4.2 International Business Module 3
Global Business Strategic Management
Ashish J. [email protected]
2009 – 11
Module 3 Agenda
• Global Business Strategic Management: – Structural Design of MNEs– Strategic Planning– Strategic considerations– National vs. global competitiveness
Strategic Management
• Involves a long-term view of business with wider consequences and the use of critical resources to realise preset goals
• Ansoff: – ‘systematic approach to a major and increasingly
important responsibility of general management to position and relate the firm to its environment in a way which will assure its continued success and make it secure from surprises’
Strategic Management
• Global Strategic Management (GSM)?• GSM builds on five phases of planning and
analysis:– Recognising antecedents– Analysis– Choice of strategy– Process– Implementation and integration
Strategic Management
• Global Strategic Planning– Akio Morita – ‘Think Globally, Act Locally’
(Informed and Emergent)• Recognition of cross-country differences in
cultural, demographic and market conditions– Potential for locational advantages– Fluctuating exchange rates– Host government restrictions and requirements
Strategic Management
• Strategy options for entering and competing in foreign markets:– Exporting:
• Factors to be considered:– government policies– marketing factors– logistical considerations– distribution issues
– Licensing– Franchising:
• Product/trade franchise• Business format franchise
Strategic Management
– Multi-country or global strategy• Global low-cost strategy• Global differentiation strategy• Global best-cost strategy• Global focus strategy
– JVs– Strategic Alliances
– R & D exchange– Tech swap– Distribution, marketing, manufacturing relationships– Cross-licensing
Strategic Management
• Pursuing competitive advantage by competing multinationally– Achieving locational advantages– Transferring competencies and capabilities across
borders– Coordinating cross-border activities
Strategic Management
• Competing in Emerging Foreign Markets
DodgerFocuses on a locally oriented link in the value chain, enters a join venture, or sells out to a multinational
ContenderFocuses on upgrading capabilities and resources to match multinationals globally, often by keeping niche markets
DefenderFocuses on leveraging local assets in market segments where multinationals are weak
ExtenderFocuses on expanding into markets similar to those of the home base, using competencies developed at home
Pres
sure
s to
Glo
balis
e in
the
Indu
stry
Competitive AssetsTransferable AbroadCustomised to Home Market
Low
Hig
h
MNEs
• MNEs/MNCs?• Features of MNEs:– Single managerial control– Global perspective– Offers economies of scale– Integrated world business system– Offers new markets for products
MNEs
• Reasons for growth of MNEs:– Factor mobility across borders– Economic reforms– Opening up of economies– Management culture– Growth urge– Market potential – Risk minimising– Development in communication technology
MNEs
• Classification of MNEs:– On basis of corporate structure:• Horizontally integrated MNE e.g. McDonald’s• Vertically integrated MNE• Diversified MNE
– On basis of behaviour:• EPRG
MNEs
• Role of MNEs in developing countries– Capital– Technology– Skill– Exports– Level of integration– Welfare of citizens– Investing in local labour– Developing a country through FDI– Political improvements– FDI through MNEs is far easier
MNEs
• Benefits of MNEs– Globalisation– Innovation– Balance of payments impact– LDCs benefit– Capital markets (FDI)– Technology transfer– Indigenisation– Employment– Countries not at receiving end anymore– R & D
MNEs• Negatives of MNEs
– Drain of resources for profit– Strain on scarce forex– Minimum transfer of technology– Insignificant employment potential– Interference in states’ sovereignty– Influence on culture– Ill-effects of advertisements– High profit orientation– Unfavourable effect on BOP of host country– Monopoly growth– Depletion of non-renewable resources– Tax evasion– Economic threat
MNEs
• Challenges faced by MNEs:– Understanding and retaining inherent advantages– Extension of foreign operation– Understanding the relationship between the firm
and local interest group– Relative bargaining power of the multinational firm
over the investment cycle– Obeying fundamental economic, strategic,
organisational and socio-political principles– Multifarious effect of globalisation
MNEs
– Accelerated cycle of NPD– Enormous speed of international business– Huge cost mistakes as a result of wrong decisions– Broad spectrum of international dimensions
Structural Design of MNEs• Organisational structure?• Organisational design?• Steps in designing organisational structure includes analysis of:
– External environment– Overall aims and purpose of the enterprise– Objectives– Activities– Decisions– Relationships– Organisation structure– Job structure– Organisation climate– Management style– HR
Structural Design of MNEs
• MNEs can be classified as:– Vertical/tall organisations– Horizontal/flat organisations
• Centralisation vs. Decentralisation in organisational design: advantages and disadvantages
Structural Design of MNEs
• Types of structures in MNEs– International divisions structure e.g. Industrial,
Aerospace..– Functional divisions structure e.g. Production,
Marketing...– Product division structure e.g. Wind power, solar....– Geographic (area) division structure e.g. Asia, Africa– Matrix division structure (combines product, area,
function) e.g. Product A – Mgr India, Nepal; Product B - ....
Structural Design of MNEs
• Contemporary organisation structures for MNEs– Network structure– Japanese Keiretsu: • collection of nominally independent companies where
each company owns a small share of others in the network; same directors serve on many boards• Vertical (Toyota dominates its suppliers) and horizontal
Keiretsus (Mitsubishi; no company dominates)
Structural Design of MNEs– Virtual organisation: temporary networks created instead of
vertical integration– Choosing a structure:
• Relative importance in present and future of foreign and domestic markets to the firm’s strategy
• Firm’s historical background and evolution in global ops• Nature of firm’s business and its product strategy• Management traits and management philosophy of firm• Availability and willingness to invest in internationally experience
management personnel• Capacity of a firm to adjust to major organisational changes• Degree of centralisation and extent to which firm wants to
decentralise decision making to subsidiaries
Structural Design of MNEs
• Major issues in global organisational design1. Centralisation vs. decentralisation2. Use of subsidiary board of directors3. Non-traditional organisational arrangements e.g. JVs4. Role of IT5. Integrating mechanisms for subsidiaries
a) Formal integrating mechanisms:I. Direct contactII. Liaison rolesIII. TeamsIV. Matrix structures
b) Informal integrating mechanisms
Structural Design of MNEs
6. Control systems, depend on:a) Distanceb) Diversityc) Degree of uncertaintyd) Differences in approach Control systems used by MNEs include:
• Personal control• Bureaucratic controls• Output controls
7. Culture in international business8. Managing change in international business
Strategic Planning in MNEs
• Includes:– Identifying planning needs and focus– Understanding planning modes adopted and
changes within MNEs– Understanding subsidiary development path and
its role in MNE planning– Understanding and appreciating environmental
volatility– Identifying general pitfalls in planning
Strategic Planning in MNEs
• Planning Needs– Planning needs differ among different type of
companies.– Needs can be differentiated based on two criteria:• Stages of growth on the basis of products• Management style i.e. whether broad or narrow in
scope
Strategic Planning in MNEs
– Leontiades has identified three stages in the growth-evolution or organisation/structure of MNEs:Stage Structure Strategy
Stage 1 Functional Single Product Line
Stage 2 Product Related Product Line
Stage 3 Divisional Unrelated Product Line
Strategic Planning in MNEs
• Planning Focus– Can be analysed in terms of types, time, horizon
and formality– Basic orientation of MNEs can be classified into
three groups:• Strategy• Business unit programming• Operations Planning
Strategic Planning in MNEsPhase Objective Plan Orientation Plan Attribute
Phase 1 Meet Budget Financial Planning Annual budgets, Functional focus
Phase 2 Predict future Forecast based planning
Multi-year budgets
Phase 3 Think strategically Externally oriented planning
Thorough situation analysis and competitive assessment
Phase 4 Create future Strategic Management
Well-defined strategic
framework, strategically
focused organisation.
Supports value systems.
Strategic Planning in MNEs
• Planning Modes– One way is to look at the structural relationship in
a large organisation– In large organisations higher-ups will know more– Based on this, Allaire and Firsirotu classified
planning modes:
Strategic Planning in MNEs
Modes Agents Advantage Shared Values
Leader-driven planning L H
Culture-driven planning H H
Line-driven planning M M
Number-driven planning H L
Staff-driven planning L L
L=Low M=Medium H=High
Strategic Planning in MNEs
• Subsidiary Development Path– Localisation of Global Strategy– Growth and Development of Subsidiaries
Growth Stage Subsidiary Culture
Childhood Product and sales mentality
Adolescence Branch mentality
Adulthood Self-contained business mentality
Strategic Planning in MNEs
• Environmental Volatility – concern in strategic planning– PESTLED and influence on host and home country
market– Earlier trends of gaining advantage through
production in low-cost labour markets no longer prevalent
Strategic Planning in MNEs
• Pitfalls in Planning– Getting started– Misunderstanding– Doing long-range planning– Using long range plans– Others• Operational ignorance• SRC/Ethnocentricism
Strategic Considerations in MNEs
• Strategic considerations help in:– Understanding the basis of ownership strategies
adopted by MNEs– Identify critical factors when MNEs go for strategic
alliances– Understand various methods adopted by MNEs to
integrate role of subsidiaries– Appreciate the multi-dimensional nature of MNE
management– Understand various tasks confronting MNEs and how
they resolve them
Strategic Considerations in MNEs
• Major strategic considerations for MNEs:– Ownership strategy– Choice of strategy• Ownership strategy depends on :
– Competitive position– Availability of acceptable associates– Legal constraints– Control requirement– Benefit/cost relationship
Strategic Considerations in MNEs
– Strategic alliances
Strategic Alliance Blocked Area
Concentrated Worldscale Operation
Global Geographic Diversification
Difficult
Easy
Marketing Access
High
Advantages of Scale/Joint R & D
Low
Strategic Considerations in MNEs
• Strategic Alliances: Cost vs. Benefits
Cost Benefits
Mutual Dependence Complementary Resources
Outcome Uncertainty Risk Sharing
Division of Authority Reduce Competition
Top Management – Time and Money
Market Access
Strategic Considerations in MNEs• Characteristics of successful strategic alliances:
– Fulfill complementary needs– Supplement each others strengths– Enable power sharing– Balance benefits
• Integration and responsiveness– Three types of ‘mind-maps’ attempt to determined
relationships between MNEs and subsidiaries:• The U N Model Assumption
– Emphasizes the modification of products, strategies and management practices
– Worldwide strategy is the sum total of multiple national subsidiary strategies
Strategic Considerations in MNEs
• Headquarters Hierarchy Syndrome– Focuses on products for a world market and global scale of
manufacturing– Assumes national tastes are similar– HQ has responsibility and assumes overall control– E.g. Coca Cola
• Multi-Center System– Unlike hierarchy, centers are unit with responsibility– Commands can play upward, downward and horizontally in
the organisation– E.g. product development team as a center
Strategic Considerations in MNEs
• Responsiveness – Role of Subsidiaries– Subsidiaries may function differently based on their ability to
influence MNE’s global strategy:» Strategic Leader e.g. Philips (UK subsidiary), 3M» Contributors» Implementers» Black Hole: minimal capabilities, mainly functional
– Managing a multi-focal strategy• Barriers in overcoming organisational bias:
– Strategic barriers– Organisational barriers– Cultural barriers
Strategic Considerations in MNEs
– Building New Perspectives– Maintaining a dynamic balance– Flexible coordination• Mechanisms include:
– Centralisation (Japanese)– Formalisation (American); power distributed among heads– Socialisation (EU): came from close family ties in European
families
Strategic Considerations in MNEs
• Allocating responsibilities– Two issues involved in coordination:
» Flows between units• Goods• Resources• Information
» Strategic roles of units
Role of Subsidiary Tools
Implementer Formalisation
Contributor Centralisation
Leaders Socialisation + Formalisation
Black Holes Socialisation + Centralisation
Strategic Considerations in MNEs– Tools used by MNEs to manage its subsidiaries:
» Shared vision» Acceptance
• Recruiting and selection process• Training and development• Career path management
» Binding commitment
Competitiveness
• National competitiveness• Global competitiveness– Factors that make or break nation’s competitive
environment:• Domestic economic strength• Internationalisation• Government• Finance• Infrastructure• Management• Science and tech• People
Competitiveness
• Indicators of Global Competitiveness :– World Economic Forum’s Global Competitiveness
Index– 12 Pillars of Global Competitiveness:
1. Institutions2. Infrastructure3. Macroeconomic stability4. Health and primary education
– First four factors key for factor-driven economics
5. Higher education and training6. Goods market efficiency
Competitiveness
7. Labour market efficiency8. Financial market sophistication9. Technological readiness10. Market size
– These six factors key for efficiency-driven economics
11. Business sophistication12. Innovation
– These factors key for innovation-driven economics
Competitiveness
• Competitive advantage of nations– Porter’s Diamond
Competitiveness
• National vs. Global Competitiveness– Methodology of two national competitiveness indicators
• Global competitiveness report (GCI): index instructed from sub-indices for following factors and is a weighted average with more weight age given to quantitative data than to survey data:– Openness of economy/nation– Government– Finance– Infrastructure– Technology– Management– Labour– Institutions
Competitiveness
• World Competitiveness Yearbook– Domestic economy– Internationalisation– Finance– Infrastructure– Management– Science and tech– People