Chapter 11
Global Strategy and
Organization
International Business
Strategy, Management & the New Realities
by
Cavusgil, Knight and Riesenberger
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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.
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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
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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.
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Multidomestic and Global Industries
• Multidomestic industries. Firms apply a country-bycountry approach to product development and
marketing, as dictated by specific needs, tastes, laws,
and economic situation. Competition is on a countryby-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.
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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.
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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.
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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.
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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
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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
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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.
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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
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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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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).
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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.
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An MNE Network
Subsidiary Level Network
S: Suppliers R: Regulatory institutions
B: Buyers C: Customers
RD
SA
RE
E
RA
D
RB
BD
A
CF
F
BF
SB
B
CD
SF
SE
CE
BA
CA
SD
BE
BB
RC
H
SC
CB
RF
BC
C
CC
A : Home plant
H: Headquarters
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.
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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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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.
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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
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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.
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