GM - Chapter 9 - Entry Strategies and Organizational Structures Flashcards
Entry Strategies and Ownership Structures
- Export/import
- Wholly-owned subsidiary
- Mergers/acquisitions
- Alliances/joint ventures
- Licensing
- Franchising
Export/Import
- Often the only available choices for small and new firms wanting to go international
- Also permits larger firms to begin international expansion with minimum investment
- Paperwork can be turned over to export management company or through firm’s export department
- Permits easy access to overseas markets
Strategy is usually transitional in nature
Wholly Owned Subsidiary
- Overseas operation is totally owned and controlled by an MNC
- MNC’s desire for total control and belief that managerial efficiency is better without outside partners
- Some host countries concerned that MNC will drive out local enterprises
- Home country unions sometimes view foreign subsidiaries as an attempt to “export jobs”
- Today many MNCs opt for merger, alliance, or joint venture than a fully owned subsidiary
Mergers and Acquisitions
- The cross-border purchase or exchange of equity involving two or more companies
- The strategic plan of merged companies often calls for each to contribute a series of strengths toward making the firm a highly competitive operation
Alliances and Joint Ventures
Alliance
- Any type of cooperative relationship among different firms
International joint venture (IJV)
- Agreement under which two or more partners from different countries own or control a business
- Nonequity venture
- Equity joint venture
Advantages
- Improvement of efficiency
- Access to knowledge
- Political factors
- Collusion or restriction in competition
Strategic Alliance Recommendations
- Know partner well before alliance is formed.
- Expect differences in alliance objectives among potential partners headquartered in different countries.
- Having desired resource profiles does not guarantee other has complementary to firm’s resources.
- Be sensitive to alliance partner needs.
- After identifying best partner, work on developing relationship of trust.
Licensing
- License is an agreement that allows one party to use an industrial property right in exchange for payment to other party
- Licensee may avoid entry costs by licensing to a firm already there
- Licensor usually is a small firm lacking financial and managerial resources
- Companies spending large share of revenues of R&D are likely to be licensors
- Companies spending very little on R&D are more likely to be licensees
Franchising
- Franchise: one party (the franchisor) permits another (the franchisee) to operate an enterprise using its trademark, logo, product line, and method of operation in return for a fee
- Widely used in fast-food and hotel/motel industries
- With minor adjustments for local market, can result in highly profitable international business.
Initial Division Structures
Export arrangement
- Common among manufacturing firms, especially those with technologically advanced products
On-site manufacturing operations
- In response to local governments when sales increase
- Need to reduce transportation cost
Subsidiary
- Common for finance-related businesses or other operations that require onsite presence from start
International Division Structure
Structural arrangement that handles all international operations out of a division created for this purpose
- Assures international focus receives top management attention
- Unified approach to international operations
- Often adopted by firms still in developmental states of international business operations
- Separates domestic from international managers (not good)
- May find it difficult to think and act strategically, or to allocate resources on a global basis
Global Product Division
Structural arrangement in which domestic divisions are given worldwide responsibility for product groups
- Global product divisions operate as profit centers
- Helps manage product, technology, customer diversity
- Ability to cater to local needs
- Marketing, production and finance coordinated on product-by-product global basis
- Duplication of facilities and staff personnel within divisions
- Division manager may pursue currently attractive geographic prospects and neglect others with long-term potential
- Division managers may spend too much time tapping local rather than international markets
Global Area Division
Structure under which global operations organized on geographic basis
- International operations put on same level as domestic
- Global division mangers responsible for all business operations in designated geographic area
- Often used by firms in mature businesses with narrow product lines
- Firm is able to reduce cost per unit and price competitively by manufacturing in a region
- Difficult to reconcile a product emphasis with geographic orientation
- New R&D efforts often ignored because divisions are selling in mature market
Global Functional Division Structure
Structure that organizes worldwide operations primarily based on function and secondarily on product
- Approach not used except by extractive companies such as oil and mining
- Favored only by firms needing tight, centralized coordination and control of integrated production processes and firms involved in transporting products and raw materials between geographic areas
- Emphasizes functional expertise, centralized control, relatively lean managerial staff
- Coordination of manufacturing and marketing often difficult
- Managing multiple product lines can be very challenging because of separation of production and marketing into different deparments.
Mixed Organizational Structures
Structure is a combination of global product, area, or functional arrangements
- Allows organization to create specific type of design that best meets its needs
- As matrix design’s complexity increases, coordinating personnel and getting everyone to work toward common goals often become difficult
- Too many groups to their own way
Transnational Network Structures
Multinational structural arrangement combining elements of function, product, geographic design, while relying on network arrangement to link worldwide subsidiaries
- At center of transnational network structures are nodes, units charged with coordinating product, functional, and geographic information
- Different product line units and geographic area units have different structures depending on what is best for their particular operation
