Chapter
9
Entry Strategies and
Organizational Structures
The specific objectives of this chapter are:
1.
DESCRIBE how an MNC develops and implements entry
strategies and ownership structures.
2.
EXAMINE the major types of organizational structures
used in handling international operations.
3.
ANALYZE the advantages and disadvantages of each type
of organizational structure, including the conditions that
make one preferable to others.
Chapter
Entry Strategies and
Organizational Structures
The specific objectives of this chapter are:
4.
DESCRIBE the recent, nontraditional organizational
arrangements coming out of mergers, joint ventures,
keiretsus, and other new designs including electronic
networks and product development structures.
5.
EXPLAIN how organizational characteristics such as
formalization, specialization, and centralization influence
how the organization is structured and functions.
9
3
Entry Strategies and Ownership
Structures
DEVELOPED MARKETS
North America
Western Europe
Japan
Australia and
New Zealand
0
Adapted from Figure 9–1: Preferred Strategies for Global Expansion
20
40
60
80
% OF RESPONDENTS
100
4
Entry Strategies and Ownership
Structures
EMERGING MARKETS
0
Adapted from Figure 9–1: Preferred Strategies for Global Expansion
20 40
60 80 100
% OF RESPONDENTS
5
Entry Strategies and Ownership
Structures
Wholly owned
subsidiary





An overseas operation that is totally owned and
controlled by an MNC
MNC’s desire for total control and belief that
managerial efficiency is better without outside
partners
Some host countries are concerned that the MNC
will drive out local enterprises and others
prohibit fully owned subsidiaries
Home-country unions sometimes view foreign
subsidiaries as an attempt to “export jobs”
Today many multinationals opt for a merger,
alliance, or joint venture rather than a fully
owned subsidiary
6
Entry Strategies and Ownership
Structures
Wholly owned
subsidiary

The cross-border purchase or exchange of
equity involving two or more companies
Mergers and
Acquisitions

The strategic plan of merged companies
often calls for each to contribute a series of
strengths toward making the firm a highly
competitive operation
7
Entry Strategies and Ownership
Structures
Wholly owned
subsidiary
Mergers and
Acquisitions
Alliances and
Joint Ventures
 Alliance

Any type of cooperative relationship among
different firms.
 International



joint venture (IJV)
An agreement under which two or more partners
from different countries own or control a business
Nonequity venture
Equity joint venture
 Advantages




Improvement of efficiency
Access to knowledge
Political factors
Collusion or restriction in competition
8
Entry Strategies and Ownership
Structures
Wholly owned
subsidiary

Mergers and
Acquisitions

Alliances and
Joint Ventures

Licensing


An agreement that allows one party to use an
industrial property right in exchange for payment
to the other party
By licensing to a firm already there, the licensee
may avoid entry costs
Licensor usually may be is a small firm that lacks
financial and managerial resources
Companies that spend a relatively large share of
their revenues on research and development
(R&D) are likely to be licensors
Companies that spend very little on R&D are
more likely to be licensees
9
Entry Strategies and Ownership
Structures
Wholly owned
subsidiary

Business arrangement under which one party
(the franchisor) allows another (the
franchisee) to operate an enterprise using its
trademark, logo, product line, and methods
of operation in return for a fee

Widely used in the fast-food and hotel/motel
industries

With minor adjustments for the local market,
it can result in a highly profitable
international business
Mergers and
Acquisitions
Alliances and
Joint Ventures
Licensing
Franchising
10
Entry Strategies and Ownership
Structures
Wholly owned
subsidiary

Often the only available choices for small
and new firms wanting to go international
Mergers and
Acquisitions

Provide an avenue for larger firms that want
to begin their international expansion with a
minimum of investment

Exporting and importing can provide easy
access to overseas markets

Strategy usually is transitional in nature
Alliances and
Joint Ventures
Licensing
Franchising
Exporting and
Importing
11
Pressure for globalization
Organizational Consequences of
Internationalization
High
Aircraft
Cameras
Consumer electronics
Computers
Telecommunications
Aerospace
Automobiles
Synthetic fibers
Steel
Clothing
Low
Cement
Packaged goods
Low
High
Pressure for local responsiveness
Adapted from Figure 9–2: Organizational Consequences of Internationalization
12
Basic Organizational Structures
 Initial division structures

Subsidiary


Export arrangement


Common for finance-related businesses or other operations that
require an onsite presence from the start
Common among manufacturing firms, especially those with
technologically advanced products
On-site manufacturing operations


In response to local governments when sales increase
Need to reduce transportation costs
13
Basic Organizational Structures
Chief Executive Office
Home-office
departments
Production
Finance
Human
Resources
V.P. International
Operations
Overseas
subsidiaries
France
Marketing
Japan
Egypt
Australia
Adapted from Figure 9–3: Use of Subsidiaries during the Early Stage of Internationalization
Argentina
14
International Division Structure
 International division structures
 A structural arrangement that handles all international
operations out of a division created for this purpose





Assures that international focus receives top management
attention
Unified approach to international operations
Often adopted by firms still in the developmental states of
international business operations
Separates domestic from international managers (not good)
May find it difficult to think and act strategically, or to allocate
resources on a global basis
See example next slide
15
International Division Structure
(Partial Organization Chart)
Chief Executive Officer
Home-office
departments
Production
Marketing
Finance
Human
Resources
Operating
divisions
Domestic
Division:
Plant
Domestic
Division:
Tools
Domestic
Division:
Hardware
Domestic
Division:
Furniture
Australia
Office
Operations
Adapted from Figure 9–4: An International Division Structure
Marketing
International
Division:
Japan
Italy
Government
Relations
16
Global Product Division
 Global product division

A structural arrangement in which domestic divisions are
given worldwide responsibility for product groups







Global product divisions operate as profit centers
Helps manage product, technology, customer diversity
Ability to cater to local needs
Marketing, production and finance can be coordinated on a productby-product global basis
Duplication of facilities and staff personnel within divisions
Division manager may pursue currently attractive geographic
prospects and neglect others with long-term potential
Division managers my spend too much time tapping local rather than
international markets
See example next slide
17
Global Product Division
(Partial Organization Chart)
Chief Executive Officer
Home-office
departments
Production
Marketing
Finance
Operating
divisions
Product
Division A
S. America
Product
Division B
Africa
Product
Division C
Europe
Human
Resources
Product
Division D
Australia
Product
Division E
Far East
Great Britain
France
Germany
Italy
Netherlands
Production
Marketing
Adapted from Figure 9–5: A Global Product Division Structure
Finance
Human
Resources
18
Global Area Division
 Global area division

A structure under which global operations are organized on a
geographic rather than a product basis






International operations are put on the same level as domestic
operations
Global division managers are responsible for all business operations in
their designated geographic area
Often used by firms in mature businesses with narrow product lines
By manufacturing in a region, the firm is able to reduce cost per unit
and price competitively
Difficult to reconcile a product emphasis with a geographic orientation
New R&D efforts often ignored because divisions are selling in
mature market
See example next slide
19
Global Area Division
(Partial Organization Chart)
Chief Executive Officer
Home-office
departments
Production
Marketing
Finance
Operating
divisions
North
America
South
America
Europe
Asia
Great Britain
France
Germany
Italy
Netherlands
Adapted from Figure 9–6: a Global Area Division Structure
Human
Resources
Africa
20
Global Functional Division
 Global functional division

A structure that organizes worldwide operations primarily
based on function and secondarily on product





Approach not used except by extractive companies such as oil and
mining firms
Favored only by firms that need tight, centralized coordination and
control of integrated production processes and firms involved in
transporting products and raw materials between geographic areas
Emphasizes functional expertise, centralized control, and relatively
lean managerial staff
Coordination of manufacturing and marketing often is difficult
Managing multiple product lines can be very challenging because of
the separation of production and marketing into different departments
See example next slide
21
Global Functional Division
(Partial Organization Chart)
Chief Executive Officer
Production
Marketing
Domestic
Production
Foreign
Production
Domestic
Production
Foreign
Production
Product A
Product B
Product C
Product D
Product A
Product B
Product C
Product D
Product A
Product B
Product C
Product D
Product A
Product B
Product C
Product D
Adapted from Figure 9–7: a Global Functional Structure
Finance
22
Mixed Organization Structures
 Mixed organization structures

A structure that is a combination of a global product, area, or
functional arrangement



Allows the organization to create the specific type of design
that best meets its needs
As the matrix design’s complexity increases, coordinating the
personnel and getting everyone to work toward common goals
often become difficult
Too many groups go their own way
See example next slide
23
Mixed Organization Structures
(Partial Organization Chart)
Chief Executive Officer
Home-office
departments
Production
Marketing
Finance
Operating
divisions
North America
Industrial Goods
Manager,
Industrial Goods
North America
Adapted from Figure 9–8: A Multinational Matrix Structure
Human
Resources
Europe
Manager,
Industrial Goods
Europe
24
Transnational Network Structures
 Transnational network structures

A multinational structural arrangement that combines
elements of function, product, and geographic designs, while
relying on a network arrangement to link worldwide
subsidiaries


At the center of the transnational network structure are nodes,
which are units charged with coordinating product, functional,
and geographic information
Different product line units and geographical area units have
different structures depending on what is best for their
particular operations
See example next slide
25
Transnational Network Structures
Adapted from Figure 9–9: The Network Structure of N.V. Philips
26
Control Mechanisms
Adapted from Table 9-2: Control Mechanisms Used in Select Multinational Organization Structures
27
Nontraditional Organizational
Arrangements
 Organizational arrangements from mergers and
acquisitions
 Organizational arrangements from joint ventures and
strategic alliances
 Organizational arrangements from Keiretsus
28
BASIC VALUES
Asian and Western Management
Features
ORGANIZATION
MANAGEMENT STYLE
ACTION
Adapted from Figure 9-10: A Comparison of Asian and Western Management Features
29
Electronic Network Form of
Organization
 Electronic freelancers
Individuals who work on a project for a company, usually via the
Internet, and move on to other employment when the assignment is
done (http://elance.com)
 Temporary companies
 Serve a particular, short-term purpose and then go on to other
assignments
 Outsourcing function (can be delivered online)
 Electronic network is a version of the matrix design
 Many of the people in the structure are temporary, contingent
employees, never see each other and communicate exclusively in
an electronic environment

30
Organizing for Product Integration
 Cross-functional coordination
 Six organizational mechanisms used by Toyota
1. Mutual adjustments
2. Direct, technically-skilled supervisors
3. Integrative leadership
4. Technical training is provided in-house, and people are
rotated within only one for most, if not all, of their careers
5. Complex forms and bureaucratic procedures
6. Design standards are maintained by the people who are
doing the work and are continually changed to meet new
design demands
31
Changing Role of Information
Technology in Organizing
Adapted from Table 9–3: Contrasting Approaches to Using Information Technology: Western and Japanese Views
32
Organizational Characteristics
of MNCs
 Formalization
 Specialization
 Centralization
33
Organizational Characteristics
of MNCs
Adapted from Table 9–4: Organizational Characteristics of U.S. and Japanese Firms in Taiwan
34
Organizational Characteristics
of MNCs
Adapted from Table 9–5: Internal vs. External Networks
35
Organizational Characteristics
of MNCs
Adapted from Table 9–6: Managers’ Influence in U.S. and Japanese Firms in Taiwan
36
Cases
 Australia (p. 290)
 Getting in on the ground floor (p. 291)
 Reliance (p. 350)