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Global Strategy and

Organization

International Business: Strategy, Management, and the New Realities1

What Is Strategy?
A plan of action that channels an organizations
resources so that it can effectively differentiate itself
from competitors, accomplish distinctive goals, and
achieve superior performance.
Managers develop strategies based on the
organizations strengths and weaknesses, and
evaluation of opportunities and threats.
Managers primarily make decisions about the firms
production and marketing activities, and the
development and allocation of resources devoted to
these.
International Business: Strategy, Management, and the New Realities2

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 Realities3

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 Realities4

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 Realities5

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 firms operations worldwide.
International Business: Strategy, Management, and the New Realities7

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 Realities8

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 Realities9

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 Realities10

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 Realities11

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 for foreign markets.
The firm expects little knowledge flows from
foreign operations.
Usually based on simple exporting
International Business: Strategy, Management, and the New Realities13

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 Realities14

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 Realities15

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 Realities16

International Business: Strategy, Management, and the New Realities17

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.
IKEAs 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 Realities18

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 Realities19

n MNE Network
Subsidiary Level Network
S: Suppliers R: Regulatory institutions
B: Buyers C: Customers

RD

SA

RE
E

RA

RB

BD

CF

BF
RF

SB

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 Realities22

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 Realities28

International Business: Strategy, Management, and the New Realities29

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 Realities31

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 firms operations worldwide, by
emphasizing a borderless mindset, developing
internationally sophisticated managers, and
emphasizing the firms global performance. E.g.,
Nestle, Nissan, Schlumberger, Unilever
International Business: Strategy, Management, and the New Realities32

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.
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