3. Forces Influencing Company Strategy
• Two main forces/pressures that are faced by MNCs:
– Pressure for cost reduction.
– Pressure for local responsiveness.
4. Strategies
• There are four main strategies based on the pressures:
– International
– Multidomestic/Localisation/Regional
– Global/Globalisation
– Transnational
5. • International Strategy:
– Aim to create value by transferring valuable skills and products to
foreign markets where competitors lack those skills and products.
– Only works when local responsiveness and cost reduction
pressures are weak.
6. • Multidomestic/Localisation (Regional) Strategy:
– Treats each market as a unique market with different needs.
– Some businesses treat a particular region as a market and
therefore follow a regional strategy.
– Only works when local responsiveness pressure is high and cost
reduction pressure is weak.
7. • Global/Globalisation Strategy:
– Focus is on product standardisation.
– Can achieve economies of scale.
– Only works when local responsiveness pressure is weak and cost
reduction pressure is high.
8. • Transnational Strategy:
– Exploit experience-based cost economies and location
economies.
– Makes sense when there is high pressure for cost reductions,
high pressures for local responsiveness, and opportunities for
leveraging valuable skills within a multinational global network of
operations.
9.
10. Vertical versus Horizontal Differentiation
• Different from Vertical and Horizontal Integration.
• Vertical Differentiation refers to centralisation of power and control.
• Horizontal Differentiation is concerned with how the firm divides itself
into subunits.
11. Firms Organisation of International Activities
• International division.
• Global functional structure.
• Worldwide product divisional structure.
• Global Area Structure
• Matrix structure.
12. International Division
• An international division is usually created when international
activities form a significant part of the firm’s revenue.
• Can be organised along functional, product, or geographic lines.
• Marks the beginning of a global strategy.
• Conflicts may arise among divisions of the firm.
14. Global Functional Structure
• Designed on the basis of the company’s functions.
• Foreign operations are integrated into functional departments.
• Aim is to gain economies of scale.
• Used by small firms with highly centralised systems.
16. Product Divisional Structure
• Divides worldwide operations according to product areas.
• Each product division is divided into domestic and international units.
• Suitable for companies offering diverse sets of products or services.
18. Global Area/Geographic Structure
• Organises a company’s operations into countries or geographic
regions.
• A general manager is assigned to each country or region.
• Each unit has its own set of departments.
20. Matrix Structure
• Splits chain of command between product and geographic divisions.
• Aims to bring together geographic and product area managers in
joint decision-making.
• Helps increase local responsiveness, reduce costs, and coordinate
worldwide operations.
22. Network Structure
• Proposed structure for Transnational strategy.
• Information flow is immediate.
• Risk of information overload.
23. Ghoshal, S. and Bartlett, C. A. (1990), "The Multinational Corporation as an Interorganizational
Network", The Academy of Management Review, Vol. 15 No. 4, pp. 603-625.
