Organising MNEs Flashcards
Strategy
Strategy is an integrated plan of action for achieving the basic objectives of the firm.
Strategy is a creation of a unique and valuable position and make trade-off in competing.
The heart of strategy is creating superior value for customers.
Strategy is a pattern of resource allocation that enables firms to improve their performance.
Why do firms need strategy?
- Enhance quality of decision making
- Facilitating coordination
- Focusing organisation on the pursuit of long term goals
International Strategy Development
External environment - Macro - Industry attractiveness - Product/Market segments Internal Organisational Analysis - Company performance - Business system - Capabilities and resources
Strategy formulation - Strategy implementation - strategy evaluation
Resource-based view and Organisational capability
Resources (Tangible, intangible, human) - Organisation capability - Strategy - Competitive advantage
Capacity to deploy resources for desired result
Organisational capability offers linkage between strategy formulation and strategy implementation
How is value created?
Profits can be increased by
- Using differentiation strategy
- Adding value to a product so that customers are willing to pay more for it - Low cost strategy
- Lowering costs
Strategic Positionning
- Pick position within the industry where enough demand
- Configure internal operations so they it supports that position
- Make sure the firm has the right organisational structure in place to execute its strategy
Changes in global environment
Localisation 1920-50
- Protectionism, high tariff barriers
- Differences in consumer preferences
- High logistical and communication barriers
Home replication 1950-70
- New technology and products
- American products popular
- Lower tariff, logistical and communication barriers
Global 1970-80
- Large decline in all barriers
- Consumers preferences became similar
- New technology increased minimum efficiency
Transnational 1980-?
- Rising concerns of host governments
- Flexible manufacturing reduced MES
- Consumers ask for differentiated products
Cost pressures & pressures for local responsiveness
Firms that compete in the global marketplace typically face two types of competitive pressure
- pressures for cost reduction
- Pressures to be locally responsiveness
Focuses for cost efficiency;
- strong for commodity type products
- Major competitors are based in low cost locations
- persistent excess capacity
- consumers are powerful and face low switching costs
- EOS
- Learning effect
- Location economies/outsource
Forces for local responsiveness;
- differences in consumer tastes
- Differences in infrastructure
- differences in distribution channels
- host government demands
Four Global Strategies
International Strategy
- Leveraging home based core competencies
- Selling the same products/services in both domestic and foreign markets
Localisation strategy
- Maximise local responsiveness via multi domestic strategy
- consumers will perceive them to be domestic companies
Globalisation strategy
- EOS and location economies
- Pursuing a global division of labour based on best-of-class capabilities reside on lowest cost
Transnational Strategy
- Combination of localisation strategy (high responsiveness) with global standardised strategy
How do strategies evolve?
An international strategy may not be viable in the long term
- To survive, firms may need to shift to a global standardisation or a transnational strategy
Localisation may give competitive edge, but if the firm is simultaneously facing aggressive competitors, the company will also have to reduce its cost structures
Organisational Structure
The boxes and lines that specify the linkages among people, functions and processes that allow the firm to carry out its operations
- Vertical differentiation: the location of decision-making responsibilities within a structure (choice between centralising or decentralising)
- Horizontal differentiation: the formal division of the organisation into subunits
- Establishments of integrating mechanisms: mechanisms for coordinating sub-units
Structure: Vertical Differentiation
Centralisation - Easier coordination and control - Consistency of decisions - Less duplication of activities - Organisational change Decentralisation - Reduces burden on top management - Responsiveness to local market - Greater potential for adaptation - Raises motivation levels
Structure: Horizontal differentiation
- How the firm decides to divide itself up into subunits
International division: when firms initially expand abroad
Geographical area structure: according to countries/regions
Global product division
International division structure problems
- Foreign subsidiary managers in the international division are not given sufficient voice
- The Silo effect; international division not coordinated with the rest of the firm
Geographical area structure
- Favoured by MNEs with low degree of diversification and a domestic structure based on function
- Facilitates local responsiveness, consistent with localisation strategy
- Fragmentation of organisation coordination issues
Global product division
- Adopted by MNEs that are reasonably diverse
- Allows for worldwide coordination of value creation activities
- Facilitates the transfer of core competencies within a division
- Lack of local responsiveness
