Chapter 10 - Strategizing, structuring and learning around the world Flashcards
MNEs confront two sets of pressures:
cost reduction and local responsiveness
Cost pressures
influence global integration
Local responsiveness
is the necessity to be responsive to different customer preferences around the world
Four strategic choices for MNEs:
- (1) home replication: international or export
- (2) localization: multi-domestic
- (3) global standardization: global
- (4) transnational
Home replication (international or export) strategy:
emphasizes the international replication of home country–based competencies such as production scales, distribution efficiencies, and brand power
Localization (multidomestic) strategy:
is an extension of the home replication strategy:
- Focuses on a number of foreign countries/regions, each of which is regarded as a stand-alone “domestic” market worthy of significant attention and adaptation
- Effective when there are clear differences among national and regional markets and low pressures for cost reductions
- Has high costs due to duplication of efforts in multiple countries
Global standardization (global) strategy
strategy is the development and distribution of standardized products worldwide in order to reap the maximum benefits from low-cost advantages:
-MNEs may designate centers of excellence or subsidiaries
Centers of excellence:
MNEs subsidiaries explicitly recognized as a source of important capabilities, with the intention that these capabilities be leveraged by and/or disseminated to other subsidiaries
What does global standardization sacrifices?
Sacrifices local responsiveness
Transnational strategy:
endeavors to be cost efficient, locally responsive, and learning driven simultaneously:
- Innovations flow from the home country to host countries and vice-versa and also flow among subsidiaries in multiple host countries
- It is organizationally complex and difficult to implement.
Four organizational structures that are appropriate for the four strategic choices:
- International division
- Geographical area
- Global product division
- Global matrix
International Division:
Typically set up when firms initially expand abroad, often when engaging in a home replication strategy
Problems of international division:
- Foreign subsidiary managers in the international division are not given sufficient voice relative to the heads of domestic divisions
- The “silo” effect: International division activities are not coordinated with the rest of the firm, which focuses on domestic activities
- Firms often phase out this structure after their initial overseas expansion
Geographic Area Structure:
- Organizes the MNE according to different geographic areas (countries and regions)
- Is the most appropriate for a localization strategy
- Its ability to facilitate local responsiveness is both a strength and a weakness
Problems with geographic area structure:
While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms”
Global Product Division Structure:
- Supports a global strategy in treating each product division as a stand-alone entity with full worldwide—as opposed to domestic—responsibilities for its activities
- Facilitates attention to pressures for cost efficiencies in allowing for consolidation on a worldwide (or regional) basis and reduction of inefficient duplication in multiple countries
Problems with global product division structure:
It is the opposite of the geographic area structure: Little local responsiveness
Global Matrix:
- Is often used to alleviate the disadvantages associated with both geographic area and global product division structures
- Is intended to support the goals of the transnational strategy—in practice, it is often difficult to deliver
Problems with global matrix:
- May add layers of management, slow down decision speed, and increase costs while not showing significant performance improvement:
- Front-line managers must report to two bosses: a country manager and a product division manager
Three key ideas of The Reciprocal Relationship Between Multinational Strategies and Structures:
- Strategy drives structure: a misfit, such as combining a global strategy with a geographic area structure, may have grave performance consequences
- The relationship is two-way. To the extent that certain strategies facilitate certain structures, a given structure also supports a particular strategy
- Strategies and structures are not static. It is often necessary to change strategy, structure, or both
Combining MNEs strategies and organizational structure:
Based on two dimensions – cost reduction (high vs. low) and local responsiveness (high vs. low)
The different nature of industries:
- Industrial-products firms value technological knowledge that is not location-specific: Favor global product divisions
- Consumer-goods industries require deep knowledge about consumer tastes that is location-specific: Favor geographic areas
Porter’s forces:
- Interfirm rivalry:
Competitors focus on learning and innovation - Need to increase entry barriers:
Behind some recent moves to phase out multidomestic strategy and to erect world-scale facilities to deter entrants - Bargaining power of suppliers and buyers:
They also have to internationalize if the focal MNE goes overseas - Threat of substitute products:
MNE R&D often generates competing substitute products
Organizational culture :
is the collective programming of the mind that distinguishes members of one organization from another
Formal and informal internal institutions - Three choices of the head of a subsidiary:
- a home-country national
- a host-country national
- a third country national
Knowledge management
is the structures, processes, and systems that actively develop, leverage, and transfer knowledge.
What does knowledge management depends on?
Knowledge management not only depends on IT, but also on informal social relationships within the MNE
Explicit knowledge
(Captured by IT)
is codifiable, it can be written down and transferred without losing much of its richness (e.g., a driving manual):
Tacit knowledge:
Tacit knowledge is not codifiable, hard to be written down and transmitted without losing much of its richness (e.g., knowledge about how to drive)
- Its acquisition and transfer require hands-on experience
Globalizing Research and Development:
R&D emerged as an important function to be internationalized and is often known as innovation-seeking investment:
- The intensification of competition for innovation drives the globalization of R&D
Knowledge retention:
The problem of employee turnover which may lead to knowledge leakage
Solutions inKnowledge Management
- Manipulation of the formal rules of the game:
- Individual and organizational incentives
- Investing in tacit knowledge
- Informal integrating mechanisms
- Development of informal social capital
Social capital:
the informal benefits individuals and organizations derive from their social structure and network
