International Business Strategy
Lecture 5 : Global Strategies and the Organization
and Control of Multinational Companies
Brendan Boyle 2007
Principle Learning Objectives
Develop an understanding of the Integration-Responsiveness
Framework and the conflicting pressures MNCs face for cost
reduction and local responsiveness.
Develop an understanding of the four basic IB strategies Global, Home Replication, Transnational and Multi-Domestic
Strategy.
Develop an understanding of the implications of these strategy
choices for organizational structure and coordination and
control of a MNC.
Develop an understanding of the implications of all of the
above for international business strategy and practice.
Brendan Boyle 2007
Multinational strategic choices
Major challenge: Balancing Global and Local
pressures
 Global integration (standardization)
 Local Responsiveness (adaptation)
 MNEs cannot afford to focus on one
dimension at the expense of another
Brendan Boyle 2007
Global Standardization
The interest in marketing a “global” version of
products and services is driven by cost
pressures
 Standardized
consumer products such as
Coke Classic, Levi Strauss jeans, and
Sony color TV, which are successful on a
worldwide basis


Ford, GM, and Mitsubishi experimented
with “world car” designs
Other examples?
Brendan Boyle 2007
Barbie: The “All-American” Girl Goes Overseas
•Barbie is in her 40s
•Sold in 130 countries
•National adaptations:
–Physical features
–Costumes
–Activity sets
•Standardized physique:
–Scaled to 6’2”, 110 lbs.
–38-18-28
Brendan Boyle 2007
Effective Adaptation
Local responsiveness is unique to
international competition and is reflected in
different aspects:

Consumer preferences

Product design & packaging

Distribution channels

Host country demands
Brendan Boyle 2007
Pressures for Cost Reduction & Local Responsiveness
High
Company
C
Cost
pressures
Company
B
Low
Low
High
Pressures for local responsiveness
Brendan Boyle 2007
Four Basic Strategies
Global
Strategy
Transnational
Strategy
Home
replication
Strategy
Multi domestic
Strategy
High
Cost
pressures
Low
Low
Figure 12.5
High
Pressures for local responsiveness
Brendan Boyle 2007
Strategic Choice
Home Replication Strategy
• Go where locals don’t have your skills.
• Little adaptation. Products developed at home
(centralization).
• Manufacturing and marketing in each location.
–Core value creation activities developed
at home (e.g. product development with
actual production going overseas)
• Makes sense where local responsiveness is not
important.
12-17
Brendan Boyle 2007
Strategic Choice
Multi Domestic Strategy
•Maximize local responsiveness.
–Customize the product and marketing strategy to
national demands.
•Skill and product transfer.
•Transfer all value-creation activities, no location
economies.
•Good for high local responsiveness and low cost reduction
pressures.
•Lots of Duplication.
Brendan Boyle 2007
Strategic Choice
Global Strategy:
• Best use of the experience curve and
location economies.
• Production, marketing, and R&D
concentrated in few favorable functions
• This is the low cost strategy.
• Utilize product standardization.
• Not good where local responsiveness
demand is high.
• Some products serve universal needs…
others are designed to!
12-19
Brendan Boyle 2007
Strategic Choice
Transnational Strategy:
•Christopher Bartlett and Sumantra Ghoshal
•Core competencies can develop in any of the
firm’s worldwide operations.
•Flow of skills and product offerings occurs
throughout the firm - not only from home firm to
foreign subsidiary (global learning).
•Makes sense where there is pressure for both
cost reduction and local responsiveness.
Brendan Boyle 2007
Strategic Choices
Global
increase profitability
through cost
reductions from
experience curve
effects and location
economies.
Transnational
Exploit experienced
based cost and location
economies, transfer
core competencies
within the firm, and pay
attention to local
responsiveness needs.
Home Replications
create value by
transferring skills to
local markets where
skills are not present.
Multidomestic
oriented toward
achieving
maximum local
responsiveness.
Brendan Boyle 2007
Multinational Structures
♪ Organizational Structure
The firm’s formal reporting relationships, procedures,
and controls (organizational design or organizational
architecture).
Strategy and structure: A reciprocal relationship
–Strategy drives organizational structure; structure can
also enable and constrain strategy.
.
Brendan Boyle 2007
Four strategies and four structures:
The Integration–Responsiveness Framework
Figure 10.1
Brendan Boyle 2007
International Division Structure at Cardinal Health – Home Replication
Strategy
Figure 10.2
Source: Based on author’s interview and www.cardinal.com (accessed August 10, 2004). Cardinal
Health is headquartered in Dublin, Ohio. Also see Integrative Case 3.1.
Brendan Boyle 2007
International Division
 International Division
– With domestic business and all international operations
shifted to a “specialist” international division
– Typically set up when firms initially expand abroad
 Problems:
– Foreign subsidiary managers are not given sufficient voice
relative to the heads of domestic divisions.
– 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.
Brendan Boyle 2007
Geographic Area Structure at Ispat – Multidomestic Strategy
Figure 10.3
Source: Adapted from www.ispat.com (accessed June 30, 2004). Ispat is headquartered in London, United
Kingdom. Also see Chapter 3 Closing Case.
Brendan Boyle 2007
Geographic Area Structure
 Geographic Area Structure
– Organizes the MNE according to different geographic
areas (countries and regions).
 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”
SIA 10.1: Nestle
Brendan Boyle 2007
Global Product Division Structure at (EADS) – Global Strategy
Figure 10.4
Source: Adapted from www.eads.com (accessed June 30, 2004). EADS is headquartered in Munich,
Germany and Paris, France.
Brendan Boyle 2007
Global Product Division Structure
Global Product Division Structure
–Treat each product division as a stand-alone entity
with full worldwide (as opposed to domestic)
responsibilities for its activities.
–Improve cost efficiencies in allowing for
consolidation on a worldwide (or regional) basis.
Problems:
–It is the opposite of the geographic area structure:
Little local responsiveness.
–No sharing of information, little cooperation
between different product divisions, costly to
maintain, duplicated functions, difficult to organize
communication
Brendan Boyle 2007
Global Matrix Structure – Transitional Strategy
Figure 10.5
Brendan Boyle 2007
Global Matrix Structure
 Global Matrix
– Is often used to alleviate the disadvantages
associated with both geographic area and
global product division structures.
 Problems
– In practice, it is often difficult to deliver
– Add layers of management, slow down
decision speed, and increase costs while not
showing significant performance improvement.
Brendan Boyle 2007
Evolution of Organizational Structures
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.

The evolution is not necessarily in one direction
Brendan Boyle 2007
The International Structural Stages Model
Foreign
Product
Diversity
Global Matrix
(“Grid”)
Worldwide
Product
Division
Alternate Paths
of Development
International
Division
Area
Division
Foreign Sales as a Percentage of Total Sales
Brendan Boyle 2007
Global integration
Integration of global operations is among
the most important issues facing
Multinational Enterprises.
- Coordination
- Control
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Coordination
Coordination provides linkages between
different task units within an organization.
 Coordination helps the Multinational Enterprise
deal with breadth and diversity.
 Mechanisms include:
centralization/decentralization, formalization,
planning, output control, targets, and behavioral
controls.
 Organizations also use informal mechanisms for
coordination which include informal relationships,
informal communication, and culture.
Brendan Boyle 2007
Organization Culture
•
A “Strong” Culture:
–
–
Not always good
Sometimes beneficial, sometimes
not
•
•
Culture
Think of the requirements of the different
strategy choices
–
Transnational
Strong
Context is important
Adaptive cultures.
Culture does not necessarily translate across
borders
Global
Home Replication
What are the potential difficulties?
Write down some of the potential
difficulties in the transfer of
organizational culture across borders
Weak
Multidomestic
Brendan Boyle 2007
Control
Control is the intervention in operations to maintain
quality through feed-forward, concurrent, or
feedback oriented information.
 MNEs use output, bureaucratic, cultural, and many other
mechanisms to provide information that helps the firm
maintain progress toward its goals while realizing desired
outcomes.
 Creating a vision of shared direction and market
orientation in lieu of more formal controls has the greater
sustained effect, costs less, and is more acceptable to
people associated with the firm.
Brendan Boyle 2007
Performance ambiguity
•
Key to understanding the relationship between international
strategy, control systems and incentive systems
–
Caused due to high degree of interdependence
between subunits within the organization
A function of the
interdependence among
subunits.
Control Systems
Multi-dom/Replication
Output/Bureaucratic
Global/Transnational
Cultural
Brendan Boyle 2007
Strategy, interdependence and ambiguity
– Level of performance ambiguity depends on
number of subunits, level of integration & joint
decision making
High
– Ascending order of ambiguity in firms
Transnational companies (highest
Global companies
Low
Home -Rep companies
Multi domestic corporations
Brendan Boyle 2007
The case of Unilever
1940s: begin actively recruiting local managers of their
subsidiaries
1950s: To offset the danger of over-decentralization, the
HO sends 300/400 managers to international training
colleague; group 25/30 trainees recruited for similar
managerial positions; facilitate their
communication/exchange at later stage
1980s: Place managers in head-office department or
cross-posting them between companies to establish unity,
build a common sense of purpose, and understanding of
different national cultures;
Brendan Boyle 2007
Implications for Strategists:
Why do firms differ in their structures and global
operations?
–A short answer is that their different strategies
fundamentally drive these activities.
How do MNEs behave?
–The structural arrangements that MNEs put in place
both help them accomplish certain strategies and
constrain them from pursuing other strategies—
unless they unleash strategic changes, structural
changes, or both.
Brendan Boyle 2007
Implications for Strategists
What determines the scope of a firm?
The
international scope is significantly determined
by the particular strategies chosen.
What determines its international success?
A
value-adding fit between strategies and structures
of the firm, marketplace demands, and customer
preferences.
“Think global, act local” or “Think local, act global”
Brendan Boyle 2007
Principle Learning Objectives – revisited
Have you developed an understanding of the IntegrationResponsiveness Framework and the conflicting pressures
MNCs face for cost reduction and local responsiveness?
Have you developed an understanding of the four basic IB
strategies - Global, Home Replication, Transnational and
Multi-Domestic Strategy?
Have you developed an understanding of the implications of
these strategy choices for organizational structure and
coordination and control of a MNC?
Have you developed an understanding of the implications of
all of the above for international business strategy and
practice?
Brendan Boyle 2007