Chapter 11

Global Strategy and

Organization

International Business
Strategy, Management & the New Realities

by
Cavusgil, Knight and Riesenberger
International Business: Strategy, Management, and the New Realities 1
 What Is Strategy?

A plan of action that channels an organization’s

resources so that it can effectively differentiate itself
from competitors, accomplish distinctive goals, and
achieve superior performance.
• Managers develop strategies based on the
organization’s strengths and weaknesses, and
evaluation of opportunities and threats.

• Managers primarily make decisions about the firm’s

production and marketing activities, and the
development and allocation of resources devoted to
these.
International Business: Strategy, Management, and the New Realities 2
 Strategy Should Pinpoint to Actions

• Formulate a strong international vision

• Allocate scarce resources on a worldwide
basis
• Participate in major markets
• Implement global partnerships
• Engage in global competitive moves
• Configure value-adding activities on a
global scale

International Business: Strategy, Management, and the New Realities 3

 Four Strategic Objectives

• Efficiency – minimize the cost of operations

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

International Business: Strategy, Management, and the New Realities 4

 Multidomestic and Global Industries

• Multidomestic industries. Firms apply a country-by-

country approach to product development and
marketing, as dictated by specific needs, tastes, laws,
and economic situation. Competition is on a country-
by-country basis. E.g., food and beverage, consumer
products, clothing and fashion industries.
• Global industries. Firms devise products and
marketing appropriate for an entire region or for the
world. Competition takes place on a regional or
worldwide scale. E.g., aerospace, automobiles,
telecommunications, computers, chemicals, and
industrial equipment industries.
International Business: Strategy, Management, and the New Realities 5
 Global Integration

• A characteristic of global industries in which

firms coordinate their value-chain activities
across many countries in order to maximize
efficiency, effectiveness, flexibility, and
learning.

• Global integration promotes learning and

cross-fertilization, as well as reduction of
wasteful duplication (‘redundancy’), across
the firm’s operations worldwide.
International Business: Strategy, Management, and the New Realities 7
 Pressures for Global Integration

• Economies of Scale. Concentrating manufacturing in a few

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

International Business: Strategy, Management, and the New Realities 8

 Local Responsiveness

• A characteristic of multidomestic industries in

which firms attempt to meet the specific needs of
buyers in individual countries, as well as adapt to
the local competitive environment and distribution
structure.
• Although most firms prefer a global integration
approach, some degree of local responsiveness is
necessary due to differences in individual markets.
• For example, given distinctive local conditions,
Wal-Mart store managers in Mexico had to adjust
store hours, the merchandise mix, marketing
approaches, and employee training.
International Business: Strategy, Management, and the New Realities 9
 Pressures for Local Responsiveness
• Diversity of local customer needs. E.g., products in the
food and furniture industries require much adaptation.
• Differences in distribution channels. E.g., systems in
Japan, China, India, and Eastern Europe vary greatly.
• Local competition. Where many local rivals are present, it
is best to offer carefully adapted products and have a local
presence to maximize knowledge of competitors.
• Cultural differences. For products where cultural differences
are important, such as books and kitchen appliances,
products and marketing need to be substantially adapted.
• Host government requirements and regulations. The firm
must follow local laws and regulations.

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 Four Strategies Emerging from
the Integration-Responsiveness Framework

1. Home replication strategy

2. Multidomestic strategy
3. Global strategy
4. Transnational strategy

International Business: Strategy, Management, and the New Realities 11

 Home Replication Strategy

• The firm views international business as

separate from, and secondary to, its domestic
business.
• International business typically pursued to
generate additional sales for domestic products
• Products are designed with domestic customers
in mind; i.e., not adapted for foreign markets.
• The firm expects little knowledge flows from
foreign operations.
• Usually based on simple exporting
International Business: Strategy, Management, and the New Realities 13
 Multidomestic Strategy
(aka Multi-Local Strategy)

• Headquarters delegates much autonomy to each

country manager, allowing him/her to operate
independently and pursue local responsiveness.
• The managers substantially adapt products and
practices to suit local conditions.
• The managers function independently, with little
incentive to share knowledge with managers
elsewhere.
• The firm ends up with a collection of disconnected
markets, with no coordination or integration of
national markets.
International Business: Strategy, Management, and the New Realities 14
 Global Strategy

• Headquarters pursues global integration, seeking to

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

International Business: Strategy, Management, and the New Realities 15

 Transnational Strategy

• A tug of war – the firm attempts to strike some

ideal balance between global and multidomestic
strategies.
• Combines the major advantages of
multidomestic and global strategies, while
minimizing their disadvantages.
• Applies the model ‘standardize whenever
possible; adapt when necessary.

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International Business: Strategy, Management, and the New Realities 17
 IKEA Applies a Transnational Strategy

• Some 90% of the product line is identical

across more than two dozen countries. IKEA
modifies some of its furniture to suit individual
countries.

• IKEA’s marketing is centrally developed at

company headquarters, but implemented with
local adjustments (e.g., to suit language
differences in catalogs).

International Business: Strategy, Management, and the New Realities 18

 Organizational Structure

• The reporting relationships inside the firm –

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

International Business: Strategy, Management, and the New Realities 19

 An MNE Network
Subsidiary Level Network
S: Suppliers R: Regulatory institutions
B: Buyers C: Customers BE SE

RD SA BA CE RE
RA E
SD CA
D RB
BD A SB
B
CD
SF BF RC BB
H
CF F SC CB
RF
BC C A : Home plant
H: Headquarters
CC B … F: Subsidiaries
 Alternative Organizational Arrangements

• The export department, with the international

division as a variant.
• The decentralized structure involves
geographic area division
• The centralized structure involve either
product or functional division
• A global matrix structure blends the
geographic, product and functional structures
although this is complex and difficult to
achieve.
International Business: Strategy, Management, and the New Realities 22
 Global Matrix Structure

• An arrangement that blends the geographic area,

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

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International Business: Strategy, Management, and the New Realities 29
 Examples of Visionary Leaders

• Ratan N. Tata, the chairman of the Tata Group,

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

International Business: Strategy, Management, and the New Realities 31

 Organizational Culture

• The pattern of shared values, norms of behavior,

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

International Business: Strategy, Management, and the New Realities 32

 Organizational Processes

Managerial routines, mechanisms, and

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

International Business: Strategy, Management, and the New Realities 33