiveness via Cooperative Agreements:  Cooperative agreements with foreign companies are a means to Enter a foreign market or Strengthen a firm’s competitiveness in world markets  Purpose of alliances / joint ventures Joint research efforts Technology-sharing Joint use of production or distribution facilities Marketing / promoting one another’s products Strategic Appeal of Strategic Alliances:  Gain better access to attractive country markets
  43. 43. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 43  Capture economies of scale in production and/or marketing  Fill gaps in technical expertise or knowledge of local markets  Share distribution facilities and dealer networks  Direct combined competitive energies toward defeating mutual rivals  Take advantage of partner’s local market knowledge and working relationships with key government officials in host country  Useful way to gain agreement on important technical standards Pitfalls of Strategic Alliances:  Overcoming language and cultural barriers  Dealing with diverse or conflicting operating practices  Time consuming for managers in terms of communication, trust-building, and coordination costs.  Mistrust when collaborating in competitively sensitive areas .  Clash of egos and company cultures.  Dealing with conflicting objectives, strategies, corporate values, and ethical standards.  Becoming too dependent on another firm for essential expertise over the long-term. Localized Multi country Strategy or a Global Strategy? Strategic Issue  Whether to vary a company’s competitive approach to fit specific market conditions and buyer preferences in each host county Or  Whether to employ essentially the same strategy in all countries
  44. 44. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 44 A Company’s Strategic Options for Dealing with Cross-Country Variations in Buyer Preferences and Market Conditions: What is a “Think-Local, Act-Local” Approach to Strategy Making? A company varies its product offerings and basic competitive strategy from country to country in an effort to be responsive to differing buyer preferences and market conditions. Characteristics of a “Think-Local Act-Local” Approach to Strategy Making:  Business approaches are deliberately crafted to Accommodate differing tastes and expectations of buyers in each country Stake out the most attractive market positions vis-à-vis local competitors  Local managers are given considerable strategy-making latitude  Plants produce different products for different local markets  Marketing and distribution are adapted to fit local customs and cultures.
  45. 45. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 45 When is a “Think-Local, Act-Local” Approach to Strategy Making Necessary?  Significant country-to-country differences in customer preferences and buying habits exist.  Host governments enact regulations requiring products sold locally meet strict manufacturing specifications or performance standards.  Trade restrictions of host governments are so diverse and complicated them preclude a uniform, coordinated worldwide market approach. Drawbacks of a “Think-Local, Act-Local” Approach to Strategy Making  Poses problems of transferring competencies across borders  Works against building a unified competitive advantage What is a “Think-Global, Act-Global” Approach to Strategy Making? A company employs the same basic competitive approach in all countries where it operates. Characteristics of a “Think-Global, Act-Global” Approach to Strategy Making  Same products under the same brand names are sold everywhere  Same distribution channels are used in all countries  Competition is based on the same capabilities and marketing approaches worldwide  Strategic moves are integrated and coordinated worldwide  Expansion occurs in most nations where significant buyer demand exists.  Strategic emphasis is placed on building a global brand name.  Opportunities to transfer ideas, new products, and capabilities from one country to another are aggressively pursued.
  46. 46. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 46 How a Localized or Multi country Strategy Differs from a Global Strategy: What is a “Think-Global, Act-Local” Approach to Strategy Making? A company uses the same basic competitive theme in each country but gives local managers the latitude to 1. Incorporate whatever country-specific variations in product attributes are needed to best satisfy local buyers and
  47. 47. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 47 2. Make whatever adjustments in production, distribution, and marketing are needed to compete under local market conditions. The stand-out characteristic of multi country competition is – a. Varying driving forces from country to country. b. Varying competitive pressures from country to country. c. Varying buyer requirements and expectations from country to country. d. That there is so much cross-country variation in market conditions and in the companies contending for leadership that the market contest among rivals in one country is not closely connected to the market contests in other countries—as a consequence, there is no global or world market, just a collection of self-contained country markets. e. Varying degrees of product differentiation from country to country. The Quest for Competitive Advantage in Foreign Markets:  Three ways to gain competitive advantage 1. Locating activities among nations in ways that lower costs or achieve greater product differentiation. 2. Efficient / effective transfer of competitively valuable competencies and capabilities from company operations in one country to company operations in another country. 3. Coordinating dispersed activities in ways a domestic-only competitor cannot Locating Activities to Build a Global Competitive Advantage:  Two issues . . .  Whether to  Concentrate each activity in a few countries or  Disperse activities to many different nations
  48. 48. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 48  Where to locate activities  Which country is best location for which activity? Concentrating Activities to Build a Global Competitive Advantage  Activities should be concentrated when  Costs of manufacturing or other value chain activities are meaningfully lower in certain locations than in others  There are sizable scale economies in performing the activity  There is a steep learning curve associated with performing an activity in a single location  Certain locations have  Superior resources  Allow better coordination of related activities or  Offer other valuable advantages Dispersing Activities to Build a Global Competitive Advantage:  Activities should be dispersed when  They need to be performed close to buyers.  Transportation costs, scale diseconomies, or trade barriers make centralization expensive.  Buffers for fluctuating exchange rates, supply interruptions, and adverse politics are needed.
  49. 49. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 49 Transferring Valuable Competencies to Build a Global Competitive Advantage:  Transferring competencies, capabilities, and resource strengths across borders contributes to  Development of broader competencies and capabilities  Achievement of dominating depth in some competitively valuable area  Dominating depth in a competitively valuable capability is a strong basis for sustainable competitive advantage over  Other multinational or global competitors and  Small domestic competitors in host countries Coordinating Cross-Border Activities to Build a Global Competitive Advantage:  Aligning activities located in different countries contributes to competitive advantage in several ways -  Choose where and how to challenge rivals.  Shift production from one location to another to take advantage of most favorable cost or trade conditions or exchange rates.  Use online systems to collectively come up with next-generation products.  Achieve efficiencies by shifting workload to locations where personnel are underutilized.  Enhance potential to build a global brand name by incorporating same differentiating attributes in products in all markets where a company competes. Characteristics of Competing in Emerging Foreign Markets:  Tailoring products for big, emerging markets often involves  Making more than minor product changes and  Becoming more familiar with local cultures  Companies have to attract buyers with bargain prices as well as better products.
  50. 50. IINNTTEERRNNAATTIIOONNAALL SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT Module 3 Page 50  Specially designed and/or specially packaged products may be needed to accommodate local market circumstances.  Management team must usually consist of a mix of expatriate and local managers. Strategic Options: How to Compete in Emerging Country Markets?  Prepare to compete on the basis of low price.  Be prepared to modify aspects of the company’s business model to accommodate local circumstances.  Try to change the local market to better match the way the company does business elsewhere.  Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances. Strategies for Local Companies in Emerging Markets:  Develop business models that exploit shortcomings in local distribution networks or infrastructure.  Utilize keen understanding of local customer needs and preferences to create customized products or services.  Take advantage of low-cost labor and other competitively important local workforce qualities.  Use economies of scope and scale to better defend against expansion-minded multinationals.  Transfer company expertise to cross-border markets and initiate actions to contend on a global level.