COURSE GLOBAL BUSINESS MANAGEMENT MGT 610 DR DIMITRIS

COURSE: GLOBAL BUSINESS MANAGEMENT MGT 610 DR. DIMITRIS STAVROULAKIS PROFESSOR OF HUMAN RESOURCE MANAGEMENT DEPT OF ACCOUNTING TEI OF PIRAEUS

Unit 5: MNC Mentalities and Responses to Internationalization Training Material: -Textbook (181 -192, 374 -382). -Chapter 1 from: Bartlett, C. A. & P. W. Beamish (2010): Transnational Management. Singapore: Mc. Graw-Hill. -Video: “Hard Rock Café: Global Strategy” (6. 14 min).

Think global, act local q The original phrase "Think Global, Act Local" first appeared in the book "The Evolution of Cities" (1905) by Scots Planner and was later applied by the social activist Patrick Geddes. q Strategic moves are integrated and coordinated worldwide, aiming at building a global brand name. q Global thinking and local response utilize a common strategic approach, but allow country-to-country customization to fit local market conditions. q Marketing and distribution in particular are adapted to fit local customs and cultures

Glocalization: Think global, act local q « The term Glocal and the process of Glocalization are formed by telescoping global and local to make a blend» . The Oxford Dictionary of New Words, 1991 q Glocalization : The interpenetration of global and local, resulting in unique outcomes in different geographic areas. George Ritzer q Refers to the development and selling of products or services intended for the global market, but adapted to suit local culture and behavior. q «Only truly global companies can achieve ‘global localisation’ that is, be as much of an insider as a local company but still accomplish the benefits of worldscale operations» . Kenichi Ohmae

Patterns of Internationalization Figure 1. 7

Bartlett & Ghoshal*: 4 mentalities • International • Multinational/Multi-domestic • Global • Transnational q Bartlett & Ghoshal indicate that there exists no ideal mentality. A company may operate with anyone, depending on its strategic position & culture, localization pressures etc. q In fact, historically some MNCs (Toyota, Unilever) have steered through most or all of these mentalities.

International Mentality q The company’s overseas operations are viewed by the HQ as distant outposts whose main role is to support parent company. Subs are viewed as “appendices”, operating under the same regulations in diverse cultural domains. q Many local issues are treated at the local level, but product development, branding, technology & knowledge are transferred to the sub from the parent company (Bartlett & Beamish, 2010: 11 -12). q Target countries are selected mostly according to their cultural proximity to the home market. q Key managers of Subs come from the parent country and are selected mostly upon their international experience and language efficiency. q Of inferior effectiveness compared to the rest mentalities. No longer efficient when strong competitors appear. By then, International MNCs have to improve their cost structure by shifting to global strategy. q Has been followed in the past mostly by US MNCs (Kraft, Pfizer, P&G, GE). GE is famous (notorious ? ) for insisting to fully assimilate its acquisitions within the company culture and for imposing always Americans on top. Despite a streak of acquisitions in Europe, CEO Immelt was obliged to admit in as speech at HBS that “I think that we stink in Europe today” (Ghemawat, 2007).

Worldwide “International” Strategy HK UK From: Bartlett and Ghoshal, Managing across borders, 1989 Chile USA India Japan Mexico Coordinated Federation - Many key assets, responsibilities and decisions localized except core product design & brand Administrative Control - Centralized HQ control, formal planning and control, tight HQ-Sub linkage International Mentality - Management sees overseas operations as appendages to the domestic 9 operation

Multinational/Multi-domestic Mentality q Differences between national markets are addressed. The corporation modifies its strategies, products, processes etc in order to adapt to local contexts. q Company strategy is composed of the multiple, nationally-oriented strategies of subs. Multi-domestic mentality is indicated when economies of scale are not important, while coordination costs between HQ and subs are high. q Subs at the local level may become highly independent, assimilated to local companies of their host country. Sometimes they act on their own interests rather than conforming to the MNC strategy. q Multinational mentality is based more on marketing than on manufacturing efficiency. Factories at the local level are built more in order to overcome trade barriers, to establish a presence near strategic resources, to improve marketing and to exploit political relations, than to increase efficiency of production. Products of the same company made in and addressed to third-world countries are sometimes inferior to those produced in developed countries (Bartlett & Beamish, 2010: 11 -12).

Multinational/Multi-domestic Mentality (cont) q Autonomy of subs may come out of control. For example, in the 80 s Unilever retained 17 country subs in Europe and it took more than 4 years to oblige them to introduce a single new detergent for Europe (Peng, 2010: 296). q Operation of independent subs is costly due to the duplication of activities in many countries. Therefore, this strategy is more appropriate in industries where pressures for cost reductions are not significant (Peng, 2010: 296). q Followed mostly by European MNCs (ICI, Nestle, Unilever). Fiat has followed this approach by establishing loosely controlled manufacturing units in Yugoslavia, Spain, Poland etc. MTV in Western Europe only retains more than 8 channels in different languages.

Multi-Domestic MNC From: Bartlett and Ghoshal, Managing across borders, 1989 HK India Japan USA Chile UK Mexico Decentralized Federation - Most key assets, responsibilities and decisions localized Personal Control - Informal HQ-Sub relationship, simple financial controls Multidomestic Mentality - Management sees overseas operations as portfolio of independent businesses 12

Effective country adaptation v P&G markets single-use shampoo packages in India

Global Mentality q In order to retain value of their brand name, companies create uniform products for the whole world market and produce them in few highly efficient plants, often at the corporate center. Global MNCs avoid costly country adaptation activities. Through strong marketing support they attempt to reap maximum benefits through economies of scale and scope. q Global strategy means that the whole world, not individual national markets, is viewed as a unit of analysis. The underlying assumption is that preferences of consumers become more and more uniform. Therefore, a consistent marketing strategy dictates that consumers be supplied with standardized products of superior quality over the national varieties. q Already in 1983 professor Levitt had declared that the future belongs to companies that make and sell “the same thing, the same way, everywhere”*. q The global approach requires central coordination and control. Manufacturing, R&D, and strategic decisions mostly take place at the HQ (Bartlett & Beamish, 2010: 12 -13).

Global Mentality (cont) q Followed mostly by Japanese MNCs (Canon, Komatsu, Matsushita). q Before attacking fully the global market, Toyota used to follow this approach. For decades, its sales came almost exclusively from direct exports. The precious Toyota Production System (TPS) till recently was carefully nurtured within the Japanese domain. o Moreover, Toyota refused to form Joint Ventures with Chinese auto business and went away in the 80 s, in order to come back in the late 90 s. o First Toyota factories in the USA were “screwdriver plants” – everything imported from Japan. q Semiconductors. Amstel. q Samsung has created a most efficient distribution system, but production and R&D are firmly located in Korea. q This strategy is indicated when cost minimization is of cardinal importance. Apparently it is inappropriate when market dictates local responsiveness.

Global Mentality (cont) q Many host governments have imposed restrictions to MNCs (localist countervailing forces), often demanding dissemination of knowledge and technology - China. q Volatility in currency markets (Asian crisis & Russian debt at the end of 20 th century, as well as the ongoing crisis in the Eurozone) has occasionally obliged MNCs to review their global strategy. Global Mentality: PROACTIVE ↔ International Mentality: REACTIVE

Global MNC HK UK From: Bartlett and Ghoshal, Managing across borders, 1989 Chile USA India Japan Mexico Centralized Hub - Most strategic assets, resources, responsibilities and decisions are centralized Operational Control - Tight HQ control of decisions, resources, information Global Mentality - Management sees overseas operations as delivery pipelines to a unified global market 17

Approaches of Multi-domestic strategy and Global strategy

Transnational Mentality q Transnational mentality recognizes the importance of flexible and responsive countrylevel operations (hence the term national in the title). The international dimension, upon the condition that competitive effectiveness is maintained, is also emphasized through the prefix trans. q Key activities and resources are neither centralized nor entirely decentralized as in the multinational mentality. Instead, they are dispersed but organized in order to achieve at the same time efficiency and flexibility. Dispersed resources are integrated into an interdependent network of worldwide operations. q For example, a MNC may consider essential to establish factories for labor-intensive products in low-wage countries (Vietnam, Mexico, Guatemala - maquiladoras). q Call centers also are likely to be located in low-cost countries. If you call from USA: American Express, Sprint, Citibank, or IBM it is likely that your call will be answered in India. q Powerful marketing & sales divisions are likely to be founded in populous countries of high buying potential (Brazil, China, India). In order to compete Komatsu, Caterpillar was obliged to establish production units near its most important customers. Production was customized so as to comply with the host countries’ complex legislation and safety codes.

Transnational Mentality (cont) q R&D activities are apt to be concentrated in highly developed regions providing specialized workforce (Silicon Valley, Tokyo, Baden-Wurttemberg), but factories are likely to be established in Mexico, Pakistan, Indonesia, Latvia etc. q Sony relocated to London in order to improve access to financial services. q HSBC has been called “the world’s local bank” for its ability to respond to the needs of account holders in diverse nations. q The strategy of exploiting differences between developed and peripheral markets has been called arbitrage by Prof. Ghemawat. q Transnational companies may trade-off activities at will: ü For example, Dell opted to have its final assembly of computers located in the USA (unlike most of its competitors and despite higher labor costs) because its experienced technicians have a better control of operations (Cullen, 2010: 42). ü Coca Cola 3 E in Salonika decided to abolish its transports dept. and to assign distribution of products to externals. ü The opposite was the policy of Procter & Gamble in the 80 s.

Transnational Mentality - HUBS Many MNCs follow a hybrid of transnational strategy, by creating more or less autonomous hubs in target countries. Hubs are standalone units which may evolve into regional HQ. They aim at serving a whole region both with global products and locally adapted ones. -E. g. Toyota in the 90 s started creating hubs, first in the USA, with outstanding results. - General Electric also established regional HQ in Europe, and later on in Asia.

Transnational MNC From: Bartlett and Ghoshal, Managing across borders, 1989 HK Chile UK USA Japan India Mexico Networked Organization - Distributed, specialized resources and capabilities Interdependent Units - Large flows of components, products, resources, people, and information Transnational Mentality - Complex process of coordination and cooperation in an environment of shared decision making 22

The structure of Philips

Mc. Donald’s Transnational Menu US Brazil Canada Big Mac French Fries Coca-Cola Mc. Nuggets Mc. Bier Mc. Lobster Mc. Calebresa Germany Mc. Aloo Tikki Mc. Rib India Pita. Mac Mc. Farmer

VW Transnational Strategy Map - Jetta U. S. Japan Marketing Transmission Mexico Germany Final Assembly Misc. Poland Engine

Nike: Countries involved in the production of a sneaker

PROS INTERNATIONAL MULTINATIONAL GLOBAL TRANSNATIONAL *Simple organization *Unbarred one-way communication flow *Facilitation of control *Exploitation of local economies *Development of executives at the local level *Fast response to local market demands *Full exploitation of local markets *Exploitation of know-how *Commitment to global objectives *Facilitation of control *Worldwide utilization of resources *Effective global planning *Internal transfer of innovation and best practices *Leverage of headquarters advantages CONS *Insufficient feedback from subsidiaries *Few oppts for global learning *Ineffective international planning *Slow response to local developments *”Low-caliber” subsidiaries *Inferior compared to the rest mentalities *Indicated in strong cultural domains *Lack of cohesion and coordination of subs *Addresses a single global market through superior products *Lack of local responsiveness *Few oppts for global learning *Growth, R&D and knowledge limited *Loss of market at the local level share if consumers shift to *Failure to exploit local products experience at the local level *Vulnerability to local crises *Customized products for specific markets, global for others *Implementation & control problems, org. complexity *Risky trade-offs between costs & local responsiveness *Excessive expenses & time spent on communication and decision-making

Expanding the Boundaries of Business 21 st century 20 th century Machine Bureaucracy • Integrated • Uniform . Networked Organization • Disaggregated • Specialized

Worldwide Corporate-Level Strategy Scale, efficiency, coordination Need for Global Integration High Global strategy Transnational strategy International strategy Multidomestic strategy Low High Customization Need for Local Responsiveness 31

Pressures for Global Integration & Local Responsiveness High Global Integration Cost Reduction Pressures Low Ball bearings, wheat Cosmetics, food, household goods Local Responsiveness Pressures High Localization Pressures due to Country Differences in - consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs 33

International presence of MNC Total sales $ Millions Sales in domestic market Percent Sales in foreign markets Percent Company Domestic market Products Nokia Finland Cell phones 37, 031 1 99 Audi Germany Automobiles 29, 378 32 68 Clarion Japan Audio equipment 1, 540 52 48 Apple U. S. Computers, electronics 8, 279 59 41 e. Bay U. S. Online auctions 2, 165 65 35 Papa John’s U. S. Pizza 917 96 4 35

DEGREES OF INTERNATIONALIZATION Rugman & Verbeke studied the degree of international orientation of MNC according to their sales in the most advanced world regions - “triads”: EU, NAFTA, ASEAN & Pacific Rim. They distinguished the following classifications: v Home orientation v Bi-region orientation v Host region orientation v Global orientation. Only 9 MNC had global orientation: IBM, Sony, Philips, Intel, Nokia, Cannon, Coca Cola, Flextronic & Louis Vuitton