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strategizing AND structuring around the world MBA 718: GLOBAL BUSINESS IN PRACTICE

MBA 718 Strategizing and Structuring Internationally

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Page 1: MBA 718 Strategizing and Structuring Internationally

strategizing AND structuring around the world

MBA 718: GLOBAL BUSINESS IN PRACTICE

Page 2: MBA 718 Strategizing and Structuring Internationally

Multinational Strategies

• Pressures for cost reductions and local responsiveness

• Integration-responsiveness framework: Four strategic choices for MNEs

• Home replication strategy emphasizes the international replication of home country-based competencies

• Localization (multidomestic) strategy is an extension of the home replication strategy, focusing on a number of foreign countries/regions, each regarded as a stand-alone local market worthy of significant attention and adaptation

• Global standardization strategy is the opposite of the localization strategy

• Transnational strategy aims to capture “the best of both worlds” by endeavoring to be both cost efficient and locally responsive

Page 3: MBA 718 Strategizing and Structuring Internationally

MULTINATIONAL STRATEGIES AND STRUCTURES:THE INTEGRATION–RESPONSIVENESS FRAMEWORK

Figure 10.1

Page 4: MBA 718 Strategizing and Structuring Internationally

Four Strategic Choices for Multinational Enterprises

ADVANTAGES DISADVANTAGES

Home replication Leverages home country-based advantages Lack of local responsiveness

Relatively easy to implement May result in foreign customer alienation

Multidomestic Maximizes local responsiveness High costs due to duplication of efforts in multiple countries

Too much local autonomy

Lack of local responsiveness Leverages low-cost advantagesGlobal

Too much centralized control

Transnational Cost-efficient while being locally responsive Organizationally complex

Engages in global learning and diffusion of innovations

Difficult to implement

Table 10.1

Page 5: MBA 718 Strategizing and Structuring Internationally

Multinational Strategies and Structures

• Four organizational structures that are appropriate for the four strategic choices:

• International division

• Geographical area

• Global product division

• Global matrix

Page 6: MBA 718 Strategizing and Structuring Internationally

Multinational Strategies and Structures

• International Division• The firm has separate domestic and international

divisions• Typically set up when firms initially expand abroad,

often when engaging in a home replication strategy

• Problems:• Foreign subsidiary managers in the international division

are not given sufficient voice relative to the heads of domestic divisions

• The “silo” effect: International division activities are not coordinated with the rest of the firm, which focuses on domestic activities

• Firms often phase out this structure after their initial overseas expansion

Page 7: MBA 718 Strategizing and Structuring Internationally

International Division Structure at Starbucks

Figure 10.2

Page 8: MBA 718 Strategizing and Structuring Internationally

Multinational Strategies and Structures

• Geographic Area Structure• Organizes the MNE according to different geographic

areas (countries and regions)• Its ability to facilitate local responsiveness is both a

strength and a weakness• Is the most appropriate for a localization strategy

• Problems:• While being locally responsive can be a virtue, it may

also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms”

Page 9: MBA 718 Strategizing and Structuring Internationally

Geographic Area Structure at Avon Products

AvonCentral & Eastern

Europe

AvonWestern Europe

Middle EastAfrica

AvonAsia Pacific

AvonLatin America

AvonNorth America

Source: Adapted from avoncompany.com. Headquartered in New York, Avon Products, Inc. is thecompany behind numerous “Avon ladies” around the world. Figure 10.3

Page 10: MBA 718 Strategizing and Structuring Internationally

Multinational Strategies and Structures

• Global Product Division Structure

• Supports a global strategy in treating each product division as a stand-alone entity with full worldwide—as opposed to domestic—responsibilities for its activities

• Facilitates attention to pressures for cost efficiencies in allowing for consolidation on a worldwide (or regional) basis and reduction of inefficient duplication in multiple countries

• Problems:

• It is the opposite of the geographic area structure: Little local responsiveness

Page 11: MBA 718 Strategizing and Structuring Internationally

Global Product Division Structure at European Aeronautic Defense and Space Company

(EADS)

Source: Adapted from www.eads.com. Headquartered in Munich, Germany, and Paris, France,EADS is the largest commercial aircraft maker and the largest defense contractor in Europe. Figure 10.4

Page 12: MBA 718 Strategizing and Structuring Internationally

Example: Nokia

Page 13: MBA 718 Strategizing and Structuring Internationally

Example: Procter & Gamble

Page 14: MBA 718 Strategizing and Structuring Internationally

Multinational Strategies and Structures

• Global Matrix• Is often used to alleviate the disadvantages associated

with both geographic area and global product division structures

• Is intended to support the goals of the transnational strategy—in practice, it is often difficult to deliver

• Problems• May add layers of management, slow down decision

speed, and increase costs while not showing significant performance improvement

Page 15: MBA 718 Strategizing and Structuring Internationally

A Hypothetical Global Matrix Structure

Figure 10.5