Global Strategy and Organizational Structures

International Business: Strategy, Management, and the New Realities 1
International Business
Strategy, Management & the New Realities
by
Cavusgil, Knight and Riesenberger
Chapter 11
Global Strategy and
Organization

What Is Strategy?
A plan of action that channels an organization’s
resources so that it can effectively differentiate itself
from competitors, accomplish distinctive goals, and
achieve superior performance.
• Managers develop strategies based on the
organization’s strengths and weaknesses, and
evaluation of opportunities and threats.
• Managers primarily make decisions about the firm’s
production and marketing activities, and the
development and allocation of resources devoted to
these.

Strategy Should Pinpoint to Actions
• Formulate a strong international vision
• Allocate scarce resources on a worldwide
basis
• Participate in major markets
• Implement global partnerships
• Engage in global competitive moves
• Configure value-adding activities on a
global scale

Four Strategic Objectives
• Efficiency – minimize the cost of operations
and activities
• Effectiveness – maximize revenues
• Flexibility – tap local resources and
opportunities to maximize options for the firm
• Learning – add to proprietary technology,
brand name and management capabilities by
internalizing knowledge gained from
international ventures.

Multidomestic and Global Industries
• Multidomestic industries. Firms apply a country-by-
country approach to product development and
marketing, as dictated by specific needs, tastes, laws,
and economic situation. Competition is on a country-
by-country basis. E.g., food and beverage, consumer
products, clothing and fashion industries.
• Global industries. Firms devise products and
marketing appropriate for an entire region or for the
world. Competition takes place on a regional or
worldwide scale. E.g., aerospace, automobiles,
telecommunications, computers, chemicals, and
industrial equipment industries.

Global Integration
• A characteristic of global industries in which
firms coordinate their value-chain activities
across many countries in order to maximize
efficiency, effectiveness, flexibility, and
learning.
• Global integration promotes learning and
cross-fertilization, as well as reduction of
wasteful duplication (‘redundancy’), across
the firm’s operations worldwide.

Pressures for Global Integration
• Economies of Scale. Concentrating manufacturing in a few
select locations to achieve economies of mass production.
• Capitalize on converging consumer trends and universal
needs. Companies such as Nike, Dell, ING, and Coca-Cola
offer products that appeal to customers everywhere.
• Uniform service to global customers. Services are easier to
standardize when their creation and delivery are centralized
• Global sourcing of raw materials, components, energy,
and labor. Sourcing from large-scale, centralized suppliers
provides economies of scale and consistent performance.
• Global competitors. Global coordination is necessary to
monitor and respond to global competitive threats.
• Availability of media that reaches customers in multiple
markets. Firms now take advantage of the Internet and
cross-national television to promote offerings in many
countries simultaneously.

Local Responsiveness
• A characteristic of multidomestic industries in
which firms attempt to meet the specific needs of
buyers in individual countries, as well as adapt to
the local competitive environment and distribution
structure.
• Although most firms prefer a global integration
approach, some degree of local responsiveness is
necessary due to differences in individual markets.
• For example, given distinctive local conditions,
Wal-Mart store managers in Mexico had to adjust
store hours, the merchandise mix, marketing
approaches, and employee training.

Pressures for Local Responsiveness
• Diversity of local customer needs. E.g., products in the
food and furniture industries require much adaptation.
• Differences in distribution channels. E.g., systems in
Japan, China, India, and Eastern Europe vary greatly.
• Local competition. Where many local rivals are present,
it is best to offer carefully adapted products and have a
local presence to maximize knowledge of competitors.
• Cultural differences. For products where cultural
differences are important, such as books and kitchen
appliances, products and marketing need to be
substantially adapted.
• Host government requirements and regulations. The
firm must follow local laws and regulations.

Four Strategies Emerging from
the Integration-Responsiveness Framework
1. Home replication strategy
2. Multidomestic strategy
3. Global strategy
4. Transnational strategy

Home Replication Strategy
• The firm views international business as
separate from, and secondary to, its domestic
business.
• International business typically pursued to
generate additional sales for domestic products
• Products are designed with domestic customers
in mind; i.e., not adapted for foreign markets.
• The firm expects little knowledge flows from
foreign operations.
• Usually based on simple exporting

Multidomestic Strategy
(aka Multi-Local Strategy)
• Headquarters delegates much autonomy to each
country manager, allowing him/her to operate
independently and pursue local responsiveness.
• The managers substantially adapt products and
practices to suit local conditions.
• The managers function independently, with little
incentive to share knowledge with managers
elsewhere.
• The firm ends up with a collection of disconnected
markets, with no coordination or integration of
national markets.

Global Strategy
• Headquarters pursues global integration, seeking to
control country operations in order to minimize
duplication, and maximize efficiency, effectiveness,
and learning worldwide.
• Emphasizes centralized coordination and control of
R&D, production, marketing, and after-sales service
• Management views the world as one large
marketplace.
• The firm offers standardized products, using
standardized marketing
• Main advantages: lower costs; easier to manage

Transnational Strategy
• A tug of war – the firm attempts to strike some
ideal balance between global and multidomestic
strategies.
• Combines the major advantages of
multidomestic and global strategies, while
minimizing their disadvantages.
• Applies the model ‘standardize whenever
possible; adapt when necessary.

IKEA Applies a Transnational Strategy
• Some 90% of the product line is identical
across more than two dozen countries. IKEA
modifies some of its furniture to suit individual
countries.
• IKEA’s marketing is centrally developed at
company headquarters, but implemented with
local adjustments (e.g., to suit language
differences in catalogs).

Organizational Structure
• The reporting relationships inside the firm –
“the boxes and lines” that specify the linkages
among people, functions, and processes that
allow the firm to carry out its operations.
• In larger international firms, organizational
structure includes subsidiaries, affiliates,
suppliers, and various other partners.
• A fundamental issue concerns the choice
between centralization and decentralization
of decision-making and value-chain activities.

A
An MNE Network
H
B
C
D
E
F
SD
BD
CD
RD
A : Home plant
H: Headquarters
B … F: Subsidiaries
Subsidiary Level Network
S: Suppliers R: Regulatory institutions
B: Buyers C: Customers SEBE
CE RE
SB
BB
CB
RB
SA BA
CA RA
SF BF
CF
RF
SC
BC
CC
RC

Alternative Organizational Arrangements
• The export department, with the international
division as a variant.
• The decentralized structure involves
geographic area division
• The centralized structure involve either
product or functional division
• A global matrix structure blends the
geographic, product and functional structures
although this is complex and difficult to
achieve.

Global Matrix Structure
• An arrangement that blends the geographic area,
product, and functional structures in an attempt to
leverage the benefits of a purely global strategy
and maximize global organizational learning, while
remaining responsive to local needs.
• It is an attempt to capture the benefits of the
geographic area, product, and functional
organization structures simultaneously, while
minimizing their shortcomings.
• Closely associated with Transnational Strategy

Examples of Visionary Leaders
• Ratan N. Tata, the chairman of the Tata Group,
transformed this Indian conglomerate into a
transnational organization. Tata oversees a $22
billion family conglomerate whose companies
market a range of products from automobiles to
watches.
• Carlos Ghosn, the CEO of Nissan and Renault,
has transformed a Japanese automotive firm
from bankruptcy to profitable operations.
• Toyota CEO Fujio Cho has led his firm to record
sales in the intensely competitive global
automobile industry.

Organizational Culture
• The pattern of shared values, norms of behavior,
systems, policies, and procedures that
employees learn and adopt. The ‘personality’ of
the firm.
• Leading MNEs attempt to instill a ‘global culture’
in the firm’s operations worldwide, by
emphasizing a ‘borderless mindset’, developing
internationally sophisticated managers, and
emphasizing the firm’s global performance. E.g.,
Nestle, Nissan, Schlumberger, Unilever

Organizational Processes
Managerial routines, mechanisms, and
technologies that allow the firm to function as
intended.
Examples
• GE digitizes all key documents and uses
intranets and the Internet to automate many
activities and reduce operating costs.
• Schlumberger keeps a huge database of skilled
individuals within the firm available to all
subsidiaries on the corporate intranet.

Global Strategy and Organizational Structures

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