Question: Developing Transnational Strategies: Expanding Abroad, Understanding the International Business Context

27 Mar 2023,5:15 PM

 

 

Objectives Efficiency Flexibility Learning Capacity

Means National Differences Scope Scale …

in Global Strategy and Management Practices

 

How to Build Global Efficiency?

• Efficiency = value of outputs / cost of inputs
  • The higher the value of outputs, the better the efficiency.
  • The lower the cost of inputs, the better the efficiency.
• In the global context:
  • Global integration lowers the cost of inputs
  • Local responsiveness increases the value of outputs

 

The Integration-Responsiveness Framework

 

Efficiency benefits from

global integration

Differentiation benefits from

national responsiveness

Cement

Packaged

Foods

Telecom,

switching

Consumer

electronics

Automobiles

Toyota

Ford

Fiat

 

 

Building Multinational Flexibility

• What is Multinational Flexibility?
  • The ability to manage risks and exploit opportunities arising from the diversity and volatility of the global environment
• Multinational flexibility requires:
  • Understanding and managing different forms of risk (e.g., macroeconomic, political,

competitive, resource)

• • Scanning and responding to discontinuities in global environment
  • Selecting most attractive markets, sensing their needs,

   and developing adaptive responses

 

Building World-Wide Learning Capacity

• Capture strategic benefits of external diversity
  • Monitoring worldwide developments as potential sources of competitive information advantage
  • Implies a need to convert “delivery pipelines” into “sensory feelers”
• Leverage internal variety
  • Recognise worldwide human resources and capabilities as potential sources of competitive advantage
  • Exploit opportunity to leverage central and local innovations
  • Link sensing, response, and implementation capabilities to create competitive advantage from cross-border innovation

Worldwide Advantage: Goals & Means

	Sources of Competitive Advantage
	National Differences	Scale Economies	Scope Economies
Achieving efficiency in current operations	Benefiting from differences in factor costs – wages and cost of capital	Expanding and exploiting potential scale economies in each activity	Sharing of investments and costs across markets and businesses
Managing risks through multinational flexibility	Managing different kinds of risks arising from market- or policy-induced changes in comparative advantages of different countries	Balancing scale with strategic and operational flexibility	Portfolio diversification of risks and creation of options and side bets
Innovation, learning & adaptation	Learning from societal differences in organizational and managerial processes and systems	Benefiting from experience – cost reduction and innovation	Shared learning across organizational components in different products, markets, or businesses

 

Strategy Positions in the Consumer

Electronics Industry

Panasonic General Electric Philips

Forces for

Global

Integration

Forces for National Responsiveness

 

Four Strategic Orientations

 

Organizational Structure

 

International

Division

Area

Division

Worldwide

Product

Division

Foreign

Product

Diversity

Global

Matrix

 

Foreign Sales as a Percentage of Total Sales

Adapted from John Stopford & Louis Wells, Strategy & Structure of the MNE (New York: Basic Books, 1972)

 

Failure of the Matrix

• Many companies experimented with matrix structures in 1970s (Dow Chemical, Citibank, etc.)
  • Dual reporting led to confusion
  • The result: slow, ineffective decision making
• Many companies abandoned formal global matrix structures in the 1980s

 

Beyond Structural Solutions

• Matrix management focused solely on formal structure as a tool for organization design
• But to effectively manage a complex organization, executives need a much broader set of tools…
  • Administrative systems
  • Communication channels
  • Interpersonal relationships, etc.

…and have a deep understanding of the organization’s Administrative Heritage

 

Administrative Heritage

• “Where to” is influenced by “where from”
• Competitive advantage shaped by country of origin, time of expansion, and nature of leadership
• The challenge is to build new capabilities while protecting existing strengths
• Three archetypes can be identified…

 

Administrative Heritage: Historical Archetypes

1. Pre-1940 European Empires

Dominance of Multinational Strategy’s Decentralized Federation

2. 1950s-60s American Expansion

Dominance of International Model’s Coordinated Federation

3. 1970s-80s Japanese Challenge

  Dominance of Global Model’s Centralized Hub

 

Pre-1940 European Empires: Dominance of Multinational Model

Decentralized Federation Organization...

 

…Strategy of National Responsiveness

! Expanded abroad in a period of high international barriers;

Europeans’ preferential access to foreign empire markets

! Organization developed as a portfolio of national companies; heritage of family management, personal control (”old boys network”)

! Strategy based on understanding and responding to national markets

 

1950s-60s American Expansion: Dominance of International Model

Coordinated Federation Organization...

 

…Strategy of  Knowledge Transfer

! Expanded abroad in a time of economic reconstruction: US companies’ large, advanced home market as knowledge source

! Organization built on strong links to the parent company based on transfer of expertise: heritage of professional management, systems control

! Strategy based on transferring parent company’s leadership in technology, marketing, and other skills

 

1970s-80s Japanese Challenge: Dominance of Global Model

Centralized Hub Organization…

 

…Strategy of Global Efficiency

! Expanded abroad in a period of falling trade barriers: Japanese MNEs newly added capacity and government industrial policy as assets

! Organization grew as dependent foreign units tightly controlled from the center: heritage of culturally dependent management practices dominated by group processes

! Strategy based on capturing global scale economies

 

Building and Managing the Transnational Organization

• The transnational organization attempts to resolve the inherent limitations of the three organization archetypes
• Three key characteristics:
  • Builds and legitimizes multiple internal perspectives.
  • Develops distributed and interdependent physical assets and capabilities: most effective manufacturing plant becomes global source, etc.
  • Creates robust and flexible integrative process

 

Organizational Configurations

 

 

Decentralized

Federation

The Integrated Network

Centralized Hub

Coordinated Federation

 

	Decentralized Federation	Coordinated Federation	Centralized Hub	Integrated Network
Strategic Approach	Multinational	International	Global	Transnational
Key strategic capability	National responsiveness	Transfer home country innovations abroad	Global-scale efficiency	Simultaneous achievement of degrees of  responsiveness, efficiency, and learning
Configuration of assets and capabilities	Decentralized and nationally selfsufficient	Core competencies centralized; others decentralized	Centralized and globally scaled	Dispersed, interdependent and specialized
Role of overseas operation	Sensing and exploiting local opportunities	Implementing parent company strategy	Adapting and leveraging parent company competencies	Differentiated contributions by national units to integrated worldwide operations
Development and diffusion of knowledge	Developed and retained within each unit	Developed at the center and transferred oversees	Developed and retained at the center	Developed jointly and shared worldwide

Organizational Characteristics

 

The Transnational: A New Type of Organization

• A new anatomy (formal structure)
  • Redistributing assets and responsibilities
• A new physiology (systems and processes)
  • Redefining information flows and relationships
• A new psychology (culture)
  • Readjusting attitudes, mentalities and beliefs

 

 

 

 

Managing the Process of Change:

Traditional Model

§ Classic change process driven by structural reconfiguration assumptions

Change in formal structure/responsibilities  (Anatomy)                                                    reshapes Organizational processes/relationships (Physiology)                                                    redefines Individual attitudes/mentalities (Psychology)

Managing the Process of Change: Emerging Model

§ Change process initiated  by changes in attitudes and mentalities

Change in individual attitudes and mentalities   Changes in interpersonal relationships and processes   Change in formal structure and responsibilities

 

 

 

 

 

 

 

 

 

 

Recent Backlash against Globalization

• Pre-1990s: Global integration forces dominated
  • Most host governments actively sought investment
  • Free Trade movement gathered pace
• Late 1990s to 2000s: Highly visible backlash – Anti-globalization movement (Seattle, Genoa, etc…)
  • Many developing countries highly sceptical of benefits
• Outcome: Many MNEs forced to rethink their approach towards globalization
  • Need to recognize potential negative impacts
  • Need to better articulate benefits they bring

Forces for Worldwide Innovation & Learning

-> Increased need for rapid and coordinated worldwide innovation driven by:

• Shortening product life-cycles
• Increased cost of R&D
• Emergence of global technology standards
• Competitors’ ability to develop and diffuse innovation globally

 

 

Responding to Diverse Forces

Simultaneously

• Diverse environmental forces shape industry structures and characteristics differently:

• Global industries: those shaped primarily by economic forces for globalization (e.g. consumer electronics)
• Multinational industries: those shaped primarily by national, cultural, social, and political forces of localization (e.g., branded packaged goods)
• International industries: those shaped primarily by technological forces for developing and diffusing innovations (e.g., telecom)

Global & National Forces: Industry Effect

 

Global

Integration

National Responsiveness

Consumer

Electronics

Telecom

Switching

Branded

Packaged

Products

Cement

 

Transition to Transnationality

• Environmental forces undergoing change in late 20^th

Century

• • Rapid technological evolution
  • Anti-globalization political forces
  • New bases of competition emerging
  • Emerging competitors with different capabilities
• Increasingly industries were becoming transnational
  • Companies needing to respond simultaneously to all three diverse and often competing sets of forces: global integration, national responsiveness, and worldwide learning