The document discusses the internal organization and external relationships of multinational enterprises (MNEs) and smaller companies. It covers developing an internal organizational structure, moving towards a transnational structure, and developing external relationships through alliances and joint ventures. The key aspects are analyzing organizational culture, adopting different structures at different stages of international expansion, building strategic and organizational flexibility, and selecting partners based on complementary skills and compatible goals and cultures.

1. Global management: the internal organisation and external relationships of MNEs and smaller companies Main topics Develop an internal organisational structure to meet the purpose of the MNE Explore the implications of moving towards a trans-national structure Develop the external relationships of the MNE to meet the purpose of the MNE: alliances, etc.

2. Developing the internal organisation structure-1 Can usefully start with analysing the culture of the organisation Environment Cultural factors specific to the organisation Identification of the basic cultural style of the organisation Analysis of the strategic implications Source: Lynch Ch 16 Turbulent? Culture? etc. History and home country? Products and technology? Size Leadership? Cultural web? Power? Role? Task? Personal? Prescriptive or emergent? Competitive advantage? Strategic change?

3. Developing the internal organisation structure-2 Structural stages model of international organisational expansion: Stopford and Wells 1972 Foreign product diversity Foreign sales as % of total sales International Division Area division Worldwide product division Global matrix or grid Patterns of development See Lynch Ch 19

4. Developing the internal organisation structure-3 Stopford and Wells model: Findings suggested that MNEs adopt different organisational structures at different stages of expansion Start with internatiional division, then move on to area structure or product division structure depending on the diversity of products in the MNE When foreign sales and product diversity high, move to matrix structure Problems encountered by many companies: Dual responsibilities difficult to manage Matrix amplified any differences in perspectives and interests by forcing all issues through the dual chains of command. Management became slow, acrimonious and costly.

5. Moving towards a trans-national structure-1 Basic problem of matrix structure: focussed on only one variable - formal structure - that could not capture the complexity of the strategic task. Bartlett & Ghoshal (1989) Managing across Borders , Century Business Key task to reshape the core decision-making systems and management processes of MNEs: administrative systems communication channels interpersonal relationships Given fast moving and complex environment, difficult to use concept of “structural fit” between strategy and structure MNES need to build in strategic and organisational flexibility See: Lynch Ch 19

6. Moving towards a trans-national structure-2

7. Moving towards a trans-national structure-3 Building and managing the trans-national

8. Moving towards a trans-national structure-4 Bartlett & Ghoshal: Transnational is “not an organisational form but a management mentality.” (p 17) From empirical evidence, the locus of decision-making is likely to vary across functions: some need to be more centralised across different product categories, some are more global than others Importantly, new organisational structures take longer to diffuse across MNEs than technological innovations: Kogut 1990 Overall, MNEs have moved over the last forty years from simple to more complex organisational structures: companies need to be more responsive to the continued technological, economic and political content of the global environment: Dunning 1993, p 233

9. Developing the external relationships of the MNE and smaller companies-1 MNEs have also been rethinking their relationships with other companies both as producers and transactors Many different outside relationships are possible, but two explored in this section: joint ventures and alliances Some basic questions about relationships: Nature : who with? Objectives : what for? Strategy : how does it fit with the MNE’s objectives and strategies? Bargaining : who gains what? Verticality : how are risks shared? Behaviour : what is expected of venture by governments? Dunning p 240, summarised in Lynch Ch 19

10. Developing the external relationships of the MNE and smaller companies-2 In terms of ownership, should a foreign subsidiary be: Wholly owned? Joint venture? Local or multinational interests? Alliance with no shareholding involved? Motivations for strategic links: Learning: organisational, hard technology, geographical Cost minimization and risk reduction: e.g. sourcing, research, regulatory, project economies. Market positioning: market access, changing nature of competition Factors determining success include: Complementarity Agreement on objectives Compatible strategies and cultures Comparable contributions and rewards No surrender of core capabilities or competences Stakeholder agreement and lengthy planning process Low risk of becoming a competitor

11. Developing the external relationships of the MNE and smaller companies-3 Benefits associated with joint ventures between an MNE and a local company: risk reduction through sharing project rapid market access and speedy profits local firm brings more rapid acceptance of MNE Problems associated with joint ventures include: Domination of local market by partner so MNE remains insulated from direct customer contact creation of business outlets by partner in direct competition with joint venture inability to work with foreign local partner Joint ventures can take many forms and the above comments relate to only one form: need to research chosen partner well

12. Developing the external relationships of the MNE and smaller companies-4 Criteria for partner selection in joint ventures: Tomlinson 1970 opportunity for reciprocal benefits tight appropriability regime to minimise undesirable spillover effects of shared assets and competences favourable past association ability to negotiate with foreign governments and local labour unions compatible goals mutual trust and forebearance Useful to distinguish between operational skills for competitive success and partner-related criteria to manage the cooperation smoothly: Geringer 1991 Empirical studies have shown Industry Key Factors for Success and criteria for selection between potential partners were related Costs and benefits of joint ventures varied with industry, country, etc.

13. Developing the external relationships of the MNE and smaller companies-5 Distinguish between Buyer-seller ventures and Strategic business alliances : Dunning 1993, pp 246-256 Buyer-seller ventures can take many forms, e.g. licensing, franchising, turnkey contracts, etc. Generally one-way flow of technical knowledge from MNE to partner with the extent of cooperation ranging from: Usually negotiated on the basis of the options available and the negotiating strengths of the two potential partners Basic risks are similar to those between partners operating in one country, but international agreements expose partners to extra economic and political risks Coordination Mutual forbearance

14. Developing the external relationships of the MNE and smaller companies-6 Strategic business alliances (SBAs): “deliberately designed to advance the sustainable competitive advantage of the participating firms.” During 1990s, substantive growth in alliances because: increasing cost of R&D collaboration may bring resource advantages through economies of scale, scope, specialisation and rationalisation may counteract or even co-opt competitors who would otherwise work against the interests of an MNE relative attraction of other forms of cooperation has fallen Reasons for alliance include: Synergy Lower capital investment Neutralise competition Joint R&D Overcome government pressures Market access

15. Developing the external relationships of the MNE and smaller companies-7 Areas of alliance include: basic research, e.g.Rolls Royce and SNECMA on aeroengines feasibility studies, e.g. Intel and Dell on computer chip development downstream technological development, e.g. biotechnology production and marketing deals, e.g. car companies on engine development There have been successes with SBAs Most successful partnerships are likely to be those where: partners clear about intent of the other partners accepted relationship was evolving there was a match between the governance structure of the parties cultural differences were respected and understood participants were able to balance their needs inside the SBA with its other interests outside the partnership Doz 1988

16. Developing the external relationships of the MNE and smaller companies-8 Empirical evidence on advantages and problems with strategic alliances (Doz and Hamel 1993) Advantages: Reduced capital risks opportunities for skills internalisation task and partner learning accessing complementary competences and information about future Problems: Differences between organisation structures differences in views on value creation and appropriation learning patterns different costs of the new structures created to manage the alliance