© Devinney, 2008
Managing the Global CorporationManaging the Global Corporation
Timothy Devinney
Australian Graduate School of Management
© Devinney, 2008
The Context and Complexity of The Context and Complexity of InternationalizationInternationalization
© Devinney, 2008
The Complexity of International ManagementThe Complexity of International Management
Local Economic Conditions
Intl Economic Conditions
Local Cultural /Sociodemographic
Conditions
Local Political Environment
Local Economic Conditions
Local Cultural /Sociodemographic
Conditions
Local Political Environment
FirmStrategic
Disposition
FirmStrategic
Disposition
Orgn CulturalOrgn HistoryTechnology
Orgn StructureDistn of BusinessProduct Structr
Orgn CulturalOrgn HistoryTechnology
Orgn StructureDistn of BusinessProduct Structr
© Devinney, 2008
The International MindsetThe International Mindset
How does this complexity change your viewOf the notion of ‘a’ strategy?
Of the operational details of developing such a strategy?
Of the operational details of implementing a strategy?
© Devinney, 2008
Why Do Companies Invest ‘Overseas’?Why Do Companies Invest ‘Overseas’?
Seeking greater operational efficiencyCommunication with:
Operations, customers, suppliers, competitors or R&D
Proximity to:Operations, customers, suppliers, competitors or R&D
Seeking new marketsProactive vs reactive
Direct vs indirect
Seeking new resourcesPhysical vs intangible
© Devinney, 2008
Does it Make Sense?Does it Make Sense?The Liability of ForeignnessThe Liability of Foreignness
Business Characteristics (What we do)
Mar
ket C
hara
cter
isti
cs
(Wha
t the
y w
ant)
Zone of death
Firm
Centric P
ath
Market Centric Path
We do what markets want even thought they are increasingly distant from our
strengths
We do w
hat we do even
thought they are increasingly distant from
w
hat the markets dem
and
Distance from Home
Ris
k A
djus
ted
Mar
gin
The Liability of Foreignness
We do what we can’t do for people who don’t want what we can’t do
Why does this happen?
© Devinney, 2008
How Do You Go International?How Do You Go International?
Export
Make or buy?
Fast or slow?
Partner or no?
…..
There is no “free lunch”: Each has a cost and benefit
© Devinney, 2008
What are the Pitfalls?What are the Pitfalls?
Spent too much, got too little (Tesco)
Partner from hell (Danone)
Arrested for bribery (Siemens)
…..
© Devinney, 2008
Tim’s 3-Steps to Success InternationalizationTim’s 3-Steps to Success Internationalization
Do “something” well
Move that “something” from point A to point B
Make money on that “something” at point B
CEOs
© Devinney, 2008
Applying The Rules (Globalizing Cement)Applying The Rules (Globalizing Cement)
Cemex built a dominant position in Mexico based on:
Technological/Cost excellence
Protection of IP
Integration of capacity acquired via M&A
It leveraged this position by purchasing marginal producers at scale
Then utilized its M&A integration capabilities to transfer its technological and managerial systems
© Devinney, 2008
Economicsof
Production
“Global is
Better”
Economicsof
Production
“Global is
Better”
Economicsof
Adaptation
“Local is Better”
Economicsof
Adaptation
“Local is Better”
PUSH PULL
Conflicting Globalization Pressures: Conflicting Globalization Pressures: How to React?How to React?
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Dimensions of International Organisation Dimensions of International Organisation StructureStructure
Local ResponsivenessHigh
Low
Glo
bal
In
tegr
atio
n High
TransactionalCompleteness
High
Diversity of sources, type
and uses increase
Becomes more proprietary and
protectible
Economies of scale and scope increase the sources and applications and efficiency in use
Source: Adapted from Devinney, Midgley & Venaik
The extent towhich the markets are
efficient; i.e., markets > firms
The extent towhich the markets are
efficient; i.e., markets > firms
Strategic Decision:Own, Rent or Buy
Strategic Decision:Centralization/
Adaptation
© Devinney, 2008
The Fundamental ProblemThe Fundamental Problem
Potentially, each component of the value chain will have different underlying pressures (GI, LR, TC) facing it:
In each product/marketAt each value chain link in each product/marketAcross products/markets
This implies that these fundamental pressures will create a complex organizational pressure to “mix and match”
Local Responsiveness
High
Low
Glo
bal
In
tegr
atio
n
High
TransactionalCompleteness
High
Local Responsiveness
High
Low
Glo
bal
In
tegr
atio
n
High
TransactionalCompleteness
High
Market 1
Market 2
Market 4
Market 3
© Devinney, 2008
The Complexity of Value Chain Positioning The Complexity of Value Chain Positioning in International Competitionin International Competition
Firms face environments with different pressures (G,L)
These are dependent on location choice
These can be endogenousAffected by prior firm choices
Firm Strategy can be decomposed
Tasks (G,L) Value chain activities (VCA)
VCA (G,L) Strategic Position (C,A)
Example: Pharmaceuticals
Pressures for Local Differentiation
Pressures for G
lobal Integration
Structural Choice (Adaptation)
Structure C
hoice (Centralization)
Finance
ComponentManufacturing
After SalesService
Compounding& Packaging
Marketing & Sales
R&D
ClinicalTests
GovernmentRelations
Procurement
Biological Technology
Local Regulatory Demands
Clinical Trial Mgt
© Devinney, 2008
Carrefour & WalmartCarrefour & WalmartCarrefour and Walmart are facing some similar pressures and realities but many are different due to different histories
Pressures are a function of location
This has led to differential structural choices across the value chain by both firms
Structure is a function of past choices and future expectations
Strategic disposition (administrative heritage)
Pressures for Local Differentiation
Pressures for G
lobal Integration
Structural Choice (Adaptation)
Structure C
hoice (Centralization)
WM (Supply)
WM (Design)
Procurement Technology
Local Retail Demand (EU)
CF (Supply)
CF (Design)
CF (Mktg)
WM (Mktg)Local Retail Demand (US)
Supplier Fragmentation
© Devinney, 2008
How Should the Global Value Chain be How Should the Global Value Chain be Organized? Value Chain DisintermediationOrganized? Value Chain Disintermediation
HQ
Market 1: Own Everything
HQ
Market 2: Own Contiguous Parts
HQ
Market 3: Own Non-Contiguous Parts
HQ
Market 4: Own Structure Not Parts
HQ
ETC ……
© Devinney, 2008
The Key Organizational Question isThe Key Organizational Question is
How can competitiveness be enhanced by: Worldwide or regional integration of all scale-sensitivity activities?Decentralization of locally differentiated tasks with management accountability?Close coordination of local activities which have cross-market implications?
Simultaneously!Three rules should apply
Centralize “scale-sensitive” activities whenever possibleCentralize control over those activities which are the source of the firm’s competitive advantage, wherever locatedSet up as many cross-business or cross-country interactions as possible and feasible
Trade off between simplicity and complexity
© Devinney, 2008
Strategy/Management at the Subsidiary Level:Strategy/Management at the Subsidiary Level:Operationalization at the Market LevelOperationalization at the Market Level
© Devinney, 2008
A Country Operation’s Strategic Role?A Country Operation’s Strategic Role?
Stand Alone ValueSize of market and growth rate
Competitive environment
Price levels
Favorable cost structure
Tax rates
Macroeconomic conditions
Political risk
Synergy ValueShared activities with other businesses
Shares upstream/downstream capacity (e.g., raw material production, final assembly or distribution)
Proximity to other markets
Strategic Market Value Home market of global customers Home market of global
competitors Significant market for global
competitors Major source of industry
innovation Home of most demanding
customers Prestige value
© Devinney, 2008
Loc
al C
omp
eten
ce
Importance of Local Market
Hig
hL
ow
HighLow
Source: Bartlett & Ghoshal
The Roles for Country/Regional OrganisationsThe Roles for Country/Regional Organisations
ContributorContributor Strategic Leader
Strategic Leader
Black HoleBlack Hole ImplementorImplementor
© Devinney, 2008
Inte
rnal
Com
pet
itiv
enes
s
External Competitive Intensity
Hig
hL
ow
HighLow
Source: Birkinshaw & Hood
Setting the Environmental ConditionsSetting the Environmental Conditions
Firm Driven
Firm Driven DualDual
BenignBenign MarketDriven
MarketDriven
© Devinney, 2008
Is There a Thing Called International Is There a Thing Called International Strategy?Strategy?
The short answer is NO! Intl strategy is strategy in a more complex environment
Rather on one set of economic environments you have many– Big implications for financing, marketing, accounting
Rather than one set of cultural environments you have many– Big implications for marketing and human resources
Rather than one set of political environments you have many– Big implications for all aspects of business subject to political
riskIntl strategy is strategy with more complex managerial choices
Organisational form is more complex and requires an interaction between more players both inside and outside the firm
– Trade-offs between centralized and decentralized models of organizational design have never been solved
– Alliances, licensing/franchising, FDI, exporting and a plethora of mixtures of this are always on the table
© Devinney, 2008
Managerial ResponsesManagerial Responses
Essence of international operations is:The expansion of managerial control (expertise and knowledge)
The simultaneous Exploitation of existing advantage
Exploration for future advantage
The development of distinctive MNE competences
The ability to exploit internal and external networks
System-wide optimization
© Devinney, 2008
Managerial & Organizational Factors Leading Managerial & Organizational Factors Leading to International Successto International Success
The firm sees itself as a MNE led by a TMT that is comfortable on the world stage Develop integrated strategies that are costly and difficult to duplicate Understand that innovation is a global Operate as if the world was one market Have systems that keep them abreast of political/environment developmentsAre well managed—stick close to customers, run a lean organisation, and encourage autonomy and entrepreneurial activity
MNEs must be able to accommodate their natural disadvantage, the cost of managing far flung operations
© Devinney, 2008
How Do You Become a Successful MNC?How Do You Become a Successful MNC?
Short answer is no one really knows how to do it. We do know, however, to what it is related:
More successful MNCs have a greater percentage of intangible assets
More successful MNCs establish a dominant organisational culture that allows it to be less effected organisationally
More successful MNCs are better at disaggregating their value chains