INTRNATIONAL ORGANIZATIONAL CONTROL AND ISSUES IN GLOBAL SOURCING

1
SESSION 13

• INTRNATIONAL ORGANIZATIONAL CONTROL AND ISSUES IN
  GLOBAL SOURCING

2
FINAL EXAM

• TUESDAY DECEMBER 14TH
• 515 - 730 PM ROOM BC204
• MULTIPLE CHOICE EXAM
• 50 QUESTIONS
• 15 ON MATERIAL UP TO THE 1ST MIDTERM
• 15 ON MATERIAL UP TO THE 2ND MIDTERM
• 20 ON MATERIAL FROM 2ND MIDTERM
• Scantron (Form 882-E the small style)

3
International Managerial Roles and
Responsibilities

• Business Responsibilities
• Worldwide Strategist
• Resource allocator
• Cross-border coordinator
• Functional Responsibilities
• Intelligence Scanner
• Cross-Pollinator
• Champion of innovation

• Area Responsibilities
• Interpreter
• Defender of local values/interests
• Upholder of Corporate values/interests
• Frontline strategy implementors
• Stage Responsibilities
• Entrepreneurial
• Integration/Control
• Renewal/Revitalization

4
Expatriate attitudes
Lo
Free agent
Going Native
Allegiance to parent company
Heart at home
Dual citizen
Hi
Lo
Hi
Allegiance to local operation
5
The Foreign Job Assignment

• Individual Considerations
• Technical Competence
• Job-ability factors are a necessary attribute
• Adaptiveness
• Family adaptation is important
• Dual career issues
• Childrens education
• Language
• Fixed-term versus open-ended assignments
• Local Acceptance
• Prejudices
• From cultural differences
• From perceived needs to protect their livlihood
• Staff vs. line placement
• Securing a Successful Foreign Assignment

6
The Foreign Job Assignment

• Post-Expatriate Situations
• Repatriation Problems
• Coming home can require adaptation in many areas,
  including
• Financial
• Job
• Familial
• Spouses relocation/ adaptation
• Childrens education
• Social
• Career Movements

7
The Cost of Failure

• Direct U.S. 55,000-80,000
• Salary, training, travel relocation expenses
• Indirect (intangibles)
• Hard to quantify, but can be higher than direct
• Examples
• Loss of connections may lead to decreased market
  share
• Host country government may put pressure on to
  hire a host country national
• Possible effects on local staff

8
Control

• Control is managements planning, implementation,
  evaluation, and correction of performance to
  ensure the organization meets its objectives
• Management must balance global needs while
  adapting to country-level differences
• Control keeps a companys direction or strategy
  on track

15-3
9
Control principles often seem simple

• But real control systems have to be very complex
• Keep control systems as simple as possible - but
  avoid false simplicity
• Rewards based on who produced highest profits
  will obscure important complexities

10
Control Difficulties in International Business

• Distance
• Diversity
• Market size
• Type of local competition
• Nature of product
• Labor cost
• Currency
• Uncontrollables
• Degree of uncertainty

11
Elements of International Control

• Planning
• Organizational structure
• Specific control mechanisms
• Choices about location of decision making

12
International Planning Process

• Develop long-range strategic intent
• Analyze internal corporate resources
• Set international corporate objectives
• Analyze local conditions
• Select alternatives and priorities
• Implement strategy

15-8
13
Strategic intent as proposed by Hamel Prahalad

• Big, challenging goal
• Shared by people at all levels in the company
• Emotional commitment
• Not just any long-term goal
• Example Sun Microsystems in 1990s
• Johnson Johnson?
• Google?

14
Choice of globally integrated vs. multidomestic
strategy affects

• Location of value-added functions
• Location of sales targets
• Level of involvement by HQ staff
• Product/services strategy
• Marketing
• Competitive moves
• Factor movement and start-up strategy

15-9
15
Structures for International Businesses
15-11
16
Kinds of structures

• International division All international units
  report to one place at headquarters
• Functional structure Units performing
  particular functions all over world report to
  central groups
• Product division structure People working on
  same products all over world report to central
  groups

17

• Geographic division structure Units for
  different countries, regions report to same top
  executive
• Matrix structure International units have more
  than one boss
• Mixed structures

18
Factors Affecting the Location of Decision Making

• Balancing pressures for global integration versus
  pressures for local responsiveness
• Balancing the capabilities of headquarters versus
  subsidiary personnel
• Balancing speed versus quality of decisions
• Greater need for global integration,
• the greater the need to centralize decision making

15-12
19
Control Mechanisms

• Develop teams with members from different
  countries for planning
• Strengthening corporate staffs so that
  headquarters and subsidiary managers must listen
  to different viewpoints
• Rotate managers often between domestic and
  international positions
• Keep international and domestic personnel in
  close proximity to the product divisions

15-15
20
Control Mechanisms, cont

• Foreign personnel on the board of directors and
  top-level committees
• Credit for divisions and subsidiaries for
  business resulting from cooperative work
• Reward systems based partially on global results
  
• Reporting procedures
• Information systems
• Routine visits to subsidiaries

15-16
21
Appropriate International Business Structure

• Degree of multidomestic, global, and
  transnational politics employed
• Location and type of foreign facilities
• Impact of international operations on total
  corporate performance
• Structures are dynamic
• Structure affects
• Taxes
• Expenses
• Level of control

15-10
22
Chapter Objectives

• Explain the special challenges of controlling
  foreign operations
• Describe organizational structures for
  international operations
• Show advantages and disadvantages of decision
  making at headquarters and at foreign subsidiary
  locations
• Highlight both the importance of and methods for
  global planning, reporting, and evaluating
• Give an overview of specific control
  considerations affecting MNEs

15-2
23
Questions of Control

• Issues Specific to Foreign control
• Distanceit takes more time and expense to
  communicate
• Uncontrollablesthere are more outside
  stockholders and governmental dictates
• Degree of certaintythere often are rapid changes
  in the environment and data problems
• Diversitycountry differences make it hard to
  compare operations

24
Sources of Power Influence

• Field Power
• Institutional
• Legal
• Demographic
• Educational
• Business
• Structure
• Interfirm alliances
• Cultural
• National Local
• Historical
• Linguistic

• Arena Power
• Venture Structure
• Subsidiary, IJV, etc.
• Organizational structure
• Formal
• Informal
• In-group cultural ties
• Home office ties
• Interpersonal
• Centrality, Criticality
• Expert
• Language

25
NEGOTIATED CULTURE
Culture in global ventures is negotiated over
time between members having differing cultural
orientations regarding work. THUS, given
cultures A and B, A B ? AB or AxBBUT,
an adaptation of both A and B
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CULTURAL HYBRID
- People who are experienced in moving from
one cultural frame of reference to another.
NATIONAL
ORGANIZATIONAL
- Learned another H.E.L.P. system.
- Acquired bridging skills.
OCCUPATIONAL
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COLLABORATIVE SPACES
Norms and Values
28
NIKE VS. REEBOK
NIKE Standards Compliance to local laws But
Global standard for CFCs Approach to
Compliance Keep documents on file Summary Complia
nce approach
REEBOK Standards Compliance to local laws But
48/60 hour week 14 years as cutoff for child
labor Approach to Compliance Undertake
independent audit Summary Integrity approach
29
MNCs Responsibilities

• An MNCs primary duty is to its shareholders
• An MNC should adopt local standards
• An MNC should have one worldwide standard of
  conduct

30
Sourcing Issues

• Gouging and Exploitation
• relative to industry practices?
• measured by firm profits or by worker treatment?
• whose definitions apply?
• Implications of shifting production among
  Countries
• 1 per day in Indonesia vs. 24 per day in S.
  Korea
• Labor component of cost of sales is significant
• Is there any obligation to preserve existing jobs?

31
Global Manufacturing Strategies in the
Internationalization Process

• Global sourcing implies that companies need to
  determine where parts and components will be
  manufactured and where final products will be
  assembled
• Five elements of the competitive strategy that
  affect the manufacturing strategy
• Efficiency/cost
• Dependability
• Quality
• Flexibility
• Innovation

32
Global Manufacturing Strategies

• Manufacturing decisions include
• Location and scale
• Choice of process
• Control of the system
• Degree of vertical integration relative to
  out-sourcing
• Coordination of RD
• Licensing of technology

33
Global Manufacturing Strategies

• Manufacturing systems
• Single plant
• Multiple plants
• Manufacturing interchange
• Rationalization
• Offshore manufacturing often is done in low-cost
  locations and followed by importation into the
  home market
• Ex a maquiladora is an operation in Mexico to
  which components are shipped from the United
  States duty-free for assembly and the goods
  re-exported to the United States
• Plant Location
• Layout Planning

34
Quality

• TQM is designed to eliminate all defects and to
  ensure customer satisfaction
• ISO 9000
• ISO 9000 is a European set of quality standards
  intended to promote quality at every level of an
  organization
• Non-European companies operating in Europe need
  to become ISO-certified in order to maintain
  access to that market

35
Figure 18.3 Continuum of Characteristics of
Manufacturing and Service Organizations
36
Can (or should) all MNCs take Reeboks approach?

• How severe is price competition?
• Can we afford to terminate contractors because
  of human rights?
• What are our operating margins?
• Do we have the money to conduct audits?
• Is our product differentiable?
• Will our actions result in any greater sales or
  other company-
• specific benefits?

37
Conclusion

• Managing a MNC means managing differences among
  countries. Often this leads to exploitation.
  Are some types of exploitation worse than others?
  Whats the bottom line?
• Nike and Reebok exemplify two common
  international sourcing strategies compliance vs.
  integrity.
• Even Reebok did not hesitate to relocate vast
  production operations. Does this mean Reebok is
  unethical?
• What are the implications of this case at the
  individual level of analysis? What if you were
  sent to manage a work group
  in a country whose business ethics were not in
  synch with yours?

38
NIKE VS. REEBOK
NIKE Standards Compliance to local laws But
Global standard for CFCs Approach to
Compliance Keep documents on file Summary Complia
nce approach
REEBOK Standards Compliance to local laws But
48/60 hour week 14 years as cutoff for child
labor Approach to Compliance Undertake
independent audit Summary Integrity approach
39
MNCs Responsibilities

• An MNCs primary duty is to its shareholders
• An MNC should adopt local standards
• An MNC should have one worldwide standard of
  conduct

40
Sourcing Issues

• Gouging and Exploitation
• relative to industry practices?
• measured by firm profits or by worker treatment?
• whose definitions apply?
• Implications of shifting production among
  Countries
• 1 per day in Indonesia vs. 24 per day in S.
  Korea
• Labor component of cost of sales is significant
• Is there any obligation to preserve existing jobs?

41
Can (or should) all MNCs take Reeboks approach?

• How severe is price competition?
• Can we afford to terminate contractors because
  of human rights?
• What are our operating margins?
• Do we have the money to conduct audits?
• Is our product differentiable?
• Will our actions result in any greater sales or
  other company-
• specific benefits?

42
Conclusion

• Managing a MNC means managing differences among
  countries. Often this leads to exploitation.
  Are some types of exploitation worse than others?
  Whats the bottom line?
• Nike and Reebok exemplify two common
  international sourcing strategies compliance vs.
  integrity.
• Even Reebok did not hesitate to relocate vast
  production operations. Does this mean Reebok is
  unethical?
• What are the implications of this case at the
  individual level of analysis? What if you were
  sent to manage a work group
  in a country whose business ethics were not in
  synch with yours?