Chapter 10 Strategizing, Structuring, and Learning Around the World

Global Strategy 1e Michael Peng Global Strategy Mike W Peng c h a p t e r 10 Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly acc.

chapte r 10 Chapter 10 Strategizing, Structuring, and Learning Around the World Global Strategy Strategy Global Mike W Peng Mike W Peng Copyright Copyright © © 2014 2014 Cengage Cengage Learning Learning All All Rights Rights Reserved Reserved May May not not be be scanned, scanned, copied copied or or duplicated, duplicated, or or posted posted to to a publicly publicly accessible accessible website, website, in in whole whole or or in in part part Outline • Multinational strategies and structures • A comprehensive model of multinational strategy, structure, and learning • Worldwide learning, innovation, and knowledge management • Debates and extensions ã The savvy strategist Copyright â 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Multinational Strategies and Structures • Pressures for cost reductions and local responsiveness • Four strategic choices for MNEs (1) home replication, (2) localization, (3) global standardization, and (4) transnational  Home replication strategy emphasizes the international replication of home country-based competencies  Localization (multidomestic) strategy is an extension of the home replication strategy, focusing on a number of foreign countries/regions, each regarded as a stand-alone local market worthy of significant attention and adaptation  Global standardization strategy is the opposite of the localization strategy  Transnational strategy aims to capture “the best of both worlds” by endeavoring to be both cost efficient and locally responsive Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Multinational Strategies and Structures: The Integration–Responsiveness Framework Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Figure 10.1 Four Strategic Choices for Multinational Enterprises Home replication Multidomestic ADVANTAGES DISADVANTAGES  Leverages home country-based advantages  Lack of local responsiveness  Relatively easy to implement  May result in foreign customer alienation  Maximizes local responsiveness  High costs due to duplication of efforts in multiple countries  Too much local autonomy Global  Leverages low-cost advantages  Lack of local responsiveness  Too much centralized control Transnational  Cost-efficient while being locally responsive  Organizationally complex  Engages in global learning and diffusion of innovations  Difficult to implement Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Table 10.1 Multinational Strategies and Structures: Organizational • FourFour organizational structures Structures that are appropriate for the four strategic choices:  International division  Geographical area  Global product division  Global matrix Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part International Division Structure at Starbucks Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Figure 10.2 Multinational Strategies and Structures: Organizational Structures (cont’d) • International Division  Typically set up when firms initially expand abroad, often when engaging in a home replication strategy • Problems:  Foreign subsidiary managers in the international division are not given sufficient voice relative to the heads of domestic divisions  The “silo” effect: International division activities are not coordinated with the rest of the firm, which focuses on domestic activities  Firms often phase out this structure after their initial overseas expansion Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Geographic Area Structure at Avon Products Avon North America Avon Latin America Avon Asia Pacific Avon Western Europe Middle East Africa Source: Adapted from avoncompany.com Headquartered in New York, Avon Products, Inc is the company behind numerous “Avon ladies” around the world Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Avon Central & Eastern Europe Figure 10.3 Multinational Strategies and Structures: Organizational Structures (cont’d) • Geographic Area Structure  Organizes the MNE according to different geographic areas (countries and regions)  Is the most appropriate for a localization strategy  Its ability to facilitate local responsiveness is both a strength and a weakness • Problems:  While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms” Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part A Hypothetical Global Matrix Structure Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Figure 10.5 Multinational Strategies and Structures: Organizational Structures • Global Matrix  Is often used to alleviate the disadvantages associated with both geographic area and global product division structures  Is intended to support the goals of the transnational strategy—in practice, it is often difficult to deliver • Problems  May add layers of management, slow down decision speed, and increase costs while not showing significant performance improvement Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part A Comprehensive Model of Multinational Structure, Learning, and Innovation Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Figure 10.6 Industry-based Considerations • Industry characteristics  Industrial products firms: Favor global product divisions  Consumer goods firms: Favor geographic areas • Porter’s forces  Interfirm rivalry increasingly focuses on learning and innovation  Need to heighten entry barriers: Behind some recent moves to phase out multidomestic strategy and to erect world-scale facilities to deter entrants  Bargaining power of suppliers and buyers: They also have to internationalize if the focal MNE goes overseas  MNE R&D often generates competing substitute products Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Resource-based Considerations • Value  Does any new structure (such as matrix) really add value?  Does innovation really add value? Not always! • Rarity  When all rivals adopt a “global strategy,” it is not rare • Imitability  It is easier to imitate formal structure But how to imitate an elusive, informal matrix which is a “philosophy”? • Organization  Some MNEs are better able to take advantage of complex organizational structures such as matrix than others Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Institution-based Considerations • Formal and informal external institutions  Formal Institutions  Externally, MNEs, are subject to the formal institutional frameworks erected by various home- and host-country governments  Host-country governments often encourage, or coerce MNEs into undertaking certain activities  Informal Institutions  Strategists weigh the informal backlash against activities which result in domestic job losses • Formal and informal internal institutions  Formal organizational charts not necessarily reveal the informal rules of the game  Three choices: (1) a home-country national as the head of a subsidiary, (2) a host-country national, or (3) a third country national Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Worldwide Learning, Innovation and Knowledge Management: Knowledge Management in MNEs • Knowledge management can be defined as the structures, processes, and systems that actively develop, leverage, and transfer knowledge • Knowledge management is considered by some writers the defining feature of MNEs  Explicit knowledge (e.g., a driving manual): Captured by IT  Tacit knowledge (e.g., knowledge about how to drive)  Its acquisition and transfer require hands-on experience Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Knowledge Management in Four Types of Multinational Enterprises STRATEGY HOME REPLICATION LOCALIZATION GLOBAL STANDARDIZATION TRANSNATIONAL Interdependence Moderate Low Moderate High Role of foreign subsidiaries Adapting and leveraging parent company competencies Sensing and exploiting local opportunities Implementing parent company initiatives Differentiated contributions by subsidiaries to integrate worldwide operations Development and diffusion of knowledge Knowledge developed at the center and transferred to subsidiaries Knowledge developed and retained within each subsidiary Knowledge mostly developed and retained at the center and key locations Knowledge developed jointly and shared worldwide Flow of knowledge Extensive flow of knowledge and people from headquarters to subsidiaries Limited flow of knowledge and people in both directions (to and from the center) Extensive flow of knowledge and people from the center and key locations to subsidiaries Extensive flow of knowledge and people in multiple directions Sources: Adapted from (1) C Bartlett & S Ghoshal, 1989, Managing Across Borders: The Transnational Solution (p 65), Boston: Harvard Business School Press; (2) T Kostova & K Roth, 2003, Social capital in multinational corporations and a micro-macro model of its formation (p 299), Academy of Management Review, 28 (2): 297–317 Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Table 10.2 Worldwide Learning, Innovation and Knowledge Management: Globalizing Research and Development • A crucial arena for knowledge management  Driven by the intensification of competition for innovation  Provides a vehicle for access to, or extract benefits from, a foreign country’s local talents and expertise  The resource-based view: A fundamental source for competitive advantage is being different (the assumption of heterogeneity)  Decentralized R&D work performed by different locations and teams around the world means that there will be persistent heterogeneity (differences) in the solutions generated Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Problems in Knowledge Management ELEMENTS OF KNOWLEDGE MANAGEMENT COMMON PROBLEMS Knowledge acquisition Failure to share and integrate external knowledge Knowledge retention Employee turnover and knowledge leakage Knowledge outflow “How does it help me?” syndrome and “knowledge is power” mentality Knowledge transmission Inappropriate channels Knowledge inflow “Not invented here” syndrome and absorptive capacity Source: Adapted from A Gupta & V Govindarajan, 2004, Global Strategy and Organization (p 109), New York: Wiley Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Table 10.3 Problems and Solutions in Knowledge Management • For large firms, there are actually diminishing returns for R&D Consequently, a new model, called “open innovation,” is emerging This model relies on more collaborative research among various internal units and with external organizations • In knowledge retention, there is the problem of employee turnover which may lead to knowledge leakage • Global virtual teams, which not meet face to face, may have communication and relationship barriers • The “not invented here” syndrome causes some managers to resist accepting ideas from other units Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Problems and Solutions in Knowledge Management • As solutions to combat these problems, corporate headquarters can manipulate the formal rules of the game through individual and organizational incentives as well as investing in tacit knowledge • MNEs often must rely on a great deal of informal integrating mechanisms • Some try to develop informal social capital • Overall, the micro, informal interpersonal relationships among managers of various units may create a micromacro link Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Debates and Extensions • One multinational versus many national companies • Central controls versus subsidiary initiatives  Subsidiaries may be in full compliance of commands, pay lip service to commands, or ignore them  Some subsidiary-level strategies may contribute to entrepreneurship (or empire building) Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Debates and Extensions • Customer-focused dimensions versus integration, responsiveness, and learning  Two primary customer-focused dimensions  Global account structure to supply customers across various countries  Solutions-based structure is often used  One recommendation is to simplify both product and geographic scope to add the customer-focused dimensions Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part The Savvy Strategist • Consider four implications  First, understand the evolution of your industry in order to come up with the right strategy-structure configurations  Second, managers need to actively develop learning and innovation capabilities to leverage multinational presence  Third, mastering the external rules of the game governing MNEs and home/host country environments becomes a must  Finally, managers need to understand and be prepared to change the internal rules of the game governing MNE management Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part ... strategies and structures • A comprehensive model of multinational strategy, structure, and learning • Worldwide learning, innovation, and knowledge management • Debates and extensions • The savvy... knowledge and people in both directions (to and from the center) Extensive flow of knowledge and people from the center and key locations to subsidiaries Extensive flow of knowledge and people... performed by different locations and teams around the world means that there will be persistent heterogeneity (differences) in the solutions generated Copyright © 2014 Cengage Learning All Rights Reserved