Strategy and Organisation of International Firms Flashcards
What are the traditional motivations for internationalisation?
- Resource seeking motive: key supplies and low cost production factors
- Market seeking behaviour
What are the emerging motivations for internationalisation?
- More integrations: scale economies, ballooning R&D investments and shortening product life cycles
- Global scanning and learning capability
- Competitive positioning: cross-subsidisation of markets
What is true about firms when internationalising?
Firms need to pursue a strategy when internationalising
What is strategy?
- Actions that managers take to attain the goals of the firm for its owners and shareholders
- Set of deliberate and emergent actions of a firm to use its resurrect to achieve goals
- Aimed at achieving competitive advantage
What is essential regarding strategy?
- Strategy as a link between the firm and its immediate environment
- Strategic fit is essential
What are the determinants of an enterprises’s value?
- Profitability
- The rate of return that the firm makes on its invested capital, which is calculated by dividing net profits by total invested capital
- Reduce costs
- Add value and raise prices
- Profit growth
- Sell more in existing markets
- Enter new markets
What are operations, how are they divided and which is more important?
- The different value creation activities a firm undertakes
- Primary activities
- Turning inputs into outputs
- R&D, production, marketing and sales, after-sales
- Support activities
- Procurement/logistics, HR, IT, company infrastructure
- Both equally important - cooking is primary, cleaning the restaurant in support
How can profits be increased through international expansion?
- Expand market
- Realise location economies
- Realise greater cost economies from experience effects
- Earn a greater return
What is important about expanding the market through international expansion in order to increase profits?
- Success not only dependent on goods and services but also on the core comeptencies that underlie development, production and marketing
- Core competence - skills within the firm that competitor cannot easily match or imitate
What is important about realising location economies through international expansion in order to increase profits?
- Disperse value creation actuaries to locations where they can be performed more efficiently and effectively, trade barriers and transport costs permitting
- Can lower the cost of value creation and help achieve a low cost position, and/or can enable a firm to differentiate its product offerings
- Global Web
- Of value creation activities, with different stages in the value chain being dispersed to those locations around the globe where value is maximised
What is important about realising greater cost economies from experience effects through international expansion in order to increase profits?
- Serve an expanded global market from a central location
- Learning effects
- Cost savings that come from learning by doing
- Economies of scale
What is important about earning a greater return through international expansion in order to increase profits?
Leverage skills developed in foreign operations and transfer them elsewhere in the firm
What are the business level strategies?
- Cost leadership
- Differentiation
- Focus
What is the cost leadership strategy?
- Appeal to the average customer
- Strong focus on manufacturing and materials management fucntions
What is the differentiation strategy?
- Many niches of market segmentation
- Uniqueness through quality
- Innovation and customer responsiveness
What is the focus strategy?
Specialisation in a particular niche market (by geography, type of customer, segment of product line)
What are the competitive pressures in the global marketplace?
- Pressures for cost reductions
- Force the firm to lower unit costs
- Pressures for cost reductions
- Pressures to be locally responsive
- Require the firm to adapt its product to meet local demands in each market, but this strategy can raise costs
- Pressures to be locally responsive
When are pressures for cost reduction the greatest?
- In industries producing commodity type products that fill universal needs (needs that exist when the tastes and preferences of consumers in different nations are similar if not identical) where price is the main competitive weapon
- When major competitors are based in low cost locations
- Where there is persistent excess capacity
- Where consumers are powerful and face low switching costs
Where do pressures to be locally responsive arise from?
- Differences in consumer tastes and preferences
- Strong pressure emerges when consumer tastes and preferences differ significantly between countries
- Differences in traditional practices and infrastructure
- Strong pressure emerges when there are significant differences in infastrucure and/or traditional practices between countries
- Differences in distribution channels
- Need to be responsive to differences in distribution channels between countries
- Host government demands
- Economic and political demands imposed by host country governments may require local responsiveness
What do pressures to be locally responsive imply?
- Imply that it may not be possible for a firm to realise the full potential from economies of scale, learning effects and location economies, and that it may not be possible to leverage skills and products associated with a firms core competencies from one nation to another
- Also implies a degree of duplication of functions and smaller production runs so limiting the ability to capture cost reductions
What are the strategic approaches to competing internationally and what is true of the dynamics of them?
- International strategy
- Global standardisation strategy
- Localisation strategy
- Transnational strategy
- Stuck in the middle - bad place to be
- Over time, international strategy will tend to become either global strategy or transnational strategy, and localisation strategy will become transnational
What is the international strategies?
- Low pressure for cost reduction
- Low pressure for local responsiveness
What is the global standardisation strategy?
- High pressure for cost reduction
- Low pressure for local responsiveness
What is the localisation strategy?
- Low pressure for cost reduction
- High pressure for local responsiveness
What is the transnational strategy?
- High pressure for cost reduction
- High pressure for local responsiveness
What are the key factors in designing the organisation?
- Degree of management practice local environment adaptation
- Degree of autonomy in local operations decision making
- Role of locally recruited managers and staff in the global corporate HR network
What is organisational architecture?
The totality of a firm’s organisation
What are the conditions of superior organisations in regard to organisation architecture?
- The different elements of a firm’s organisations architecture must be internally consistent
- Strategy and architecture and competitive environemtn must be consistent
What is organisational structure?
- The formal division of the organisation into subunits
- The location of decision making responsibilities within that structure (centralised vs decentralised)
- The establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams or pan-regional committees
What are the dimensions of organisational structure?
- Vertical differentiation
- Horizontal differentiation
- Integrating Mechanisms
What is vertical differentiation, what are the degrees of it and which one do firms choose?
- The location of decision making responsibilities within a structure
- Centralisation
- Decentralisation
- Many firms use elements of both in different processes
What are the benefits of centralisation and in what business level strategy is it most applicable?
- Can facilitate coordination
- Can help ensure that decisions are consistent with managerial objectives
- Can give top-level managers the means to bring about needed major changes
- Can avoid duplication of activities
- i.e. cost leadership
What are the benefits of decentralisation and in what business level strategy is it most applicable?
- Ease the burden on top managers - improve decisions
- Motivational research favours decentralisation
- Permits greater flexibility - responses to environmental change
- Decisions made closer to the issue
- Can increase control - managers of autonomous groups
- i.e. local responsiveness
What is horizontal differentiation and how does it develop?
- The formal division of the organisation into sub-units
- Most firms begin with no formal structure, but as they grow, split into functions reflecting the firm’s value creation activities - functional structure
What are the difference horizontal structures?
- Functional Structure
- Product divisional structure
- International division structure
- Many firms that continue to expand will move to either a
- Worldwide area structure
- Worldwide product divisional structure
- Global Matrix Structure
What are the factors, pros and cons of a functional structure?
- Tends to be centralised
- Difficult to identify profitability of each business area
- Difficult to run a functional department if it is supervising the value creation activities of several business areas
What are the factors, pros and cons of a product divisional structure?
- Each division is responsible for a distinct product line
- Operating decisions decentralised
What are the factors, pros and cons of an international divisional structure?
- International division with self contained functional units in
addition to domestic ones - Dual structure is creates contains inherent potential for
coordination problems
What are the factors, pros and cons of a worldwide area structure?
- Tends to be adopted by undiversified firms whose domestic structures are based on functions
- World is divided into self contained, largely autonomous geographic areas with own set of value creation activities
- Facilitates local responsiveness
- Encourages fragmentation into highly atoms entities - can make it difficult to transfer core competencies or realise location and experience curve ecnomies
What are the factors, pros and cons of a worldwide product divisional structure?
- Tends to be adopted by diversified firms that have domestic product division
- Each division is a self-contained, largely autonomous entity with its own value creation actives, with headquarters retaining responsibility of coordination of each product division
- Value creation actives of each product division should be coordinated by that division worldwide
- Overcomes coordiatntion problems
- Allows for realisation of location and experience curve economies, and the transfer of core comeptencies
- Limited voice to area or country managers
What are the factors, pros and cons of a global matrix structure?
- Basically totally abandoned - too hard
- Horizontal division proceeds along product division and geographic area dimensions
What are integrating mechanisms?
The mechanisms for coordinating sub-units
What is true of the link between strategy and coordination (integrating mechanisms)?
- Needed less in firms pushing localisation strategy and more in firms pursuing international strategies
- Need is greatest in transnational firms which simultaneously pursue location and experience curve economies
What are the impediments to integrating mechanisms?
- Not ‘speaking the same language’
- Differing goals
- Lack of respect
What are the important factors of formal integration mechanisms?
- Direct contact between subunit managers is the simplest
- Liaison roles
- When the volume of contact between subunits increases, giving a person in each the responsibility for coordination
- Temporary or permanent multi subunit teams
- Matrix structure most complicated
What is a knowledge network?
- Part of integrating mechanisms
- Network for transmitting information within an organisation that is not based on formal structure, but on informal contacts between managers within an enterprise
- Must be embraced by as many managers as possible
What are control systems?
The metrics used to measure performance of subunits
What are the control systems?
- Personal controls e.g. personal contact between subordinate staff
- Bureaucratic controls e.g. rules and procedures, budgets, delegations
- Output controls e.g. performance metrics such as sales and profit targets
- Cultural controls e.g. norms and values that employees ‘buy into’
What can negatively impact the flow of control system information?
- Georgaphic distance
- Cultural distance
- Differing frames of reference between these two organisational units
What is true of incentive systems?
- Usually closely tied to performance metrics used for output controls
- Should vary depending on the employee and the nature of the work being performed
- Should promote cooperation between managers in sub-units
- Should reflect national differences in institutions and culture
- Can have unintended consequences
What are the two important factors of control systems?
- Incentive systems
* Performance Ambiguity
What is performance ambiguity?
- When the causes of subunits poor performance and not clear
- Not uncommon when a subunits performance is partly dependent on the performance of another
- Raises the costs of control
- Is a function of the interdependence of subunits
- Low is localisation strategies
- Higher in international firms and global standardisation strategies
- Highest in transnational firms
What are processes?
- How decisions are made and work is performed within the organisation
- Can lead to completive advantages
- Many cut across national boundaries as well as organisational boundaries
- Processes can be developed anywhere within a firm’s global operations network
- Formal and informal integrating mechanisms can help firms leverage processes
What is organisational culture and how can it be maintained?
- Norms and values that are shared among the employees of an organisation
- Hiring and promotional practices
- Reward strategies
- Socialisation processes
- Communication strategies
What does organisational culture evolve from?
- Founders and important leaders
- National social culture
- The history of the enterprices
- Decision that resulted in high performance
