FM : Anis Gunawan, MManisg@pmbs.ac.id

6.Global Strategy and Organization

International Business: Strategy, Management, and the New Realities

1. Foundation concepts of International business

2. The environment of International Business

3.Strategy and opportunityassessment

4. Entering and operating inInternational Markets.

5. Functional Area excellence

4. Understanding Emerging Markets

3. Regional economic Integration

1.Foundation concepts

2.Theories of International Trade and Investment

6.Global Strategy and Organization

What Is Strategy?

• Strategy is a plan of action that channels an organization’s resources so that it can effectively differentiate itself from competitors and accomplish unique and viable goals.

• Managers develop strategies based on the organization’s strengths and weaknesses relative to the competition and assessing opportunities.

• Managers decide which customers to target, what product lines to offer, and with which firms to compete.

Porter

Strategy in an International Context

• Strategy in an international context is a plan for the organization to position itself vis-a-vis its competitors, and resolve how it wants to configure its value chain activities on a global scale.

• Its purpose is to help managers create an international vision, allocate resources, participate in major international markets, be competitive, and perhaps reconfigure its value chain activities given the new international opportunities.

The Purpose of Global Strategy

• Bartlett and Ghoshal argue that managers should look to “…develop, at one and the same time, global scale in efficiency, multinational flexibility, and the ability to develop innovations and leverage knowledge on a worldwide basis”.

• These three strategic objectives – efficiency, flexibility, and learning – must be sought simultaneously by the firm that aspires to become a globally competitive enterprise.

Three Strategic Objectives

1. Efficiency –lower the cost of operations and activities

2. Flexibility –tap local resources and opportunities to help keep the firm and its products unique

3. Learning -- add to its proprietary technology, brand name and management capabilities by internalizing knowledge gained from international ventures.

Multi-Domestic Industries

1. Companies in the food and beverage, consumer products, and clothing and fashion industries often may resort to a country-by-country approach to marketing to specific needs and tastes, laws, and regulations.

2. Industries in which competition takes place on a country-by-country basis are known as multi-domestic industries. In such industries, each country tends to have a unique set of competitors.

Global Industries

1. Industries such as aerospace, automobiles, telecommunications, metals, computers, chemicals, and industrial equipment are examples of global industries, in which competition is on a regional or worldwide scale.

2. Formulating and implementing strategy is more critical for global industries than multi-domestic industries. Most global industries are characterized by the existence of a handful of major players that compete head on in multiple markets.

Examples of Global Industries

1. Kodak must contend with the same rivals, Japan’s Fuji and the European multinational Agfa-Gevaert, wherever it does business around the world.

2. American Standard and Toto dominate the worldwide bathroom fixtures market.

3. Caterpillar and Komatsu compete head-on in all major world markets.

Kodak

GM’s Global Brand Hierarchy

Global

International

Local

Europe, Middle East, Asia

North America, Middle East, Europe North America, Asia

North America North America

United Kingdom Australia Korea

Saturn

Integration-Responsiveness Framework

• The Integration-Responsiveness Framework summarizes two basic strategic needs: to integrate value chain activities globally, and to create products and processes that are responsive to local market needs.

• Global integration means coordinating the firm’s value chain activities across many markets to achieve worldwide efficiency and synergy to take advantage of similarities across countries.

Global Integration

Global integration refers to coordination of the firm’s value-chain activities across countries to achieve worldwide efficiency, synergy, and cross-fertilization in order to take maximum advantage of similarities across countries.

Objectives of Global Integration

1. Global integration seeks economic efficiency on a worldwide scale, promoting learning and cross-fertilization within the global network, and reducing redundancy.

2. Headquarters personnel justify global integration by citing converging demand patterns, spread of global brands, diffusion of uniform technology, availability of pan-regional media, and the need to monitor competitors on a global basis.

3. Companies in such industries as aircraft manufacturing, credit cards, and pharmaceuticals are more likely to emphasize global integration.

The Four Strategies Emerging from the IR Framework

1. Home replication strategy

2. Multi-domestic strategy

3. Global strategy

4. Transnational strategy

Home Replication Strategy(Export Strategy or International Strategy)

• The firm views international business as separate from, and secondary to, its domestic business. Such a firm may view international business as an opportunity to generate incremental sales for domestic product lines.

• Products are designed with domestic customers in mind, and international business is sought as a way of extending the product lifecycle and replicating its home market success.

• The firm expects little knowledge flows from foreign operations.

Multi-Domestic Strategy(Multi-Local Strategy)

1. Headquarters delegates considerable autonomy to each country manager allowing him/her to operate independently and pursue local responsiveness.

2. With this strategy, managers recognize and emphasize differences among national markets. As a result, the internationalizing company allows subsidiaries to vary product and management practices by country.

3. Country managers tend to be highly independent entrepreneurs, often nationals of the host country. They function independently and have little incentive to share knowledge and experiences with managers elsewhere.

4. Products and services are carefully adapted to suit the unique needs of each country.

Advantages of Multi-Domestic Strategies

1. If the foreign subsidiary includes a factory, locally produced goods and products can be better adapted to local markets.

2. The approach places minimal pressure on headquarters staff because management of country operations is delegated to individual managers in each country.

3. Firms with limited international experience often find multi-domestic strategy an easy option as they can delegate many tasks to their country managers (or foreign distributors, franchisees, or licensees, where they are used).

Disadvantages of Multi-Domestic Strategy

1. The firm’s foreign managers tend to develop strategic vision, culture, and processes that differ substantially from those of headquarters.

2. Managers have little incentive to share knowledge and experience with those in other countries, leading to duplication of activities and reduced economies of scale.

3. Limited information sharing also reduces the possibility of developing knowledge-based competitive advantage.

4. Competition may escalate among the subsidiaries for the firm’s resources because subsidiary managers do not share a common corporate vision.

5. It leads to inefficient manufacturing, redundant operations, a proliferation of products designed to meet local needs, and generally higher costs of international operations than other strategies

Global Strategy

1. With global strategy, the headquarters seeks substantial control over its country operations in an effort to minimize redundancy, and achieve maximum efficiency, learning, and integration worldwide.

2. In the extreme case, global strategy asks why not make ‘the same thing, the same way, everywhere?’ It favors greater central coordination and control than multi-domestic strategy, with various product or business managers having worldwide responsibility.

3. Activities such as R&D and manufacturing are centralized at headquarters, and management tends to view the world as one large marketplace.

Advantages of Global Strategy

1. Global strategy provides management with a greater capability to respond to worldwide opportunities

2. Increases opportunities for cross-national learning and cross-fertilization of the firm’s knowledge base among all the subsidiaries

3. Creates economies of scale, which results in lower operational costs.

4. Can also improve the quality of products and processes -- primarily by simplifying manufacturing and other processes. High-quality products promote global brand recognition and give rise to customer preference and efficient international marketing programs.

Transnational Strategy: A Tug of War

1. A coordinated approach to internationalization in which the firm strives to be more responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning.

2. Transnational strategy combines the major advantages of multi-domestic and global strategies, while minimizing their disadvantages.

3. Transnational strategy implies a flexible approach: standardize where feasible; adapt where appropriate.

How IKEA Strives for Transnational Strategy

• Some 90% of the product line is identical across more than two dozen countries. IKEA does modify some of its furniture offerings to suit tastes in individual countries.

• IKEA’s overall marketing plan is centrally developed at company headquarters in response to convergence of product expectations; but the plan is implemented with local adjustments.

• IKEA decentralizes some of its decision-making, such as language to use in advertising, to local stores.

Ikea

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

Bayer

Organizational Structure Provides for Unambiguous Relationships

• In international operations, organizational structure must resolve how the working and reporting relationships between headquarters and subsidiaries (or the international department) will take place.

• Control and reporting relationships have to be clear and functional.

• The simplest of structures is creating an export department. However, if the export manager reports to an individual who really doesn’t care much about international sales, then the international venture will probably fail. So, structural and reporting relationships require careful thinking.

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.