COURSE: GLOBAL BUSINESS MANAGEMENT MGT610

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COURSE GLOBAL BUSINESS MANAGEMENT MGT610 DR.
DIMITRIS STAVROULAKIS PROFESSOR OF HUMAN RESOURCE
MANAGEMENT DEPT OF ACCOUNTING TEI OF PIRAEUS
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Unit 5 MNC Mentalities and Responses to
InternationalizationTrainin
g Material-Textbook (181-192, 374-382).
-Chapter 1 from Bartlett, C.A. P.W. Beamish
(2010) Transnational Management. Singapore
McGraw-Hill.-Video Hard Rock Café Global
Strategy (6.14 min).
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Think global, act local

• 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.
• Strategic moves are integrated and coordinated
  worldwide, aiming at building a global brand
  name.
• Global thinking and local response utilizes a
  common strategic approach (low-cost,
  differentiation, focus), but allows
  country-to-country customization to fit local
  market conditions.
• Marketing and distribution are adapted to fit
  local customs and cultures

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Glocalization Think global, act local

•  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
• Glocalization The interpenetration of global
  and local, resulting in unique outcomes in
  different geographic areas. George Ritzer
• Refers to the development and selling of products
  or services intended for the global market, but
  adapted to suit local culture and behavior.
• 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 world- scale operations. Kenichi
  Ohmae

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Patterns of Internationalization
Figure 1.7
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Bartlett Ghoshal 4 mentalities

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

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International Mentality

• The companys 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.
• 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).
• Target countries are selected mostly according to
  their cultural proximity to the home market.
• Key managers of Subs come from the parent country
  and are selected mostly upon their
  international experience and language efficiency.
• 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.
• Has been followed in the past mostly by US MNCs
  (Kraft, Pfizer, PG, 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).

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Worldwide International Strategy
From Bartlett and Ghoshal, Managing across
borders, 1989
HK
UK
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 operation
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Multinational/Multi-domestic Mentality

• Differences between national markets are
  addressed. The corporation modifies its
  strategies, products, processes etc in order to
  adapt to local contexts.
• 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.
• 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.
• 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).

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Multinational/Multi-domestic Mentality (cont)

• Autonomy of subs may come out of control. For
  example, in the 80s 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).
• 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).
• 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.

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Multi-Domestic MNC
From Bartlett and Ghoshal, Managing across
borders, 1989
HK
USA
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
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Global Mentality

• 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.
• 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.
• Already in 1983 professor Levitt had declared
  that the future belongs to companies that make
  and sell the same thing, the same way,
  everywhere.
• The global approach requires central coordination
  and control. Manufacturing, RD, and strategic
  decisions mostly take place at the HQ (Bartlett
  Beamish, 2010 12-13).

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Global Mentality (cont)

• Followed mostly by Japanese MNCs (Canon, Komatsu,
  Matsushita). 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. Semiconductors.
• Samsung has created a most efficient distribution
  system, but production and RD are firmly located
  in Korea.
• This strategy is indicated when cost minimization
  is of cardinal importance. Apparently it is
  inappropriate when market dictates local
  responsiveness.
• Many host governments have imposed restrictions
  to MNCs (localist countervailing forces), often
  demanding dissemination of knowledge and
  technology - China.
• Volatility in currency markets (Asian crisis
  Russian debt at the end of 20th century, as well
  as the ongoing crisis in the Eurozone) has
  occasionally obliged MNCs to review their global
  strategy.

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Global MNC
From Bartlett and Ghoshal, Managing across
borders, 1989
HK
UK
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
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Approaches of Multi-domestic strategy and Global
strategy
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Effective Global Strategy
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Transnational Mentality

• Transnational mentality recognizes the importance
  of flexible and responsive country-level
  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.
• 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.
• For example, a MNC may consider essential to
  establish factories for labor-intensive products
  in low-wage countries (Vietnam, Mexico,
  Guatemala).
• On the other hand, call centers are likely to be
  located in low-cost countries. If you call
  American Express, Sprint, Citibank, or IBM it is
  likely your call will be answered in India.
• 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.

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Transnational Mentality (cont)

• RD activities are apt to be concentrated in
  highly developed regions (Silicon Valley, Tokyo,
  Baden-Wurttemberg).
• Sony relocated to London in order to improve
  access to financial services.
• HSBC has been called the worlds local bank for
  its ability to respond to the needs of account
  holders in diverse nations.
• The strategy of exploiting differences between
  developed and peripheral markets has been called
  arbitrage by Prof. Ghemawat.
• Transnational companies may trade-off activities
  at will. 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).
• Many MNCs follow a hybrid of transnational
  strategy, by creating more or less autonomous
  hubs in target countries. Hubs are standalone
  units purported to serve a whole region both with
  global products and locally adapted ones. E.g.
  Toyota in the 90s started creating hubs, first
  in the USA, with outstanding results.

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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
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The structure of Philips
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Effective Transnationalization

• Barbie is 55 years old
• Sold in 130 countries
• National adaptations
• Physical features
• Costumes
• Activity sets
• Standardized physique
• Scaled to 62, 110 lbs.

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McDonalds Transnational Menu
US Brazil Canada India Germany
Big Mac ? ? ? ?
French Fries ? ? ? ? ?
Coca-Cola ? ? ? ? ?
McNuggets ? ? ?
McAloo Tikki ?
McRib ?
McBier ? ?
McLobster ?
McCalebresa ?
PitaMac ?
McFarmer ?
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Expanding the Boundaries of Business
.
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Worldwide Corporate-Level Strategy
High
Scale, efficiency, coordination
Need for Global Integration
Low
Customization
Low
High
Need for Local Responsiveness
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INTERNATIONAL MULTINATIONAL GLOBAL TRANSNATIONAL
PROS Simple organization   Unbarred one-way communication flow   Facilitation of control   Exploitation of local economies Leverage of headquarters advantages Development of executives at the local level   Fast response to local market demands   Full exploitation of local markets Indicated in strong cultural domains Exploitation of know-how Facilitation of control Effective global planning Addresses a single global market through superior products Commitment to global objectives Worldwide utilization of resources Internal transfer of innovation and best practices Customized products for specific markets, global for others
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 Lack of cohesion and coordination of subs Growth, RD and knowledge limited at the local level Failure to exploit experience at the local level Lack of local responsiveness  Few oppts for global learning Loss of market share if consumers shift to local products Vulnerability to local crises Implementation control problems, org. complexity Risky trade-offs between costs local responsiveness Excessive expenses time spent on communication and decision-making
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Internationalization indicators

• .

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

Sales in domestic market Percent
Sales in foreign markets Percent
Total sales Millions
Domesticmarket
Products
Company
37,031
Cell phones
Finland
Nokia
29,378
Automobiles
Germany
Audi
1,540
Audioequipment
Japan
Clarion
8,279
Computers,electronics
U.S.
Apple
2,165
Online auctions
U.S.
eBay
917
Pizza
U.S.
Papa Johns
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Sub Roles in the MNC
.
High

• Black Hole

• Strategic Leader

Strategic importance of the local market

• Implementer

• Contributor

Low
Low
High
Resource base of the sub
S
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Subs Roles in the MNC

• Black Hole A rather weak unit in terms of
  specialized resources, but located in a
  strategically important market. Used by the MNC
  to maintain presence in a key market in order to
  keep abreast of new innovations or strategic
  moves by competitors. However, it reflects an
  undesirable competitive position. In the long
  run, the MNC may commit more resources , or may
  engage in acquisitions or strategic alliances in
  order to access complementary resources.
• Implementer Concern subs with weak specialized
  resources, located in markets of lesser
  importance. However, they may become part of the
  MNCs overall success, because they may generate
  a steady stream of cash flow, and may help build
  a competitive advantage by contributing to
  company-wide scale and scope economies.
• Strategic Leader The sub is of strategic
  importance, hence a vital source of innovations
  and good practices that are spread throughout the
  company. Aids HQ to identify strategic trends and
  to develop core competencies.
• Contributor A highly competent sub, located in a
  less important market. This type of sub has
  typically developed new FSAs, often as the result
  of a competent host country management. Its
  specialized resource base might benefit other
  units in the MNC if HQ recognizes its potential.