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1 © 2013 Cengage Learning. All rights reserved.
CHAPTER 12 © DJ Dates/Alamy GLOBAL2 t PENG © 2013 Cengage Learning. All rights reserved.

2 CHAPTER 12 LEARNING OBJECTIVES
After studying this chapter, you should be able to: Define terms of “strategy” & “structure” Understand the conflicting cost reduction and local adaptation pressures on MNE’s and how it drives strategy and the four resulting structure options. Explain the home replication, global standardization, localization and transnational strategies, including their strengths & weaknesses. Outline the challenges associated with learning, innovation, and knowledge management, including how they affect strategy and structure. Understand the impact of the institutional and resource based views on strategy & structure. © 2013 Cengage Learning. All rights reserved.

3 LO1: TWO CONFLICTING PRESSURES FOR MNE
MNEs confront two CONFLICTING sets of pressures which require a strategic decision on which to give priority: Cost reduction – calls for global integration and standardization. Local responsiveness – calls for local adaptation and customization These two sets of pressures are analyzed in the following integration-responsiveness framework. © 2013 Cengage Learning. All rights reserved.

4 LO1: MULTINATIONAL STRATEGIES AND STRUCTURES
Note: In some textbooks, “home replication” may be referred to as “international” or “export” strategy, “localization” as “multidomestic” strategy, and “global standardization” as “global” strategy. Some of these labels are confusing because one can argue that all four strategies here are “international” or “global,” thus resulting in some confusion if we label one of these strategies as “international” and another as “global.” The present set of labels is more descriptive and less confusing. © 2013 Cengage Learning. All rights reserved.

5 LO1: MULTINATIONAL STRATEGIES- Advantages & Disadvantages
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6 LO1: MULTINATIONAL STRATEGIES
Home replication strategy – duplicates home-based competencies in foreign countries. Makes sense when most customers are domestic and is less costly. Lacks local responsiveness and fails to overcome disadvantage of foreigness. © 2013 Cengage Learning. All rights reserved.

7 LO1: MULTINATIONAL STRATEGIES
Localization strategy – focuses on a number of countries/regions, each one regarded as a stand-alone market through local adaptation focus. Effective when differences among markets are clear and pressures for cost reduction are low. High costs due to duplication of efforts in multiple countries but more attractive to local foreign customers. © 2013 Cengage Learning. All rights reserved.

8 LO1: MULTINATIONAL STRATEGIES
Global standardization strategy– development and distribution of standardized products worldwide like Apple iPhones. Not limited to major operations at home—may designate foreign centers of excellence which produce global market products. Best when pressure for cost reduction is high and need for local responsiveness is low. © 2013 Cengage Learning. All rights reserved.

9 LO1: MULTINATIONAL STRATEGIES
Transnational strategy – endeavors to be both cost effective and locally responsive. Global learning and diffusion of innovations. Organizationally complex, difficult to implement, requires a matrix structure which can confuse employees & cause lack personal accountability for results. © 2013 Cengage Learning. All rights reserved.

10 LO1: FOUR ORGANIZATIONAL STRUCTURES
International division – typically used when firms expand abroad, often engaging in home replication strategy and is easiest/least costly to implement. Foreign subsidiary managers often not given sufficient voice. International division serves as silo whose activities are not coordinated with rest of the firm. © 2013 Cengage Learning. All rights reserved.

11 LO1: FOUR ORGANIZATIONAL STRUCTURES
International division: Typically used when firms engage in home replication strategy Source: Headquartered in Seattle, Starbucks is a leading international coffee and coffeehouse company. © 2013 Cengage Learning. All rights reserved.

12 LO1: FOUR ORGANIZATIONAL STRUCTURES
Geographic area structure – organizes MNE according to geographic areas. Most appropriate for localization strategy. Regional managers carry a great deal of weight & have full business unit resources. Strong local responsiveness, but also encourages turf wars/fragmentation of MNE. © 2013 Cengage Learning. All rights reserved.

13 LO1: FOUR ORGANIZATIONAL STRUCTURES
Geographic area structure: appropriate for localization strategy Source: Adapted from Headquartered in New York, Avon is a leading global beauty products company (see Chapter 1 Opening Case). © 2013 Cengage Learning. All rights reserved.

14 LO1: FOUR ORGANIZATIONAL STRUCTURE
Global product division structure – supports global standardization strategy by assigning global responsibilities to each product division. Highly responsive to pressure for cost efficiency. Reduces inefficient duplication in multiple countries. Lags in local responsiveness. © 2013 Cengage Learning. All rights reserved.

15 LO1: FOUR ORGANIZATIONAL STRUCTURE
Global product division structure: Highly responsive to pressure for cost efficiency; Reduces inefficient duplication in multiple countries Source: Adapted from Headquartered in Munich, Germany, and Paris, France, EADS is the largest commercial aircraft maker and the largest defense contractor in Europe. © 2013 Cengage Learning. All rights reserved.

16 LO1: FOUR ORGANIZATIONAL STRUCTURES
Global matrix – sharing and coordination of responsibilities between product divisions and geographic areas in order to be both cost efficient and locally responsive. Difficult to deliver in practice. May add layers of management, slow down decision speed, requires employees to work for two bosses which can confuse . © 2013 Cengage Learning. All rights reserved.

17 LO1: FOUR ORGANIZATIONAL STRUCTURES
Global matrix: Designed to be both cost efficient and locally responsive; Difficult to deliver in practice © 2013 Cengage Learning. All rights reserved.

18 LO1: INTERRELATED MULTINATIONAL STRATEGIES AND STRUCTURES
The relationship between strategy and structure is reciprocal since they impact each other in many ways. Neither strategy nor structure is static. It is often necessary to change one, the other, or both to respond to changes in either the institutional requirements or the resource-based demand of the market . © 2013 Cengage Learning. All rights reserved.

19 LO2: EFFECT OF INSTITUTIONS AND RESOURCES
© 2013 Cengage Learning. All rights reserved.

20 External relationships Internal relationships
LO2: INSTITUTION-BASED CONSIDERATIONS-government, culture & local organization External relationships Internal relationships External relationships: MNEs are subject to frameworks erected by governments. Informal institutions dealing with host and home countries. Internal relationships: Organizational structure specifies scope of various parties’ responsibilities. Organizational norms, values, and networks. © 2013 Cengage Learning. All rights reserved.

21 LO2: RESOURCE-BASED CONSIDERATIONS
Does a structural change add value? Internal Structure should be as rare as possible for competitive advantage. Inimitability – formal structures are easier to observe, making informal structures more important to avoid competitor copying Organization of MNEs, formal and informal, are critical to ability to deliver value to customers © 2013 Cengage Learning. All rights reserved.

22 LO3: KNOWLEDGE MANAGEMENT – impact on strategy & structure
Knowledge management: the structures, processes, and systems that actively develop, leverage, and transfer important business know-how & knowledge. © 2013 Cengage Learning. All rights reserved.

23 LO3: CATEGORIES OF KNOWLEDGE
Explicit knowledge – codifiable. Transferred with little loss of richness since it is written and recorded. Tacit knowledge – non-codifiable and held in worker’s heads from work experiences. Transfer requires hands-on interaction from employees working together. © 2013 Cengage Learning. All rights reserved.

24 LO3: KNOWLEDGE MANAGEMENT IN FOUR TYPES OF MNE STRATEGIES
The differences in knowledge management in MNEs stem fundamentally from the interdependence between the headquarters and foreign subsidiaries, and among various subsidiaries. Sources: Adapted from C. Bartlett and S. Ghoshal, Managing Across Borders: The Transnational Solution (Boston: Harvard Business School Press, 1989) 65; T. Kostova and K. Roth, “Social capital in multinational corporations and a micro-macro model of its formation,” Academy of Management Review 28, no. 2 (2003): 299. © 2013 Cengage Learning. All rights reserved.

25 LO3: KNOWLEDGE MANAGEMENT IN FOUR TYPES OF MNEs
Globalizing R&D- multiple global sites involved in R&D A fundamental basis for competitive advantage is innovation-based firm global diversity creating a broader pool of innovative ideas. Decentralized R&D in different locations drives broader idea pool at cost of potential duplication of effort through lack of coordination of R&D resources © 2013 Cengage Learning. All rights reserved.

26 © 2013 Cengage Learning. All rights reserved.
LO4: THREE THINGS TO DO © 2013 Cengage Learning. All rights reserved.

27 DEBATE: CORPORATE CONTROL vs. SUBSIDIARY INITIATIVES
Subsidiary control: Subsidiary initiatives may inject a spirit of entrepreneurship throughout the larger corporation. Corporate control: Hard to distinguish between good-faith subsidiary initiative and opportunistic empire building. Subsidiary initiatives are not necessarily compatible with corporate-wide goals. Sources: T. Ambos, U. Andersson, and J. Birkinshaw, “What are the consequences of initiative-taking in multinational subsidiaries?” Journal of International Business Studies 41 (2010): ; J. Birkinshaw, S. Ghoshal, C. Markides, J. Stopford, and G. Yip (eds.), The Future of the Multinational Company (London: Wiley, 2003). © 2013 Cengage Learning. All rights reserved.


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