http://www.youtube.com/watch?v=6_ov2Vyt5dU

1
Introduction

• http//www.youtube.com/watch?v6_ov2Vyt5dUfeature
  channel_page
• Guest Speaker Dr. Thaddeus Fulford-Jones, CEO
• Mobil Consumer Analytics (www.cadiomobile.com)
• Midterm Exam Results
• Chapter 12 The Strategy of International
  Business
• Case Study MTV Networks
• Case Study Nestlé
• Chapter 13 The Organization of International
  Business
• Monday The Great Globalization Debate!

2
International Business

• Wendy Jeffus
• Harvard Summer School

3
Highlights and Lowlights for Ethical Business is
GOOD business

• Highlight The companies can obtain higher
  visibility An example of that is the red AIDS
  label on some wine bottles. For every bottle, 1
  euro goes to AIDS foundations. The price of the
  bottle is 25 to 150 euros so the economic cost of
  the donation is more than covered and increases
  the visibility of the company greatly
• Highlight If ABC is a competitor to Lego and
  ABC is using illegal paint, eventually ABC will
  face lawsuits and Lego will receive ABCs clients
  automatically solely because they were ethical
• Lowlight The argument could be made that it is
  okay to engage in unethical behavior for non-U.S.
  businesses
• Lowlight Ethical business is good business
  because paying bribes may stimulate the economy
• Lowlight It will make you feel better

4
Highlights and Lowlights for Ethical Dilemma

• Highlight She can do this by perhaps organizing
  her own team to negotiate with the government
  agencies without having to use unethical tactics
• Highlight Suggest alternative methods of
  securing the government contracts such as
  providing donations to government electoral fund
  / public causes
• Lowlight I can not give a recommendation as the
  choice of action is a personal one
• Lowlight I would ask her to give up the
  position

5
Chapter 12 The Strategy of International Business

• Wendy Jeffus
• Harvard Summer School

6
Group Projects Section 1
Green Car (China)
Wheel G (Brazil)
Spacebox (China)
AESNI (U.S.)
P-I-M (Switzerland)
Group 1 Stuart Haigh (Australia) Alexandra Bustros (Lebanon) Jin Ji (China) Christian Hein Green Car Corp, China Group 2 Stefan Lorscheid (Germany) Juliana Nascimento (Brazil) Adomas Kraunevicius (Lithuania) Shariar Sean Monfared (US) WheelGuard, Brazil Group 3 Andre Ribeiro Da Silva (Canada) Rodrigo Robles (Mexico) Katerina Barka (Greece) Spacebox, Japan Group 4 Raya Awad (Lebanon) Benedikt Bingler (Germany) Concubhar ODrisceoil (Ireland) Wajahat Laiq (US) AESNI-gadget in Cambridge, US Group 5 Mariana Vega Silva (Mexico) Audun H. Hansen (Norway) Jan Icken (Germany) Kristian Andersen (Denmark) Soren Mogensen (Denmark) Professionals-in-Motion, Switzerland
Group 6 Rima Markarian (US) Jennifer Grygiel (US) Frank Dike (US) Petra Steger (Austria) TOMS shoes, Ethiopia Group 7 Sarti Stefano (Italiy) Mads Krarup (Denmark) Hernik Gerstrom (Denmark) Original Food, Dubai Group 8 Ayhan Sebin (Turkey) Monica Garcia de la Cadena Lozano (Mexico) Chamroeun Sieng (Cambodia) Marc Burde (Sweden) Muvbox, Spain Group 9 Laurent Blumberg (Belgium) Mohit Gupta (India) Birgitte Egdal (Denmark) Healthy Foods, Netherlands Group 10 Agnieska Sala (Poland) Min Shin Ang (Singapore) Georgi Petrov (Bulgaria) Smart Home International, Moscow
Shoes (Ethiopia)
Food (U.A.E.)
Muvbox (Spain)
Healthy F (Netherlands)
Smart H (Russia)
7
Group Projects Session 1
Green Car (China)
Wheel G (Brazil)
Spacebox (China)
AESNI (U.S.)
P-I-M (Switzerland)
Shoes (Ethiopia)
Food (U.A.E.)
Muvbox (Spain)
Healthy F (Netherlands)
Smart H (Russia)
8
Group Projects Section 2
Natura (Russia)
Rollasole (Singapore)
Shortlister (Singapore)
Energy (U.S.)
Charge (U.S.)
Group 1 Carolina Camargo (Brazil) Hitesh Uttamchandani (India) Natura, Russia (with Group 8) Group 2 Nikhil Sharma (India) Nina Wagner (Canada) Nethra Murali (Singapore) Rollasole, Singapore Group 3 Sweta Joshi (India) Andrew Buks (US) Andre Ukon (Brazil) Mar del Perez Alonso (Spain) Shortlister, Singapore Group 4 Fernando Trinidad (Phillipines) Carol Reyes (Bolivia) Zhao Xuan (China) Natural Energy Drink in US Group 5 Elena Ponomareva (Russia) James Freckleton (Australia) Sanjeev Masih (US) Ipek Hizlikan (Turkey) Electric Car Charging Station in California
Group 6 Deepika Choudhary (India) Samuel Turnwald (Germany) Judy Chua (Phillipines) Green Consultants in Japan Group 7 Natalia Santo (Brazil) Angela Pernsteiner (Austria) Abhay Jain (India) Umbrella-o-mat in London Group 8 Daniel Czajkowski (US) Umut Ozeren (Turkey) David Inbarajan (India) Akshay Jain Natura, Russia (with Group 1) Group 9 Daniel Tueni (Lebanon) Madhu Varshiti (India) Pablo Cienfuegos (Mexico) Sebastian Morad (Sweden) Custom Home Entertainment, France Group 10 Ulrich Suter (Switzerland) Bernadette Almeda (US) Zilin Guan (China) Zhu Jin (China) Alternative Energy, China
Consult (Japan)
Umbrella (England)
Natura (Russia)
Home E (France)
Alt. E (China)
9
Group Projects Session 2
Natura (Russia)
Rollasole (Singapore)
Shortlister (Singapore)
Energy (U.S.)
Charge (U.S.)
Consult (Japan)
Umbrella (England)
Natura (Russia)
Home E (France)
Alt. E (China)
10
Strategy

• Strategy actions managers take to attain the
  goals of the firm.
• For most firms, the preeminent goal is to
  maximize the value of the firm for its owners

11
Value Creation

• Value Creation Activities allow a company to
  achieve superior efficiency, excellent quality,
  innovation, and customer responsiveness.
• Product development, investments in human
  capital, manufacturing, marketing, and/or R D.
• The way to increase the profitability of a firm
  is to create more value
• The amount of value a firm creates is measured by
  the difference between its costs of production
  and the value that consumers perceive in its
  products

12
Perceptions of Value

• Which red car with 2 doors is worth more?
• Which brown bag is worth more?

2008 Mitsubishi
2008 Ferrari
http//allworldcars.com/wordpress/wp-content/uploa
ds/2007/07/windowslivewriter2008ferrari430scuderia
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rill.com/wp-content/uploads/2008/01/2008-mitsubish
i-lancer-evolution-x-front-and-side-1600x1200.jpg
http//www.thebudgetfashionista.com/images/eluxury
lv-thumb.jpg
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Value Creation

• Example Cost per unit (C) 15,000 Price per
  unit (P) 20,000 Value to Customer (V) 22,000

Muvbox (Spain)
Umbrella (England)

• Example Cost per unit (C) 1,500 Price per
  unit (P) 2,000 Value to Customer (V) 2,500

Note (V) is the value to the average customer,
customers have different perceptions of value.
If you were a monopoly supplier, you could
charge a price closer to this price.
14
Strategic Positioning Value Creation

• Michael Porter states that there are two basic
  strategies for creating value and attaining a
  competitive advantage in an industry
• Low-Cost Strategy vs. Differentiation
• Low Cost - value is created for the customer by
  offering low priced products.
• Differentiation unique attributes that are
  valued by customers and that customers perceive
  to be better than or different from the products
  of the competition

15
Strategic Choice

• Pick a position that offers enough demand to
  support your choice.
• Configure internal operations, such as
  manufacturing, marketing, logistics, IT, and HR
  to support your position.
• Connect this decision to your organizational
  structure.
• Example
• Where should the customizable smart home company
  position their services?
• Where should Roll-a-sole compete?

The Efficient Frontier shown below has a convex
shape due to diminishing returns
Smart H (Russia)
Rollasole (Singapore)
Diminishing returns imply that when a firm has
significant value built into its product
offering, increasing value by a small amount
requires significant additional costs. A firm
with a low-cost structure, also may have to give
up a lot of value to obtain further cost
reductions.
16
The Firm as a Value Chain

• Any firm is composed of a series of distinct
  value creating activities
• Primary activities
• Research development
• Production
• Marketing Sales
• Activities associated with getting buyers to
  purchase the product, including channel
  selection, advertising, pricing, etc.
• Customer Service
• Customer support, repair services, etc.
• Support Activities
• Information systems
• Process automation, and other technology
  development
• Logistics
• Inbound logistics include the receiving,
  warehousing, and inventory control of input
  materials.
• Outbound logistics are the activities required to
  get the finished product to the customer,
  including warehousing, order fulfillment, etc.
• Human resource
• the activities associated with recruiting,
  development, and compensation of employees.

17
The Value Chain
Green Car (China)
Natura (Russia)
18
Global Expansion, Profitability, Growth

• Expanding globally allows firms to increase their
  profitability and rate of profit growth in ways
  not available to purely domestic enterprises
• Firms that operate internationally are able to
• Expand the market for their domestic products
• Realize location economies by dispersing
  individual value creation activities
• Realize greater cost economies
• Earn a greater return by leveraging any valuable
  skills developed in foreign operations

Energy (Japan)
Wheel G (Brazil)
19
Leveraging Products Competencies

• A company can increase its growth rate by taking
  goods or services developed at home and selling
  them internationally
• Returns from such a strategy are likely to be
  greater if indigenous competitors in the nations
  a company enters lack comparable products
• Success of multinational companies also rest upon
  the core competencies that underlie the
  development, production, and marketing of goods
  or services
• Core competencies are skills within the firm that
  competitors cannot easily match or imitate
• Core competencies are the bedrock of a firms
  competitive advantage and enable them to reduce
  the costs of value creation

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What are the Core Competencies?

• McDonalds
• fast food
• P G
• brand marketing
• Wal-Mart
• logistics
• Starbucks
• Freshly brewed coffee

• Toyota
• Low cost, high quality
• Boeing
• Multisourcing
• Dell
• Inventory management
• Apple
• graphics

21
Location Economies

• Consider the following
• Where are the best designers?
• Where is the low cost or skilled labor?
• Who will develop the best marketing
• strategy?

• Location economies are the economies that arise
  from performing a value creation activity in the
  optimal location for that activity
• Can have one of two effects
• It can lower the costs of value creation and help
  the firm to achieve a low-cost position and/or
• It can enable a firm to differentiate its product
  offering from those of competitors
• One result of this kind of thinking is the
  creation of a global web of value creation
  activities, with different stages of the value
  chain being dispersed to those locations around
  the globe where perceived value is maximized or
  where the costs of value creation are minimized

Note Transportation trade complicate the
picture.
Shortlister (Singapore)
AESNI (U.S.)
22
Experience Effects

• The experience curve refers to systematic
  reductions in production costs that have been
  observed to occur over the life of a product
• There are two explanations for the experience
  effect
• Learning effects refer to cost savings that come
  from learning by doing
• Economies of scale refer to the reductions in
  unit cost achieved by producing a large volume of
  a product
• The strategic significance of the experience
  curve is clear moving down the experience curve
  allows a firm to reduce its cost of creating
  value and increase its profitability

Charge (U.S.)
Spacebox (China)
Making the first spacebox, is much more expensive
than making the 1000th
23
Leveraging Subsidiary Skills

• Leveraging the skills created within subsidiaries
  and applying them to other operations within the
  firms global network may create value
• Learning how to leverage the skills of
  subsidiaries presents a challenge for managers of
  multinational organizations
• They must have the humility to recognize that
  valuable skills leading to competencies can arise
  anywhere within the firms global network
• They must establish an incentive system that
  encourages local employees to acquire new skills
• They must have a process for identifying when
  valuable new skills have been created in a
  subsidiary
• They need to act as facilitators, helping to
  transfer valuable skills within the firm

24
Example McDonalds

• Old McDonalds

• New McDonalds

http//www.youtube.com/watch?vCg87E1tjTOE
http//images.businessweek.com/ss/06/05/mcdonalds/
image/spring-road-interior-3.jpg http//www.danloc
kton.co.uk/research/images/mcdonaldsseating.jpg
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Coffee Wars

• HOWARD SCHULTZ once said that he finds it painful
  when people compare his firm, Starbucks, to
  McDonald's. The founder of the world's biggest
  chain of coffee shops thinks a visit to Starbucks
  should involve romance and theatre, a far cry
  from the pit-stop-like experience of eating a
  meal at the world's biggest fast-food chain. Yet
  in its efforts to expand and attract less
  affluent customers over the past couple of years,
  Starbucks has started to become more like
  McDonald'seven as McDonald's, for its part, has
  been moving upmarket to become more like
  Starbucks.

http//www.economist.com/business/displaystory.cfm
?story_idE1_TDQJRSQS
26
Cost Pressure vs. Local Responsiveness

• Firms that compete in the global marketplace
  typically face two types of competitive pressure
• Pressures for cost reductions
• Pressures to be locally responsive

27
Pressure for Cost Reductions

• International businesses often face pressures for
  cost reductions because of the competitive global
  market
• Pressures for cost reduction can be particularly
  intense in industries producing commodity-type
  products
• Universal needs exist when the tastes and
  preferences of consumers in different nations are
  similar if not identical
• Pressures for cost reductions are also intense
• In industries where major competitors are based
  in low-cost locations
• Where there is persistent excess capacity
• Where consumers are powerful and face low
  switching costs

28
Pressure for Local Responsiveness

• Differences in consumer tastes preferences
• North American families like pickup trucks while
  in Europe they are viewed as a utility vehicle
  for firms
• Differences in infrastructure traditional
  practices
• Consumer electrical system in North America is
  based on 110 volts in Europe on 240 volts
• Differences in distribution channels
• Germany has few retailers dominating the food
  market, while in Italy it is fragmented
• Host-Government demands
• Health care system differences between countries
  require pharmaceutical firms to change operating
  procedures

29
Where Does Your Company Fit?
Umbrella (England)
Shortlister (Singapore)
Rollasole (Singapore)
Alt. E (China)
Natura (Russia)
Charge (U.S.)
Consult (Japan)
Home E (France)
Energy (U.S.)
30
Where Does Your Company Fit?
Spacebox (China)
AESNI (U.S.)
Green Car (China)
Shoes (Ethiopia)
Wheel G (Brazil)
Smart H (Russia)
P-I-M (Switzerland)
Food (U.A.E.)
Healthy F (Netherlands)
Muvbox (Spain)
31
Choosing a Strategy
32
International Strategy

• International Strategy transfer the skills and
  products derived from distinctive competencies to
  foreign markets, while undertaking some limited
  local customization.
• Create value by transferring valuable core
  competencies to foreign markets that indigenous
  competitors lack
• Centralize product development functions at home
• Establish manufacturing and marketing functions
  in local country but head office exercises tight
  control over it
• Limit customization of product offering and
  market strategy
• Strategy effective if firm faces weak pressures
  for local responsive and cost reductions

33
Localization Strategy

• Localization Strategy customize product
  offering, marketing strategy, and business
  strategy to national conditions
• Local responsiveness
• Main aim is maximum local responsiveness
• Customize product offering, market strategy
  including production and RD according to
  national conditions
• Generally unable to realize value from experience
  curve effects and location economies
• Possess high cost structure

34
Global Strategy

• Global Strategy focus on cost reductions
• Experience curve effects systematic reduction
  in production costs that occur over the life of a
  product
• Learning effects
• Economies of scale
• Location economies arise from performing a
  value creation activity in the optimal location
• Focus is on achieving a low cost strategy by
  reaping cost reductions that come from experience
  curve effects and location economies
• Production, marketing, and RD concentrated in
  few favorable functions
• Market standardized product to keep costs low
• Effective where strong pressures for cost
  reductions and low demand for local
  responsiveness exist
• Semiconductor industry

35
Transnational Strategy

• Transnational Strategy simultaneous focus on
  reducing costs, transferring skills and products,
  and being locally responsive.
• To meet competition, firms aim to reduce costs,
  transfer core competencies while paying attention
  to pressures for local responsiveness
• Global learning
• Valuable skills can develop in any of the firms
  world wide operations
• Transfer of knowledge from foreign subsidiary to
  home country, to other foreign subsidiaries
• Transnational strategy difficult task due to
  contradictory demands placed on the organization
• Caterpillar

36
The Evolution of Strategy

• Over time competitors inevitably emerge
• An international strategy may not be viable in
  the long-term so firms need to shift toward a
  global standardization strategy or a
  transnational strategy in advance of competitors
• As competition intensifies
• International and localization strategies tend to
  become less viable
• Managers need to orient their companies toward
  either a global standardization strategy or a
  transnational strategy

37
The Evolution of Strategy
38
Managerial Implications Global Activities

• Benefits
• Greater return on core competencies
• Location economies
• Challenges
• Consumer tastes and preferences
• Infrastructure and traditional practices
• Distribution channels
• Host government demands

39
BCG Matrix (Chapter 12)

• The BCG Matrix is based on the product life cycle
  theory and it became on of the most well-known
  portfolio management decision making tools in the
  early 1970's.
• There are two dimensions - market share and
  market growth.

http//www.decide-guide.com/BCG-matrix.html http/
/www.decide-guide.com/porters-five-forces-model.ht
ml
40
5 Forces Analysis (Chapter 12)

• Entry of competitors
• How easy or difficult is it for new entrants to
  start competing?
• What economies of scale does a competitor need?
• Is there a learning curve?
• Threat of substitutes
• How easy can a product or service be substituted?
  
• Can products be made cheaper ?
• What are the switching costs?
• Bargaining power of buyers
• What buyer information is available?
• What price sensitivity exists in the market?
• Bargaining power of suppliers
• Is there a monopoly of suppliers?
• Is there presence of substitute inputs?
• Rivalry among the existing players
• Does strong competition between the existing
  players exist?
• What barriers to exit exists?
• What kind of industry growth exists?

http//www.decide-guide.com/porters-five-forces-mo
del.html
41
Chapter 13 The Organization of International
Business

• Wendy Jeffus
• Harvard Summer School

42
Strategic Choice

• Global strategy
• Centralized due to operational issues
• Localization strategy
• Decentralized due to emphasis on local
  responsiveness
• International strategy
• Centralize core competencies and decentralize
  foreign subsidiaries
• Transnational strategy
• Mixed Centralized for location and experience
  curve economies
• And decentralized for local responsiveness

http//www.intel.com, http//www.ti.com,
http//www.motorola.com/us, http//www.zara.com/,
http//www.cat.com/cda/layout?m8703x7, http//w
ww.nestle.com, http//www.pg.com/en_US/index.jhtml
, http//www.xerox.com/, http//www.microsoft.com/
en/us/default.aspx, http//www.mtv.com/
43
Organizational Architecture

• Organizational architecture includes the totality
  of a firms organization, including formal
  organization structure, control systems and
  incentives, processes, organizational culture,
  and people
• Superior enterprise profitability requires three
  conditions
• The different elements of a firms organizational
  architecture must be internally consistent
• The organizational architecture must match or fit
  the strategy of the firm
• The strategy and architecture of the firm must
  not only be consistent with each other but they
  also must be consistent with competitive
  conditions

44
Organizational Architecture
Structure Formal division of the firm into
subunits (product divisions, national operations,
and functions) location of decision-making
responsibilities integrating mechanisms.
Processes - The manner in which decisions are
made and work is performed within the
organization
People - The strategy used to recruit,
compensate, and retain employees and the type
of people hired (i.e. their skills, values, and
orientation.)
Culture - The norms and value systems that are
shared among the employees of an organization
Incentives - The devices used to reward
appropriate managerial behavior Control systems
- The metrics used to measure the performance of
sub-units
45
Structure

• Organizational structure can be thought of in
  terms of three dimensions
• Vertical differentiation the location of
  decision-making responsibilities within a
  structure. Where decision-making power is
  concentrated.
• Centralized or Decentralized decision making
• Horizontal differentiation the formal division
  of the organization into sub-units
• Examples by function, product, geography, or
  type of business.
• Establishment of integrating mechanisms
  mechanisms for coordinating sub-units

Shoes (Ethiopia)
Consult (Japan)
46
Vertical Differentiation

• Centralization
• Facilitates coordination
• Ensure decisions consistent with organizations
  objectives
• Top-level managers have means to bring about
  organizational change
• Avoids duplication of activities

• Decentralization
• Reduces the burden on top management
• Motivational research favors decentralization
• Permits greater flexibility
• Can result in better decisions
• Can increase control

Consult (Japan)
Shoes (Ethiopia)
47
Horizontal Differentiation

• Horizontal differentiation how a firm divides
  itself into subunits
• Based on function
• (i.e. finance, marketing, etc.)
• Type of business
• Geographical area
• Local responsiveness
• By product
• Location economies
• Experience curve economies

Shoes (Ethiopia)
Consult (Japan)
48
Typical Functional Structure

• Most small firms develop along these lines as
  they grow the entrepreneur typically maintains
  tight control.

• But as firms grow and develop new product lines,
  it can become a clumsy structure that is
  difficult to supervise and it can be difficult to
  identify the profit/loss of each business area.

49
The International Division

• Many manufacturing firms expanded internationally
  by exporting the product manufactured at home to
  foreign subsidiaries to sell
• In time it might prove viable to manufacture the
  product in each country
• The result could be that
• Firms with a functional structure at home would
  replicate the functional structure in every
  country in which they do business
• Firms with a divisional structure would replicate
  the divisional structure in every country in
  which they do business

http//www.walmart.com/
50
Problems with the International Structure

• Potential for conflict and coordination problems
  between domestic and foreign operations
• Heads of foreign subsidiaries are not given as
  much voice in the organization as the heads of
  domestic functions
• The international division is presumed to be able
  to represent the interests of all countries to
  headquarters
• Lack of coordination between domestic operations
  and foreign operations
• To combat these problems firms choose one of the
  following structures
• Worldwide product divisional structure which
  tends to be adopted by diversified firms that
  have domestic product division
• Worldwide area structure which tends to be
  adopted by undiversified firms whose domestic
  structures are based on functions

51
Worldwide Area Structure

• Worldwide area structure
• Favored by firms with low degree of
  diversification and domestic structure based on
  function
• World is divided into autonomous geographic areas
• Operational authority decentralized
• Facilitates local responsiveness
• Fragmentation of organization can occur
• Consistent with multi-domestic strategy

52
Worldwide Product Divisional Structure

• Adopted by firms that are reasonably diversified
• Original domestic firm structure based on product
  division
• Value creation activities of each product
  division coordinated by that division worldwide
• Help realize location and experience curve
  economies
• Facilitate transfer of core competencies
• Problem area managers have limited control,
  subservient to product division managers, leading
  to lack of local responsiveness

http//www.motorola.com/us
53
Global Matrix Structure

• Helps to cope with conflicting demands of earlier
  strategies
• Two dimensions product division and geographic
  area
• Product division and geographic areas given equal
  responsibility for operating decisions
• Problems
• Bureaucratic structure slows decision making
• Conflict between areas and product divisions
• Difficult to make one party accountable due to
  dual responsibility

54
Global Matrix Structure
http//www.unilever.com/default.asp
55
Organizational Structure

• This should be thought of in terms of three
  dimensions
• Vertical differentiation the location of
  decision-making responsibilities within a
  structure. Where decision-making power is
  concentrated
• Horizontal differentiation the formal division
  of the organization into sub-units
• Establishment of integrating mechanisms
  mechanisms for coordinating sub-units

56
Integrating Mechanisms

• Need for coordination follows the following
  order
• Impediments to Coordination
• Differing goals and lack of respect
• Different orientations due to different tasks
• Differences in nationality, time zone, and
  distance
• Particularly problematic in multinational
  enterprises with their many sub-units both home
  and abroad

57
The Telephone GAME
58
Formal Integrating Systems

• Direct contact between sub-unit managers
• Liaison roles an individual assigned
  responsibility to coordinate with another
  sub-unit on a regular basis
• Temporary or permanent teams from sub-units to
  achieve coordination
• Matrix structure all roles viewed as integrating
  roles
• Often based on geographical areas and worldwide
  product divisions

Food (U.A.E.)
Healthy F (Netherlands)
Alt. E (China)
Home E (France)
59
Informal Integrating Mechanisms

• Informal management networks supported by an
  organization culture that values teamwork and a
  common culture
• Non-bureaucratic flow of information
• It must embrace as many managers as possible
• Two techniques used to establish networks
• Information systems
• Management development policies
• Rotating managers through various sub-units on a
  regular basis

Food (U.A.E.)
Healthy F (Netherlands)
Alt. E (China)
Home E (France)
60
Informal Integrating Mechanisms
61
Control Systems

• Types of control systems
• Personal controls personal contact with
  subordinates.
• More common in small firms, but GEs Jack Welch
  also used this control system.
• Bureaucratic controls high need for approval
  emphasis on rules and guidelines.
• Typical for RD and other budgets
• Output controls (i.e. profitability, growth,
  productivity, market share)
• Cultural controls norms and values of the
  system guide behavior (i.e. Starbucks employees
  and Disney employees)

62
Incentive Systems

• Incentive systems
• Refer to devices used to reward appropriate
  behavior
• Closely tied to performance metrics used for
  output controls
• Differs across cultures (i.e. Lincoln Electric
  pays for piecework in the U.S. but this is
  illegal in Germany).
• Factors that influence incentive systems
• Seniority and nature of work
• Reward linked to output target that the employee
  can influence
• Cooperation between managers in sub-units
• Link incentives to profit of the entire firm
• National differences in institutions and culture
• Consequences of an incentive system should be
  understood

63
Performance Ambiguity

• Key to understanding the relationship between
  international strategy, control systems and
  incentive systems is performance ambiguity
• Caused due to high degree of interdependence
  between sub-units within the organization
• Level of performance ambiguity depends on number
  of sub-units, level of integration, and joint
  decision making
• Descending order of ambiguity in firms

64
Organizational Culture

• Values and norms shared among people
• Sources
• Founders and important leaders
• National social culture
• History of the enterprise
• Decisions that result in high performance
• Cultural maintenance
• Hiring and promotional practices
• Reward strategies
• Socialization processes
• Communication strategy

P-I-M (Switzerland)
Natura (Russia)
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Organizational Culture SWA vs. AA

• 1992 - Herb Kelleher and Stevens Aviation
  Chairman Kurt Herwald square off in the Malice in
  Dallas arm wrestling event for the rights to use
  the slogan, Just Plane Smart. Although Herb
  loses, Kurt allows Southwest to use the slogan,
  and local charities are the real winners.
• http//www.cbsnews.com/video/watch/?id3228291nta
  grelatedphotovideo

http//www.southwest.com/about_swa/airborne.html
66
Malice In Dallas

• Part 1
• http//www.youtube.com/watch?v51a5xuxxxZQ
• Part 2
• http//www.youtube.com/watch?viCQINlYBXOs
• Part 3
• http//www.youtube.com/watch?v46osNRJxBks
• Part 4
• http//www.youtube.com/watch?vEwU9m4oCtRE
• Part 5
• http//www.youtube.com/watch?vH_sXAdUNFnc
• Part 6
• http//www.youtube.com/watch?vonze5yCRiOI

67
More LUV Culture

• Rapping Flight Attendant
• http//www.youtube.com/watch?vivjybzdXVmI
• GAAP Explained by the Rapping Flight Attendant
• http//www.youtube.com/watch?v7P2-vEtXSug

68
Culture and Performance

• A Strong Culture
• Not always good
• Sometimes beneficial, sometimes not
• Context is important
• Adaptive cultures
• Culture must match an organizations architecture
• Culture does not necessarily translate across
  borders

69
Strategic Fit
Structure Controls Localization International Global Transnational
Vertical differentiation Decentralized Core competency centralized other decentralized Some centralized Mixed (Centralized and Decentralized)
Horizontal differentiation Area structure Product division Product division Informal matrix
Need for coordination Low Moderate High Very high
Integrating mechanisms None Few Many Very many
Performance ambiguity Low Moderate High Very high
Need for controls Low Moderate High Very high
70
Organizational Change

• Firms need to periodically alter their
  architecture to conform to changes in environment
  and strategy
• Hard to achieve due to organizational inertia
• Sources of inertia
• Possible redistribution of power and influence
  among managers
• Strong existing culture
• Senior managers preconceptions about the
  appropriate business model
• Institutional constraints such as national
  regulations including local content rules
  regarding layoffs

71
Organizational Change

• Change to match competitive and strategy
  environment
• Hard to change
• Existing distribution of power and influence
• Current culture
• Managers preconceptions about the appropriate
  business model or paradigm
• Institutional constraints
• Principles for change
• Unfreeze the organization
• Moving to the new state
• Refreezing the organization

http//www83.homepage.villanova.edu/richard.jacobs
/MPA208002/Project/reorganizatoin.jpg
72
Case Assignments

• JCB in India
• JCB's initial strategy was to export it's
  products, discuss the pros and cons of this
  strategy.
• Why did JCB pursue a JV entry strategy in India?
  What were the risks of this strategy?
• More recently JCB has invested in wholly owned
  factories. Discuss.
• Tesco Goes Global
• Present a 5-10min (timed) assessment of the case
  (answer case questions)
• All group members must participate.

http//www.youtube.com/watch?vk3WhQB7Hq0Q
http//www.jcb.co.uk/
73
Monday

• The Great Globalization Debate
• www.courses.fas.harvard.edu/sum/32268
• There will be prizes for the best team!
• Bring Your Cameras!