The strategy and organization of international business

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The strategy and organization of international
business

• Strategy identifying how best a firm can do
  about creating value.

2
What can global expansion contribute to value
creation in a way not available to purely
domestic firms?
3

• How does a firm make profits?

4
Pressures for costs reduction and local
responsiveness

• Responding to cost pressures

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Pressures for costs reduction and local
responsiveness

• Pressures for local responsiveness

• Different consumer tastes and preferences

• Different infrastructure

• Differences in distribution channels

• Host government demands.

• The two pressures place conflicting demands on
  firms.

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Strategic choice

• International strategy

• Multidomestic strategy

• Global strategy

• Transnational strategy

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1. International Strategy

• Go where locals do not have your skills Transfer
  skills and products developed at home to foreign
  markets where local competitors lack those skills
  and products.

• Little adaptation of the products

• Manufacturing and marketing in each location.

• Weak pressures for local responsiveness and cost
  reductions.

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Multi-domestic strategy

• Maximize local responsiveness customize the
  product and market strategy to national demands.
• 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 each country are independent of
  each other
• Role of overseas operations

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Global strategy

• Production, marketing, and RD activities are
  concentrated in a few locations. Products are
  standardized across national markets
• Emphasizes economies of scale
• Requires resource sharing and coordination across
  borders
• Role of overseas operations

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Transnational Strategy

• Seeks to achieve both global efficiency and local
  responsiveness
• E.g., caterpillar Tractor
• Best practice dissemination
• Global learning - core competencies can develop
  in any of the firms worldwide operations.
• Network structure high inter-subsidiary flows
  and managerial network (managers at different
  locations and with different product
  responsibilities are linked to each other.).

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Four Basic Strategies
Source McGraw Hill Companies, Inc., 2000
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Structure how a firm divides itself into
sub-units?

• International division

• Global functional structure

• Global geographic structure

• Global product structure

• Global matrix structure

• The mixed structure

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One Companys International Division Structure
Source McGraw Hill Companies, Inc., 2000
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A Typical Functional Structure
Source McGraw Hill Companies, Inc., 2000
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Global geographic structure

• Divide the structure by areas (a country or a
  group of countries)

• Problems

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Worldwide Area Structure
Source McGraw Hill Companies, Inc., 2000
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Global product structure

• Divide the structure by products

• consistent with

• strength

• Problem

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A Typical Product Division Structure
Source McGraw Hill Companies, Inc., 2000
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Global matrix structure

• Horizontal differentiation proceeds along two
  dimensions

• fits

• bureaucratic problems

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A Global Matrix Structure
Source McGraw Hill Companies, Inc., 2000
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Integrating mechanisms

• Management networks

• Job rotation (expatriation), management
  development programs, information systems.

• Corporate socialization

• Inter-unit communication