Chapter 11 Global Strategy and Organization International Business

Chapter 11 Global Strategy and Organization International Business Strategy, Management & the New Realities by Cavusgil, Knight and Riesenberger International Business: Strategy, Management, and the New Realities 1

What Is Strategy? A plan of action that channels an organization’s resources so that it can effectively differentiate itself from competitors, accomplish distinctive goals, and achieve superior performance. • Managers develop strategies based on the organization’s strengths and weaknesses, and evaluation of opportunities and threats. • Managers primarily make decisions about the firm’s production and marketing activities, and the development and allocation of resources devoted to these. International Business: Strategy, Management, and the New Realities 2

Strategy Should Pinpoint to Actions • Formulate a strong international vision • Allocate scarce resources on a worldwide basis • Participate in major markets • Implement global partnerships • Engage in global competitive moves • Configure value-adding activities on a global scale International Business: Strategy, Management, and the New Realities 3

Four Strategic Objectives • Efficiency – minimize the cost of operations and activities • Effectiveness – maximize revenues • Flexibility – tap local resources and opportunities to maximize options for the firm • Learning – add to proprietary technology, brand name and management capabilities by internalizing knowledge gained from international ventures. International Business: Strategy, Management, and the New Realities 4

Multidomestic and Global Industries • Multidomestic industries. Firms apply a country-bycountry approach to product development and marketing, as dictated by specific needs, tastes, laws, and economic situation. Competition is on a countryby-country basis. E. g. , food and beverage, consumer products, clothing and fashion industries. • Global industries. Firms devise products and marketing appropriate for an entire region or for the world. Competition takes place on a regional or worldwide scale. E. g. , aerospace, automobiles, telecommunications, computers, chemicals, and industrial equipment industries. International Business: Strategy, Management, and the New Realities 5

Global Integration • A characteristic of global industries in which firms coordinate their value-chain activities across many countries in order to maximize efficiency, effectiveness, flexibility, and learning. • Global integration promotes learning and cross-fertilization, as well as reduction of wasteful duplication (‘redundancy’), across the firm’s operations worldwide. International Business: Strategy, Management, and the New Realities 7

Pressures for Global Integration • Economies of Scale. Concentrating manufacturing in a few select locations to achieve economies of mass production. • Capitalize on converging consumer trends and universal needs. Companies such as Nike, Dell, ING, and Coca-Cola offer products that appeal to customers everywhere. • Uniform service to global customers. Services are easier to standardize when their creation and delivery are centralized • Global sourcing of raw materials, components, energy, and labor. Sourcing from large-scale, centralized suppliers provides economies of scale and consistent performance. • Global competitors. Global coordination is necessary to monitor and respond to global competitive threats. • Availability of media that reaches customers in multiple markets. Firms now take advantage of the Internet and cross -national television to promote offerings in many countries simultaneously. International Business: Strategy, Management, and the New Realities 8

Local Responsiveness • A characteristic of multidomestic industries in which firms attempt to meet the specific needs of buyers in individual countries, as well as adapt to the local competitive environment and distribution structure. • Although most firms prefer a global integration approach, some degree of local responsiveness is necessary due to differences in individual markets. • For example, given distinctive local conditions, Wal-Mart store managers in Mexico had to adjust store hours, the merchandise mix, marketing approaches, and employee training. International Business: Strategy, Management, and the New Realities 9

Pressures for Local Responsiveness • Diversity of local customer needs. E. g. , products in the food and furniture industries require much adaptation. • Differences in distribution channels. E. g. , systems in Japan, China, India, and Eastern Europe vary greatly. • Local competition. Where many local rivals are present, it is best to offer carefully adapted products and have a local presence to maximize knowledge of competitors. • Cultural differences. For products where cultural differences are important, such as books and kitchen appliances, products and marketing need to be substantially adapted. • Host government requirements and regulations. The firm must follow local laws and regulations. International Business: Strategy, Management, and the New Realities 10

Four Strategies Emerging from the Integration-Responsiveness Framework 1. Home replication strategy 2. Multidomestic strategy 3. Global strategy 4. Transnational strategy International Business: Strategy, Management, and the New Realities 11

Home Replication Strategy • The firm views international business as separate from, and secondary to, its domestic business. • International business typically pursued to generate additional sales for domestic products • Products are designed with domestic customers in mind; i. e. , not adapted foreign markets. • The firm expects little knowledge flows from foreign operations. • Usually based on simple exporting International Business: Strategy, Management, and the New Realities 13

Multidomestic Strategy (aka Multi-Local Strategy) • Headquarters delegates much autonomy to each country manager, allowing him/her to operate independently and pursue local responsiveness. • The managers substantially adapt products and practices to suit local conditions. • The managers function independently, with little incentive to share knowledge with managers elsewhere. • The firm ends up with a collection of disconnected markets, with no coordination or integration of national markets. International Business: Strategy, Management, and the New Realities 14

Global Strategy • Headquarters pursues global integration, seeking to control country operations in order to minimize duplication, and maximize efficiency, effectiveness, and learning worldwide. • Emphasizes centralized coordination and control of R&D, production, marketing, and after-sales service • Management views the world as one large marketplace. • The firm offers standardized products, using standardized marketing • Main advantages: lower costs; easier to manage International Business: Strategy, Management, and the New Realities 15

Transnational Strategy • A tug of war – the firm attempts to strike some ideal balance between global and multidomestic strategies. • Combines the major advantages of multidomestic and global strategies, while minimizing their disadvantages. • Applies the model ‘standardize whenever possible; adapt when necessary. International Business: Strategy, Management, and the New Realities 16

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IKEA Applies a Transnational Strategy • Some 90% of the product line is identical across more than two dozen countries. IKEA modifies some of its furniture to suit individual countries. • IKEA’s marketing is centrally developed at company headquarters, but implemented with local adjustments (e. g. , to suit language differences in catalogs). International Business: Strategy, Management, and the New Realities 18

Organizational Structure • The reporting relationships inside the firm – “the boxes and lines” that specify the linkages among people, functions, and processes that allow the firm to carry out its operations. • In larger international firms, organizational structure includes subsidiaries, affiliates, suppliers, and various other partners. • A fundamental issue concerns the choice between centralization and decentralization of decision-making and value-chain activities. International Business: Strategy, Management, and the New Realities 19

An MNE Network Subsidiary Level Network S: Suppliers R: Regulatory institutions B: Buyers C: Customers RD SA RE E RA D RB BD A CF F BF RF SB B CD SF SE CE BA CA SD BE BB RC H SC CB BC C CC A : Home plant H: Headquarters B … F: Subsidiaries

Alternative Organizational Arrangements • • The export department, with the international division as a variant. The decentralized structure involves geographic area division The centralized structure involve either product or functional division A global matrix structure blends the geographic, product and functional structures although this is complex and difficult to achieve. International Business: Strategy, Management, and the New Realities 22

Global Matrix Structure • An arrangement that blends the geographic area, product, and functional structures in an attempt to leverage the benefits of a purely global strategy and maximize global organizational learning, while remaining responsive to local needs. • It is an attempt to capture the benefits of the geographic area, product, and functional organization structures simultaneously, while minimizing their shortcomings. • Closely associated with Transnational Strategy International Business: Strategy, Management, and the New Realities 28

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Examples of Visionary Leaders • Ratan N. Tata, the chairman of the Tata Group, transformed this Indian conglomerate into a transnational organization. Tata oversees a $22 billion family conglomerate whose companies market a range of products from automobiles to watches. • Carlos Ghosn, the CEO of Nissan and Renault, has transformed a Japanese automotive firm from bankruptcy to profitable operations. • Toyota CEO Fujio Cho has led his firm to record sales in the intensely competitive global automobile industry. International Business: Strategy, Management, and the New Realities 31

Organizational Culture • The pattern of shared values, norms of behavior, systems, policies, and procedures that employees learn and adopt. The ‘personality’ of the firm. • Leading MNEs attempt to instill a ‘global culture’ in the firm’s operations worldwide, by emphasizing a ‘borderless mindset’, developing internationally sophisticated managers, and emphasizing the firm’s global performance. E. g. , Nestle, Nissan, Schlumberger, Unilever International Business: Strategy, Management, and the New Realities 32

Organizational Processes Managerial routines, mechanisms, and technologies that allow the firm to function as intended. Examples • GE digitizes all key documents and uses intranets and the Internet to automate many activities and reduce operating costs. • Schlumberger keeps a huge database of skilled individuals within the firm available to all subsidiaries on the corporate intranet. International Business: Strategy, Management, and the New Realities 33