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International Business: Strategy, Management, and the New Realities 1

International BusinessStrategy, Management & the New Realities

by Cavusgil, Knight and Riesenberger

Chapter 11

Global Strategy and Organization


What Is Strategy?

A plan of action that channels an organization’sresources so that it can effectively differentiate itself from competitors, accomplish distinctive goals, and achieve superior performance.

• Managers develop strategies based on the organization’s strengths and weaknesses, and evaluation of opportunities and threats.

• Managers primarily make decisions about the firm’s production and marketing activities, and the development and allocation of resources devoted to these.


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


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.


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.


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 firm’s operations worldwide.


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.


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.


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.


Four Strategies Emerging from the Integration-Responsiveness Framework

1. Home replication strategy

2. Multidomestic strategy

3. Global strategy

4. Transnational strategy


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


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.


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


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.



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.

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


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.

A

An MNE Network

H

B

C

D

E

F

SD

BD

CD

RD

A : Home plantH: HeadquartersB … F: Subsidiaries

Subsidiary Level NetworkS: Suppliers R: Regulatory institutionsB: Buyers C: Customers SEBE

CE RE

SB

BB

CB

RB

SA BA

CA RA

SF BF

CF

RF

SC

BC

CC

RC


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.


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



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.


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 firm’s operations worldwide, by emphasizing a ‘borderless mindset’, developing internationally sophisticated managers, and emphasizing the firm’s global performance. E.g., Nestle, Nissan, Schlumberger, Unilever


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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