International Strategy
and Organization (ISO)
(Advanced Topics: Networks of the MNC)
Josef Windsperger
Professor of Organization and Management
International Strategy and
Organization (ISO)
(Advanced Topics: Networks of the MNC)
Lecturer:
Josef Windsperger
E-mail:
Homepage:
josef.windsperger@univie.ac.at
www.univie.ac.at/IM
Phone:
00431-4277-38180
The course consists of two parts (Hs. 4):
A.Lectures on ISO: 7. 4. , 28. 4., 5.5. 2006, 9.00 –
13.00 (course material is published on the web page:
www.univie.ac.at/im under ‘Lehrveranstaltungen’).
B.Case Studies on ISO: 12.5. (9-13.00) , 19. 5. (9 –
14.30) and 16.6. 2006 (9.00 – 13.00) and 17. 6. 2006
(9 – 13.00)
The public lectures are on Friday (11.00 – 12.30); for details
see www.univie.ac.at/im.
1. Public Lecture: May 5, 2006: 11.00, Hs. 4
Headquarter-Advantages of Vienna in CEE (Mag. Thumser,
CEO Henkel Austria
2. Public Lecture: May 19, 2006: 11.00, Hs. 4
International Market Entry through Franchising (Mag.
W.Martius, Synchon International)
3
Content
Part I
1 MNC as Global Network: Existence and Evolution
1.1 Product Life Cycle Theory
1.2 Transaction Cost Theory
1.3 Eclectic Theory
1.4 Network Approach
2 Culture, Strategy and Organization of the MNC
2.1 Country and Organization Culture
2.2 Strategy and Organization Design
3. Theoretical Foundations of Networks
3.1 Economic Approaches of Networks
3.2 Efficiency of Network Design
3.3 Networks, Trust and IT
Content
Part II
4 Design und Management of Networks of the MNC
4.1 International Licensing
4.2 International Strategic Alliances and Joint Ventures
4.3 International Franchising-Networks
4.4 Networks and M&As
4.5 Market Entry through Networks: An Integrative Approach
4.6 Internationalization through Countertrade
4.7 International Clusters
5 Organization Design of the MNC of the Future
1 MNC als Global Network
1.1 Product Life Cycle Theory
Vernon (1966):
Extension of the product life cycle view to
explain the internationalization of the firm.
1.2 Transaction Cost Theory
Transaction costs =
» costs of using the price mechanism (Coase 1937)
Search costs
Planning period:
Ex ante costs
Information costs
Costs of decision making
Negotiation costs
Transaction Costs
Contract execution
period: Ex post
costs
Monitoring or control costs
Contract execution costs
Adjustement costs
Transaction Cost Theory
O. E. Williamson (1975)
Atmosphere
Bounded Rationality
Uncertainty/Complexity
‚Information Impactedness‘
Opportunism
Transaction Specifity
Market and Hierarchy
CC
Transaction costs
Organizational costs
(Setup-costs)
Degree of organization
Quasi-Rents, Specific Investments and
Hold-up
g BA
A
B
g AB
D
g AC
g BD
C
B‘s profit with A: gBA
A‘s profit with B: gAB
A‘s quasi-rent: QRAB = (gAB – gAC)
B‘s quasi-rent: QRBA = (gBA – gBD)
Quasi-rent of A (QRBA) =
HOLD-UP Potential of B (HB)
Transaction Cost Theory of the MNC from
Teece
1.3 Dunning‘s Eclectic Theory
1.4 Network Approach
Degree of the Internationalization of the Market
Degree of the
internationalisation
0f the firm
Low
High
Low
“The Early
Starter”
“The Late Starter”
High
“The Lonely
International”
“The International
Among Others”
2 Culture, Strategy and Organization of
MNC
2.1 Country and Organization Culture
•“Culture is the collective programming of the mind.”
Geert Hofstede
Hofstede
Individualism/collectivism
Masculinity/femininity
Uncertainty avoidance
Power distance
Power Distance
Individualism
beschreibt
beschreibt
The extent to which
people tollerate unequal
distribution of power in
economy and society.
The degree of integration
of individuals in groups
Individualism:
Individual values,
individual responsibility,
goal orientation
Collectivism:
Group values, loyal
behavior, common
responsibility
Masculinity
Uncertainty Avoidance
beschreibt
beschreibt
How tolerant are the people
concerning new and
unstructured situations?
How strong are masculin
values (for instance
achievement, success,
money) compared to
feminin values (security,
life quality, social
contact)?
high UA: Many Rules,
regulations and legal norms
to minimize risk
Model of Hofstede
Country Comparison
Uncertainty Avoidance
Formalization
low
Village market (nordic)
-Decentralized, flexible
-Coordination through
personal and informal
communication
Well-oiled machine
(Germanic)
-Decentralized decision
making
-Strong role of experts
-Coordination through rules
and routines
Family or tribe
(Asiatic)
-Centralized decision making
-Loyal, personal relationships
-Sozial control (clan control)
Traditional bureaucracy
„Pyramid of people“ (Latin)
-Centralized decision making
-Central personal coordination
-Informal relationships
high
low
Hierarchy
high
Power
distance
Model of Trompenaars:
Country and Organization Culture
Decentralization
Incubator
Guided Missile
Goal
Orientation
Persons
(formal)
(informal)
Eiffel Tower
Family
Centralization
2.2 Strategy und Organization design of
the MNC
2.2.1 Strategies of the MNC
What is a competitive advantage?
Sustainable cost and/or revenue advantages
compared to the best competitor
Ressources
Capabilities
Strategy
Industry structure
I. Strategic Approaches: Porter‘s Model
Competitive advantage through low costs and differentiation
monopolistic Rents
Low-cost, differentiation and focus strategy
Resource-based Approach (Barney,
Wernerfelt)
Strategy
Strategic Rents
Competitive
advantage
Competencies
Resources
Change of the resource bundle
Tangible and intangible
resources
II. International Strategies:
Perlmutter
Ethnocentric Strategy
Polycentric Strategy
Geocentric Strategy
Regiocentric Strategy
Perlmutter‘s Model
Bartlett/Ghoshal-Model
high
Global
Strategy
Cost pressures
International
Strategy
Transnational
Strategy
Multinational
Strategy
low
high
low
Pressure for local
responsiveness
2.2.2 Strategy and Organisation Design
Chandler (1962): „Structure follows Strategy“
Matrix structure
Product-/geographic Structure
Differentiation strategy
Functional Structur
Low-cost strategy
Barlett/Ghoshal-Model
International Division
CEO
HR
Finance
R&D
Int. Division
Europe
Middle East
Brazil
Staff
Global Geographic Structure
CEO
Pacific
Division
European
Division
Latin American
Division
Corporate
Staff
Long Term
Planning
Product
Coordination
ABB
Comparison
Global Heterarchy (Hedlund)
Transnational Organization (Bartlett/Ghoshal)
Country competence centers
Local and global advantages
Decentralisation of decision making
Centralization of control
IT-enabled strategy
Organization culture as clan control
3. Theoretical Foundations of Networks
Hierarchy
Stable
Network
Internal
Network
One Firm
Dynamic
Network
Several Firms
External Networks
Joint
Venture
High
Consortium
Countertrad
e
Interaction Level
Franchising
Cluster
CrossLicensing
Licensing
Cooperation
low
Competition
Cooperation
Cooperation Propensity
Keiretsu
Other Financial Institutions
Banks
Insurance Companies
Internal
Network
Trading Companies
Production Companies
External
Network
Subcontractors
Equity:
Finance:
Goods:
A
B
C
D
F
Consortium: NewPC-Consortium in Taiwan
3. 1 Economic Theories of Networks
Transaction Cost Theory
Property Rights-Theory
Strategic or Resource-based Theory
Transaction Cost Theory
TC
Market Network
Hierarchy
Spezifity
S1
S2
S3
Property Rights-Theory
a. the right to use the good
b. the right to change the good
c. the right to capture the profit or to bear the loss
d. the right to sell the good and to receive the liquidation
value
a + b = Residual decision rights
c + d = Residual income or ownership rights
Contractibility (due to intangibility) of assets
determines the structure of residual rights
Example: Franchising-Network
Intangible assets of the franchisor:
Brand name assets, system-specific know-how
Intangible assets of the franchisee:
Outlet-specific knowledge
ao and a1 are tangible – market coordination
ao is intangible, a1 is tangible – internal coordination
ao and a1 are intangible – network coordination
Resource-based Theory
Strategic Rents (SR)
(Schumpeterian and Ricaridian Rents)
Organizational Capabilities
Resources
Resource Characteristics
Intangible, tangible resources and
organizational capabilities
Heterogenity
Imitability
Substitutability
Firm specifity
+
Contractibility
3.2. Organizational Efficiency of Networks
A) Transaction Costs
‚Organization for efficient exploitation of
knowledge differences‘
(knowledge exploitation‘ – March 1991)
Coordination efficiency:
coordination costs
Motivations efficiency:
motivation costs (Agency costs)
Efficient Organization Design
Motivation Costs (Agency Costs)
Coordination Costs
Centralization
Degree of Delegation
B) Criteria of the Resource-based Theory
‚Organization design for efficient knowledge
creation‘
(‚knowledge exploration‘ – March 1991)
Strategic rents (SR):
Schumpeterian und Ricardian Rents
- Schumpeterian rents due to dynamic capabilities
- Ricardianian rents due to heterogenity of
resources and capabilities
Organisational Efficiency: SR – TC
3.3 Networks, Trust and IT
g BA
A
B
g AB
D
g AC
g BD
C
B‘s Reputation capital: RB
A‘s Reputation capital: RA
A‘s Quasi-Rents: QRAB = (gAB – gAC)
B‘s Quasi-Rents: QRBA = (gBA – gBD)
Quasi-Rents of A (QRAB) +
reputation capital of A (RA)
A> H cooperative behavior
A< H opportunistic behavior
Strategic Rents, Hold-up and Reputation
g GMFB
FB
GM
g FBGM
D
g GMD
g FBC
C
GM‘s strategic rents under market coordination: SRGMFB
GM‘s strategic rents under internal coordination: SRGMGM
GM‘s SR-advantage under market coordination:  SRGM = (SRGMFB – SRGMGM)
Quasi-Rents of GM (QRGM) + strategic > HGM - cooperative
rent advantage under market
< HGM - opportunistic
coordination of GM ( SRGM)
(QRGM + SRGM + RGM - HGM) > 0 is „self-enforcing range“ (Klein 1995)
Transaction Costs and IT
Specifity
Transaction Costs
Communication
Information Processing
Move to the Network
TC
Market Network
Hierarchy
Specifity
S1
S2
S3