Chapter 10 Strategizing, Structuring, and Learning Around the World

Global Strategy 1e Michael Peng Global Strategy Mike W Peng c h a p t e r 10 Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly acc.

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Structuring,

and Learning

Around the

World

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• Multinational strategies and structures

• A comprehensive model of multinational

strategy, structure, and learning

• Worldwide learning, innovation, and knowledge management

• The savvy strategist

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posted to a publicly accessible website, in whole or in part.

Multinational Strategies and

Structures

• Pressures for cost reductions and local responsiveness

• Four strategic choices for MNEs (1) home replication, (2)

localization, (3) global standardization, and (4) transnational

home country-based competencies

replication strategy, focusing on a number of foreign countries/regions, each regarded as a stand-alone local market worthy of significant

attention and adaptation

endeavoring to be both cost efficient and locally responsive

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Multinational Strategies and Structures: The Integration–Responsiveness Framework

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be scanned, copied or duplicated, or posted to a publicly

accessible website, in whole or in part.

Four Strategic Choices for Multinational Enterprises

Home replication  Leverages home country-based advantages  Lack of local responsiveness

 Relatively easy to implement  May result in foreign customer alienation Multidomestic  Maximizes local responsiveness  High costs due to duplication of efforts in

multiple countries

 Too much local autonomy

 Lack of local responsiveness

 Leverages low-cost advantages Global

 Too much centralized control Transnational  Cost-efficient while being locally responsive  Organizationally complex

 Engages in global learning and diffusion

of innovations

 Difficult to implement

Table 10.1

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Structures:

• Four organizational structures that are

appropriate for the four strategic choices:

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International Division Structure at Starbucks

Figure 10.2

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 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

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Geographic Area Structure at Avon Products

Avon Central & Eastern Europe

Avon Western Europe Middle East Africa

Avon Asia Pacific

Avon Latin America

Avon

North America

Source: Adapted from avoncompany.com Headquartered in New York, Avon Products, Inc is the

company behind numerous “Avon ladies” around the world Figure 10.3

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Structures:

Organizational Structures (cont’d)

• Geographic Area Structure

areas (countries and regions)

strength and a weakness

also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms”

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posted to a publicly accessible website, in whole or in part.

Global Product Division Structure at European Aeronautic Defense and Space Company

(EADS)

Source: Adapted from www.eads.com Headquartered in Munich, Germany, and Paris, France,

EADS is the largest commercial aircraft maker and the largest defense contractor in Europe. Figure 10.4

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Structures:

Organizational Structures

• Global Product Division 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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A Hypothetical Global Matrix Structure

Figure 10.5

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Structures:

Organizational Structures

• Global Matrix

associated with both geographic area and global

product division structures

strategy—in practice, it is often difficult to deliver

speed, and increase costs while not showing

significant performance improvement

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duplicated, or posted to a publicly accessible website, in whole or in part.

A Comprehensive Model of

Multinational Structure,

Learning, and Innovation

Figure 10.6

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Industry-based Considerations

• Industry characteristics

 Industrial products firms: Favor global product divisions

 Consumer goods firms: Favor geographic areas

• Porter’s forces

 Interfirm rivalry increasingly focuses on learning and innovation

 Need to heighten entry barriers: Behind some recent moves to phase out multidomestic strategy and to erect world-scale

facilities to deter entrants

 Bargaining power of suppliers and buyers: They also have to internationalize if the focal MNE goes overseas

 MNE R&D often generates competing substitute products

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Resource-based Considerations

• Value

 Does any new structure (such as matrix) really add value?

 Does innovation really add value? Not always!

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Institution-based Considerations

• Formal and informal external institutions

 Formal Institutions

 Externally, MNEs, are subject to the formal institutional frameworks erected by

various home- and host-country governments

 Host-country governments often encourage, or coerce MNEs into undertaking certain activities

 Informal Institutions

 Strategists weigh the informal backlash against activities which result in domestic job losses

• Formal and informal internal institutions

 Formal organizational charts do not necessarily reveal the informal rules of the game

 Three choices: (1) a home-country national as the head of a subsidiary, (2) a host-country national, or (3) a third country national

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Worldwide Learning, Innovation and Knowledge Management:

Knowledge Management in MNEs

• Knowledge management can be defined as the

structures, processes, and systems that actively

develop, leverage, and transfer knowledge

• Knowledge management is considered by some writers the defining feature of MNEs

 Explicit knowledge (e.g., a driving manual): Captured by IT

 Tacit knowledge (e.g., knowledge about how to drive)

 Its acquisition and transfer require hands-on experience

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Knowledge Management in Four Types

of Multinational Enterprises

Differentiated contributions

by subsidiaries to integrate worldwide operations

TRANSNATIONAL High

Knowledge developed and retained within each subsidiary

Knowledge mostly developed and retained

at the center and key locations

Knowledge developed jointly and shared worldwide

Flow of

knowledge Extensive flow of knowledge and

people from headquarters to subsidiaries

Limited flow of knowledge and people

in both directions (to and from the center)

Extensive flow of knowledge and people from the center and key locations to subsidiaries

Extensive flow of knowledge and people in multiple directions

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Worldwide Learning, Innovation and Knowledge Management:

Globalizing Research and Development

• A crucial arena for knowledge management

 Driven by the intensification of competition for innovation

 Provides a vehicle for access to, or extract benefits from, a

foreign country’s local talents and expertise

 The resource-based view: A fundamental source for competitive advantage is being different (the assumption of heterogeneity )

 Decentralized R&D work performed by different locations and teams around the world means that there will be persistent heterogeneity (differences) in the solutions generated

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Problems in Knowledge Management

mentality

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Problems and Solutions in Knowledge Management

R&D Consequently, a new model, called “open

innovation,” is emerging This model relies on more

collaborative research among various internal units and with external organizations

turnover which may lead to knowledge leakage

have communication and relationship barriers

managers to resist accepting ideas from other units

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Problems and Solutions in Knowledge Management

• As solutions to combat these problems, corporate

headquarters can manipulate the formal rules of the

game through individual and organizational incentives as well as investing in tacit knowledge

• MNEs often must rely on a great deal of informal

integrating mechanisms

• Some try to develop informal social capital

• Overall, the micro, informal interpersonal relationships among managers of various units may create a micro-

macro link

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Debates and Extensions

• One multinational versus many national companies

• Central controls versus subsidiary initiatives

 Subsidiaries may be in full compliance of commands, pay lip service to commands, or ignore them

 Some subsidiary-level strategies may contribute to

entrepreneurship (or empire building)

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Debates and Extensions

• Customer-focused dimensions versus integration,

responsiveness, and learning

 Two primary customer-focused dimensions

countries

 One recommendation is to simplify both product and geographic scope to add the customer-focused dimensions

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The Savvy Strategist

• Consider four implications

 First, understand the evolution of your industry in order to come

up with the right strategy-structure configurations

 Second, managers need to actively develop learning and

innovation capabilities to leverage multinational presence

 Third, mastering the external rules of the game governing MNEs and home/host country environments becomes a must

 Finally, managers need to understand and be prepared to

change the internal rules of the game governing MNE

management

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