IB3680 - International Business Strategy - Exam Revision Slides

Exam Revision
Strategy and Structure

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‘Globalisation’ is widely used


Globalisation of the World Economy: Homogenisation in such areas as

- marketing and consumer taste

- economic policy

- production paradigms





- popular culture
Mobility in investor capital
Firms increasingly globally orientated, and willing to shift across national boundaries.
Open borders and free trade.

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What is International Business?







International business is any business activity which cuts across national boundaries. This can encompass
- multinational companies (MNC)
- transnational supply networks
- transnational outsourcing
- transnational franchising, etc

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Q: What are the reason(s) a mining company may leave its domestic market? Market seeking
 Resource seeking
 Efficiency seeking


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Neo-liberalism as a driver for globalisation privatizations, abandonment of active industrial policies, labour market deregulation, free trade and the marketization of public services
 But
 rather than liberalize the movement of labour across national boundaries (neo-liberals would see labour as a commodity, yet somehow, in practice are not very keen on free flows of it)


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Real Flows of Finance: On a political map, the boundaries

between countries are as clear as ever. But on a competitive map showing the real flows of financial and industrial activity, those boundaries have largely disappeared

http://investmenttodayer.blogspot.co.uk/2014/07/investment-banking-cash-flows.html

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Trade Flows

http://archive.stefaner.eu/projects/global-trade-flows/
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Which is an International strategy?


The firm has many subsidiaries in  many different contexts. An example would be the oil and gas majors, who have extraction facilities worldwide. The advantages of this is that whilst decision making is centralized, the political risks of operating in one context are hedged, and a well developed model allows for relative ease of entry into new locales Different locales of the company engage directly with each other

Motor Industry
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International Strategic Environments
–late 1990s
GLOBAL
INTEGRATION

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Managing Dual Pressures

Global Integration -VS- Local Responsiveness
High
Global Integration
Cost Reduction
Pressures
Low
Low

Paper, wheat Cosmetics, food, household g
Local Responsiveness Pressures High
Country Differences in
­ consumer tastes/preferences
­ infrastructure/practices
­ distribution channels
­ host government needs

oods

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Global Strategy: Sources of Competitive Advantage
(Ghoshal, 1987).

Strategic objectives National
Difference

Achieving efficiency in current operations

Benefiting differences in factor costs-wages and cost of capital

Managing risks

Managing different kinds of Balancing scale with risk arising from market strategic and policy- induced changes in operational flexibility comparative advantages of different countries

Portfolio diversification and risks of options and side bets

Innovation, learning and adaptation Learning from societal differences in organizational and managerial processes and systems Shared across organizational components in different markets or businesses

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Scale
Economies

Scope
Economies

Expanding and exploiting potential scale economies in each activity Sharing of investments and costs across products and businesses Benefiting from experience-based cost reduction and innovation Implications for Companies
Traditional organizations

are unable to deal with the complexity, diversity, and the dynamism of the changing
“global” environment
The

emergence of a new

strategic type: the

transnational

corporation
The need for new ways of organizing & managing operations Warwick Business School

Cost of coordination of globally

dispersed activities will progressively decline as costs of computing, telecommunications
& transportation continues to decline The regional composition of the world’s 500-1000 largest corporations will change radically in the next 20 yrs
& as a result intra-industry
The
global economic map competition will intensify will change more in the next
20 yrs than it has in the last 20 as growth rates of the developing economies compound

Global Strategy & Structures
Structure follows strategy
OR
Strategy follows structure

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International Strategy and Organisation Design


The objective of organisational design and structure (OD&S) is to provide, maintain, and develop organisational structures that work toward the achievement of corporate goals.



OD&S helps create a workable structure of tasks and positions that create the physical organization and jobs.

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International Strategy and Organization
Design
Organisational structure is ultimately driven by strategy; in the near term however, strategy is shaped by organisational structure, because structure provides a constraint to action.
 Structure is relatively immobile in the short run; in the longer term, it can (and does) change.


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Stopford-Wells Structure Model

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Global integration vs National Responsiveness and Structures

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International Division Structure
(Partial Organization
Chart)
Home-office departments Production

Chief Executive Officer

Marketing

Finance

Human
Resources

Operating divisions Domestic
Division:
Plant

Domestic
Division:
Tools

Domestic
Division:
Hardware

Domestic
Division:
Furniture
Australia

Office
Operations
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Marketing

International
Division:

Japan

Italy

Government
Relations

International Division




Typically set up when firms initially expand abroad, often when engaging in a home replication strategy.
Problems:
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 Warwick Business School

Multidomestic Structure
HQ
Global functions

North American
Group

South American
Group

North Europe
Group support functions

Columbia Argentina

Brazil

Venezuela

Within each country there will be a domestic structure
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Multidomestic Structure






Organizes the MNE according to different geographic areas (countries and regions).
Is the most appropriate for a multidomestic strategy.
Its ability to facilitate local responsiveness is both a strength and a weakness.
Problems:
While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms.”

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Multinational Enterprise Organisational
Structure
Nestle’s organization chart

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Global Product Structure
For Product-diversified Firms

Global HQ
Global functions
Product Group A

Product Group B

Product Group C

Product Group D

Group support functions
Columbia
Argentina

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USA

Columbia Argentina Brazil

Venezuela

Marketing

Operations

•Distribution
•Sales
•After sales

•Production
•Procurement

Support services
•Personnel
•Office services
•IT
•Legal services

The Global Product 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:
It is the opposite of the geographic area structure: Little local responsiveness.

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The Global Matrix Structure






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
May add layers of management, slow down decision speed, and increase costs while not showing significant performance improvement.

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Transnational Strategy
 Seeks to achieve both global efficiency

and local responsiveness
 Difficult to achieve because of simultaneous requirements:

– Strong central control and coordination to

achieve efficiency
– Decentralization to achieve local market responsiveness  Must pursue organizational learning to

achieve competitive advantage

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Joint Ventures: The Smart Way to
Internationalise?

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Joint Venture
“a common project between legally and commercially independent companies in which the parties jointly bear both the responsibility for management and financial risk”
(Weder 1991)

Legally and economically separate organisational entities created by two or more parent organisations that collectively invest financial as well as other resources to pursue certain objectives. (Anderson 1990; Pfeffer & Nowak 1976

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M. E. Sharpe Beamish, P. W. and Lupton, N. C. 2009. Managing Joint Ventures.
Academy of Management Perspectives, Vol. 23, No. 2, p. 75 – 94
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Warwick Business School

Cited in :
M. E. Sharpe Beamish, P. W. and Lupton, N. C. 2009. Managing Joint Ventures. Academy of Management
Perspectives, Vol. 23, No. 2, p. 75 – 94.
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Q&A

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Cited: in : M. E. Sharpe Beamish, P. W. and Lupton, N. C. 2009. Managing Joint Ventures. Academy of Management Perspectives, Vol. 23, No. 2, p. 75 – 94. Warwick Business School Q&A Warwick Business School