Test 3
firm value chain
the set of activities a firm engages in to create final products from raw inputs
organizational culture
the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization
Localization
the transformation of global culture by local cultures into something new
Porter's Five Forces
threat of entry, threat of substitute, supplier power, buyer power, and competitive rivalry
global matrix structure -
tries to minimize the limitations of the worldwide area structure and the worldwide product divisional structure
Transnational
tries to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm's global network of operations ➢This strategy makes sense when ➢both cost pressures and pressures for local responsiveness are intense ➢Difficult due to conflicting demands
How does a firm compete strategically in the global market place?
xemplify your strengths. ... Recruit better talent. ... Analyze your data. ... Stay ahead of consumer trends. ... Automate your marketing campaign.
Scale of Entry and Strategic Commitments
• A strategic commitment has a long-term impact and is difficult to reverse. • Rapid large-scale market entry can have an important influence on the nature of competition in a market. • Must be balanced against the resulting risks and lack of flexibility associated with significant commitments • Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market.
Which Foreign Markets?
• Choice based on assessment of a nation's long-run profit potential • Size of the market • Present and likely future wealth of consumers • Costs and risks • Value an international business can create in a foreign market depends on suitability of its products to that market and the nature of indigenous competition
Strategic alliances include:
• Cross-shareholding deals • Licensing arrangements • Formal joint ventures • Informal cooperative arrangements
Franchising
• Employed primarily by service firms • Advantages • Firm experiences lower costs and risks than opening a foreign market on its own • Helps build a global presence quickly • Disadvantages • May inhibit the firm's ability to take profits out of one country to support competitive attacks in another • Quality control • Set up subsidiaries
cultural control
control through beliefs and values deeply internalized in the minds of individuals
Strategies for black swan effects
financial hedging, real options hedging
support activities
firm activities that add value indirectly, but are necessary to sustain primary activities
What Is an International Division Structure?
One Company's International Division Structure
What kind of strategies do international companies pursue and under what conditions would they select one over another?
(1) multidomestic, (2) global, and (3) transnational Each strategy involves a different approach to trying to build efficiency across nations and trying to be responsiveness to variation in customer preferences and market conditions across nations
How does a firm compete strategically in the global marketplace?
By employing a strong strategy, understanding local labor laws, focusing on speed to market, and using partnerships to drive efficiency and innovation, companies can gain the competitive edge they are looking for in the global marketplace.
Incentives
- devices used to reward behavior ➢usually closely tied to performance metrics used for output controls ➢should vary depending on the employee and the nature of the work being performed ➢should promote cooperation between managers in sub-units ➢should reflect national differences in institutions and culture ➢can have unintended consequences
Worldwide Area Structure
- favored by firms with low degree of diversification and a domestic structure based on function
Global standardization
- increase profitability and profit growth by reaping the cost reductions from economies of scale, learning effects, and location economies ➢goal is to pursue a low-cost strategy on a global scale ➢This strategy makes sense when ➢there are strong pressures for cost reductions and demands for local responsiveness are minimal
Organizational culture
- the values and norms that employees are encouraged to follow ➢Evolves ➢Must be maintained ➢Organizational culture tends to change very slowly ➢Managers in companies with a "strong" culture share a relatively consistent set of values and norms that have a clear impact on the way work is performed ➢A "strong" culture
Global Matrix Structure
- tries to minimize the limitations of the worldwide area structure and the worldwide product divisional struct
How does a firm create value?
By focusing on the market
What Is Organizational Architecture?
Organizational architecture is the totality of a firm's organization, including formal organization structure, control systems and incentives, processes, organizational culture, and people
Functional Organization Structure
Organizational structure that is formal, traditional, and pyramid-shaped. Communication moves vertically between levels. Each functional area reports to the CEO.
Vertical Differentiation
1. Vertical differentiation - the location of decision-making responsibilities within a structure ➢Determines where decision-making power is concentrated ➢Centralized vs. decentralized
Four basic strategies to compete in international markets
1. global standardization 2. localization 3. transnational 4. international
Horizontal Differentiation
2. Horizontal differentiation - the formal division of the organization into subunits ➢usually based on function, type of business, or geographical area ➢Most firms begin with no formal structure but later split into functions reflecting the firm's value creation activities - functional structure
Joint Ventures
50-50 ventures are most common • Advantages • Local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business • Shared costs and risks • Political considerations (government interference, nationalism, etc.) Disadvantages • Loss of technology control • Lack of control over subsidiaries that it might need to realize experience curve or location economies • Can lead to conflicts and battles for control between the investing firms if their goals and objectives change or if they take different views as to what the strategy should be
What are core competencies and how can firms protect them?
A Core Competency is a deep proficiency that enables a company to deliver unique value to customers. It embodies an organization's collective learning, particularly of how to coordinate diverse production skills and integrate multiple technologies
Transnational Corporation
A company that conducts research, operates factories, and sells products in many countries, not just where its headquarters or shareholders are located.
balance sheet approach
A compensation system designed to match the purchasing power in a person's home country
Franchising
A contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a business using a name and format developed and supported by the franchisor.
differentiation strategy
A differentiation strategy is an approach businesses develop by providing customers with something unique, different and distinct from items their competitors may offer in the marketplace. The main objective of implementing a differentiation strategy is to increase competitive
Greenfield Investment
Establishing a new operation in a foreign country
Matrix Structure Combines Functional and Divisional Models
A matrix structure combines elements of the functional and divisional models, so it's more complex. It groups people into functional departments of specialization, then further separates them into divisional projects and products. In a matrix structure the team members are given more autonomy and expected to take on more responsibility for their work. This increases the productivity of the team, fosters greater innovation and creativity, and allows managers to cooperatively solve decision-making problems through group interaction. This type of organizational structure takes lots of planning and effort, making it appropriate for large companies that have the resources to devote to managing a complex business framework.
Geocentric
A model of the universe in which Earth is at the center of the revolving planets and stars. The final element within this model is geocentrism, which is the approach taken by organizations trying to use a 'world view' in order to run their business. In many ways, this is an approach that falls somewhere between the first two that we have covered. A geocentric organization will not default to either the customs and traditions of their home country or the host country. Rather, this kind of organization will focus only on what they think is best for the needs of the organization and its customers. To the greatest extent possible, nationalities are largely ignored in this system, with the company being run as a global enterprise rather than a large corporation which is deeply rooted in one specific nation.
What do you know about the value chain?
A value chain is a step-by-step business model for transforming a product or service from idea to reality. ... The end goal of a value chain is to create a competitive advantage for a company by increasing productivity while keeping costs reasonable
Exporting
Advantages • Avoids the often substantial costs of establishing manufacturing operations in host country • May help firm achieve experience curve and location economies Disadvantages • May not be appropriate if lower-cost locations for manufacturing the product can be found abroad • High transport costs can make exporting uneconomical, particularly for bulk products • Tariff barriers can make exporting uneconomical
Turkey Projects
Advantages • Can earn great economic returns • Can be less risky than conventional FDI • Disadvantages • The firm that enters into a turnkey deal will have no long-term interest in the foreign country. • May inadvertently create a competitor • Selling a technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors.
decentralized organization
An organization in which lower-level managers make important decisions
multinational corporation
An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management
Flat Organizational Structure
An organizational structure that has only a few levels of management and emphasizes decentralization
How do strategies evolve?
As competitors emerge localization and International strategies become less of an option
Decentralization
Degree to which decision-making authority is given to lower levels in an organization's hierarchy. is a type of organizational structure in which daily operations and decision-making responsibilities are delegated by top management to middle and lower-level mangers. This frees up top management to focus more on major decisions.
What are two strategies for creating value?
Differentiation strategy ➢adding value to a product so that customers are willing to pay more for it •Low cost strategy ➢lowering costs
product divisions
Divisional structures in which activities are grouped around similar products or services
International staffing policies, including when and how to use them
Ethnocentric strategy uses same HR practices of parent company in host nations, Polycentric strategy employ local people as workforce and adapts the HR practices of host nation Geocentric staffing refers to the choices that multinational corporations make regarding the staffing of their subsidiaries, whether they use parent country nationals (employees from the home country), host country nationals (employees from the subsidiary location), third country nationals (employees from a country
Under what conditions might a firm select one of the various entry modes we discussed in class? What are the advantages/disadvantages of each?
Exporting Advantages: Fast entry, low risk Disadvantages: Low control, low local knowledge, potential negative environmental impact of transportation Licensing and Franchising: A: Fast entry, low cost, low risk DA: Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be sound Partnering and strategic alliance: A: Shared costs reduce investment needed, reduced risk, seen as local entity DA: Higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures Acquisition A: Fast entry; known, established operations DA: High cost, integration issues with home office Greenfield Venture (Launch of a new, wholly owned subsidiary) A: Gain local market knowledge; can be seen as insider who employs locals; maximum control DA: High cost, high risk due to unknowns, slow entry due to setup time
What is the difference between control and decision processes?
Fama and Jensen (1983) claimed that initiation and implementation of decisions are typically allocated to the same agent (the top manager), these two decisions were called decision management. 'Decision control' was the term used for ratification and monitoring of decisions and in the hands of the owners
What kind of pressures does a firm face when operating in global markets?
Firms that compete in the global marketplace typically face two types of competitive pressure: Pressures for cost reductions; and. Ppressures to be locally responsive.
What happens next?
Firms that continue to expand will move to either a: •Worldwide product division structure - adopted by firms that are reasonably diversified
Timing of Entry
First-mover advantages • Preempt rivals and capture demand by establishing a strong brand name and customer satisfaction • Build sales volume in that country and ride down the experience curve ahead of rivals • Create switching costs that tie customers into their products or services Pioneering costs • The enterprise has to devote considerable effort, time, and expense to learning the rules of the game. • Costs of business failure • Costs of promoting and establishing a product offering, including the costs of educating customers • Regulations may change in a way that diminishes the value of an early entrant's investments. • Need to educate customers about your company's products
How Are the Environment, Strategy, Architecture, and Performance Related?
For a firm to succeed •The firm's strategy must be consistent with the environment in which the firm operates •The firm's organization architecture must be consistent with its strategy ➢firms need to change their architecture to reflect changes in the environment in which they are operating and the strategy they are pursuing
Licensing
Intangible property • Patents, inventions, formulas, processes, designs, copyrights, and trademarks • Advantages • No development costs and risks associated with opening a foreign market • Used when a firm wishes to participate in a foreign market but is prohibited from doing so by barriers to investment • Used when a firm possesses some intangible property that might have business applications, but it does not want to develop those applications itself Disadvantages • Does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies • Limits a firm's ability to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another • A firm can lose control over its technology by licensing it • To reduce this risk, enter into a cross-licensing agreement or joint venture
area division
Global area division structure is used for operations that are controlled on a geographic rather than a product basis. Firms in mature businesses with select product lines use it. Advantages. International operations and domestic operations remain at the same level
What is the global standardization strategy?
Global standardization - increase profitability and profit growth by reaping the cost reductions from economies of scale, learning effects, and location economies ➢goal is to pursue a low-cost strategy on a global scale ➢This strategy makes sense when ➢there are strong pressures for cost reductions and demands for local responsiveness are minimal
Real options hedging
Hedging is a technique that is frequently used by many investors, not just options traders. ... Stock traders will often use options to hedge against a fall in price of a specific stock, or portfolio of stocks, that they own. Options traders can hedge existing positions, by taking up an opposing position.
Control Systems
How you track someone's work
Divisional Structure Based on Products
In a divisional structure, your company groups workers into teams based on the products or projects that meet the needs of a certain type of customer. For example, a bakery with a catering operation might structure the workforce based on key clientele, such as a wedding department and a wholesale-retail department. The division of labor in this kind of structure ensures workers making similar products can achieve greater efficiency and higher output.
When should decision-making be centralized/decentralized?
In centralized organizations, primary decisions are made by the person or persons at the top of the organization. Decentralized organizations delegate decision-making authority throughout the organization. Daily decision-making involves frequent and immediate decisions.
acquisition
In classical conditioning, the initial stage, when one links a neutral stimulus and an unconditioned stimulus so that the neutral stimulus begins triggering the conditioned response. In operant conditioning, the strengthening of a reinforced response.
Advantages of first mover strategy
In marketing strategy, first-mover advantage is the competitive advantage gained by the initial significant occupant of a market segment The advantages of first movers include time to develop economies of scale—cost-efficient ways of producing or delivering a product.
What Is the Link Between Control, Incentives, & Strategy?
Interdependence, Performance Ambiguity, and the Costs of Control for the Four International Business Strategies
FDI
Investment made by a foreign company in the economy of another country.
What are ways that firms can evaluate the performance of expatriate managers?
It can be very difficult to evaluate the performance of expatriate managers objectively becauseof unintentional bias. A host-country manager may be biased by his/her own cultural frame ofreference and expectations, while a home-country manager may be biased by distance andhis/her own lack of experience working abroad. In fact, home-country managers tend to relyon hard data to evaluate an expatriate's performance, data that may reflect factors outside theexpatriate's control. This reliance on hard data has led many expatriates to complain thatbecause "soft" variables are also important to their success, they are not getting fairevaluations. Indeed, one study found that over half of the expatriates questioned believed thata foreign assignment was either detrimental or immaterial to their career
What are upstream/downstream and primary/support activities?
It's not unusual to hear people involved in production make frequent reference to "upstream" and "downstream" parts of the process. Upstream refers to the material inputs needed for production, while downstream is the opposite end, where products get produced and distributed. Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. They consist of the following: Inbound logistics - These are all the processes related to receiving, storing, and distributing inputs internally.
experience
Knowledge or skill that comes from having done certain things.
How do labor relations impact international business?
Labor relations are the term used to define the process between employers and employees, management and unions in order to make decisions in organizations. The decisions taken refer to wages, working conditions, hours of work, and safety at work, security and grievances.
What kind of biases can appear in the appraisal processes for expatriate managers?
Managers commit mistakes while evaluating employees and their performance. Biases and judgment errors of various kinds may spoil the performance appraisal process. Bias here refers to inaccurate distortion of a measurement.
Porter's Five Forces
Model developed by strategy expert Michael Porter that identifies five competitive forces that influence planning strategies.
Centralized business
People at the top make the decisions (CEO)
Control Systems
Personal controls -personal contact with subordinates •Bureaucratic controls -a system of rules and procedures that directs the actions of subunits •Output controls - setting goals for subunits to achieve and expressing those goals in terms of objective performance metrics •Cultural controls - exist when employees "buy into" the norms and value systems of the firm
Acquisitions
Pros and Cons of Acquisitions • Quick to execute • May help preempt competitors • May be less risky than greenfield ventures • Acquisitions often produce disappointing results. Cons Overpaying • Hubris hypothesis of why acquisitions fail • Culture clash • Integrating the operations of the acquired and acquiring entities often run into roadblocks and take much longer than forecast • Inadequate preacquisition screening
What kind of biases can appear in the appraisal processes for expatriate managers?
Recency bias. When reviewing an employee's performance, managers tend to focus on the most recent time period instead of the total time period. You can also call this the "What have you done for me latel
Financial Hedging
Refers to hedging exchange risk exposure using financial contracts such as currency forward and options contracts.
Upstream primary activity
Research and development
Downstream primary activity
Sales
Greenfield
Set up a whole new operation on green field ina country
Why would a firm choose an acquisition over a green-field investment?
Since multidomestic companies are dependent on local knowledge, they are more likely to choose an acquisition as an entry mode than global companies, which are mostly operating with economies of scale and standardisation and therefore using greenfield investments.
What is the relationship between strategy and structure?
Structure supports strategy. If an organization changes its strategy, it must change its structure to support the new strategy. When it doesn't, the structure acts like a bungee cord and pulls the organization back to its old strategy. Strategy follows structure.
A global mindset may be the fundamental attribute of a global manager (high levels of complexity, ambiguity, and openness to the world) ➢A global mindset is often acquired early in life from ➢a family that is bicultural ➢living in foreign countries ➢learning foreign languages as a regular part of family life
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A good culture can effect performance for good or bad at times
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Advantages of Strategic Alliances • May facilitate entry into a foreign market • Allow firms to share the fixed costs (and associated risks) of developing new products or processes • Brings together complementary skills and assets that neither company could easily develop on its own • May help the firm establish technological standards for the industry that will benefit the firm Disadvantages of Strategic Alliances • May give competitors a low-cost route to new technology and markets
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Firms pursuing a global standardization strategy focus on the realization of location and experience curve economies ➢headquarters maintains control over most decisions ➢the need for integrating mechanisms is high ➢strong organizational cultures are encouraged ➢the worldwide product division is common
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What Is a Staffing Policy? ➢Staffing policy is concerned with the selection of employees who have the skills required to perform a particular job ➢can be a tool for developing and promoting the firm's corporate culture
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Firms pursuing a transnational strategy focus on simultaneously attaining location and experience curve economies, local responsiveness, and global learning ➢some decisions are centralized and others are decentralized ➢the need for coordination and cost of control is high ➢an array of formal and informal integrating mechanism are used ➢a strong culture is encouraged ➢matrix structures are common
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Firms pursuing an international strategy create value by transferring core competencies from home to foreign subsidiaries ➢the need for control is moderate ➢the need for integrating mechanisms is moderate ➢performance ambiguity is relatively low and so is the cost of control ➢the worldwide product division structure is common
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Franchising • Employed primarily by service firms • Advantages • Firm experiences lower costs and risks than opening a foreign market on its own • Helps build a global presence quickly • Disadvantages • May inhibit the firm's ability to take profits out of one country to support competitive attacks in another • Quality control • Set up subsidiaries
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How Are the Environment, Strategy, Architecture, and Performance Related? ➢For a firm to succeed •The firm's strategy must be consistent with the environment in which the firm operates •The firm's organization architecture must be consistent with its strategy ➢firms need to change their architecture to reflect changes in the environment in which they are operating and the strategy they are pursuing
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How Can Firms Implement Organizational Change? Organizations can be difficult to change because of: ➢the existing distribution of power and influence ➢the current culture (e.g., administrative heritage) ➢managers' preconceptions about the appropriate business model or paradigm ➢institutional constraints
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How Can Firms Implement Organizational Change? ➢To implement organization change: •Unfreeze the organization through shock therapy •Move the organization to a new state through proactive change in architecture •Refreeze the organization in its new state
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How Can Firms Reduce Expatriate Failure? ➢Firms can reduce expatriate failure through improved selection procedures ➢Four dimensions that predict expatriate success are: •Self-orientation - the expatriate's self-esteem, self-confidence, and mental well-being •Others-orientation - the ability to interact effectively with host-country nationals •Perceptual ability - the ability to understand why people of other countries behave the way they do •Cultural toughness - the ability to adjust to the posting
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How Can Performance Appraisal Bias Be Reduced? ➢To reduce bias in performance appraisal ➢more weight should be given to an on-site manager's appraisal than to an off-site manager's appraisal ➢a former expatriate who has served in the same location should be involved in the process ➢Home-office managers should be consulted before an on-site manager completes a formal termination evaluation
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How Should Expatriates Be Evaluated? ➢Evaluating expatriates can be especially complex ➢typically, both host-nation managers and home-office managers evaluate the performance of expatriate managers ➢But, both types of managers are subject to unintentional bias
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How Should Expatriates Be Paid? ➢Most firms use the balance sheet approach ➢equalizes purchasing power across countries so employees have the same living standard in their foreign posting as at home ➢and adds a financial incentive to take the position
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How Should Expatriates Be Evaluated? ➢Evaluating expatriates can be especially complex ➢typically, both host-nation managers and home-office managers evaluate the performance of expatriate managers ➢But, both types of managers are subject to unintentional bias
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How Should National Differences in Compensation Be Treated? ➢Currently, there are substantial differences in executive compensation across countries ➢Research shows ➢a top U.S. executive made an average of $525,923 in the 2005-2006 period, compared to $278,697 in Japan, and $158,146 in Taiwan
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Joint Ventures • 50-50 ventures are most common • Advantages • Local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business • Shared costs and risks • Political considerations (government interference, nationalism, etc.) Joint Ventures continued • Disadvantages • Loss of technology control • Lack of control over subsidiaries that it might need to realize experience curve or location economies • Can lead to conflicts and battles for control between the investing firms if their goals and objectives change or if they take different views as to what the strategy should be
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Learning Objective 15-1 Explain the three basic decisions firms must make when they decide on foreign expansion: which markets to enter, when to enter those markets, and on what scale. Which Foreign Markets? • Choice based on assessment of a nation's long-run profit potential • Size of the market • Present and likely future wealth of consumers • Costs and risks • Value an international business can create in a foreign market depends on suitability of its products to that market and the nature of indigenous competition
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Licensing • Intangible property • Patents, inventions, formulas, processes, designs, copyrights, and trademarks • Advantages • No development costs and risks associated with opening a foreign market • Used when a firm wishes to participate in a foreign market but is prohibited from doing so by barriers to investment • Used when a firm possesses some intangible property that might have business applications, but it does not want to develop those applications itself Licensing continued • Disadvantages • Does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies • Limits a firm's ability to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another • A firm can lose control over its technology by licensing it • To reduce this risk, enter into a cross-licensing agreement or joint venture
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What Is Human Resource Management? ➢Human resource management (HRM) - the activities an organization carries out to utilize its human resources effectively ➢These activities include ➢determining human resource strategy ➢staffing ➢performance evaluation ➢management development ➢compensation ➢labor relations
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Making Alliances Work • Partner selection • A good partner: • Helps the firm achieve its strategic goals • Has capabilities the firms lacks • Is unlikely to try to opportunistically exploit its partner • Choosing a partner: • Collect as much pertinent, publicly available information on potential allies as possible • Gather data from informed third parties • Get to know the potential partner as well as possible before committing to an alliance Making Alliances Work continued • Alliance Structure • Reduce the risk of giving away too much to the partner. • Use contractual safeguards to guard against the risk of opportunism by a partner. • Agree in advance to swap skills and technologies that the other covets, thereby ensuring a chance for equitable gain. • Cross-licensing agreements • Extract a significant credible commitment from the partner in advance. Making Alliances Work continued • Managing the Alliance • Be sensitive to cultural differences. • Build trust. • Build relational capital. • Learn from the alliance partner and apply the knowledge within one's own organization.
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Performance Ambiguity, Interdependence and Costs of control all increases with the wider reach of product and bigger the organization
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Pressures for Cost Reductions and Entry Mode • The greater the pressures for cost reductions, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries. • Wholly owned marketing subsidiaries give the firm tight control that might be required for coordinating a globally dispersed value chain. • Also give the firm the ability to use the profits generated in one market to improve its competitive position in another market
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Pros and Cons of Acquisitions • Quick to execute • May help preempt competitors • May be less risky than greenfield ventures • Acquisitions often produce disappointing results. Why Do Acquisitions Fail? • Overpaying • Hubris hypothesis of why acquisitions fail • Culture clash • Integrating the operations of the acquired and acquiring entities often run into roadblocks and take much longer than forecast • Inadequate preacquisition screening Pros and Cons of Acquisitions continued • Reducing the risks of failure • Detailed audit of operations, financial position, and management culture • Reduce unwanted management attrition • Have an integration plan
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Pros and Cons of Greenfield Ventures • Gives the firm a much greater ability to build the kind of subsidiary company that it wants • Slower to establish • Risky, but less risky than acquisitions • Preemption by global competitors Which Choice? • Acquisition when: • The firm is seeking to enter a market where there are already well-established incumbent enterprises • Global competitors are also interested in establishing a presence • Greenfield when: • There are no incumbent competitors to be acquired • The competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture
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Scale of Entry and Strategic Commitments • A strategic commitment has a long-term impact and is difficult to reverse. • Rapid large-scale market entry can have an important influence on the nature of competition in a market. • Must be balanced against the resulting risks and lack of flexibility associated with significant commitments • Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market.
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Should pay be equalized across countries? ➢Many firms have recently moved toward a compensation structure that is based on global standards ➢especially important in firms with a geocentric staffing policy ➢But, most firms still set pay according to the prevailing standards in each country
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Staffing policy is concerned with the selection of employees who have the skills required to perform a particular job ➢can be a tool for developing and promoting the firm's corporate culture
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Strategic alliances include: • Cross-shareholding deals • Licensing arrangements • Formal joint ventures • Informal cooperative arrangements
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The ethnocentric approach - fill key management positions with parent-country nationals •The polycentric approach - recruit host-country nationals to manage subsidiaries in their own country, and parent-country nationals for positions at headquarters •The geocentric approach - seek the best people, regardless of nationality, for key jobs
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Timing of Entry • First-mover advantages • Preempt rivals and capture demand by establishing a strong brand name and customer satisfaction • Build sales volume in that country and ride down the experience curve ahead of rivals • Create switching costs that tie customers into their products or services
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Timing of Entry continued • First-mover disadvantages • Pioneering costs • The enterprise has to devote considerable effort, time, and expense to learning the rules of the game. • Costs of business failure • Costs of promoting and establishing a product offering, including the costs of educating customers • Regulations may change in a way that diminishes the value of an early entrant's investments. • Need to educate customers about your company's products
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Training & Management Development ➢Training focuses upon preparing the manager for a specific job ➢Management development is concerned with developing the skills of the manager over time
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Trunkey can be used or sold anywhere
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What Are the Key Issues in Compensating Expatriates? •How to adjust compensation to reflect differences in economic circumstances and compensation practices •How to pay expatriate managers
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What Happens When Expatriates Return Home? ➢Training and development should include preparing and developing expatriate managers for reentry into their home country organization ➢need good programs for: ➢re-integrating expatriates back into work life within their home-country organization ➢utilizing the knowledge they acquired while abroad ➢Example: Monsanto
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What Is Expatriate Failure? ➢Expatriate failure is the premature return of an expatriate manager to the home country ➢each expatriate failure can cost between $40,000 and $1 million ➢between 16% and 40% of all American expatriates in developed countries fail and almost 70% of Americans assigned to developing countries fail
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What Is the Strategic Role of HRM in International Firms? ➢HRM can help the firm reduce the costs of value creation and add value by better serving customer needs ➢more complex in an international business due to differences between countries ➢HRM must also determine when to use expatriate managers
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What are the five components of a compensation package? 1.Base salary 2.Foreign service premium 3.Various allowances 4.Tax differentials 5.Benefits
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What are the three main approaches to staffing policy? •The ethnocentric approach - fill key management positions with parent-country nationals •The polycentric approach - recruit host-country nationals to manage subsidiaries in their own country, and parent-country nationals for positions at headquarters •The geocentric approach - seek the best people, regardless of nationality, for key jobs
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Who Are Expatriates? ➢Citizens of one country working abroad ➢Firms using an ethnocentric or geocentric staffing strategy will have expatriate managers ➢Benefits: ➢Can change your finances, career progression, wellbeing, and personal aspirations ➢Expat resource: ➢https://expatexplorer.hsbc.com/global-report/ ➢Use the Expat Explorer to find destinations that match your priorities (video overview: https://expatexplorer.hsbc.com/interstitial/expat-survey-results-2019.html) - the importance of fit! ➢Young people: https://expatexplorer.hsbc.com/survey/finding/218/young-professionals-who-move-early-succeed-even-earlier
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Wholly Owned Subsidiaries • Greenfield venture - set up a new operation in host country • Acquisition - acquire an established firm in a host nation • Advantages • Reduces the risk of losing control over technology • Can tightly control operations in different countries • Location and experience curve economies • 100 percent share of profits • Disadvantages • Bear full cost and risk of establishing new market • Can be problems associated with acquisitions
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Why Do European Expatriate Managers Fail? Japanese? ➢The reason for European expatriate failure is ➢the inability of the manager's spouse to adjust ➢The main reasons for Japanese expatriate failure are: ➢the inability to cope with larger overseas responsibility ➢difficulties with the new environment ➢personal or emotional problems ➢a lack of technical competence ➢the inability of spouse to adjust
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Why Do U.S. Expatriate Managers Fail? ➢The main reasons for U.S. expatriate failure are ➢the inability of an expatriate's spouse to adapt ➢the manager's inability to adjust ➢other family-related reasons ➢the manager's personal or emotional maturity ➢the manager's inability to cope with larger overseas responsibilities
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Why Is Management Development Important to Firm Strategy? ➢Management development programs increase the overall skill levels of managers through ➢ongoing management education ➢rotations of managers through jobs within the firm to give them varied experiences ➢Management development can be a strategic tool to build a strong unifying culture and informal management network ➢support both transnational and global strategy
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Why Is a Global Mindset Important? ➢A global mindset may be the fundamental attribute of a global manager (high levels of complexity, ambiguity, and openness to the world) ➢A global mindset is often acquired early in life from ➢a family that is bicultural ➢living in foreign countries ➢learning foreign languages as a regular part of family life
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Why is training important for expatriate managers and what are the three types of training? ➢Training can reduce expatriate failure ➢Cultural training - fosters an appreciation for the host country's culture ➢Language training - an exclusive reliance on English diminishes an expatriate's ability to interact with host country nationals ➢Practical training - helps the expatriate and expatriate's family ease into day-to-day life in the host country ➢But, studies show that only about 30% of managers sent on one- to five-year expatriate assignments received training before their departure
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How Does Organizational Structure Change over Time?
The International Structural Stages Model
How Are a Firm's Operations Configured?
The Value Chain
Factors that lead to success in international assignments.
The authors found that family situation (adaptability of spouse and family, stable marriage, willingness of spouse to live abroad) and flexibility/ adaptability (tolerance of ambiguity, listening skills, ability to deal with stress) were perceived as the most important factors in the success of expatriates.
What are some of the cross-cultural impediments to expatriates' success?
The authors found that family situation (adaptability of spouse and family, stable marriage, willingness of spouse to live abroad) and flexibility/ adaptability (tolerance of ambiguity, listening skills, ability to deal with stress) were perceived as the most important factors in the success of expatriates.
performance appraisal
The evaluation of employees' job performance and contributions to their organization.
cultural adaptation
The positive reaction where by the foreigner readily accepts the new culture as part of his life and practice.
international division of labor
The process where the assembing procedures for a product are spread out through different parts of the world This structure is built to handle all international operations by a division created for control. It is often adopted by firms that are still in the development stages of international business operations.
bureaucratic control
The use of rules, regulations, and authority to guide performance
How Are a Firm's Operations Configured?
The value chain
core competencies
Things a company does extremely well, which sometimes give it an advantage over its competition
primary activities
Those parts of the economy involved in making natural resources available for use or further processing; included are mining, agriculture, forestry, fishing and hunting, and grazing.
How Is Value Created?
To increase profitability, a firm needs to create more value ➢The firm's value creation (V) is the difference between P (the price that the firm can charge for a product given competitive pressures) and C (the costs of producing that product) ➢a firm has high profits when it creates more value for its customers and does so at a lower cost
performance appraisal bias
To reduce bias in performance appraisal ➢more weight should be given to an on-site manager's appraisal than to an off-site manager's appraisal ➢a former expatriate who has served in the same location should be involved in the process ➢Home-office managers should be consulted before an on-site manager completes a formal termination evaluation
What are the various organizational structures you studied, what are their strengths and weaknesses, and when might the firm select one over another?
Traditional organizational structures come in four general types - functional, divisional, matrix and flat - but with the rise of the digital marketplace, decentralized, team-based org structures are disrupting old business models.
location theory
a logical attempt to explain the locational pattern of economic activities & the manner in which its producing areas are interrelated
Exporting • Advantages • Avoids the often substantial costs of establishing manufacturing operations in host country • May help firm achieve experience curve and location economies Exporting continued • Disadvantages • May not be appropriate if lower-cost locations for manufacturing the product can be found abroad • High transport costs can make exporting uneconomical, particularly for bulk products • Tariff barriers can make exporting uneconomical
Turnkey Projects • Advantages • Can earn great economic returns • Can be less risky than conventional FDI • Disadvantages • The firm that enters into a turnkey deal will have no long-term interest in the foreign country. • May inadvertently create a competitor • Selling a technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors.
Black swan events are:
Unexpected, high-magnitude events that are beyond what modern society can usually predict 9/11
Ethical Approaches
Utilitarian, Individualism, Moral-Rights, Justice, Practical
Firm value creation
Value creation happens when a business or organization uses its work and resources to create something of value that is sold to a customer base. In turn, the business earns a profit for what it has created and the customers have a want or need fulfilled.
Firm Value Strategy
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value
Expatriate Training
a person native to one country who serves a period of employment in another country
Learning
a relatively permanent change in an organism's behavior due to experience
International Strategy
a strategy through which the firm sells its goods or services outside its domestic market
centralized organizational structure
an operational model whereby all decisions are controlled by a central administration unit and carried down through the chain of command within an organization Centralization refers to a setup in which the decision-making powers are concentrated in a few leaders at the top of the organizational structure. Decisions are made at the top and communicated to lower-level managers for implementation.
matrix structure
an organization combines functional and divisional chains of command in a grid so that there are two command structures-vertical and horizontal
Learning effects
are cost savings that come from learning by doing ➢When labor productivity increases ➢individuals learn the most efficient ways to perform particular tasks ➢managers learn how to manage the new operation more efficiently
What purpose does a firm's organizational culture serve?
culture at your organization sets expectations for how people behave and work together, and how well they function as a team. In this way, culture can break down the boundaries between siloed teams, guide decision-making, and improve workflow overall.
output mechanism
defines the way the system provides information to users or other systems
Disadvantage of first mover strategy
disadvantages of first movers include the risk of products being copied or improved upon by the competition. Amazon and eBay are examples of companies that enjoy first-mover status.
Ethnocentrism
evaluation of other cultures according to preconceptions originating in the standards and customs of one's own culture. The idea behind ethnocentrism is the concept that the organization is going to default to the thinking, traditions, and more of its home country. For instance, if a company is based in the United Kingdom and has leadership from the U.K., that background is going to shape its decision making. Even if there are plenty of branch offices in locations around the world, the company will default back to the ways of doing business in the U.K. because that is what they know best.
Performance ambiguity
exists when the causes of a subunit's poor performance are not clear ➢is common when a subunit's performance is dependent on the performance of other subunits ➢is lowest in firms with a localization strategy ➢is higher in international firms ➢is still higher in firms with a global standardization strategy ➢is highest in transnational firms
Entry Modes of International Expansion
exporting, licensing, franchising, strategic alliance, joint venture, wholly owned subsidiary
economies of scale
factors that cause a producer's average cost per unit to fall as output rises
What is the organizational structure that works best with a given international strategy?
functional structure is arguably the most common type of organizational structure. ... An advantage of the functional structure is that grouping jobs by skills and knowledge enables a greater efficiency of human resources. Departments are likely to make the right management decisions because of the combined expertise.
Cost Pressures
identify new and innovative ways to eliminate unnecessary costs from their business processes, including logistics costs
Black Swan Events
incidents that describe highly improbable but high-impact events
Localization
increase profitability by customizing goods or services so that they match tastes and preferences in different national markets ➢This strategy makes sense when ➢there are substantial differences across nations with regard to consumer tastes and preferences and cost pressures are not too intense
Organizational architecture
is the totality of a firm's organization, including formal organization structure, control systems and incentives, processes, organizational culture, and people
control mechanisms
output, profit, bureaucratic, cultural
Global Strategy
part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world
Ethical dilemmas are:
problems about which more than one choice can be made and the choice made is influenced by the values and beliefs of the decision makers
Processes
refer to the manner in which decisions are made and work is performed ➢many processes cut across national boundaries as well as organizational boundaries ➢processes can be developed anywhere within a firm's global operations network ➢formal and informal integrating mechanisms can help firms leverage processes
experience curve
refers to the systematic reductions in production costs that occur over the life of a product
Exporting
selling products to another country
Efficiency Frontier Curve
shows all of the different positions that a firm can adopt with regard to adding value to the product (V) and low cost (C), assuming that its internal operations are configured efficiently to support a particular position. It has a convex shape because of diminishing returns.
global standardization strategy
strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost
Turnkey (or turn-key) project is a term typically used with reference to construction projects for which the developer undertakes the whole responsibility from design to completion so that the building is available to the buyer in a ready-to-use condition
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Wholly Owned Subsidiaries•Greenfield venture -set up a new operation in host country•Acquisition -acquire an established firm in a host nation
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International -
take products first produced for the domestic market and sell them internationally with only minimal local customization ➢This strategy makes sense when ➢there are low cost pressures and low pressures for local responsiveness
Polycentric
take the view that native managers in the foreign offices best understand native personnel and practices, and so the home office should leave them alone In contrast to ethnocentrism, polycentrism defaults to the strategies, methods, and techniques of the host country when it comes to decision making for the organization. Instead of looking back to the country of origin for the business when making choices, an organization working with a polycentric approach will put more trust in the people working in the various countries in which they operate. Rather than taking a 'one-size-fits-all' approach to decision making and management, there will be more diversity in the company based on how each individual country should be handled.
Licensing
the legal process whereby a licensor allows another firm to use its manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge
local responsiveness
the need to tailor product and service offerings to fit local consumer preferences and host-country requirements
network structure
the pattern of communication that occurs regularly among each member of the team
Upstream Supply Chain
the portion of the supply chain from raw materials to the production facility
downstream supply chain
the portion of the supply chain from the production facility to the end-customer
Expatriate Failure
the premature return of an expatriate manager to his or her home country
economies of scale
the reductions in unit cost achieved by producing a large volume of a product ➢Sources of economies of scale include: ➢spreading fixed costs over a large volume ➢utilizing production facilities more intensively ➢increasing bargaining power with suppliers ➢Example: automobile factory
Value Chain
the series of internal departments that carry out value-creating activities to design, produce, market, deliver, and support a firm's products
Wholly Owned Subsidiaries
• Greenfield venture - set up a new operation in host country • Acquisition - acquire an established firm in a host nation • Advantages • Reduces the risk of losing control over technology • Can tightly control operations in different countries • Location and experience curve economies • 100 percent share of profits • Disadvantages • Bear full cost and risk of establishing new market • Can be problems associated with acquisitions
Advantages of Strategic Alliances
• May facilitate entry into a foreign market • Allow firms to share the fixed costs (and associated risks) of developing new products or processes • Brings together complementary skills and assets that neither company could easily develop on its own • May help the firm establish technological standards for the industry that will benefit the firm
Disadvantages of Strategic Alliances
• May give competitors a low-cost route to new technology and markets
Making Alliances Work
• Partner selection • A good partner: • Helps the firm achieve its strategic goals • Has capabilities the firms lacks • Is unlikely to try to opportunistically exploit its partner • Choosing a partner: • Collect as much pertinent, publicly available information on potential allies as possible • Gather data from informed third parties • Get to know the potential partner as well as possible before committing to an alliance Alliance Structure • Reduce the risk of giving away too much to the partner. • Use contractual safeguards to guard against the risk of opportunism by a partner. • Agree in advance to swap skills and technologies that the other covets, thereby ensuring a chance for equitable gain. • Cross-licensing agreements • Extract a significant credible commitment from the partner in advance. Managing the Alliance • Be sensitive to cultural differences. • Build trust. • Build relational capital. • Learn from the alliance partner and apply the knowledge within one's own organization.
Core Competencies and Entry Mode
• Technological know-how • Licensing and joint-venture arrangements should be avoided unless the technological advantage is transitory. • Management know-how • Less risk for franchises or joint ventures
Pressures for Cost Reductions and Entry Mode
• The greater the pressures for cost reductions, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries. • Wholly owned marketing subsidiaries give the firm tight control that might be required for coordinating a globally dispersed value chain. • Also give the firm the ability to use the profits generated in one market to improve its competitive position in another market
When Are Pressures for Local Responsiveness Greatest?
•Differences in consumer tastes and preferences ➢Examples: cars, MTV •Differences in traditional practices and infrastructure ➢Example: electrical systems •Differences in distribution channels ➢Example: pharmaceutical industry •Host government demands ➢Example: pharmaceutical industry
What are two strategies for creating value?
•Differentiation strategy ➢adding value to a product so that customers are willing to pay more for it •Low cost strategy ➢lowering costs
How Can Firms Increase Profits Through International Expansion?
•Expand their market ➢sell in international markets •Realize location economies ➢disperse value creation activities to locations where they can be performed most efficiently and effectively •Realize greater cost economies from experience effects ➢serve an expanded global market from a central location •Earn a greater return ➢leverage skills developed in foreign operations and transfer them elsewhere in the firm
Global Standardization Strategy & Architecture
•Firms pursuing a global standardization strategy focus on the realization of location and experience curve economies ➢headquarters maintains control over most decisions ➢the need for integrating mechanisms is high ➢strong organizational cultures are encouraged ➢the worldwide product division is common
Localization Strategy & Architecture
•Firms pursuing a localization strategy focus on local responsiveness ➢they do not have a high need for integrating mechanisms ➢performance ambiguity and the cost of control tend to be low ➢the worldwide area structure is common
Transnational Strategy & Architecture
•Firms pursuing a transnational strategy focus on simultaneously attaining location and experience curve economies, local responsiveness, and global learning ➢some decisions are centralized and others are decentralized ➢the need for coordination and cost of control is high ➢an array of formal and informal integrating mechanism are used ➢a strong culture is encouraged ➢matrix structures are common
International Strategy & Architecture
•Firms pursuing an international strategy create value by transferring core competencies from home to foreign subsidiaries ➢the need for control is moderate ➢the need for integrating mechanisms is moderate ➢performance ambiguity is relatively low and so is the cost of control ➢the worldwide product division structure is common
When Are Pressures for Cost Reductions Greatest?
•In industries producing commodity-type products that fill universal needs (needs that exist when the tastes and preferences of consumers in different nations are similar if not identical) where price is the main competitive weapon (Ex. Petroleum, steel, sugar) •When major competitors are based in low cost locations •Where there is persistent excess capacity •Where consumers are powerful and face low switching costs
What is the international strategy?
•International - take products first produced for the domestic market and sell them internationally with only minimal local customization ➢This strategy makes sense when ➢there are low cost pressures and low pressures for local responsiveness
What is the localization strategy?
•Localization - increase profitability by customizing goods or services so that they match tastes and preferences in different national markets ➢This strategy makes sense when ➢there are substantial differences across nations with regard to consumer tastes and preferences and cost pressures are not too intense
What Is Organizational Architecture?
•Organizational structure ➢the formal division of the organization into subunits ➢the location of decision-making responsibilities within that structure •Control systems and incentives ➢control systems - the metrics used to measure performance of subunits ➢incentives - the devices used to reward managerial behavior •Processes, organizational culture, and people ➢processes - how decisions are made and work is performed within the organization ➢organizational culture - norms and values that are shared among the employees of an organization ➢people - the employees and the strategy used to recruit, compensate, and retain employees for their skills, values, and orientation
Control Systems
•Personal controls -personal contact with subordinates •Bureaucratic controls -a system of rules and procedures that directs the actions of subunits •Output controls - setting goals for subunits to achieve and expressing those goals in terms of objective performance metrics •Cultural controls - exist when employees "buy into" the norms and value systems of the firm
What is the transnational strategy?
•Transnational - tries to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm's global network of operations ➢This strategy makes sense when ➢both cost pressures and pressures for local responsiveness are intense ➢Difficult due to conflicting demands
Dimensions of Organizational Structure Organizational structure has 3 dimensions:
•Vertical differentiation - the location of decision-making responsibilities within a structure •Horizontal differentiation - the formal division of the organization into subunits •Integrating mechanisms - the mechanisms for coordinating subunits
How Are a Firm's Operations Configured?
➢A firm's operations are like a value chain composed of a series of distinct value creation activities: ➢production, marketing, materials management, R&D, human resources, information systems, and the firm infrastructure ➢All of these activities must be managed effectively and be consistent with firm strategy
What is strategy? Why do firms pursue strategies?
➢A firm's strategy refers to the actions that managers take to attain the goals of the firm ➢Firms need to pursue strategies that increase profitability and profit growth ➢Profitability is the rate of return the firm makes on its invested capital ➢Profit growth is the percentage increase in net profits over time
How can firms increase profitability and profit growth?
➢Add value ➢Lower costs ➢Sell more in existing markets ➢Expand internationally
What are economies of scale?
➢Economies of scale - the reductions in unit cost achieved by producing a large volume of a product ➢Sources of economies of scale include: ➢spreading fixed costs over a large volume ➢utilizing production facilities more intensively ➢increasing bargaining power with suppliers ➢Example: automobile factory
How Can Firms Leverage Their Products and Competencies?
➢Firms can increase growth by taking goods or services developed at home and selling them internationally ➢The success of firms that expand internationally depends on ➢the goods or services sold ➢the firm's core competencies (skills within the firm that competitors cannot easily match or imitate)
What Types of Competitive Pressures Exist in the Global Marketplace?
➢Firms that compete in the global marketplace face two conflicting types of competitive pressures ➢1. pressures for cost reductions ➢2. pressures to be locally responsive
Incentive Systems
➢Incentives - devices used to reward behavior ➢usually closely tied to performance metrics used for output controls ➢should vary depending on the employee and the nature of the work being performed ➢should promote cooperation between managers in sub-units ➢should reflect national differences in institutions and culture ➢can have unintended consequences
What are learning effects?
➢Learning effects are cost savings that come from learning by doing ➢When labor productivity increases ➢individuals learn the most efficient ways to perform particular tasks ➢managers learn how to manage the new operation more efficiently
What are location economies and why are they important?
➢Location economies are economies that arise from performing a value creation activity in the optimal location for that activity ➢By achieving location economies, firms can ➢lower the costs of value creation and achieve a low cost position ➢differentiate their product offering ➢Example: ClearVision
How Can Managers Leverage Subsidiary Skills?
➢Managers should: •Recognize that valuable skills that could be applied elsewhere in the firm can arise anywhere within the firm's global network - not just at the corporate center •Establish an incentive system that encourages local employees to acquire new skills •Have a process for identifying when valuable new skills have been created in a subsidiary •Act as facilitators to help transfer skills within the firm Example: McDonald's
How Can Managers Leverage Subsidiary Skills?
➢Managers should: •Recognize that valuable skills that could be applied elsewhere in the firm can arise anywhere within the firm's global network - not just at the corporate center •Establish an incentive system that encourages local employees to acquire new skills •Have a process for identifying when valuable new skills have been created in a subsidiary •Act as facilitators to help transfer skills within the firm Example: McDonalds
How can subunits be integrated?
➢Many firms use informal integrating mechanisms ➢A knowledge network - network for transmitting information within an organization that is based not on informal contacts between managers and on distributed information systems
Why Is Strategic Positioning Important?
➢Michael Porter argues that firms need to choose either differentiation or low cost, and then configure internal operations to support the choice ➢So, to maximize long run return on invested capital, firms must ➢pick a viable position on the efficiency frontier ➢configure internal operations to support that position ➢have the right organization structure in place to execute the strategy
Why Is Strategic Positioning Important?
➢Michael Porter argues that firms need to choose either differentiation or low cost, and then configure internal operations to support the choice ➢So, to maximize long run return on invested capital, firms must ➢pick a viable position on the efficiency frontier ➢configure internal operations to support that position ➢have the right organization structure in place to execute the strategy
How Can Firms Implement Organizational Change?
➢Organizations can be difficult to change because of: ➢the existing distribution of power and influence ➢the current culture (e.g., administrative heritage) ➢managers' preconceptions about the appropriate business model or paradigm ➢institutional constraints
Performance Ambiguity
➢Performance ambiguity exists when the causes of a subunit's poor performance are not clear ➢is common when a subunit's performance is dependent on the performance of other subunits ➢is lowest in firms with a localization strategy ➢is higher in international firms ➢is still higher in firms with a global standardization strategy ➢is highest in transnational firms
What are processes?
➢Processes refer to the manner in which decisions are made and work is performed ➢many processes cut across national boundaries as well as organizational boundaries ➢processes can be developed anywhere within a firm's global operations network ➢formal and informal integrating mechanisms can help firms leverage processes
Integrating Mechanisms
➢Regardless of the type of structure, firms need a mechanism to integrate subunits ➢need for coordination is lowest in firms with a localization strategy and highest in transnational firms ➢coordination can be complicated by differences in subunit orientation and goals
integrating mechanisms
➢Regardless of the type of structure, firms need a mechanism to integrate subunits ➢need for coordination is lowest in firms with a localization strategy and highest in transnational firms ➢coordination can be complicated by differences in subunit orientation and goals
What is the experience curve and why are experience effects important?
➢The experience curve refers to the systematic reductions in production costs that occur over the life of a product
What Is Organizational Architecture?
➢To be the most profitable ➢the elements of the organizational architecture must be internally consistent ➢the organizational architecture must fit the strategy ➢the strategy and architecture must be consistent with each other, and consistent with competitive conditions
What Is Organizational Architecture?
➢To be the most profitable ➢the elements of the organizational architecture must be internally consistent ➢the organizational architecture must fit the strategy ➢the strategy and architecture must be consistent with each other, and consistent with competitive conditions
How Can Firms Implement Organizational Change?
➢To implement organization change: •Unfreeze the organization through shock therapy •Move the organization to a new state through proactive change in architecture •Refreeze the organization in its new state
How Is Value Created?
➢To increase profitability, a firm needs to create more value ➢The firm's value creation (V) is the difference between P (the price that the firm can charge for a product given competitive pressures) and C (the costs of producing that product) ➢a firm has high profits when it creates more value for its customers and does so at a lower cost
What Happens When Firms Expand Globally?
➢When firms expand internationally, they often group all of their international activities into an international division ➢Over time, manufacturing may shift to foreign markets ➢firms with a functional structure at home would replicate the functional structure in the foreign market ➢firms with a divisional structure would replicate the divisional structure in the foreign market ➢In either case, there is the potential for conflict and coordination problems between domestic and foreign operations
