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Corporate Internationalisation

Aidan King (aidan@interstand.cc)


EAE
Spring 2010
11

Introductions

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Course Description
This course on Corporate Internationalisation is
concerned with the dynamics of firm and industry
competition in the global economy and the
management competences required to meet the
challenges presented. The course takes the
perspective of firms active in the global economy,
both as incumbent multinationals or as firms
growing from peripheral regions and becoming
players in the world market.
The course is designed to develop the critical
conceptual frameworks needed to make sense of
the most important developments in the global
economy, from firm-level competitive postures, to
industry dynamics, country and regional
advantages, to the process of globalization itself. 13

Course Outline - Topics


Introduction to Corporate Internationalisation
Globalisation The Challenge of Conflicting
Demands
International Strategy and Strategy Formation
Developing Strategic Capabilities
Developing Coordination and Control The
Organisational Challenge
Cross Cultural Management
Global Alliances Collaboration in Action
The Worldwide Learning Challenge
Building Management Capabilities
The Ethics of Globalisation

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Course Instruction
The course sessions will combine

lectures,
discussions,
cases,
videos,
presentations,
exercises,
and other activities.

You will be encouraged to contribute to the course


sessions with your anecdotes, experiences,
comments, questions, etc., and to discuss the
readings which supplement the course sessions
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The Case Study Method

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Case Studies
Method traditionally used for the legal and
medical professions
Legal students have looked at precedent
setting cases (things that have occurred in
the past) to extract the important and
relevant points of law
Medical students look at example patient
files in a search for classic symptoms of
diseases
Not until the 1920's, however, was the case
study method used in other disciplines.

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The Case Study Method (contd)


Then, instructors at Harvard University tried
applying the techniques of the legal and medical
professions to business problems
After familiarizing themselves with a situation, they
created a file of information pertinent to the problem
organized in a format called a case
A case contained the information needed by the
decision-maker to make a decision or take action
The instructors hoped that by undergoing a variety
of these simulations, students would learn the skills
of effective problem solving
This technique was successful at Harvard, spread
rapidly, and now is a standard part of most courses18
in organizational behavior and management.

The Case Study Method (contd)


So what exactly is a case like?
Its nothing more than a summary of facts surrounding an event
requiring a decision or action.
Usually includes information about
the general setting
the organization,
and the circumstances leading to the current situation.
It will often provide a sketch of the participants and key factors
affecting a management situation.
Finally, a case will usually leave one of the actors in a position
requiring some action.
Normally, you need to assume the role of that actor and decide on
the action to be taken.
Just as in real life, the problem may not be readily noticeable.
You will use your analytical skills to discern the problem and offer a
course of action to address the organisations problem
19

The Case Study Method (contd)


So what is the purpose of a case?
A leader is responsible for taking actions or making
decisions to achieve the goals of the organization.
Ideally, training for leaders would therefore consist
of putting them in a variety of actual organization
situations and letting them learn from experience.
This is not always possible
Students are removed from the reality of
organizational situations.
But, the analysis of case studies serves the same
purpose as actual organizational experience learning by doing.
The doing occurs in an academic setting, an
environment where mistakes may be made at
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relatively little cost.

The Case Study Method (contd)


The case study method can help you to;
Improve general decision-making and analytical skills
through practice.
Learn about the general environment and structure of
organizations.
Learn to make perception judgements from the
information given, and generate a set of working
assumptions needed to make decisions.
Apply theory from other courses and experience to
actual organizational settings.
Improve your ability to conduct research for key
information crucial to the decision-making process.
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The Case Study Method (contd)


The case study method gives you a chance to
generate data, apply concepts, and learn by
reasoning as well as trial and error
The case study also teaches what many consider
to be the most important analytical skill, the ability
to ask the right question
Since a case represents a real situation as closely
as possible, there are inherent ambiguities and
omissions in the facts. You must therefore draw
reasonable inferences where possible, and where
not possible, learn to ask the questions that will
elicit the needed information.
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The Case Study Method (contd)


Finally, the case study provides all participants with a
common frame of reference for discussion
Everyone will have the same facts, at the same level
of detail, and without emotional involvement in the
situation
This common experience allows for a rich discussion
that can focus on the content of the case and issues,
rather than on evaluation of actions and
defensiveness of behaviors
Because of this, participants are free to engage in risk
taking, generate alternatives, and defend their actions
based on the material in the case rather than on
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emotion or personalities or risking their job

How Do I Analyse a Case Study?


Case analysis is performed in three major
phases. These include
defining the problem
generating alternatives to solve the problem
and devising an action plan to implement the
alternative selected.
Each phase has several necessary steps that
serve the purpose of narrowing the scope of the
facts to aid you in reaching a solution
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Phase 1 Defining the Problem


What is the context?
The context is the general environment in which the case situation
takes place
Understanding the context serves to generate the basic facts that
are needed to present and solve the case.
This analysis consists of first understanding the environment of the
case that is, the type and nature of the organizational setting.
Is it a public agency or a private firm?
Large or small?
What is the nature of the organization (marketing, government,
manufacturing, etc.)?
What do we already know or what can we find out about this type of
organization?
What are the current economic, political and other relevant conditions,
which may impact on the situation?
What are the forces that make change urgent?
Is the change planned or reactive?
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What are the implications of not changing?

Phase 1 Defining the Problem


What are the desired outcomes?
It is helpful to identify the desired outcome for the
situation presented in the case
Some useful questions to ask are:
What are the leaders of the organization trying to
achieve by making changes?
What is the vision that is to guide the change
process?
What do you think the vision should be?
Where does the change take the organization?
Who are the visionaries?
How has the vision been communicated?
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Phase 1 Defining the Problem


What are the key success factors?
Key success factors are those activities an
organization must do well in order to be
successful
What does it take to be successful in this business or
organization?
For example, does it require economies of scale?
New product innovation?
Favorable reaction from the press and the public?
Greater accessibility for customers?
Development of new technology?
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Phase 1 Defining the Problem


Who are the stakeholders?
Stakeholders are those individuals who have an
interest or influence on the outcome of the
events described in the case
Who are the key stakeholders?
Who are the people opposed to the change?
What are the sources or bases of their
resistance?
How do they perceive the possible outcomes?
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Phase 1 Defining the Problem


What is the organisations strategy?

What is the strategy of the organization?


How have others responded to the call for change?
What are the organizations values?
How do the values help or hinder the change process?
What kind of leadership is being used.
What are the organization's objectives?
What about profitability, growth, market share, etc.?
What are the strategies and goals for various organizational systems?
Human Resource Management? Procurement? Manufacturing?
Physical Distribution? Customer Service? Distribution Channels?
Sales Force? Advertising and Promotion? Target Markets? Product
Lines? Research and Development? Finance and Control?

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Phase 1 Defining the Problem


What is the timeline of key events in the case?
What significant events have occurred to put
the organization and its stakeholders in the
situation in which they find themselves?
Once you fully comprehend the environment,
stakeholders, and key points, you are ready to
perform a crucial step in the case method
process.
You must now identify the specific problem
faced by the people in the case and generate a
short problem statement.
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Phase 2 Generating Alternatives


The second phase is generating alternatives.
Here your purpose should be to lay out several
possible alternative solutions to the problem
you have defined and generate the criteria to be
used in determining the appropriateness of
each alternative.
You should include the alternatives currently
being pursued by the organization as well as
other alternatives that you can identify.
This requires three separate, yet related, steps.
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Phase 2 Generating Alternatives


Identifying Assumptions:
First, you must clearly and concisely spell out the
assumptions, which you have made about the case.
Be sure that any assumptions you make are
grounded in the realities of the specific
circumstances of the case or the general nature of
the working environment.
Do not merely assume away your problems.
Although it will result in an easy solution, it will not
be based on sound analysis and, therefore, will not
be the best course of action.
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Phase 2 Generating Alternatives


Generate Specific Alternatives:
Once your assumptions are spelled out, you must
generate alternatives, which you think will solve the
problem.
Include here the alternatives currently being
pursued by the organizations leadership.
Do not limit yourself to the obvious, but be realistic,
given the type of organization and the specifics of
the situation.
A note of caution about the alternative of
maintaining the status quo is in order. Sometimes
people overlook this option when it is perfectly
sensible. More often, however, it is included where
it is impractical.
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Phase 2 Generating Alternatives


Establish Criteria
The final step of the alternative generating phase is
to generate the criteria against which you will
measure the alternatives.
The criteria should be clearly stated, along with the
rationale for them. If appropriate, the criteria can be
weighted for application, although this is not
essential.
What is essential is that any alternative, which
meets your criteria, should solve the problem.

Economic
Socio Cultural
Entrepreneurial
Ethic
Learning and Growth
Customer Focused

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Phase 3 Action Plan for


Implementation

Select a Course of Action:


You are now ready to begin the final phase of the
case analysis process - generating the
implementation action plan.
The first step in this phase is to select a course of
action by using your criteria and evaluating the
alternatives you laid out in the second phase.
Normally, none of your alternatives will meet all the
criteria, and you will have to make a subjective
decision about the most appropriate course of
action and then justify that decision.
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Phase 3 Action Plan for


Implementation

Devise an Action Plan:


Once you have selected a course of action, you
must take the crucial step of developing a plan for
implementing it.
Basically, this involves the who, when, what, where,
and how of the plan.

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Phase 3 Action Plan for


Implementation

What are the relevant interdependencies and how are these to


be approached?
Who will be responsible for the implementation?
When is a reasonable time for beginning and completing the
implementation?
When can the leader expect to begin to see results?
What specific steps must be taken?
What additional resources, organizational realignments,
augmentations, or equipment will be needed? Are more
personnel resources needed, for example?
What is the likely cost of the plan?
What are the likely benefits?
What are the likely sources of potential resistance?
How will these be influenced?
How will you assess whether the intended changes have been
made and how well they are working?
What steps should be taken to insure that the changes endure
beyond the initial steps?
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How will leaders adapt the culture to the changes?

Phase 3 Action Plan for


Implementation

Specific Recommendations:
Based on the above considerations, you are
ready to make final recommendations.
These should tell what you hope to
accomplish and how.
The difference between this and the previous
step is largely a matter of detail. In
generating a plan, the focus is on general
issues of plan implementation.
In this step, the focus is on specific, detailed
actions.
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Phase 4 Final Preparation


At this point you are ready to prepare an outline,
which can serve as the basis for oral presentation,
class participation, or expanded into a formal
written case.
There is no absolute format for formal case
submissions.
The specific case, your personal writing style, and
your analysis should suggest the most appropriate
way to present your findings to the decision-maker.
However, you must keep in mind that your purpose
is to present facts and recommendations to an
organization's leaders.
Thus, your work must be clear, concise, and
organized. One possible alternative for presentation
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is:

Phase 4 Final Preparation


1. Background Information. This section contains the
background information necessary for the decisionmaker to understand fully the situation, the alternatives
and the courses of action available.
2. Problem Statement. The problem statement is a
clear, concise statement of the problem, worded in such
a way as to be solvable.
3. Assumptions. The key assumptions you are making
to solve the problem are identified; they must be
reasonable and clearly stated.
4. Alternatives. The alternatives (sometimes referred to
as "courses of action), which you have generated, and
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explanations of them are provided.

Phase 4 Final Preparation


5. Criteria. Here, the criteria you will use to evaluate the
alternatives and courses of action to make your decision
are articulated.
6. Analysis of Alternatives. In this section, alternatives
and courses of action are compared; when appropriate,
they may be weighted according to the criteria
established above.
7. Conclusion. The conclusion(s) you have reached in
view of you analysis of alternatives and courses of
action is clearly stated.
8. Recommendations. The general plan of action you
recommend to resolve or alleviate the problem is
identified.
9. Implementation Plan. Here, the detailed plan (who
will do what, when, where, why and how) is portrayed,
together with specific recommendations that you think131
will accomplish the desired outcome.

Expanding Abroad

132

Expanding Abroad
Motivations
Traditional
Secure Key Supplies
Market Seeking
Access low-cost factors of production

Emerging
Scale Economies
Increasing R+D investments
Shortening Product Life Cycles
Scanning and Learning
Competitive Positioning

133

The Evolving Mentality


International Mentality
Domestic with some add ons

Multinational Mentality
Managers begin to acknowledge and emphasise the
differences among national markets

Global Mentality
View of the world as one unit of analysis
National tastes and preferences are more similar than
different

Transnational Mentality
Demand to be responsive to local market needs and
pressures to develop global scale competitive efficiency are
simultaneous
Recognises the importance of flexible and responsive 134
country-level operations

Globalisation

135

Globalization

a la Thomas L. Friedman

A dynamic phenomenon
Inexorable integration of markets, nationstates and technologies
Enabling individuals, corporations & nation
states to reach around the world further,
faster, deeper and cheaper

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Forces driving globalization


Free-market capitalism: opening, deregulating
and privatizing of economies
Cultural homogenization via the spread of
Americanization ( Big Macs, iMacs Mickey
Mouse etc.)
Defining technologies: Computerization,
Miniturization, Digitization,Satellite
Communication, Fibre Optics and the Internet

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Cold War versus Globalization


Division: The wall, the
iron curtain
Certainty: Friend and
Foe
Static

Integration: www
Uncertainty: Change,
change and change
Dynamic: Fast, Faster
and still faster

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The future is now


Creative destruction Schumpter
Only the paranoid survive Andy Grove
Innovation replaces tradition the present
or perhaps the future replaces the past
Globalization incites competitive instincts
but really succeed on the basis of
collaboration ( NPD, SCM etc)
Networks!

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Where lies the power?


Nation states US Superpower/Hyperpower
Sovereign States or Sovereign
Corporations ?
Global markets
Super-empowered individuals

140

Defining Measurement of Globalization


Speed: How fast is your modem?
Moores Law: Computing power doubles
every 18-24 months
Need multiple lenses to view the world and
the process of globalization since diverse
influences exist and interact to produce an
unpredictable set outcomes

141

Key features

a la Dominique Moisi

Complexity fueled by interdependencies and


absence of boundaries
Vulnerability - where are the rules, the
equality? Are we bordering on chaos or are we
on the verge of collapse?
Search for identity backlash against the
conformity engendered by global marketing
machines
Responsibility universalism need ethical
standards and global institutions to ensure
they are respected
142

The Global Economy

a la Legrain

The WTO is centre stage with its core principle


of non-discrimination enforced by a binding
dispute resolution mechanism
148 countries
China admitted
Russia sees accession as a Top Priority
Some 30 countries ranging from Saudi Arabia
to Vietnam are in the queue to gain
membership

143

A Different Story
Cross-border trade in goods and services has
tripled from $2,300 billion in 1980 to $6,800
billion in 1999. But .
World output has risen from $10,700 to $
30,900 billion in the same period
So, as a share of world output, cross-border
trade has only increased from 21.5% to 22%
over the last two decades

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The Non-Global Nature of Globalisation

a la

Ferguson

Overwhelming bulk of trade is regional


Capital mobility:
1913: 63% of FDI went to developing countries
1996: 28% of FDI went to developing countries
Labor mobility is also distorted
- circa 81 million people working overseas
- high percentage of graduates from worlds poorest
countries working overseas
1960s: Richest 20% of world population had a total
income 30 times as great as the poorest 20%
1998: Ratio was 74:1
1965: GDP/capita in Chad was 1/15 of the USs. By 1990
corresponding figure was 1/50

145

De-Globalisation
Economic integration of the world has
coincided with its political disintegration and
fragmentation of the multicultural polity.
Excluding sub-Saharan Africa,
1871: 64 independent countries
1914: 59 independent countries
1946: 74 independent countries
1950: 89 independent countries
1995: 192 independent countries
146

Economic globalization and political


fragmentation
Do globalised market forces increase regional
inequalities within traditional nation states?
Does the superficial homogenization of
popular culture promote an accentuation of
parochial identities as a kind of reaction?
Does the adoption of economic openness and
political democracy render the rationale of
ethnically heterogeneous countries redundant?

147

The rise and rise of regionalism


a la Legrain

Most economic activity still takes place


within, not across borders.
Trade in 1999 as a percentage of GDP
some examples:
USA: 12%, Britain: 27%, Ireland: 86%,
China: 21%, Japan: 10.5%

Most countries trade primarily with a


handful of others, typically their neighbours

148

Three largely self-contained regional


hubs
European Union
trades a mere 11% of
its output with the
rest of the world
NAFTA USA,
Canada & Mexico
trades just over 8%
Japan trades 10.5%

63.5% of merchandise
trade is with other
members of the EU
Over 50% of exports
and 40% of imports
within Nafta
Under 50% of exports
and nearly 60% of
imports within the
Asian region by the
Asian countries
149

Regionalism
The rest of the world is linked to one or several of
these hubs through a tangled web of bilateral
trade agreements so called spaghetti bowl
Geography still matters: Politics matters too
High-touch services fastest growing part of rich
economies
60% of the worlds trade takes place on a
preferential basis
Over 170 regional trade agreements are in place
half of them since 1990
Every WTO member is a party to one with even
Japan and Korea getting on the bandwagon
150

Regional agreements

Bi-lateral or plu-rilateral
Involve all trade or just some
Between neighbours or span continents
Can be customs unions or free trade areas
May have common institutions
Mechanism for settling intra-trade
disputes

151

Regional agreements contd


Trade within is freer than trade with the rest of
the world:
Britain now sends 58.5% of its merchandise
exports to the rest of the EU as compared to
35% in 1973
Mexico has replaced Japan as the USs second
largest export market behind Canada Mexico
and Canada now account for 36% of US
exports compared with 28% in 1990 and nearly
90% of their exports are now within Nafta

152

Regional agreements contd

WTO rules allow regional pacts but


1. Must cover substantially all trade
2. Eliminate internal barriers
3. Not on the whole raise protection against
excluded countries
Regionalism has its benefits:
1. Perhaps Nafta has stabilised Mexico
2. EU has helped to foster peace in Europe,
promoted competition with benefits to
consumers and economies of scale to
producers, gives Europeans more clout over
mergers, trade issues
153

Europes Preferential Pacts


EUs network of preferences covers most of the
world
Only six countries Australia, Canada, Japan,
New Zealand, Taiwan and US - does it trade with
on a non-preferential basis
Partly political explanation but economics is a
bigger spur
EU is an export and investment hub with
preferential access to markets in many spokes
Hence American desire to extend Nafta to FTAA
East Asia: China, Japan, Korea + ASEAN???
154

Impact of Regionalism
Some inter-regional rivalry sometimes
extending to hostility
A maze of preferential agreements, with
differing tariff rates, rules-of-origin
requirements and health regulations, distorts
trade and create new administrative burdens,
and even opportunities for corruption
But the much feared Fortress Europe has not
emerged - yet! - but the regional triad has less
need for access to others export markets than
others do to theirs
155

The most global nation


ATKearney/Foreign Policy magazine Globalization Index

Four measures of most global nation


1. Economic integration trade, foreign direct
investment and portfolio capital flows and income
payments and receipts

2.

Personal contact international travel and tourism,


international telephone traffic, and cross-border
transfers

3.

Technology number of Internet users, Internet


hosts, and secure servers

4.

Political Engagement number of memberships in


international organizations, UN Security Council
missions in which each country participates and
foreign embassies that each country hosts

156

The Myth of Global Strategy?


a la Rugman

Globalisation does not exist in terms of a


single world market with free trade
Triad-based business is the past, current and
future reality
Multinational enterprises operate within triad
markets and access other triad markets; they
have regional, not global strategies
National governments strongly regulate most
service sectors, thereby limiting free market
forces; the extent of regulation is not
decreasing
Business need to think local and act regional;
it should forget global
157

Responding to the The Myth of Global


Strategy
1.
2.
3.

4.
5.
6.

Do not assume an integrated global market


Design strategies that take account of regional trade
and agreements, learn to deal with national cultures
and become nationally responsive when necessary
Develop new thinking and knowledge about regional
networks and triad-based clusters, assess the
attributes of triad-based competitors, rather than
developing pure global strategies.
Make alliances and foster cross-cultural awareness in
senior managers
Developing methods for assessing regional drivers
rather than globalisation drivers may be more useful
in the future in gaining and holding market share
Encourage all managers to think regional, act local
and forget global!
158

Globalization: Another View

a la Simmonds

Market homogeneity is not the determinant of globalization:


It is market interdependency. Supply and demand imbalances
create linkages. A standardised product or service is only one
of several options to satisfy those linkages
Redefining globalisation to focus on the ability of firms to
leverage certain resources and compete in worldwide markets
suggests globalisation does exist in interdependent markets
Global branding is an example whether franchising or
product branding
Firms seek interconnectivity throughout their competitive
domains to leverage their intangible assets e.g. McDonalds
(Strict control of key operational aspects in food preparation and
delivery are consistent globally despite varied addition to menu
offerings that accommodate local tastes and customs)

Interdependence of knowledge and information among the


various locations are critical to McDs competitive success 159

Globalization: Another View contd

Globalisation: the ability to transfer


information and knowledge globally
Three stages of globalisation:
1.
2.
3.

Globalisation of markets firms acquire assets


to sell in any market they choose
Globalisation of sources firms bought or built
wherever it was advantageous
Globalisation of the intellect firms seek the
best brains wherever they are located

160

Challenges
Leveraging knowledge and talent worldwide
through technology
Globalisation exists because process
knowledge and other intangible assets can be
transferred globally at minimum costs
Technological innovations permit rapid
dissemination of know how to disparate parts
of the world
Economies of scale are measured in the
degree that fixed costs can be leveraged
among networks and regions
161

Leading to the Trans-national Model


Market interdependence rather than market
homogeneity will determine future global
competitiveness
Ability to leverage knowledge globally in
delivering value creating products and
services is the dominant competitive concern
of global firms
How to transfer skills and knowledge within the
network is the challenge that the trans-national
model seeks to meet
162

Five Major Forces Influencing the Global Market


Place
Shift from Information to Knowledge
Shift from Bureaucracies to Networks
Shift from Training and Development to
Learning
Shift from National to Transnational
Shift from Competitive to Collaborative
Strategy

163

Whose Century?
Countries, Firms or Individuals?
Off-shoring extending to Knowledge work
China Trade surplus of $162 billion in 2004
with USA, increasing commodity
consumption and massive Infrastructural
development- e.g. total mileage expected to
overtake American Interstate system by 2020
Go Global Lenovo and IBM
Manufaketure
Personalisation
There is no such thing as a global
consumer.. Peter Brabeck

164

Managing Conflicting Demands

165

Class Outline
Managing Conflicting Demands
Global Integration
Local Responsiveness
Reading: Distance Still Matters
Case Study: The SK2 Globalisation Project

(Monday)

166

Forces for Global Integration and


Coordination
Economies of Scale

Pressure for larger facilities to capture the


benefits of economies of scale enabled by new
technologies
In many industries however, production at
scale economy volumes exceeded the sales
levels individual companies could achieve in
all but the largest nations
This led companies to seek markets abroad

167

Forces for (contd)


Economies of Scope
Many companies also transformed by economies
of scope

Whereas economies of scale primarily refer to efficiencies


associated with supply-side changes, such as increasing or
decreasing the scale of production, of a single product type,
economies of scope refer to efficiencies primarily associated
with demand-side changes, such as increasing or
decreasing the scope of marketing and distribution, of
different types of products Source: Wiki

Example: Matsushita Consumer Electronics

Scale economies from standardised TV and VCR factories


as well as scope advantages through marketing and sales
network that offered repairs, service and credit
arrangements

168

Forces for (contd)


Factor Costs
With changes in technology and markets came the
requirement for access to new resources at the lowest
possible cost.
Often there are no home-country sources of supply for
companies wishing to expand into new industry segments
European petroleum companies explored in the Middle
East because of limited domestic crude oil sources
Less capital intensive industries like textiles, apparel and
shoes etc. turned to international markets as a source of
cheap labour
However, once educated, the cheap labour rapidly became
expensive, forcing companies to chase cheap labour from
southern Europe to central America, to the far east and to
eastern Europe.
169

Forces for (contd)


The Liberalising Environment for Trade
Scale and scope economies provided the
underlying motivation for global coordination
but
It was the increasingly liberal environment for
world trade that facilitated the broad transition
over recent years
Starting with GATT (General Agreement on Tariffs
and Trade) in 1945, followed by the EU, NAFTA,
and the formation of the WTO (World Trade
Organisation), the dominant trend has been
towards the reduction of barriers to international
trade
170

Forces for (contd)


The Expanding Spiral of Globalisation
In some cases, change was also driven by a
major technological innovation that forced a
fundamental realignment of industry economics
Many other industries lacked strong external
forces for change but transformed themselves
through internal restructuring efforts such as
standardisation of parts and specialisation in
manufacturing
Even P+G and Unilever, have transformed
traditionally national businesses like soap and
detergent manufacturing
Standardising product formulations
Rationalising pack sizes
Printing multi-lingual labels

171

Forces for (contd)


Global Competitors as Change Agents
In addition to changes triggered by some external
structural issues, many changes have occurred where
managers had to create the opportunity themselves
A competitive strategy, like global chess, emerged from
companies that managed their worldwide operations as
interdependent units implementing a coordinated global
strategy
This assumed that a companys competitive position in all
markets was linked by financial and strategic
interdependence
Corporations with worldwide operations had a great
advantage over the national company in that it could use
funds generated in one market to subsidise its position in
another

172

Forces for Local Differentiation and


Responsiveness
Many examples of multinationals making big
mistakes transferring successful products from
home countries to foreign markets
Chevrolet Nova (No Va means it does not go in Spanish)

National environments are different across many


dimensions (Distance Still Matters)
As the 90s were drawing to a close, the world had
changed course, and Coca Cola had not. We were
developing as a big, slow, insulated and sometimes
even insensitive global company, and we were
doing it in an era when nimbleness, speed,
transparency and local sensitivity had become
absolutely essential
173
Coca Cola CEO, Douglas Daft, 2000

Cultural Differences
A large body of academic research provides strong
evidence that nationality plays an important and
enduring role in shaping the assumptions, beliefs
and values of individuals.
The most celebrated efforts made to understand
these differences were made by Geert Hofstede
study that described national culture differences
along four dimensions

Power Distance
Uncertainty Avoidance
Individualism
Masculinity

To succeed in a world of diversity, companies often


had to modify their quest for global efficiency
through standardisation and find ways to respond
to the needs and opportunities created by cultural174
differences

Government Demands
Diverse demands and expectations of home country
and host governments have perhaps been the most
severe constraint on the global strategies of many
companies
Traditionally the interactions between MNCs
(multinational corporations) have had many
attributes of a classic love-hate relationship
The love of the equation was built on the benefits
each could bring each other, source of funds, tax
breaks, technology, expertise etc.
The hate of the equation arose from the differences
in the motivations and objectives of the two
partners
175

Growing Pressure for Localisation


Although world travel levels increasing and ease of
communications unseen before, it would be nave to
believe that worldwide tastes, habits and
preferences have become homogeneous
The trend towards standardised products designed
to appeal to a lowest common denominator of
consumer demand has a flip side.
In many industries, a large group of consumers
emerged that rejected the homogenised product
design and performance on standardised products
By reasserting traditional preferences for more
differentiated products, they created very profitable
openings for companies that were more responsive
176
to those needs

Forces Driving Worldwide Innovation and


Learning
Only those firms who have been able to adapt to the
often conflicting forces for global coordination and
national differentiation have been able to survive
and prosper
Another set of demands are taking shape however,
around the need for rapid and globally coordinated
innovation
In the emerging competitive game, victory most
often goes to the company that can most effectively
harness its access to worldwide information and
expertise to develop and diffuse innovative
products and processes on a worldwide basis
177

Worldwide Innovation and Learning

(Contd)

The increasing cost of R+D (research and development)


Shortening life cycles for new technologies

These trends have combined to reinforce the need


for companies to seek global volume in order to
write off heavy investment as quickly as possible
The high cost of product and process development
has also encouraged companies to transfer new
technologies voluntarily, with licensing becoming
an important source of funding and joint
development programs and strategic alliances a
strategy for rapidly building global competitive
advantage
178

Responding to Diverse Forces


Simultaneously

In the emerging international environment, there are


fewer and fewer examples of pure global, textbook
multinational or classic international industries
More and more businesses are driven by
simultaneous demands for global efficiency,
national responsiveness and worldwide innovation
These are the characteristics of a transnational
industry
In these industries companies will find it harder to
defend a competitive position on the basis of only
one dominant capability
They will need to develop the ability to respond
effectively to all the diverse and conflicting forces at
the same time so as to manage efficiency,
responsiveness and innovation without trading off
and one for the other
179

(contd)
The emergence of the transnational industry has
made the tasks for achieving each of these
capabilities becoming more demanding and
complex.
To succeed in such an environment, companies
need to understand the logic of global chess,
building and defending profit sanctuaries that are
impenetrable to competitors
They need to leverage existing strengths to build
new advantages through cross subsidising weaker
products and market positions.
They also need to form alliances and coalitions to
isolate and outflank competitors
MNCs must now also build the capability to learn
from the many environments to which they are
exposed and to extend the benefits of this learning
180
throughout their global operations

Strategy Choices

181

Opportunities and Outcomes of International


Strategy

Figure 8.1

182

Identifying International Opportunities


International strategy
A strategy through which the firm sells its goods
or services outside its domestic market

Reasons to having an international strategy


International markets yield potential new
opportunities
New market expansion extends product life cycle
Needed resources can be secured
Greater potential product demand
183

Classic Rationale for International


Diversification: Extend Products Life
Cycle
Product Demand
Develops and Firm
Exports Products

Foreign
Competition
Begins Production

Firm Introduces
Innovation in
Domestic Market

Firm Begins
Production Abroad

Production is standardized and


relocated to low cost countries.

184

International Strategy Benefits


Increase market share
Domestic market may lack the size to support
efficient scale manufacturing facilities

Return on investment
Large investment projects may require global
markets to justify the capital outlays
Weak patent protection in some countries implies
that firms should expand overseas rapidly in
order to preempt imitators
185

International Strategy Benefits (contd)


Economies of scale or learning
Expanding size or scope of markets helps to
achieve economies of scale in manufacturing as
well as marketing, R&D or distribution
Can spread costs over a larger sales base
Can increase profit per unit

186

International Strategy Benefits (contd)


Competitive advantage through location
Low cost markets aid in developing competitive
advantage by providing access to:
Raw

materials

Lower
Key

cost labor

customers

Energy

187

Determinants of National Advantage

SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group,
from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright 1990, 1998 by Michael E. Porter.

Figure 8.2

188

Determinants of National Advantage


Factors of production: the inputs necessary
to compete in any industry
Labor
Capital

Land
Natural resources
Infrastructure

Basic factors include natural and labor


resources
Advanced factors include digital
communication systems and an educated
workforce
189

Determinants of National Advantage


(contd)
Demand conditions: characterized by the
nature and size of buyers needs in the home
market for the industrys goods or services
Size of the market segment can lead to scaleefficient facilities
Efficiency can lead to domination of the industry
in other countries
Specialized demand may create opportunities
beyond national boundaries

190

Determinants of National Advantage


(contd)
Related and supporting industries:
supporting services, facilities, suppliers and
so on
Support in design
Support in distribution
Related industries as suppliers and buyers

191

Determinants of National Advantage


(contd)
Firm strategy, structure and rivalry: the
pattern of strategy, structure, and rivalry
among firms
Common technical training
Methodological product and process
improvement
Cooperative and competitive systems

192

Selecting an International CorporateLevel Strategy


The type of corporate strategy selected will
have an impact on the selection and
implementation of the business-level
strategies
Some strategies provide individual country units
with the flexibility to choose their own strategies
Others dictate business-level strategies from the
home office and coordinate resource sharing
across units
193

International Corporate-Level Strategy


Focuses on the scope of operations:
Product diversification
Geographic diversification

Required when the firm operates in:


Multiple industries, and
Multiple countries or regions

Headquarters unit guides the strategy


But business or country-level managers can have
substantial strategic input
194

International
CorporateLevel
Strategies

Figure 8.3

195

Multidomestic Strategy
Strategy and operating decisions are
decentralized to strategic business units
(SBU) in each country
Products and services are tailored to
local markets
Business units in one country are
independent of each other
Assumes markets differ by country or
regions
Focus on competition in each market
Prominent strategy among European
firms due to broad variety of cultures
and markets in Europe

196

Global Strategy
Products are standardized across
national markets
Decisions regarding business-level
strategies are centralized in the home
office
Strategic business units (SBU) are
assumed to be interdependent
Emphasizes economies of scale
Often lacks responsiveness to local
markets
Requires resource sharing and
coordination across borders (hard to
manage)

197

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

198

Environmental Trends
Liability of foreignness
Legitimate concerns about the relative
attractiveness of global strategies
Global strategies not as prevalent as once
thought
Difficulty in implementing global strategies

Regionalization
Focusing on particular region(s) rather than on
global markets
Better understanding of the cultures, legal and
social norms

199

Choice of International Entry Mode


Type of Entry

Characteristics

Exporting

High cost, low control

Licensing

Low cost, low risk, little control, low


returns

Strategic alliances

Shared costs, shared resources, shared


risks, problems of integration

Acquisition

Quick access to new market, high cost,


complex negotiations, problems of
merging with domestic operations

New wholly owned


subsidiary

Complex, often costly, time consuming,


high risk, maximum control, potential
above-average returns
Table 8.1
1100

Dynamics of Mode of Entry


Whats the best solution?
Situation
The
Thefirm
firm has
has no
no foreign
foreign
manufacturing
manufacturing
expertise
expertiseand
andrequires
requires
investment
investmentonly
onlyin
in
distribution.
distribution.

Optimal Solution
Export
Export

1101

Dynamics of Mode of Entry


Whats the best solution?
Situation
The
Thefirm
firm needs
needsto
to
facilitate
facilitatethe
theproduct
product
improvements
improvements
necessary
necessaryto
toenter
enter
foreign
foreignmarkets.
markets.

Optimal Solution
Licensing
Licensing

1102

Dynamics of Mode of Entry


Whats the best solution?
Situation
The
Thefirm
firm needs
needsto
to
connect
connect with
withan
an
experienced
experiencedpartner
partner
already
alreadyin
inthe
thetargeted
targeted
market.
market.

Optimal Solution
Strategic
StrategicAlliance
Alliance

1103

Dynamics of Mode of Entry


Whats the best solution?
Situation
The
Thefirm
firmneeds
needsto
to
reduce
reduceits
itsrisk
riskthrough
through
the
thesharing
sharingof
ofcosts.
costs.

Optimal Solution
Strategic
StrategicAlliance
Alliance

1104

Dynamics of Mode of Entry


Whats the best solution?
Situation

Optimal Solution

The
Thefirm
firmis
isfacing
facing
uncertain
uncertainsituations
situations
such
such as
asan
anemerging
emerging
economy
economyin
inits
itstargeted
targeted
market.
market.

Strategic
StrategicAlliance
Alliance

1105

Dynamics of Mode of Entry


Whats the best solution?
Situation

Optimal Solution

The
Thefirms
firmsintellectual
intellectual
property
propertyrights
rightsin
in an
an
emerging
emergingeconomy
economyare
are
not
notwell
well protected,
protected,the
the
number
numberof
offirms
firmsin
inthe
the
industry
industryis
isgrowing
growingfast,
fast,
and
andthe
theneed
needfor
for global
global
integration
integrationis
ishigh.
high.

Wholly-owned
Wholly-owned
Subsidiary
Subsidiary

1106

International Diversification and


Returns

Expanding sales of goods or services


across global regions and countries and into
different geographic locations or markets:
May increase a firms returns (such firms usually
achieve the most positive stock returns)
May achieve economies of scale and experience,
location advantages, increased market size and
opportunity to stabilize returns

1107

International Diversification and


Innovation

Expansion sales of goods or services


across global regions and countries and into
different geographic locations or markets:
May yield potentially greater returns on
innovations (a larger market)
Can generate additional resources for investment
in innovation
Provides exposure to new products and
processes in international markets; generates
additional knowledge leading to innovations
1108

Complexity of Managing Multinational


Firms

Expansion into global operations in different


geographic locations or markets:
Makes implementing international strategy
increasingly complex
Can produce greater uncertainty and risk
May result in the firm becoming unmanageable
May cause the cost of managing the firm to
exceed the benefits of expansion
Exposes the firm to possible instability of some
national governments

1109

Risk in the International Environment

Political
Risks

Economic
Risks

Political risks include:


Instability in national governments
War, both civil and international
Potential nationalization of a firms resources
1110

Risk in the International Environment

Political
Risks

Economic
Risks

Economic risks are interdependent with political


risks and include:
Differences and fluctuations in the value of
different currencies
Differences in prevailing wage rates
Difficulties in enforcing property rights
Unemployment

1111

Risk in the International Environment

Figure 8.4a

1112

Risk in the International Environment


(contd)

Figure 8.4b

1113

Limits to International Expansion


Management Problems
Cost of coordination across diverse geographical
business units
Institutional and cultural barriers
Understanding strategic intent of competitors
The overall complexity of competition

1114

Achieving Sustainable Competitive Advantage

1115

Achieving sustainable competitive


advantage

Build global scale efficiency in existing


activities
Develop multinational flexibility to
manage diverse country risks and
opportunities
Create the ability to develop innovations
and leverage knowledge on a worldwide
basis
1116

How to
Exploit the differences in sourcing and market
opportunities among the many countries in
which it operates
Capitalize on the diversity of its activities and
operations to create synergies or develop
economies of scope
Leverage the scale economies that are
potentially available in its different worldwide
activities
1117

Sources of competitive advantage and strategic


objectives
Sources of Global
Strategic Objectives
Competitive Advantage
1. National differences
2. Scope Economies

1. Optimize global
efficiencies
2. Multinational flexibility
3.Worldwide learning

3. Scale economies

1118

Global Efficiency Inputs and Outputs


Cost Side:
Efficient & Specialized
facilities for: Research,
Production
Logistics
Sourcing

Revenue side:
Strong portfolio of
brands
Powerful distribution
facilities
Access to key mkts
Local resources to
create/adapt
products/services

1119

Multinational flexibility
Ability to manage the risks and exploit the
opportunities that arise from the diversity
and volatility of the global environment
Risks and opportunities are two sides of the
same coin

1120

Risks in the global environment


1. Macroeconomic risks country specific,
regional, worldwide
2. Political risks policy
3. Competitive risks arising from the
uncertainties of competitors responses
4. Resource risks dont have, cannot
acquire and/or cant spare.

1121

Riskscontd
FIAT in Europe
1. Eastern Europe opening up
2. Single mkt EU
3. Japanese expansion into Europe
4. Aggressive diversification placing
pressure on resources

1122

Riskscontd
Environmental scanning detecting the
changes/discontinuities
Incrementalism + Opportunism versus
Pre-emptive resource commitments and
long range planning
More general and flexible strategies enable
robust response in different environments

1123

Worldwide Learning
Key asset of MNC: Diversity of
environments in which it operates leading
to:
Multiple stimuli
Diverse capabilities and
Broader learning opportunities

1124

Diverse environments create the learning


opportunities but ..
Centralized organization

Decentralized organization

1. No local sensing
2. Centre insensitive to
local sensing

1. Not invented here


syndrome

1125

Exploiting National Differences


1.
2.

Factor differences comparative advantage


Markets tailoring to customer tastes, adapting
distribution systems and promotion strategies

3.

New view: include quality, qty and configuration


of its material, human and institutional resources

NB: Soft resources: Inter-organizational linkages,


education system and organizational and
managerial know-how.
NB: Old perspective focused on costs of inputs in the
form of labour and capital
1126

Scale Economies
Experience/learning effects
Exploit varying (?) points of efficiency along value
chain
Need to balance scale and flexibility: craft vs. mass
production
Costs of the joint production/ development
/distribution of 2/more products can be less than
the cost of each separately
Challenge: The search for internal synergies within
the company and across its different activities
must have external consistency
1127

Configurations and Goals Means


Combinations

MNC:
Revenue side national differences
International:
Strengths - ability to create and leverage innovation

Weaknesses - deficiencies in efficiencies and


flexibilities
Global:
Strengths - global efficiency in terms of cost and quality
Weaknesses compromising flexibility and learning,
risk of policy interventions and foreign exchange
fluctuations
1128

Configurations and Goals Means


Combinations

Trans-national: Both costs and revenue


must be addressed
Efficiency and innovation apply
All combinations apply
Integration the key with centralization, excentralization and dispersion

1129

Defending Worldwide Dominance


Master all three capabilities via
1. Modernization of existing capabilities
rather than dismantling existing facilities
and creating new ones
2. Compensate for deficiencies or
approximate a competitors source of
advantage

1130

Challenging the Global Leader


Toehold approach
1. Develop a strong competitive position
within one specific market with perhaps
one specific product built upon multiple
sources of competitive advantage,
sequentially developing cost and quality
advantages

1131

Challenging the Global Leader


Foothold approach
1. Expand along both product and geographic
dimensions focusing on markets not of strategic
importance to the established leaders in the
business
2. Develop own product portfolio, technology
capabilities, geographic scope and marketing
expertise and become OEM suppliers to
established players thus building manufacturing
volume and cost efficiencies while gaining
understanding of customer needs and marketing
strategies in the advanced marketplaces
1132

Challenging the Global Leader


Final phase: From low profile foothold to
strong permanent worldwide position via a
wave of new product introductions and
expansions into key markets utilizing
multiple channels and own brand names

1133

Protecting Domestic Niches


1.

2.

3.

Influence industry structure/market conditions to


own advantage: consumer preferences,
distribution channels, supply sources
Offset the competitors global advantage:
government assistance don the mantle of
national champion
Approximate the competitors global advantage:
link up in some form of alliance or other
collaborative arrangement

1134

How Global Companies win out


Caterpillar manufacturing innovation
Ericsson technology innovation
Honda- marketing innovation
+
Built barriers to competitive responses
Financial resources and commitment
Organizational structure to manage an integrated
system

1135

Playing the Global Chess Game


Pre-empting the leading positions in major
NICS
Establish a solid position with your
customers to block competitors
Eschew portfolio planning theory viz. a
markets attractiveness and a companys
strength within it determine resources
devoted to it manage interdependently

1136

The Core Competence of the


organization

Competitiveness derives from an ability to build at


lower cost and more speedily than competitors the
core competencies that spawn unanticipated
products
Real sources of advantage are to be found in
managements ability to consolidate corporatewide technologies and production skills and
competencies that empower individual businesses
to adapt quickly to changing opportunities

1137

Tests of core competencies


1. Should provide potential access to a wide
variety of markets
2. Should make a significant contribution to
the perceived customer benefits of the
end product
3. Should be difficult for a competitor to
imitate

1138

Core Products
Definition: The components or subassemblies
that actually contribute to the value of end
products
Sustaining leadership in their chosen core
competence areas, companies seek to
maximize their world manufacturing share of
core products
Well targeted core products can lead to
economies of scale and scope
1139

Developing Coordination and Control:


The Organizational Challenge

1140

Beyond Structure
Recall goals: Optimize global efficiency,
National responsiveness and
Worldwide learning while.
Balancing organizational perspectives and
capabilities among product, function and area
divided by distance and time and separated by
barriers of culture and language

1141

Beyond Structure ( contd)


Stopfords International Structural Stages
Model reduced to questions of :
1. Product versus geography-based
structures
2. centralization versus decentralization
. leading to the global matrix

1142

The matrix trap


Business, functional and area logjams
1. Prevented the resolution of differences
among managers with conflicting views
and overlapping responsibilities
2. Dual reporting led to conflict and confusion
3. Overlapping responsibilities resulted in turf
battles and a loss of accountability

1143

The result of the matrix trap


1. Management process slow, acrimonious
and costly
2. Communications routinely duplicated
3. Approval processes were time-consuming
4. Constant travel and frequent meetings
raised administrative costs

1144

The Failure of Structure


Ignored the multidimensionality of the
environment
Defined a static set of roles, responsibilities
and relationships in a dynamic and rapidly
evolving task environment
A blunt and often heavy handed instrument
Need to go beyond structure and expand
fundamental organizational capabilities

1145

Building Strategic and Organizational


Flexibility
Re-orient managers thinking and reshape
the core decision-making systems
Tools for managing this change:
Administrative system
Communication channels
Interpersonal relationships

1146

Administrative Heritage
Organizational history and the values,
norms and practices of its management
No such thing as a zero-based organization
need to focus on where we are coming
from as much as where we want to get
Hence:

Decentralized Federation
Coordinated Federation
Centralized Hub
1147

Organizational Models
1.

Decentralized Federation: Multinational


Strategy old boy network as opposed to formal
structures and financial controls rather than
coordination of operational or technical details

2.

Coordinated Federation: International Strategy


Strength lay in new technologies and
management processes international product
life cycle theory - willing to delegate
responsibility while retaining overall control
through management systems and specialist
corporate staff
1148

Organizational Models
3. Centralized Hub:
Global strategy cost advantages and
quality with tight central control of product
development, manufacture and
procurement internal processes valued
group behaviour and interpersonal harmony
communications intensive and peopledependent
1149

The Trans-National Organization


1. It builds and legitimizes multiple diverse
internal perspectives able to sense the
complex environmental demands and
opportunities
2. Its physical assets and management
capabilities are distributed internationally but
are interdependent
3. It has developed a robust and flexible internal
integrative process
1150

Multi-National Perspectives
Strong national subsidiary management: local
consumers and host governments
Capable global business management: global
competitors and coordination responsiveness
Influential functional management: concentrate
corporate knowledge, information and expertise
and facilitate its transfer

Goal: Build a multidimensional organization in


which the influence of each of the three
management groups is balanced
1151

Distributed Interdependent
Capabilities

Overcoming the reinventing the wheel


syndrome, the locally self sufficing scale
problem, the NIH syndrome etc. requires an
integrated network leading to:
International production centers, center of
excellence where each of the WW units is
considered a source of ideas, skills,
capabilities and knowledge that can be
harnessed for the benefit of the whole
organization
1152

Flexible Integrative Process


Required: A management process that can
resolve the diversity of interests and
perspectives and integrate the dispersed
responsibilities and involves
1. Centralization
2. Formalization
3. Self regulatory capability driven by
socialization

1153

Responding to the companys critical task


demands
Organizations anatomy - formal structure of
its assets, resources and responsibilities
Organizations physiology - systems and
decision making processes
Organizations psychology: culture and
management mentality clear shared
understanding of mission and objectives,
visible behaviour and public action of senior
mgt, personnel policies, practices, and systems
1154

Traditional Change Process


Change in formal structure & responsibilities
(Anatomy)

Change in interpersonal relationships & processes


(Physiology)

Change in individual attitudes and mentalities


(Psychology)

1155

Emerging Change Process


Change in individual attitudes and
mentalities

Change in interpersonal relationships &


processes

Change in formal structure &


responsibilities

1156

Underlying Requirements for


Successful Global Strategy Execution
Subordination of the subsystem for system
priorities and considerations
Swift actions in a globally coordinated manner
Effective and efficient exchange relations
among the nodes of the global network
Bottom line: Multi-nationals need managers
with a sense of commitment, trust and social
harmony

1157

Global Enterprise

Distance must still be Travelled

1158

The 5Ds of Global Enterprise

Distance
Documentation
Diversity
Demand
Denomination

1159

Distance still needs to be Travelled

a la Ghemawat

The Distance Trap:


- becoming dazzled by the sheer size of
foreign markets
- Techniques such as CPA ( country portfolio
analysis ) place emphasis on potential sales
and ignore the costs and risks

1160

The CAGE Distance Framework


Cultural
Distance

Administrative
Distance

Geographic Distance

Economic
Distance

different
languages
different
ethnicities; lack
of connective
ethnic or social
networks
different
religions
different social
norms

absence of colonial
ties
absence of shared
monetary or
political
association
political hostility
government
policies
institutional
weakness

physical remoteness
lack of a common
border
lack of sea or river
access
size of country
weak transportation
or communication
links
differences in
climates

differences in
consumer
incomes
differences in
cost and quality
of:
natural resources
financial
resources
human resources
infrastructure
intermediate
inputs
information or
knowledge
1161

The CAGE Distance Framework


Cultural
Distance

Administrative
Distance

Geographic Distance

Economic
Distance

products have
high linguistic
content (TV)
products affect
cultural or
national identity
product
features vary in
terms of: size,
standards,
packaging
products carry
country specific
quality
associations

government
involvement is high
in areas that are:
producers of staple
goods or other
entitlements
large employers
large suppliers to
government
national champions
vital to nat. security
exploiters of natural
resources
s.t. high sunk costs

products have a low


value-to-weight or
bulk ratio
products are fragile or
perishable
communications and
connectivity are
important
local supervision and
operational
requirements are high

nature of demand
varies with
income level
economies of
standardization
or scale are
important
labor and other
factor cost
differences matter
distribution or
business systems
are different
companies need
to be responsive
and agile
1162

Industry Sensitivity to Distance more


sensitive relationships
Cultural Distance
Linguistic Ties

Admin. Distance
Preferential
Trading
Agreements

Geographic
Distance
Physical
Remoteness

Economic
Distance
Wealth Distances

meat/meat
preparation
cereals/cereal
preparation
misc. edible
products and
preparations
tobacco and tobacco
products
Office machines and
data-processing
equipment

gold, nonmonetary
electricity current
coffeee, tea, cocoa,
spices
textile fibres
sugar, sugar
preparations and
honey

electricity current
gas, natural and
manufactured
paper, paerboard
live animals
sugar, sugar
preparations and
honey

nonferrous metals
maufactured
fertilizers
meat and meat
preparations
iron and steel
pulp and waste
paper

1163

Industry Sensitivity to Distance more


sensitive relationships
Cultural
Distance
Linguistic Ties

Admin. Distance
Preferential
Trading
Agreements

Geographic
Distance
Physical
Remoteness

Economic
Distance
Wealth Distances

photgraphic
apparatuses,
optical goods,
watches
road vehicles
cork and wood
metalworking
machinery
electricity current

gas, natural and


manufactured
travel goods,
handbags
footwear
sanitary, plumbing,
heating, and lighting
fixtures
furniture and
furniture parts

pulp and waste


paper
photographic
apparatuses, optical
goods, watches
telecommunications
and soundrecording
apparatuses
coffee, tea, cocoa,
spices
gold, nonmonetary

coffee, tea, cocoa,


spices
animal oils and fats
office machines and
automatic dataproc. equipment
power-generating
machinery and
equipment
photgraphic
apparatuses, optical
goods, watches

1164

Country Portfolio Analysis

Per
Capita
Consump.

Per capita income

1165

Country Portfolio Analysis Revisited


Adjust market choices by taking account of
distance attributes
Can produce a significant difference in the
ranking of markets
A companys own characteristics can
operate to reduce or increase the effects of
distance attributes
More reading: See Ghemawat, Pankaj, Distance Still Matters: The Hard Reality of Global Expansion,
Harvard Business Review, 79, 8, September, 2001, pp.137-147

1166

Approaches to Managing the Cultural


Divide
Ethnocentric
Polycentric
Geocentric

1167

Hofstedes Cultural Dimensions Power Distance


Large: people accept and expect
authoritative leadership
Small: people expect
participative/consultative leadership

1168

Hofstedes Cultural Dimensions Uncertainty Avoidance


Strong: relatively low tolerance for
ambiguity and uncertainty low risk takers
Weak: relatively high tolerance for
amgibuity and uncertainty high risk takers

1169

Hofstedes Cultural Dimensions Individualism - Collectivism


Low (Collectivistic): rely more on groups,
tend to think in we terms and rewards
derive from group success
High: rely more on self efforts, tend to think
in me terms and rewards derive from
individual success

1170

Hofstedes Cultural Dimensions Masculinity - Femininity


High: value material success and stress
work role differentiation between males and
females
Low: g reater importance on quality of life
and less emphasis on work role
differentiation between males and females

1171

Additional Dimensions to Hofstede


5. HUMANE ORIENTATION
DEGREE TO WHICH PEOPLE ARE ENCOURAGED AND/OR
REWARDED FOR BEING FAIR, ALTRUISTIC, GENEROUS,
CARING AND KIND TO OTHERS
6. PERFORMANCE ORIENTATION
DEGREE TO WHICH PEOPLE ARE ENCOURAGED AND
REWARDED FOR PERFORMANCE IMPROVEMENT,
ACHIEVEMENT OF EXCELLENCE
7. MEASURE OF COLLECTIVISM - TREATS COLLECTIVISM
SEPARATELY FROM INDIVIDUALISM
8. FUTURE ORIENTATION - DEGREE TO WHICH FUTURE
ORIENTED BEHAVIORS ARE ENCOURAGED AND REWARDED
9. ASSERTIVENESS - DEGREE TO WHICH INDIVIDUALS ARE
1172
ASSERTIVE CONFRONTATIONAL AND AGGRESSIVE IN THEIR
RELATIONSHIPS WITH OTHERS

The Dominant Business Traditions


Saxon,Teutonic, Gallic and Nipponic traditions
Affects how we marshall evidence and make
decisions
Afffects relationships
Affects how we accord status and manage time
Product of the formal education and informal
socialization that each culture affords

1173

Saxon Style

Fostors and encourages debate and discourse


Pluralism and compromise are overrriding values
Individual should be built up, not put down
Acceptance of the existence of different
perspectives and convictions which should be
confronted and debated
Result: not only a compromise but a synthesis
the sum greater than the parts or is the price of
ecumenism anodyne blandness?

1174

Teutonic and Gallic style


Less conflict - groups more homogeneous
Members selected for being sound on the
salient issues
Love to debate, but not with antagonists
either a waste of time or an act of
condescension
Less tension relieving humour tone is stiff
and caustic

1175

The Nipponic style


Do not debate lack of experience and not
to upset pre-established social
relationships
Respect authority and collectivist solidarity
Questions are for clarification
Debate is a social act rather than an
intellectual act

1176

Saxon tradition
Penchant for documentation
Data (reality) unites and theory divides
Distrustful of theories and isms and
ologies sweeping generalizations
Reports, graphs, tables are seen as
necessary backup to support decisions

1177

Teutonic tradition
Like theories which are deductive
Theory may be deduced from other more
fundamental principles and is fertile for
practical deductions
Dont eschew data, but like to know the
philosophical or economic model or theory
that drives data collection and decision
making

1178

The Gallic tradition


Impressed by the elegance of theories and
approaches
Appreciate the aesthetic nature of the argument
Use of double entendres, alliterations and allusions
to obscure cultural artifacts are celebrated, not
shunned
Triumph of elegance over rigor the sound of
words can be more important than their meaning

1179

The Nipponic tradition


Able to live with inconsistency, ambiguity
and contradiction
Arguments less categorical
Aceptable to see things as tentative, not
fully formed
Ideas and theories are very cautiously
elaborated with various kinds of excuses
and apologies for their incompleteness

1180

Decision-making groups

Anglo-Saxons: equal, but different


Teutons: nothing much to learn
Gauls: all irrelevant to one another
Nipponese: all agree

1181

Reactions:
Saxons: How do we document or measure
this?
Teutons: How can this be deduced from
first principles?
Gauls: Can this be expressed in French?
Nipponese: Who is the proposers boss?

1182

Managing Across Borders


- The Collaborative Challenge

1183

The Strategic Challenge (formerly)


Meeting the challenge of competitors
Minimizing the bargaining power of
customers, suppliers and governments
How:
Maintain firm control over activities
Make others dependent by capturing key
resources, building switching costs etc.
1184

The Strategic Challenge (latterly)


Challenge: Pursue multiple sources of
competitive advantage simultaneously
How:
Build an interdependent and integrated
network organization internally and
Build collaborative relationships with
governments, competitors, customers,
suppliers etc.
1185

Factors inducing change


Rising R&D costs
Shortening product life cycle costs
Growing barriers to market entry
Increasing need for global scale economies
Expanding importance of global standards
shift from a focus on pre-empting competition to a
broader approach of building advantage through
selective and often simultaneous reliance on both
collaboration and competition

Now value creation as well as value appropriation


1186

Strategic Alliances
Definition:
A variety of different inter-firm
cooperation agreements ranging from
shared research to formal joint ventures
and minority equity participation
1. Strategic alliances are increasingly
between firms in industrialized countries
2. Creation of new products and
technologies
3. Forged during industry transitions
1187

Motivations driving strategic alliance


formations
Technology Exchange
Global Competition
Industry Convergence
Economies of scale
Reduction of risk

1188

Technology Exchange
Major innovations increasingly a product of
interdisciplinary and inter-industry
advances
Shorter product life cycles increasing time
pressures and risk exposure while reducing
the potential payback of R&D investments

1189

Global Competition
Strategic alliances allow coalitions of
smaller partners to compete against a
dominant market player
The global/local dilemma

1190

Industry Convergence
Real or otherwise, much heralded belief in the
convergence of hi-tech industries
New products require massive investments, but
also diverse technological capabilities that defy
even the largest players
Alliances shape competition by
1. reducing competitive intensity by excluding
potential entrants and isolating particular players
and
2. building complex integrated value chains that
can act as a barrier to those who choose to go it
alone
1191

Economies of scale and reduction of


risk
Pooling of resources and concentration of
activities raises the scale of activity or the rate of
learning within the alliance over that of each firm
acting separately
Alliances allow partners to share and leverage
the specific strengths and capabilities of each of
the other participating firms
Trading different or complementary resources
between companies can also result in mutual
gains and save each partner the high cost of
duplication
The level of R&D expense leads to alliances being
seen as a risk-hedging mechanism
1192

Risks and Costs of Collaboration


Triad power concept lead many companies
to see alliances as the only feasible way to
develop their triadic position
The stick to your knitting theme leads
firms to disaggregate their value chain and
focus their activities while externalizing
their remaining activities via outsourcing or
alliances

1193

Risks and Costs of Collaboration


Simultaneous presence of both
collaborative and competitive aspects in
alliances
Higher levels of strategic and organizational
complexity of managing co-operative
relationships outside the companys own
boundaries

1194

Risks of Competitive Collaboration


Use of collaboration to gain a competitive
edge over the other
Benefits asymmetrical, thereby changing
competitive positions
Capture of investment initiative
Can serve to provide short term solutions
while hiding the fundamental deficiencies that
need to be addressed
Lack of learning by doing for the tasks that
are externalized to the partner
1195

Assessing risk potential


Skills and
competencies tacit and
deeply embedded in
complex organization
processes and hence
difficult to learn or
emulate

Skills and
competencies explicit
and embodied in
specific individual
machines or drawings
and hence liable to
easy observation and
emulation

1196

Costs of organizational complexity


Transcending the boundaries that are the basis for the
accounting of rewards and risks
Administrative heritages differ each brings its own
strategic mentality and managerial practices
Partners can be products of vastly different systems
Organizational complexity arises because of the range of
activities associated with the collaboration requiring
management of the different points of contacts and
coordination of the different collaboration related tasks
within ones own organization
Strategic goals of alliances make them more vulnerable
to the uncertainties in the environment goals, tasks and
1197
processes must be monitored, evaluated and adapted

Building and Managing Alliances


Neither conventional organization with fully
internalized activities nor well specified
transaction relationships through which
externalized activities are linked by
contracts.

1198

Challenges
1. Strategic and environmental disparities
2. Lack of common experience and
perception base
3. Difficulties in inter-firm communication
4. Conflicts of interest and priorities
5. Personal differences among individuals
managing the interface

1199

Building: Partner selection


Availability of info in short time frame a
constraint on pre-alliance analysis on areas
such as relevant physical assets, less
tangible assets and organizational
capabilities
Monitoring for partners an ongoing rather
than ad hoc process

1200

Escalating Commitment
Champions often different from the
operational managers
Involve key operating managers gives
continuity and ensures that the broader
strategic goals are related to specific
operational detail

1201

Alliance Scope
Start simple and focused
Management complexity added by:
1. Complicated cross holdings of ownership
or equity
2. The need for cross-functional
coordination or integration
3. Breadth in the number and scope of
activities

1202

Managing Cooperative Ventures


On going commitment and flexibility of
each partner crucial
Key challenges:
1. Managing the boundary
2. Managing knowledge flows
3. Providing strategic direction

1203

Managing
Structuring the interface
Integrating the interface exploit the learning
opportunities and prevent outflows of information
or knowledge
Need gatekeepers: well versed in the companys
internal organizational process, credibility and
status, understanding of the companys business
and strategies
Supportive administrative processes to facilitate
transfers and monitoring of effectiveness

1204

Providing Strategic Direction


The Governance Structure:
- provides leadership and direction
- ensures strategic control
- resolves interorganizational conflicts
Integrative rather than distributive
equality

1205

Strategic Alliances
Easy but not the best facade of recovery
Not necessarily permanent - self
perpetuating
Flexibility is the key - adapt
Organization must be able to diffuse and
leverage learning from the partner
integrated network organization

1206

Collaboration principles
1. Collaboration is competition in a different form
represents a change in competitive tactics not
goals
2. Harmony is not the most important measure of
success
3. Cooperation has limits companies must defend
against competitive compromise
4. Learning from partners is paramount
5. The surging latecomer versus the laggard
learning and avoidance

1207

Conditions for mutual gain


The partners strategic goals converge
while their competitive goals diverge
Size and market power of partners is
modest compared to industry leaders
Each partner believes it can learn from the
other while limiting access to proprietary
skills

1208

Distinction between technology and


competence
Technology: Easily transported, easily
interpreted and easily absorbed
Competence: complex web extractable only in
a piecemeal fashion

1209

Managing Globally A Stretch too Far?

1210

introduction
is managing globally a stretch too far?
our approach
current views of global management
what managing involves
what global managing involves
can this be achieved?
conclusion

1211

what are global managers?

cultural synergizers (Adler&Bartholomew, 1992)


true planetary citizens
(Roddick, 1991)
cross fertilizers (Bartlett, Doz, &Hedlund, 1990)
perpetual motion executives (Malone, 1994)
cross pollinate ideas and champion
innovation
(Bartlett &Ghoshal, 1994)

1212

do global managers exist? 1992


there is no such thing as a universal global
manager
multinationals required three kinds of
specialists

business managers
country managers
functional managers

with a group of senior executives to coordinate


the efforts of the specialists
(Bartlett, A., & Ghoshal, S. HBR, 1992)

1213

do global managers exist? 2003

the basic argument holds


(Bartlett, A. HBS Working Knowledge, Dec 2003)

but two major demands are often in conflict


be globally efficient and competitive - integrating and
coordinating resources across borders
be responsive to national differences in consumer tastes
and government requirements

this tension is at the heart of transnational management

1214

what does a manager do? back to basics!

managerial activities are fast


paced, brief, varied, and
discontinuous.
little time for reflection
work gravitates toward action
and simply getting things
done
effective managers combine
and perform several roles
simultaneously
behavioral roles in three
groups:
(Mintzberg, 1973, 1994)

informational roles
monitor
disseminator
spokesman
require management of information

interpersonal roles
figurehead
leader
liaison
require a manager to act to get things
done

action roles
entrepreneur
disturbance handler
resource allocator
negotiator
require a manager to make decisions

1215

some views on managing globally

an international manager is just a manager who is from one


culture and functions in another.
(Adler, 1991)
a global manager has more collective awareness and inclusive
perspective than international.
(Ayman, Kreiker and Masztal, 1994)

crossing business borders is different from crossing country


and culture borders
the first is primarily a cognitive and intellectual task
the second is an assault on the identity of the person.
(McCall and Hollenbeck, 2002)

managing globally involves added dimensions of cultural


issues, e.g. power distance/individualism/uncertainty
(Hofstede, 1980)

1216

multinational as an international network


Portugal

El
Salv ador

Nordic

Austria

Ecuador

Global
Headquarters

Canada
Peru

Chile

Brazil

Switzerland

U.S.A.

Bolivia

Belgium

Venezu
ela-la

Mexico

Apple
Products

U.K.
Argentina

Holland

Greece
Ireland

Spain

Apple
Europe

Sales,
Service, and
Marketing to
Regions

Columbia

Uruguay

Apple
U.S.A.

South
Africa
Kenya
Egypt

France

Zaire

Zimbabwe

Germany

Zambia

Japan

Bangladesh

Pakis tan

Turkey

Taiwan
Philippines

India

Korea
Malaysi
a

Iran
Syria

Thailand
Singapore

Source: Sumantra Ghoshal & Christopher A. Bartlett, "The multinatio nal corporatio n as
an international network,"
Academy of Management Review,

Japan

Europe
South

Latin
America

Worldwide
Product
Group A

Worldwide
Product
Group B

Worldwide
Product
Group C

R&D

R&D

R&D

Finance &
Accounting
Domestic and
World Production
Domestic Sales

Finance &
Accounting
Domestic and
World Production
Domestic Sales

Finance &
Accounting
Domestic and
World Production
Domestic Sales

Foreign Subsidiaries
for Sales, Production,
or Raw Material
Sourcing

Foreign Subsidiaries
for Sales, Production,
or Raw Material
Sourcing

Foreign Subsidiaries
for Sales, Production,
or Raw Material
Sourcing

Israel

Australia

New
Zealand

Australia

Europe North

Tanzania

Italy

Indonesia

Canada

Europe West

Headquarters

Morocco
Nigeria

France

Far East

Tunisia
Luxemburg

Apple
Pacific

Iraq

Hong
Kong

Lebanon

15, 1990, 605.

1217

global complexity

timezones
cultures
(Hofstede, 1980)
countries
languages
distant majorities
(Maigetter and Ragettli, 1997)
technology interacting with people you cannot see
customers

making information and liaison roles more important

1218

three types of global managers

global business manager: strategist, architect, coordinator


build worldwide efficiency and competitiveness
recognize cross-border opportunities and risks
link activities and capabilities around the world

global country manager: sensor, builder, contributor

worldwide functional specialists: scanner, cross pollinator, champion

building block for worldwide operations


responsible for understanding and interpreting local markets
building local resources and capabilities
contributing to / participating in development of global strategy
least appreciated in many traditional multi-national companies
transfer expertise & leverage learning from one unit to another
scan company for good ideas & best practice
cross-pollinate among units
champion innovations with worldwide applications

senior executive: leader, catalyst, talent scout, developer of


relationships

1219

acteristics or competencies of global managers

context-specific knowledge and skills


inquisitiveness
personal character
integrity
networking and relationship building

capacity for managing uncertainty


ability to balance tensions
business and organizational savvy
(Gregersen, Morrison, and Black, 1998)

take advantage of opportunities for innovation outside


field of vision

1220

personality and qualities

strong relationship between


personality and
performance

emotional stability
extraversion
openness to experience
agreeableness
conscientiousness

manage strategic change


manage cultural change
articulate a tangible vision,
values and strategies
exhibit a strong customer
orientation
empower others to do their
best
get results
excellent communicator
and facilitator

1221

learning
ability to learn is a core skill for a global manager
uses feedback
cross-culturally adventurous
seeks opportunities to learn
is open to criticism
seeks feedback
is flexible
(Spreitzer et al., 1997)
these may have different meanings in different
cultures and may need adjustments

1222

you build global management capability?


recruitment and development - focus on people with
multi-cultural exposure and speak multiple
languages
send most talented on international assignments
training programs
equip aspiring managers with Irish MBA
opportunities?
help managers understand and acquire more
tangible behavioral skills
provide resources to help managers understand
other world perspectives
(Dalton, Ernst, Leslie & Deal, 2002)

1223

successful global management

Branson @

Virgin Group

success largely due to


willingness and ability to
empower
encouragement of ideas and
initiatives
support of subordinates
effective delegation
charismatic personality
extended authority
employees encouraged to
approach CEO for advice and
feedback

absence of rigid lines of


authority formal decision
making procedures
empowerment evident from
structure and evolution of
Virgin
known for transforming biz
units into independent
companies once they reach 50
people

1224

successful global management Barnevik @


ABB

implemented concept of multi-


domestic enterprise.
decentralized ABB, removing
multiple layers of management
in hierarchy

created climate of trust and


cooperation
people could freely express
their thoughts and ideas,
without bias and
reservation

power and influence derived


from location in the
communication network
(Pfeffer, 1992)
by encouraging uninhibited
exchange of information, he
made sure that
communication converged on
him
placed most decision-making
power in hands of local
managers

1225

managing globally conclusion

to compete around the world, a


company needs
global-scale efficiency
local responsiveness
ability to leverage learning
worldwide
act locally but think
globally
structure that facilitates
collaboration where
beneficial
encouragement of
subsidiary initiative

in general, no one person can


do the job of global manager
arguably possible in rare
cases (Branson)
issue with sustainability
key roles of connected
specialized managers
development of such
managers is possible

1226