ppt of ihrm6

8/7/2019 ppt of ihrm6

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The Strategy and Organization

of International Business


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Strategy and the Firm

ProfitabilityRate of return concept; i.e.

return on sales (ROS).ROS= /TR

Profit ( )The difference betweentotal revenue (TR) and

total costs (TC): =TR-TC

ValueCreation

Firm asValue Chain

Role of

Strategy

StrategyActions taken by managers

to attain firms goals.

MaximizeLong-term

profitability


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Value Creation

V = Consumer ValueP = Market PriceC = Cost of Production

V-P = Consumer SurplusP-C = Profit MarginV-C = Value Added

V - P

V - P

P - C

P - C

C

C

V

P

C


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Company Infrastructure

Information Systems

Human Resources

Materials Management

Primary Activities

Support Activities

The Firm as a Value Chain

R & D Production Marketing & Sales Service


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The Role of Strategy

Identifying and taking actions that will

lower costsof value creation and/or

differentiatethe firms product

offering through superior design,

quality service, functionality, etc.


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Profiting from Global Expansion

Realize location economies.

Realize greatercost economies.

Earn a greater return from the firmsdistinctive skills orcore competencies.

Earn a greater return by leveraging valuable

skills developed in foreign operations andtransferring them to the firms otheroperations.

Firms operating internationally are able to:

Profitability is constrained by productcustomization and the im erative of localization.


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Parts

PartsParts

Assembly

Advertising Design

Sales

Location Economies

Pontiac LeMans

Creating a Global Web


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Experience Curve

Learning effects:

Cost savings that

come fromlearning by

doing.

More significant incomplex tasks.

Economies of Scale: Reduction in unit cost

achieved throughvolume production.

Sources:

Spread fixed costsover volume.

Employingspecializedequipment orpersonnel.


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The Experience Curve

B

A

Accumulated Output

Unit

Costs

Strategic SignificanceMoving down the curve reduces

the cost of creating value.

Strategic SignificanceMoving down the curve reduces

the cost of creating value.


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Leveraging Core Competencies

Firm skills that competitorscan not easilymatch

or imitate.

Value greatest when:

1. Skills and productsare most unique.

2. Value placed byconsumers is great.

3. Few capable competitors

with skills or products.


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Leveraging Subsidiary Skills

Skills can be createdanywhere in amultinationals globaloperations network.

New Challenges1. Humility to recognize

valuable skills can come

from anywhere.2. Establish incentives to

encourage local employeesto acquire new skills.

3. Need a process to identify

new skill development.4. Need to facilitate transferof new skills within thefirm.


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Pressures for Cost Reduction and

Local Responsiveness

CompanyA

CompanyC

CompanyB

High

Costpressures

Low

Low High

Generally reflectsthe position of most

companies

Pressures for local responsiveness


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Cost Reduction

Mass producing a

standardized productat an optimal location. Intense:

in commodity industries.

Where competitors are in

low cost locations.

Where there is persistent

excess capacity.

Where there are lowswitching costs.

Because of greater

international competition.

Local responsiveness

Arise from:

Differences in

consumertaste and

preferences.

Differences ininfrastructure and

traditional practices.

Differences in

distributionchannels.

Host government

demands.


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Local Responsiveness

Delegate marketing to

national subsidiaries.

Delegate manufacturingand production to foreign

subsidiaries.

Delegate production

and marketing tonational subsidiaries

Taste and

preference

InfrastructureAnd

practice

Distributionchannels

Manufacturelocally.

Hostgovernment


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Four Basic Strategies

High

Cost

pressures

Low

Low High

GlobalStrategy

TransnationalStrategy

Multi domesticStrategy

InternationalStrategy

Pressures for local responsiveness


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Strategic Choices

TransnationalExploit experienced

based cost and location

economies, transfer corecompetencies within thefirm, and pay attentionto local responsiveness

needs.

TransnationalExploit experienced

based cost and location

economies, transfer corecompetencies within thefirm, and pay attentionto local responsiveness

needs.

Internationalcreate value by

transferring skills tolocal markets where

skills are not present.

Internationalcreate value by

transferring skills tolocal markets where

skills are not present.

Multidomesticoriented toward

achieving maximumlocal responsiveness.

Multidomesticoriented toward

achieving maximumlocal responsiveness.

Globalincrease profitability

through cost reductionsfrom experience curveeffects and location

economies.

Globalincrease profitability

through cost reductionsfrom experience curveeffects and location

economies.


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The Advantages and Disadvantages of

the Four Strategies

Table 12.1a

Strategy Advantages Disadvantages

Global Exploit experience curveeffects

Exploit locationeconomies

Lack of localresponsiveness

International

Transfer distinctive

competencies toForeign Markets

Lack oflocal responsivenessInability to realize

location economiesFailure to exploitexperience curveeffects


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The Advantages and Disadvantages of

the Four Strategies

Strategy Advantages Disadvantages

Multi-domesticCustomize product offeringsand marketing in accordancewith local responsiveness

Inability to realize locationeconomies

Failure to exploit

experience curve effectsFailure to transferdistinctive competenciesto foreign markets

Transnational Exploit experience curveeffects

Exploit location economiesCustomize product offerings

and marketing in accordancewith local responsiveness

Reap benefits of global learning

Difficult to implementdue to organizationalproblems


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The Organization of

International Business


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Organization Architecture and Profitability

Organization architectureis the totality of afirms organization, including structure,control systemsand incentives,processes,cultureandpeople.

Superior enterprise profitability requires threeconditions;An organizations architecture must be internally

consistent.Strategyandarchitecture must be consistent.

Strategy, architecture and competitiveenvironments must be consistent.


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Organization Architecture

Structure

People

Culture

ProcessesControls

&Incentives

Figure 13.1


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Control Systems:Metrics used to

measure subunit

performance.

Make judgments about

managers abilities to

run units.

Incentivesare devices

to reward appropriate

managerial behavior.

Processes:Manner in which

decisions are made.

Manner in which workis performed.

Conceptually distinct

from location ofdecision-making

responsibility.


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Culture:Norms and value

systems shared by

the employees.

People:Not just employees, but

the strategy to recruit,

compensate, and retainindividuals with

necessary skills, values

and orientation.

If a firm is going to maximize its profitability, it must pay

close attention to achieving internal consistency among the

various components of its architecture.

i l iff i i


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Vertical Differentiation

Centralization:

Facilitates coordination.

Ensure decisions

consistent with

organizations objectives.

Top-level managers have

means to bring aboutorganizational change.

Avoids duplication of

activities.

Decentralization:

Overburdened top

management.

Motivational research

favors decentralization.

Permits greater

flexibility. Can result in better

decisions.

Can increase control.

Concerned with where decisions are made.


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Strategy and Centralization

Global

Centralize

Multi-domestic

Decentralize

International

Centralize forcore competenciesDecentralize for

operating decisions

Transnational

Both CentralizeAnd Decentralize


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Horizontal Differentiation

geographicalarea

How a firm divides

itself into subunits

function

typeof

business

International mustreconcile conflictbetween product

and location.


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A Typical Functional Structure

Purchasing Manufacturing Marketing Finance

Top

Management

Buying

unitsPlants Branch

sales units

Accounting

units


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The Functional Structure

Typically, the structurethat evolves in acompanys early stages.

Coordination andcontrol rests withtop management.


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A Typical Product Division Structure

DepartmentPurchasing

DepartmentManufacturing

DepartmentMarketing

DepartmentFinance

Buyingunits

Plants Branchsales units

Accountingunits

Division product

line A

Headquarters

Division product

line B

Division product

line C


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Product Division Structure

Probable next stage ofdevelopment. Reflects

company growth intonew products.

Eases coordinationand controlproblems.

Each unit responsiblefor a product.Semiautonomous and

accountable forits performance.


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One Companys International Division Structure

DomesticDomestic

DivisionDivision

GeneralGeneral

ManagerManagerProduct line AProduct line A

InternationalInternational

DivisionDivision

GeneralGeneral

ManagerManagerarea linearea line

HeadquartersHeadquarters

DomesticDomestic

DivisionDivision

GeneralGeneral

ManagerManagerProduct line BProduct line B

DomesticDomestic

DivisionDivision

GeneralGeneral

ManagerManagerProduct line CProduct line C

Country 1Country 1

GeneralGeneral

ManagerManager

(product A, B,(product A, B,

and / or C)and / or C)

Country 2Country 2

GeneralGeneral

ManagerManager

(product A, B,(product A, B,

and / or C)and / or C)

Functional units

Functional units


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International Division

Widely used.

1. Can create conflictbetween domestic andforeign operations.2. Implied lack of

coordination betweendomestic and foreign

operations. Growth can leadto worldwide

structure.


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The International Structural

Stages Model

Global Matrix

(Grid)

AreaDivision

Worldwide

ProductDivision

InternationalDivision

Alternate Paths

of Development

ForeignProductDiversity

Foreign Sales as a Percentage of Total Sales


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Worldwide Area Structure

Europeanarea

Middle East /

Africa area

Far Eastarea

Headquarters

North Americanarea

Latin American

area


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Worldwide Area Structure

Favored by firms withlow degree ofdiversification.

Area is usuallya country. Largely

autonomous.

Facilitates localresponsiveness.

Encouragesfragmentation.

Consistent with multi-domestic strategy


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A Worldwide Product Division Structure

Worldwideproduct groupor division A

Worldwideproduct groupor division C

Headquarters

Worldwideproduct groupor division B

Area 1

(domestic)

Area 2

(international)

Functional units


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Product Division

Reasonably

diversified firms.Attempts to overcomeinternational divisionand worldwide areastructure problems.

Believe that product valuecreation activities should

be coordinatedworldwide.

Weak localresponsiveness.

Consistent with global orinternational strategy


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A Global Matrix Structure

Figure 13.7

HeadquartersHeadquarters

Area 1Area 1 Area 2Area 2 Area 3Area 3

ProductProductdivision Adivision A

ProductProductdivision Bdivision B

ProductProductdivision Cdivision C

Manager herebelongs todivision Band area 2


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Matrix Structure

Attempts to meet needsof transnational

strategy.

Doesnt work as wellas theory predicts.

Conflict andpower struggles.

Flexible matrixstructures.

Consistent with transnational strategy


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Integrating Mechanisms

Need for

coordination:Impediments;

Different

managerialorientations.

Differing goals.

Time zones,distance,

nationality.

Low

High

Multidomestic

International

Global

Transnational


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Formal Integrating Mechanisms

Increasing complexityof integrating mechanism

Direct contact

Liaison roles

Teams

Matrix structures

Figure 13.8


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A Simple Management Network

GB

C D

A F

E

Informal contacts betweenmanagers within an enterprise.

Informal contacts betweenmanagers within an enterprise.


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Control Systems and Incentives

Types of controls:

Personal.

Bureaucratic

Output.

Cultural.

Incentives: Depends on employee and

his/her tasks.

Can be used to improve

manager coordination

between units.

Need to account for national

differences in institutions andculture.

Caveat: beware of the rule of

unintended consequences.


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Performance Ambiguity

A function of theinterdependence among

subunits.

MultinationalOutput/Bureaucratic Global/Transnational

Cultural

Control Systems

I t d d P f A bi it


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Interdependence, Performance Ambiguity,

and the Costs of Control for the Four

International Business Strategies

Strategy Inter-

dependencePerformance

Ambiguity

Costs of

Control

Multi-domestic Low Low

International Moderate Moderate

Global High High

Transnational

Low

Moderate

High

Very high Very high Very high


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Processes

The manner in which decisions are

made and work is performed within an

organization.Cut across national boundaries as well

as organizational boundaries.Can be developed anywhere within

the firms global operations network.

Organization Culture


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Organization Culture

Values and norms shared among people.

Sources:Founders and important leaders.

National social culture.

History of the enterprise.

Decisions that result in high performance.

Cultural maintenance:

Hiring and promotional practices.

Reward strategies.

Socialization processes.

Communication strategy.

O i ti C lt d P f


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Organization Culture and Performance

A Strong Culture:

Not always good.

Sometimes beneficial,

sometimes not.Context is important.

Adaptive cultures.

Culture must match anorganizations architecture.

Culture does not necessarily

translate across borders.

C

ulture

Transnational

Multidomestic

GlobalInternational

Strong

Weak

A S th i f St t St t d


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A Synthesis of Strategy, Structure and

Control Systems

Multi-domestic International Global Transnational

Verticaldifferentiation

Decentralized Core competency;

rest decentralized

Some

centralized

Mixed

centralized and

decentralized

Horizontaldifferentiation

Worldwide

area structure

Worldwide product

division

Worldwide

product

division

Informal matrix

Need for

coordinationLow Moderate High Very high

Integrating

mechanisms

None Few Many Very many

Performance

ambiguity

Low Moderate High Very high

Need for

cultural

controls

Low Moderate High Very high

Structure and

control

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