One Minute
Intl Manager
FIAS RANK: #25
Population: 82 million
GDP per capita: $35,500
Total GDP**: $2.9 trillion
Politics: Republic; 16 states
Language: German
Religion**: Protestant (34%),
Catholic (34%), Other (32%)
Other: Established as modern
state in 1871; Divided in
1945; Reunited in 1990; Size
of Montana
Germany
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Agriculture: 1%; Industry:
30%; Services 69%.
Steel, chemicals, machinery,
food and beverages
Export (#1): Machinery,
chemicals, vehicles, textiles
Export to: France 10%, US
7%, UK 7%, NL 7%, Italy 6%
Import from: NL 12%, France
8%, Belgium 8%, China 6%,
Italy 6%
VU – Multinational Strategies,
Structure, Innovation and
Knowledge Management
Thought for the Day
Whenever we create a new organization, we
create a new problem.
- Phillips Corporation Head of Strategy
Outline for Today
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Administrative Announcements
Final Exam Discussion
Today’s topic in course framework
(1) Foreign Country Management
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Structuring across countries
Structuring internally
Learning & Innovating
Main Points and Implications
(2) Danone and Wahaha Discussion
Set-up for last class (Dec 19, 2009)
Final Exam Discussion
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Format/Structure
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Example
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Content
Applying Perspectives on
International Strategy
These impact how
firms behave.
Industry-based
Competition
Firm-specific
Resources &
capabilities
Institutional
Conditions:
- Formal
- Informal
Acquisitions/Restructuring
Global Competitive Dynamics
Entering Foreign Mkts
Country Selection
Local Competition
Locating activities across
countries
Structure
Strategic
Decisions
International
Strategy
Implementation/
Performance
Learning/Alliances
TODAY
Emergence of Structure**
Ms. Raku
7
Emergence of Structure**
Ms. Raku
Ms. Bisque
8
Emergence of Structure**
Ms. Raku
Ms. Bisque
Assistant
Assistant
Assistant
9
Emergence of Structure**
Ms. Raku
President
Ms. Bisque
Studio Mgr
Producer
Producer
Producer
Producer
Producer
10
Emergence of Structure**
Ms. Raku
President
Ms. Bisque
Studio Mgr
MGR
Pots
Wedging
MGR
Ashtrays
Forming
MGR
Animals
Tooling
Firing
11
Emergence of Structure**
Ms. Raku
Chairman
President
Consumer Products
Division
Building Products
Division
Industrial Products
Division
Pottery, Animals,
Ashtrays, etc.
12
The Strategy-Structure Relationship
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Organizational Structure (Organizational Architecture)
 Definition: The firm’s formal reporting relationships,
procedures, and controls
Strategy and structure: A reciprocal relationship
 Strategy drives organizational structure
 Structure can also enable and constrain strategy.
 The good fit can be a source of competitive advantage.
 A bad fit may cause performance problems and require
strategic and/or structural changes.
Multinational Strategies and Structures:
Integration-responsiveness Framework
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The Integration-Responsiveness Framework considers how to
simultaneously deal with:
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International and domestic cost pressures.
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Responsiveness pressures to local market conditions.
Local responsiveness is generally unique to international
competition.
What drives need for local responsiveness? [see Value Chain]
Firm Level Value Chain
Operations
Inbound
Logistics
Briefly
summarize
the primary
activity.
Procurement
(not one-time
events)
Engineering
HR / Admin
Technology
Development
And R&D
Finance
Outbound Logistics
Marketing and Sales
After Sales
Service
Multinational Strategies and Structures:
The Integration–Responsiveness
Framework (Stopford and Wells Model)
Figure 10.1
Multinational Strategies and Structures:
The Integration–Responsiveness
Framework (Stopford and Wells Model)
Figure 10.1
Four Strategic Choices for
Multinational Enterprises
Table 10.1
Multinational Strategies and Structures:
Four Organizational Structures
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Four organizational structures that are
appropriate for the four strategic choices:
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International division (w/ home replication)
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Geographic area (w/ multi-domestic)
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Global product division (w/ Global strategy)
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Global matrix (w/ transnational)
Multinational Strategies and Structures:
Organizational Structures (cont’d)
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International Division
 Typical when firms first expand abroad, often when
engaging in a home replication strategy.
Problems:
 Foreign subsidiary managers in the international division
have insufficient 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.
Google Org Structure – 2005
(Intl Division)
CEO
Director,
Director,
President of
Technology
President of
Products
(Founder)
(Founder)
Senior Vice
President,
Senior Vice
President,
Global Sales
and Business
Development
Corporate
Development
Secretary and
General Counsel
Senior
Vice
President,
CFO
Senior Vice
President,
Senior Vice
President,
Senior Vice
President,
Product
Management
Business
Operations
Engineers
Multinational Strategies and Structures:
Organizational Structures (cont’d)
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Geographic Area Structure
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Organizes the MNE according to different geographic
areas (countries and regions).
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Is the most appropriate for a multidomestic strategy.
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Its ability to facilitate local responsiveness is both a
strength and a weakness.
Problems:
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While being locally responsive can be a virtue, it may
also encourage the fragmentation of the MNE into
highly autonomous, hard-to-control “fiefdoms”.
Geographic Area Structure at Ispat
Source: Adapted from www.ispat.com (accessed June 30, 2004). Ispat is
headquartered in London, United Kingdom.
Multinational Strategies and Structures:
Organizational Structures
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Global Product Division Structure
 Supports a global strategy in treating each product
division as a stand-alone entity with full worldwide
responsibilities for its activities.
 Facilitates attention to pressures for cost efficiencies
in allowing for consolidation on a worldwide (or
regional) basis and reduction of inefficient
duplication in multiple countries.
Problems:
 It is the opposite of the geographic area structure:
Little local responsiveness – bad if responsiveness
becomes important.
Federal Express Structure: 2008
CEO
Mkt
Development
General
Counsel
CFO
Acctng
CIO
FedEx
Express
FedEx
Freight
FedEx
Trade
Networks
FedEx
Custom
Critical
Carribbean
Transport
Services
FedEx
Ground
FedEx
Kinkos
FedEx
Smart
Post
FedEx
Global
Supply
Chain
Services
Multinational Strategies and Structures:
Organizational Structures
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Global Matrix
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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
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May add layers of management, slow down
decision speed, and increase costs while not
showing significant performance improvement.
Procter and Gamble
Structure – 2005 (Matrix)
Beauty & Health
Household
Care
Gillette GBU
North America
Western Europe
CEE, Middle East,
Africa
Latin America
Asean, Australia,
India
Greater China
Global Wal-Mart
Team
Interim Implications
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The Stopford and Wells model (Figure 10.1):
 Organizational structures typically evolve from the simple
international division through either geographic area or global
product division structures.
 Firms may finally reach the global matrix stage as they grow from
having limited international presence to being sophisticated global
players.
 Not all MNEs experience all these structural stages and not all MNE
structures fit neatly into the four categories.
 Need to match structure and strategy with the firm’s needs for
learning and knowledge management. (next)
 Managing knowledge and learning relatively new challenge, esp. for
service economies. (next)
 LET’S CHECK OUR UNDERSTANDING FIRST
Multinational Strategies and Structures:
Understanding eBay
eBay Data
1) Expand into new intl
markets overarching
goal of localization.
2) Build new user
communities through
internal efforts.
3) Use local mgmt to
manage local sites.
4) Support local sites
via grassroots and
online mktng programs.
5) eBay U.S. directed
Chinese mgmt
6) eBay systems did
not reflect consumer
preferences
7) Favor acquisitions
Figure 10.1
Multinational Strategies and Structures:
Understanding eBay
eBay Data
STRUCTURE
STRATEGY
1) Expand into new intl
markets overarching
goal of localization.
2) Build new user
communities through
internal efforts.
3) Use local mgmt to
manage local sites.
4) Support local sites
via grassroots and
online mktng programs.
5) eBay U.S. directed
Chinese mgmt
6) eBay systems did
not reflect consumer
preferences
7) Favor acquisitions
Figure 10.1
Geographic Area Structure at Ispat
EXAM Q: What do these changes suggest
for the firm?
•Global integration
•Knowledge sharing
•One acctng system
•Acquisition integration system
Source: Adapted from www.ispat.com (accessed June 30, 2004). Ispat is
headquartered in London, United Kingdom.
Figure 10.3
Google Org Structure – 2005
(Intl Division)
Actions:
Offices in 12 countries
R&D: Zurich, Bangalore, Tokyo
112 Intl Domains
100 Interface languages
25 sales offices in 14 countries
Director,
Director,
President of
Technology
President of
Products
(Founder)
(Founder)
CEO
Senior Vice
President,
Senior Vice
President,
Global Sales
and Business
Development
Corporate
Development
Secretary and
General Counsel
Senior
Vice
President,
CFO
Senior Vice
President,
Senior Vice
President,
Senior Vice
President,
Product
Management
Business
Operations
Engineers
Formal Organization Chart
Why would you set up a firm this way?
Chairman & CEO
Chief Ethics and
Compliance
Chief
HR
Group 1
Group 2
Progress Rail
Services
Human Services
Electronics and
Connected Worksite
Logistics
General
Counsel
Group 3
Japan Integration
Remanufacturing
Asia Pacific Ops
Global Purchasing
Motion & Power
Control
Technology &
Solutions
Chief
Information
Group 4
Global Mining
North American
Commercial
Large Power
Systems
Group 5
Financial Products
Latin America
Building Construction
Products
Heavy Construction
& Mining
Legal Services
Asia Pacific Mktng
Industrial Power
Systems
Chief
Technology
CFO
Solar Turbines Inc.
Marketing &
Product Support
Infrastructure Product
Development
U.S. Operations
Global Finance &
Strategic Support
Systems &
Processes
Group 6**
Europe, Africa
& Middle East Ops
Marine & Petroleum
Power
Europe, Africa &
Middle East Mktng
Electric Power
Caterpillar
Production System
Worldwide Learning, Innovation and
Knowledge Management: Definitions
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Knowledge
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Knowledge Management
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The structures, processes, and systems which actively develop,
leverage, and transfer knowledge.
Explicit knowledge (eg, a driving manual):
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A fluid mix of skills, experiences, and insights that provides a
framework for evaluating and incorporating information.
Captured by IT
Tacit knowledge (eg, knowledge about how to drive):
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Requires hands-on experience and training
Worldwide Learning, Innovation and
Knowledge Management in MNEs
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Kogut and Zander (1992, 1993, 1995) proposed:
Knowledge management = Defining feature of
MNEs.
In particular:
The capabilities (skills) to manage the hard-tocodify and hard-to-transfer tacit knowledge are
more important.
Knowledge Management in Four Types
of Multinational Enterprises
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.
Table 10.2
Learning, Innovation and Knowledge
Management: Globalizing R&D
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A particular type of knowledge: Globalizing R&D:
 Driven by competition for innovation.
 An approach to get benefits from a foreign country’s local
talents and expertise.
 [From previous chapters we know that there are different
ways to access this R&D]
Resource-based view: Competitive advantage comes from
having different resources.
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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.
Barriers in Knowledge Management
Source: Adapted from A. Gupta & V. Govindarajan, 2004, Global Strategy and Organization (p. 109), New York: Wiley.
Table 10.3
Barriers and Solutions in
Knowledge Management
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Challenge: The Barriers of Knowledge Management come
from informal rules or norms in the company.
Solution: create new rules and norms:
 Tying bonuses with knowledge outflows and inflows
 Investing in codifying tacit knowledge.
Challenge:
 Tacit Knowledge resists codification.
 Hard to measure knowledge
Barriers and Solutions in
Knowledge Management
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Solution:
 Facilitating management and R&D personnel
networks among subsidiaries.
 Promoting organizational shared values and norms
for cooperation among subsidiaries.
Facilitation of Knowledge Management
 Best facilitated by the use of informal social capital
 The informal benefits individuals and organizations
derive from their social structures and networks.
End Goal:
 Creating a micro-macro link so that you match
structure and strategy with the firm’s needs for
learning and knowledge management.
Intl travel & Communication
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Most Desired Travel Location
Other (please
specify), 7
USA, 0
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Switzerland, 15
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Italy, 36
Germany, 8
Slovakia, 1
China, 1
Germany, 0
Highest frequency of
contact with India –
disconnect between
strategy and desire
India, 1
Least Desired Travel Location
USA, 0
Most are willing to travel to
Western Europe
Most are unwilling to travel
to Asia or Central Europe
Location With Most Frequent Contact
Other (please
specify), 6
Other (please
specify), 1
Italy, 1
Switzerland, 0
Italy, 15
Slovakia, 5
None, 22
China, 11
India, 45
USA, 2
India, 17
Switzerland, 3
Germany, 0
Slovakia, 1
China, 3
Danone and Wahaha
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(1) Why do you believe the problem arose?
Danone and Wahaha
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(2) How could the problems have been avoided?
Danone and Wahaha
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(3) What do you think of the different
approaches used to resolve the problem?
Danone and Wahaha
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(4) Was this alliance a success or failure for Danone?
Set-Up for Last Class (Dec 19)
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Competition and Success in Emerging Markets
Reading: Base of Pyramid Readings: (1) CommuniTools and (2) P&G
Global Target
BONUS: Blue Ocean Strategy
Privatization and Nationalization
Reading: Read about Privatization on Wikipedia.
Other Preparation: Readings on (1) Absolut and (2) Alitalia privatizations.
Conclusion
Reading: No new readings.
Additional Slides
The following slides are from
Wednesday, December 16 and cover
the discussion on Porter’s Diamond of
National Competitiveness.
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National Competitive Advantage
(Historical View)
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Labor costs
Interest rates
Exchange rates
Economies of Scale
Natural resources (raw materials)
Taxes
Government’s Role In National
Competitive Advantage
(Historical View)
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No Role
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Let markets decide
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Strong Role
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Pick national winners
Protect markets
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Quotas
Tariffs
Create industry-level
policies
Manage trade
Competitive Advantage
Development
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Innovation drives competitive advantage:
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Sources of innovation
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Knowledge driven
Idea driven
From
From
From
From
new managers
new industry participants
other industries
other countries
Innovation drives productivity
Competitive Advantage Development:
Government’s Role
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Focus on specialized factor creation
Don’t manipulate factor or currency mkts
Enforce product, safety, environmental
standards
Promote open trade
Deregulate competition & limit
cooperation in the industry
Reduce bureaucracy
Competitive Advantage
Development: Firm’s Role
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Create pressures for innovation
Seek out the most capable competitors
as motivators
Improve the national diamond
Welcome domestic rivalry
Globalize selectively
Ally with others selectively
Porter’s Determinants of National
Advantage: Home Country of Origin
Is Crucial to International Success
Firm Strategy,
Structure &
Rivalry
(In the Industry)
Demand
Conditions
(In Home Mkt)
Factor
Conditions
(i.e. Inputs)
Related &
Supporting
Industries
(To Support Firm)
Simple (and almost appropriate)
Example
Firm Strategy, Structure, Rivalry:
8-10 competitors
Additional Options
Not-Strategic Sector
Factor Inputs:
Good Weather
Happy Employees
Innovative Ideas
Nearby Coastline
Demand Conditions:
300 million
Vacation time
Related/Supporting Industries:
Hotels (100s)
Airline Service
Car Rental: return
In one minute
DEFINITION
Diamond: Factor Conditions
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Key factors are created, not inherited.
Require heavy investment and
specialization.
Factor shortage can be positive also.
Typically require support from other
parts of diamond.
DEFINITION
Diamond: Demand Conditions
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Demand conditions:
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Drive domestic demand
Drive innovation by firms
Can cause missed opportunities (warning)
Can drive foreign demand
DEFINITION
Diamond: Related/Supporting
Industries
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Should be competitive to provide an
advantage to the core industry.
Provide cost-effective inputs (good)
Supports push towards innovation (better)
Optimal if suppliers are also global
competitors (best)
DEFINITION
Diamond: Firm Strategy, Structure,
Rivalry
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Domestic conditions impact:
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How companies are created
How companies are organized and managed
The nature of domestic rivalry
Strong domestic rivals
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Compete on economics and emotions
Tend to be located in clusters
Can see what is possible - can’t blame ‘unfair’
foreign advantage due to other parts of diamond
Example: Northern Mexico Aerospace
Other:
Easier to do business
1 million in maquiladoras
Govt donated land
Electronic/auto to Asia
Firm Strategy, Structure, Rivalry:
GE, Goodrich (U.S.), Bombardier (Can)
73 firms in states on border/clusters
Dropped import duties
U.S. FAA: Certification in Mexico
Factor Inputs:
Deep talent pool
16,500 employees
Imported Inputs
Govt funded school
to train workers
Demand Conditions:
NAFTA eliminates borders
Close to N.A. markets
Record demand: $25 bill.
Mexico: $500 mill export
Related/Supporting Industries:
Automotive (provides foundation)
Efficient shipping
Example: U.S. Advertising Industry
Firm Strategy, Structure, Rivalry:
Madison Avenue
Bartle, Bogle, Hegarty
Ogilvy & Mather (WPP)
Leo Burnett
Factor Inputs:
Business Schools
‘Brand culture’
Demand Conditions:
Allstate
United Airlines
P&G
McDonald’s
GM/Pontiac
PepsiCo
Daimler/Chrysler
Unilever
Panasonic
Related/Supporting Industries:
Magazines; T.V.; Email; Cellphone
Credit Data; Visible World (customization)
Comcast (cable companies)
Videogames; Entertainment Industry