International Business Strategy, Management

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International BusinessStrategy, Management the
New Realities by Cavusgil, Knight and
Riesenberger

• Chapter 11
• Global Strategy and Organization

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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.

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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

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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.

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Multidomestic and Global Industries

• Multidomestic industries. Firms apply a
  country-by-country approach to product
  development and marketing, as dictated by
  specific needs, tastes, laws, and economic
  situation. Competition is on a
  country-by-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.

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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.

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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.

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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.

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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.

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Four Strategies Emerging from the
Integration-Responsiveness Framework

• Home replication strategy
• Multidomestic strategy
• Global strategy
• Transnational strategy

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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

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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.

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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 RD, 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

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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.

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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.
• IKEAs marketing is centrally developed at
  company headquarters, but implemented with local
  adjustments (e.g., to suit language differences
  in catalogs).

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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.

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

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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

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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.

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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

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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.