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MODULE 3
GLOBAL BUSINESS STRATEGIC MANAGEMENT
Structural design of MNEs Strategic planning Strategic considerations- National
VS Global competitiveness.
INTRODUCTION
Organizational structure gives the framework or lines of communication, authority, responsibility and
accountability. Organizational structure specifies the firms reporting relationships, procedures, controls
and authority and decision processes. It is a critical component of effective strategy implementation
process. For Multinational Enterprises(MNEs) deciding the organization structure is very important
because it cannot be the same for all units and at the same time cannot be just one design for all.
Whatever the design, it must be organic enough to adapt to situations. While it is becoming true that form
must follow function, there are some traditional/ classical organizational structures that are followed;
besides new structures are experimented with. Multinational Enterprises(MNEs) are having wide options,
for different geo-locations may suit/dictate different structures. Structural designs are important for MNEs
for they affect synergies, cost, control, responsiveness, competitive strength, etc. companies change
structures to gain more and mitigate disadvantages.

1.What are the factors affecting structural design of MNCs?

MNCS STRUCTURAL DESIGN
A multinational company is an organisation doing business in more than one country. There are
certain steps in designing organisational structure. The analysis of factors include
1.external environment
2.overall aims and purpose of enterprise
3.objectives of the company
4.relationship from point of communication
5.job structure
6.management style
2.What are the different structural design of MNCs?

Structure
Structure of organisation can be divided as

1.functional organisationsThis type of structure reflects the different functions present within
organisations. Thus the marketing, finance, sales, production, research and HR specialties each
have their own sub organisation which is (usually) represented at board level.

2.geographical organisations

As organisations expand particularly when they develop their operations across national
boundaries it is common to observe an organisational structure which reflects this.
Geographical organisational structures work best when local decision-making is required to tailor
the product or service to a regional market. For example, a brewery company expanding into an
overseas market would have to take local tastes into account.

3.organisation by product
There are many examples of structures which reflect the product line(s) or services which the
organisation offers. For example, a passenger transport company may be organised into bus
services, coach tours and package holiday products, each with their own dedicated operations

4.Organisation by customer/market
Examples exist of organisations in which the structure most closely reflects the markets in which
they operate. For example, some organisations rely heavily on a small number of important
customers who account for most or all of their business. Automotive component manufacturers
often organise themselves in this way, with perhaps a dedicated production area, or even a
separate plant which produces only for Toyota, another for BMW, another for Tata etc

matrix structure
A matrix structure is one which sets out to reconcile the competing demands of customers and
the need for a strong bureaucratic and efficient functional presence. This type of structure is
commonly observed in organisations which are highly project-based for example, civil
engineering companies. A matrix organizational structure combines the efficiency of the
functionally organized company with the flexibility of extensive local operations. Foreign
workers report to local managers for questions about their work, while they report to the head
office for all other functions. The home organization retains control of disciplinary matters, pay
and promotions, while the employees carry out the work according to local requirements. This is
a suitable organizational form for smaller companies active in only one or two foreign markets,
but it is mainly used by larger corporations who have extensive foreign operations.
Matrix structures work best in project-based environments, such as engineering and
construction, where each project runs for a long period. Each team involved can concentrate their
energies upon their designated project, drawing across the range of central services as needed.
The major drawback of the matrix design is that everyone appears to have two bosses, which can
(and frequently does) lead to role conflict and tensions.

3.What are the 2 options for designing organisational structure of MNCs?

Options for Designing of Organisations structure of MNCs
1. Vertical/ Tall Organisations: Vertical/tall organisations refer to increase in the length of the
organisation's hierarchy chain of command. The hierarchical chain of command represents the
company's authority - accountability relationship between superiors and subordinates. Authority
and responsibility flow from the top to the bottom through all the levels of the hierarchy.
Accountability flows from the lowest level to the highest level. Employees at each level should
report to their superior, who in turn should report to his boss. Thus, the activities are reported to
the top. Authority is more centralized in tall organisation.
2.Horizontal/Flatorganisations
Horizontal/flat organisations refer to an increase in breadth of an organizations structure. The
increasing bio-professionalization and multi-professionalization and wide acceptance for
empowerment allowed even the large business firms to reduce the number of hierarchical levels
of their organisations. Consequently, large sized firms also started adopting horizontal/f1at
organization by de- layering.
In fact, this structure is well suited for the small size business firms.
Authority is more decentralized in relatively flat structures. Manager with broad span of control
must grant more authority to his subordinates. Decisions are more likely to be made by the
employees who are at the helm of affairs and more familiar with the situations and ground
realities. Organizational activities are mostly performed informally. Professional managers are
treated as real professionalisms.
STRATEGIC MANAGEMENT IN IB/STRATEGIC PLANNING
International Strategic Management is a planning process of developing international strategy in
the direction of achieving strategic-fit between the organizations competence & resources and
the global environment under which it tends to operate. It is an ongoing process that adhere an
organization to compete in an international scenario. International Strategic Management (ISM)
is an ongoing management planning process aimed at developing strategies to allow an
organization to expand abroad and compete internationally. Strategic planning is used in the
process of developing a particular international strategy. An organization must be able to
determine what products or services they intend to sell, where and how the organization will
make these products or services, where they will sell them, and how the organization will acquire
the necessary resources for these tasks. Even more importantly an organization must have a
strategy on how it expects to outperform its competitors.
difference between domestic and international strategic management
1.Human Resource Strategies
HR strategies include management strategies, employee recruitment and legal issues.
Domestically one organizational structure can be set up and followed by all future locations in

the same manner. In an international setting foreign outsourcing becomes HRs major concern,
managing many different organizational management structures and diverse employee
recruitment.

2.Mission Statement
The mission statement is a short two to three sentences that clearly explains the companys goals,
products and mission. In a domestic market this statement can be more specific, focusing on the
problems and/or concerns of the local populations. When a company is operating internationally
this statement must take into consideration the values, beliefs and concerns of all international
populations that the company operates within or must be regionalized.

3.Financial Planning
When creating a financial plan in a domestic market one must consider the cost of operations,
cost of new facilities and the profit margin within the area of operations. This is all expanded in
an international market..

4.Product Manufacturing
A domestic business strategy for product manufacturing involves a company finding the most
cost-effective vendors within its own borders.. A global business strategy, on the other hand,
casts a wider net. International businesses can tap into cheap labor markets in China and India,
gain significant cost savings as a result of cheaper global markets.

4.Marketing
A domestic business plan focuses on how to tap into local demographics and how to appeal to
their tastes and preferences. A global business's strategy incorporates many of these same plans,
but it must modify its products to fit the cultural preferences of its global audience.
5.What is the need for strategic management
1.Increasingly diversified operations in a continuously changing international environment.
2.More resources, more places to allocate them
3.Increased complexity of business
6.What are the different approaches to strategic planning?
APPROCHES TO STRATEGIC PLANNING
There are 4 different approaches to strategic planning
1. Economic Imperative
2. Administrative Coordination
3. Political Imperative
4.Quality Imperative
1. Economic imperative

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a)Economic imperative focused MNCs employ a worldwide strategy based on cost
leadership, differentiation, and segmentation
b)They often sell products for which a large portion of value is added in the upstream .
2.political imperative
MNCs using the political imperative approach to strategic planning are country responsive; their approach
is designed to protect local market niches.use a country-centered or multidomestic strategy.
3.Quality imperative
Implementation of management practices designed to make quality improvement an ongoing
process
4) Administrative Coordination Imperative

Many large MNCs work to combine all 4 of the approaches to strategic planning
8.What are the elements of strategic planning? What are the steps in strategic planning?
.
Step 1.Carry out an environmental scan
This helps provide an understanding of how the organization relates to its external environment and
internal environment.The scan usually includes an external component -identifying and assessing
opportunities and threats in the external environment -and an internal component -- assessing
organizational strengths and Internal environmental assessment means physical resources and

personnel competencies.
Step 2: Analysis company strengths & weaknesses for international growth.
Next step is the company's capabilities of further international growth. A central issue will be the analysis
of the competitive advantage of company.
.

Step 3: Analysis of competitors

when company is facing competitors, who might compete at a national, regional and/or global
level. These competitors must be identified and their product lines, strengths and weaknesses
analysed. From the internationally operating competitors information must be gathered as to how
they have penetrated into other foreign markets.
Examining the five forces that determine industry competitiveness

buyers

suppliers

potential new entrants to the industry

the availability of substitute goods and services

rivalry among the competitors

Step 3: Selection of target markets

The selection of target markets starts with a quick preliminary screening of all countries in the
world, using readily available basic information on general demand factors for your products and

macro-economic and demographic data. This screening will result in a number of prospective
target countries, for which the market potential will be roughly estimated.
Specific market parameters and requirements, tuned to your products or services will be included
as factors for evaluation and decision-making.
Step 5: Selection of entry modes
For each selected target market the optimal entry mode will be selected, based on the following
criteria:
expected financial return in relation to cost
financial and marketing risk
desired degree of management control
Step 6: Marketing/business plan per selected foreign market
When the main issues of the international business strategy have been decided upon, detailed
marketing and business plans must be drafted, which will be executed in the various selected
foreign markets.
Step 7: Adjustment of the existing organisation
Implementation of the desired international business strategy might have consequences for the
company's present organisation. The establishment of foreign assembly and manufacturing
operations might have consequences for the international product sourcing and vendor relations.
Most probably the capacity of the international management staff must be expanded. Internal and
external financial funds must be located.
Mergers and acquisition - A general term used to refer to the consolidation of companies. A
merger is a combination of two companies to form a new company, while an acquisition is the
purchase of one company by another in which no new company is formed.
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things
When one company takes over another and clearly established itself as the new owner, the
purchase is called an acquisition. From a legal point of view, the target company ceases to exist,
the buyer "swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the same size,
agree to go forward as a single new company rather than remain separately owned and operated.
This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks
are surrendered and new company stock is issued in its place. For example, both Daimler - Benz

and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler,
was created. In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm to
proclaim that the action is a merger of equals, even if it's technically an acquisition. Being
bought out often carries negative connotations, therefore, by describing the deal as a merger, deal
makers and top managers try to make the takeover more palatable.

Countertrade - means exchanging goods or services which are paid for, in whole or part, with
other goods or services, rather than with money. A monetary valuation can however be used in
counter trade for accounting purposes. In dealings between sovereign states, the term bilateral
trade is used. OR "Any transaction involving exchange of goods or service for something of
equal value."
Types of countertrade
There are five main variants of countertrade:

Barter: Exchange of goods or services directly for other goods or services without the use
of money as means of purchase or payment.

Switch trading: Practice in which one company sells to another its obligation to make a
purchase in a given country.

Counter purchase: Sale of goods and services to one company in other country by a
company that promises to make a future purchase of a specific product from the same
company in that country.

STRATEGIC CONSIDERATION

Expanding internationally can launch a business to the next level, or it can derail
operations entirely. It's not always obvious what the correct strategy for foreign
expansion is, but there are some things executives should consider before starting
operations in another country.
1.Issues on franchising

When a country is opening a franchise in other country there should be certain points to
be considered. There are some form of franchise-specific regulation. It include Where they exist,
register the franchise, conduct market studies, prepare country-specific disclosure documents that
differ from the home country form of disclosure, taking a fee, and/or include certain mandatory
provisions in, or omit certain prohibited provisions from, the franchise agreement.

Compliance with these laws is an extremely important consideration, but not the only
consideration, when expanding internationally. In addition to the franchise-specific laws, a
number of other key issues must be addressed for a successful international launch.
2.Issues on trade mark
A critical first step is ensuring that the companys principal trademarks are available for
use in the countries targeted for expansion. Trademark regimes differ. A country may be a
first to use jurisdiction (like the U.S.), where trademark rights are established through
use of a mark, or a first to file jurisdiction (like China), where use is not required in
order to file for registration. Trademark piracy in first to file countries, where others
may register a companys mark and hold it hostage in exchange for payment, is not
uncommon. To preserve expansion opportunities an international trademark strategy
should be developed early, using available international protocols to reduce costs and
administrative burdens.
3.Local market adaption
Understanding how the companys brand translates locally is also critically important. In
order to succeed outside home country it may be necessary to adapt the companys
trademark and other characteristics of its brand to the local language and local tastes. A full
understanding of how best to adapt the brand to local tastes may come only after identifying
the right local partner to act as the in-country master franchisee or developer.
The ideal will have an in-depth understanding of the local market, as well as
the capital, infrastructure and expertise to develop the home companys brand in the target
country. Each side should carefully conduct all appropriate business and legal due diligence
to ensure the maximum opportunity for success.
5.Negotiation with local party
Once a local partner has been selected, the parties negotiations must cover a variety of
issues. On the business side, the parties must consider, among other things, the level of
support to be provided by the home country franchisor, the development schedule to be
undertaken by the master franchisee/developer, the establishment and operation of the
supply chain, and of course, what fees are appropriate given the parties respective
contributions. Among the most difficult issues are those relating to the unwinding of the
relationship following expiration of the agreements or an event of default resulting in
termination.
6.Legal problems
Critical legal points to be addressed include currency exchange issues, possible
governmental restrictions on payments, and applicable withholding taxes . Dispute resolution
mechanisms may need to be modified .

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Applicable competition laws may require reassessment and modification of territorial

provisions.
NATIONAL V/S GLOBAL COMPETITIVENESS
The issue of international competitiveness of the national economy and its improvement has
presented a part of development policies for decades. It has been intensified on international
level by multilateral trade liberalization, steady growth of international trade, acceleration of
technical progress, and by the progress of new industrialized countries. The intensification of
international competition should increase its importance. The international competitiveness can
be defined as "a country's capability for most rational use of resources in accord to the
international specialization and trade in such way that results, as a final goal, in growth of
living standard and domestic product (so that growth should be founded on real basis but not on
external indebtedness). A competitiveness comprises the capability for achieving high level of
productivity on national level, upgrading of human capital, effective use of capital and other
factors of production.
Competitiveness is the relative strength that one needs to win in competition against rivals.
Country competitiveness is the extent to which a country is capable of generating more wealth
than its competitors do in world markets. It measures and compares the effectiveness of countries
in providing firms with an environment that sustains the domestic and international
competitiveness of those firms
We define competitiveness as the set of institutions, policies, and factors that determine the level
of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can
be reached by an economy. In other words, a more competitive economy is one that is likely to
grow faster over time.
There are 12 Pillars of Competitiveness or there are 12 major determinants of countrys
competitiveness.
1: Institutions
The institutional environment is determined by the legal and administrative framework within
which individuals, firms, and governments interact to generate wealth. The importance of a
sound and fair institutional environment has become very important for investment decisions and
the organization of production .
The role of institutions goes beyond the legal framework. Government attitudes toward markets
and freedoms and the efficiency of its operations are also very important:
In addition, the proper management of public finances is critical for ensuring trust in the national
business environment.
private institutions are also an important element in the process of creating wealth.
2: Infrastructure

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Extensive and efficient infrastructure is critical for ensuring the effective functioning of the
economy, as it is an important factor in determining the location of economic activity and the
kinds of activities or sectors that can develop within a country. Well-developed infrastructure
reduces the effect of distance between regions, integrating the national market and connecting it
at low cost to markets in other countries and regions.
Effective modes of transportincluding quality roads, railroads, ports, and air transportenable
entrepreneurs to get their goods and services to market in a secure and timely manner and
facilitate the movement of workers to the most suitable jobs
3: Macroeconomic environment
The stability of the macroeconomic environment is important for business and, therefore, is
significant for the overall competitiveness of a country. the economy cannot grow in a
sustainable manner unless the macro environment is stable.
4: Health and primary education
A healthy workforce is vital to a countrys competitiveness and productivity. Workers who are ill
cannot function to their potential and will be less productive. Poor health leads to significant
costs to business, as sick workers are often absent or operate at lower levels of efficiency. In
addition to health, this pillar takes into account the quantity and quality of the basic education
received by the population, which is increasingly important in todays economy.
5: Higher education and training
Quality higher education and training is crucial for economies that want to move up the value
chain beyond simple production processes and products. In particular, todays globalizing
economy requires countries to nurture pools of well-educated workers who are able to perform
complex tasks and adapt rapidly to their changing environment and the evolving needs of the
production system.
.6: Goods market efficiency
Countries with efficient goods markets are well positioned to produce the right mix of products
and services given their particular supply-and-demand conditions, as well as to ensure that these
goods can be most effectively traded in the economy. Healthy market competition, both domestic
and foreign, is important in driving market efficiency
7: Labor market efficiency
The efficiency and flexibility of the labor market are critical for ensuring that workers are
allocated to their most effective use in the economy and provided with incentives to give their
best effort in their jobs. Labor markets must therefore have the flexibility to shift workers from
one economic activity to another rapidly and at low cost, and to allow for wage fluctuations
without much social disruption.
8: Financial market development

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The financial and economic crisis has highlighted the central role of a sound and wellfunctioning financial sector for economic activities. An efficient financial sector allocates the
resources saved by a nations citizens, as well as those entering the economy from abroad, to
their most productive uses. Business investment is also critical to productivity. Therefore
economies require sophisticated financial markets that can make capital available for privatesector investment from such sources as loans from a sound banking sector, well-regulated
securities exchanges, venture capital, and other financial products.
9: Technological readiness -In todays globalized world, technology is increasingly essential
for firms to compete and prosper. The technological readiness pillar measures the agility with
which an economy adopts existing technologies to enhance the productivity of its industries, with
specific emphasis on its capacity to fully leverage information and communication technologies
(ICTs) in daily activities and production processes for increased efficiency and enabling
innovation for competitiveness.
10: Market size
The size of the market affects productivity since large markets allow firms to exploit economies
of scale. Traditionally, the markets available to firms have been constrained by national borders.
In the era of globalization, international markets have become a substitute for domestic markets,
especially for small countries.
11: Business sophistication
There is no doubt that sophisticated business practices are conducive to higher efficiency in the
production of goods and services. Business sophistication concerns two elements that are
intricately linked: the quality of a countrys overall business networks and the quality of
individual firms operations and strategies. The quality of a countrys business networks and
supporting industries, as measured by the quantity and quality of local suppliers and the extent of
their interaction, is important for a variety of reasons..
12: Innovation
Innovation can emerge from new technological and non-technological knowledge.. Innovation is
particularly important for economies as they approach the frontiers of knowledge, and the
possibility of generating more value by merely integrating and adapting exogenous technologies
tends to disappear.
INDIAS COMPETITIVENESS IN ATTRACTING FDI
Foreign Direct Investment (FDI) plays a very important role in the development of the nation. It
is very much vital in the case of underdeveloped and developing countries. A
typical characteristic of the developing and underdeveloped economies is the fact that these
economies do not have the needed level of savings and income in order to meet the
required level of investment needed to sustain the growth of the economy. In such cases,
foreign direct investment plays an important role of bridging the gap between the available
resources or funds and the required resources or funds.It is helpful for enhancing
competitiveness of the domestic economy.In India, FDI is considered as a developmental tool,

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which helps in achieving self reliance in various sectors and in overall development of the
economy.
India after liberalizing and globalizing the economy to the outside world
in 1991, there was a massive increase in the flow of foreign direct investment.But India can
achieve more FDIS if certain problems are solved.
PROBLEMS FOR LOW FDI FLOW TO INDIA
India, the largest democratic country with the second largest population in the world,
with rule of law and a highly educated English speaking work force, the country is considered as
a safe haven for foreign investors. Yet, India seems to be suffering from a host of self
imposed restrictions and problems regarding opening its markets completely too global
investors by implementing full scale economic reforms. Some of the major impediments for
Indias poor performance in the area of FDI are: political instability, poor infrastructure,
confusing tax and tariff policies, entrenched corruption and governmental regulation.the major
reasons behind low FDI in India are
1.LACK OF ADEQUATE INFRASTRUCTURE

This bottleneck in the form of poor infrastructure discourages foreign investors in investing in
India. Indias age old and biggest infrastructure problem is the supply of electricity. Power cuts
are considered as a common problem and many industries are forced to close their business.
2.STRINGENT LABOR LAWS
Large firms in India are not allowed to retrench or layoff any workers, or close down
the unit without the permission of the state government. Trade Unions extort huge
sums from companies through over generous voluntary retirement schemes.
3.CORRUPTION:
Corruption is found in nearly every public service, from defense to distribution of
subsidized food to the poor people, to the generation and transmission of electric power.
corruption and misuse of public office for private gain are capable of paralyzing a
countrys development and diverting its precious resources from public needs of the entire
nation. Corruption is against the poor people because it snatches away food from the mouths of
the poor. If corruption levels in India come down to those of Scandinavian countries,
Indias GDP growth will increase by 1.5 per cent and FDI will grow by 12 per cent
4.LACK OF DECISION MAKING AUTHORITY WITH THE STATE GOVERNMENTS

The reform process of liberalizing the economy is concentrated mainly in the Centre and the
State Governments are not given much power. In most key infrastructure areas, the central
government remains in control. Brazil, China, and Russia are examples where regional
governments take the lead in pushing reforms
5.LIMITED SCALE OF EXPORT PROCESSING ZONES

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Indias export processing zones have lacked dynamism because of several reasons, such as their
relatively limited scale; the Governments general ambivalence about attracting FDI; the
unclear and changing incentive packages attached to the zones; and the power of the
central government in the regulation of the zones. India which established its first Export
Processing Zone (EPZ) in 1965 has failed to develop the zones when compared to China which
took initiative for establishment only in 1980.
6.HIGH CORPORATE TAX RATES
Corporate tax rates in East Asia are generally in the range of 15 to 30 percent, compared with a
rate of 48 percent for foreign companies in India. High corporate tax rate is definitely a major
disincentive to foreign corporate investment in India.
7.INDECISIVE GOVERNMENT AND POLITICAL INSTABILITY
There were too many anomalies on the government side during past two decades and they are
still affecting the direct inflow of FDI in India such as mismanagement and oppression by
the different company, which affect the image of the country and also deject the
prospective investor, who are very much conscious about safety and constant return on their
investment.
SUGGESTIONS FOR INCREASED FLOW OF FDI INTO THE COUNTRY
1.FLEXIBLE LABOUR LAWS NEEDED
China gets maximum FDI in the manufacturing sector, which has helped the country become
the manufacturing hub of the world. In India the manufacturing sector can grow if
infrastructure facilities are improved and labour reforms take place. The country should take
initiatives to adopt more flexible labour laws.
2.RE LOOK AT SECTORAL CAPS
Though the Government has hiked the sectoral cap for FDI over the years, it is time to
revisit issues pertaining to limits in such sectors as coal mining, insurance, real estate, and
retail trade, apart from the small scale sector. There is need to improve SEZs in terms of their
size, road and port connectivity, assured power supply and decentralized decision
3.GEOGRAPHICAL DISPARITIES OF FDI SHOULD BE REMOVED
The issues of geographical disparities of FDI in India need to address on priority. Many states
are making serious efforts to simplify regulations for setting up and operating the
industrial units. However, efforts by many state governments are still not encouraging
Even the state like West Bengal which was once called Manchester of India attracts only 1.2%
of FDI inflow in the country.
4.PROMOTE GREENFIELD PROJECTS:
Indias volume of FDI has increased largely due to Merger and Acquisitions (M&As) rather
than large Greenfields projects. M&As not necessarily imply infusion of new capital into

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a country if it is through reinvested earnings and intra company loans. Business friendly
environment must be created on priority to attract large Greenfields projects.
5.DEVELOP DEBT MARKET:
India has a well developed equity market but does not have a well developed debt market. Steps
should be taken to improve the depth and liquidity of debt market as many companies may
prefer leveraged investment rather than investing their own cash. Therefore it is said that
countries with well developed financial markets tend to benefits significantly from FDI inflows.
6.EDUCATION SECTOR SHOULD BE OPENED TO FDI
India has a huge pool of working population. However, due to poor quality primary
education and higher education, there is still an acute shortage of talent. FDI in Education
Sector is lesser than one percent.
7.STRENGTHEN RESEARCH AND DEVELOPMENT IN THE COUNTRY
India should consciously work towards attracting greater FDI into R&D as a means of
strengthening the countrys technological prowess and competitiveness.