M 3 - International Business - Global Business Strategic Management

4.2 International Business Module 3

Global Business Strategic Management

Ashish J. [email protected]

2009 – 11

mailto:[email protected]

Module 3 Agenda

• Global Business Strategic Management: – Structural Design of MNEs– Strategic Planning– Strategic considerations– National vs. global competitiveness

Strategic Management

• Involves a long-term view of business with wider consequences and the use of critical resources to realise preset goals

• Ansoff: – ‘systematic approach to a major and increasingly

important responsibility of general management to position and relate the firm to its environment in a way which will assure its continued success and make it secure from surprises’


• Global Strategic Management (GSM)?• GSM builds on five phases of planning and

analysis:– Recognising antecedents– Analysis– Choice of strategy– Process– Implementation and integration


• Global Strategic Planning– Akio Morita – ‘Think Globally, Act Locally’

(Informed and Emergent)• Recognition of cross-country differences in

cultural, demographic and market conditions– Potential for locational advantages– Fluctuating exchange rates– Host government restrictions and requirements


• Strategy options for entering and competing in foreign markets:– Exporting:

• Factors to be considered:– government policies– marketing factors– logistical considerations– distribution issues

– Licensing– Franchising:

• Product/trade franchise• Business format franchise


– Multi-country or global strategy• Global low-cost strategy• Global differentiation strategy• Global best-cost strategy• Global focus strategy

– JVs– Strategic Alliances

– R & D exchange– Tech swap– Distribution, marketing, manufacturing relationships– Cross-licensing


• Pursuing competitive advantage by competing multinationally– Achieving locational advantages– Transferring competencies and capabilities across

borders– Coordinating cross-border activities


• Competing in Emerging Foreign Markets

DodgerFocuses on a locally oriented link in the value chain, enters a join venture, or sells out to a multinational

ContenderFocuses on upgrading capabilities and resources to match multinationals globally, often by keeping niche markets

DefenderFocuses on leveraging local assets in market segments where multinationals are weak

ExtenderFocuses on expanding into markets similar to those of the home base, using competencies developed at home

Pres

sure

s to

Glo

balis

e in

the

Indu

stry

Competitive AssetsTransferable AbroadCustomised to Home Market

Low

Hig

h

MNEs

• MNEs/MNCs?• Features of MNEs:– Single managerial control– Global perspective– Offers economies of scale– Integrated world business system– Offers new markets for products

MNEs

• Reasons for growth of MNEs:– Factor mobility across borders– Economic reforms– Opening up of economies– Management culture– Growth urge– Market potential – Risk minimising– Development in communication technology

MNEs

• Classification of MNEs:– On basis of corporate structure:• Horizontally integrated MNE e.g. McDonald’s• Vertically integrated MNE• Diversified MNE

– On basis of behaviour:• EPRG

MNEs

• Role of MNEs in developing countries– Capital– Technology– Skill– Exports– Level of integration– Welfare of citizens– Investing in local labour– Developing a country through FDI– Political improvements– FDI through MNEs is far easier

MNEs

• Benefits of MNEs– Globalisation– Innovation– Balance of payments impact– LDCs benefit– Capital markets (FDI)– Technology transfer– Indigenisation– Employment– Countries not at receiving end anymore– R & D

MNEs• Negatives of MNEs

– Drain of resources for profit– Strain on scarce forex– Minimum transfer of technology– Insignificant employment potential– Interference in states’ sovereignty– Influence on culture– Ill-effects of advertisements– High profit orientation– Unfavourable effect on BOP of host country– Monopoly growth– Depletion of non-renewable resources– Tax evasion– Economic threat

MNEs

• Challenges faced by MNEs:– Understanding and retaining inherent advantages– Extension of foreign operation– Understanding the relationship between the firm

and local interest group– Relative bargaining power of the multinational firm

over the investment cycle– Obeying fundamental economic, strategic,

organisational and socio-political principles– Multifarious effect of globalisation

MNEs

– Accelerated cycle of NPD– Enormous speed of international business– Huge cost mistakes as a result of wrong decisions– Broad spectrum of international dimensions

Structural Design of MNEs• Organisational structure?• Organisational design?• Steps in designing organisational structure includes analysis of:

– External environment– Overall aims and purpose of the enterprise– Objectives– Activities– Decisions– Relationships– Organisation structure– Job structure– Organisation climate– Management style– HR

Structural Design of MNEs

• MNEs can be classified as:– Vertical/tall organisations– Horizontal/flat organisations

• Centralisation vs. Decentralisation in organisational design: advantages and disadvantages


• Types of structures in MNEs– International divisions structure e.g. Industrial,

Aerospace..– Functional divisions structure e.g. Production,

Marketing...– Product division structure e.g. Wind power, solar....– Geographic (area) division structure e.g. Asia, Africa– Matrix division structure (combines product, area,

function) e.g. Product A – Mgr India, Nepal; Product B - ....


• Contemporary organisation structures for MNEs– Network structure– Japanese Keiretsu: • collection of nominally independent companies where

each company owns a small share of others in the network; same directors serve on many boards• Vertical (Toyota dominates its suppliers) and horizontal

Keiretsus (Mitsubishi; no company dominates)

Structural Design of MNEs– Virtual organisation: temporary networks created instead of

vertical integration– Choosing a structure:

• Relative importance in present and future of foreign and domestic markets to the firm’s strategy

• Firm’s historical background and evolution in global ops• Nature of firm’s business and its product strategy• Management traits and management philosophy of firm• Availability and willingness to invest in internationally experience

management personnel• Capacity of a firm to adjust to major organisational changes• Degree of centralisation and extent to which firm wants to

decentralise decision making to subsidiaries


• Major issues in global organisational design1. Centralisation vs. decentralisation2. Use of subsidiary board of directors3. Non-traditional organisational arrangements e.g. JVs4. Role of IT5. Integrating mechanisms for subsidiaries

a) Formal integrating mechanisms:I. Direct contactII. Liaison rolesIII. TeamsIV. Matrix structures

b) Informal integrating mechanisms


6. Control systems, depend on:a) Distanceb) Diversityc) Degree of uncertaintyd) Differences in approach Control systems used by MNEs include:

• Personal control• Bureaucratic controls• Output controls

7. Culture in international business8. Managing change in international business

Strategic Planning in MNEs

• Includes:– Identifying planning needs and focus– Understanding planning modes adopted and

changes within MNEs– Understanding subsidiary development path and

its role in MNE planning– Understanding and appreciating environmental

volatility– Identifying general pitfalls in planning


• Planning Needs– Planning needs differ among different type of

companies.– Needs can be differentiated based on two criteria:• Stages of growth on the basis of products• Management style i.e. whether broad or narrow in

scope


– Leontiades has identified three stages in the growth-evolution or organisation/structure of MNEs:Stage Structure Strategy

Stage 1 Functional Single Product Line

Stage 2 Product Related Product Line

Stage 3 Divisional Unrelated Product Line


• Planning Focus– Can be analysed in terms of types, time, horizon

and formality– Basic orientation of MNEs can be classified into

three groups:• Strategy• Business unit programming• Operations Planning

Strategic Planning in MNEsPhase Objective Plan Orientation Plan Attribute

Phase 1 Meet Budget Financial Planning Annual budgets, Functional focus

Phase 2 Predict future Forecast based planning

Multi-year budgets

Phase 3 Think strategically Externally oriented planning

Thorough situation analysis and competitive assessment

Phase 4 Create future Strategic Management

Well-defined strategic

framework, strategically

focused organisation.

Supports value systems.


• Planning Modes– One way is to look at the structural relationship in

a large organisation– In large organisations higher-ups will know more– Based on this, Allaire and Firsirotu classified

planning modes:


Modes Agents Advantage Shared Values

Leader-driven planning L H

Culture-driven planning H H

Line-driven planning M M

Number-driven planning H L

Staff-driven planning L L

L=Low M=Medium H=High


• Subsidiary Development Path– Localisation of Global Strategy– Growth and Development of Subsidiaries

Growth Stage Subsidiary Culture

Childhood Product and sales mentality

Adolescence Branch mentality

Adulthood Self-contained business mentality


• Environmental Volatility – concern in strategic planning– PESTLED and influence on host and home country

market– Earlier trends of gaining advantage through

production in low-cost labour markets no longer prevalent


• Pitfalls in Planning– Getting started– Misunderstanding– Doing long-range planning– Using long range plans– Others• Operational ignorance• SRC/Ethnocentricism

Strategic Considerations in MNEs

• Strategic considerations help in:– Understanding the basis of ownership strategies

adopted by MNEs– Identify critical factors when MNEs go for strategic

alliances– Understand various methods adopted by MNEs to

integrate role of subsidiaries– Appreciate the multi-dimensional nature of MNE

management– Understand various tasks confronting MNEs and how

they resolve them


• Major strategic considerations for MNEs:– Ownership strategy– Choice of strategy• Ownership strategy depends on :

– Competitive position– Availability of acceptable associates– Legal constraints– Control requirement– Benefit/cost relationship


– Strategic alliances

Strategic Alliance Blocked Area

Concentrated Worldscale Operation

Global Geographic Diversification

Difficult

Easy

Marketing Access

High

Advantages of Scale/Joint R & D

Low


• Strategic Alliances: Cost vs. Benefits

Cost Benefits

Mutual Dependence Complementary Resources

Outcome Uncertainty Risk Sharing

Division of Authority Reduce Competition

Top Management – Time and Money

Market Access

Strategic Considerations in MNEs• Characteristics of successful strategic alliances:

– Fulfill complementary needs– Supplement each others strengths– Enable power sharing– Balance benefits

• Integration and responsiveness– Three types of ‘mind-maps’ attempt to determined

relationships between MNEs and subsidiaries:• The U N Model Assumption

– Emphasizes the modification of products, strategies and management practices

– Worldwide strategy is the sum total of multiple national subsidiary strategies


• Headquarters Hierarchy Syndrome– Focuses on products for a world market and global scale of

manufacturing– Assumes national tastes are similar– HQ has responsibility and assumes overall control– E.g. Coca Cola

• Multi-Center System– Unlike hierarchy, centers are unit with responsibility– Commands can play upward, downward and horizontally in

the organisation– E.g. product development team as a center


• Responsiveness – Role of Subsidiaries– Subsidiaries may function differently based on their ability to

influence MNE’s global strategy:» Strategic Leader e.g. Philips (UK subsidiary), 3M» Contributors» Implementers» Black Hole: minimal capabilities, mainly functional

– Managing a multi-focal strategy• Barriers in overcoming organisational bias:

– Strategic barriers– Organisational barriers– Cultural barriers


– Building New Perspectives– Maintaining a dynamic balance– Flexible coordination• Mechanisms include:

– Centralisation (Japanese)– Formalisation (American); power distributed among heads– Socialisation (EU): came from close family ties in European

families


• Allocating responsibilities– Two issues involved in coordination:

» Flows between units• Goods• Resources• Information

» Strategic roles of units

Role of Subsidiary Tools

Implementer Formalisation

Contributor Centralisation

Leaders Socialisation + Formalisation

Black Holes Socialisation + Centralisation

Strategic Considerations in MNEs– Tools used by MNEs to manage its subsidiaries:

» Shared vision» Acceptance

• Recruiting and selection process• Training and development• Career path management

» Binding commitment

Competitiveness

• National competitiveness• Global competitiveness– Factors that make or break nation’s competitive

environment:• Domestic economic strength• Internationalisation• Government• Finance• Infrastructure• Management• Science and tech• People

Competitiveness

• Indicators of Global Competitiveness :– World Economic Forum’s Global Competitiveness

Index– 12 Pillars of Global Competitiveness:

1. Institutions2. Infrastructure3. Macroeconomic stability4. Health and primary education

– First four factors key for factor-driven economics

5. Higher education and training6. Goods market efficiency

Competitiveness

7. Labour market efficiency8. Financial market sophistication9. Technological readiness10. Market size

– These six factors key for efficiency-driven economics

11. Business sophistication12. Innovation

– These factors key for innovation-driven economics

Competitiveness

• Competitive advantage of nations– Porter’s Diamond

Competitiveness

• National vs. Global Competitiveness– Methodology of two national competitiveness indicators

• Global competitiveness report (GCI): index instructed from sub-indices for following factors and is a weighted average with more weight age given to quantitative data than to survey data:– Openness of economy/nation– Government– Finance– Infrastructure– Technology– Management– Labour– Institutions

Competitiveness

• World Competitiveness Yearbook– Domestic economy– Internationalisation– Finance– Infrastructure– Management– Science and tech– People

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M 3 - International Business - Global Business Strategic Management

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