International Business Strategies and Organizational Adaptation

1. Chapter 8 Strategy and organizations Learning Objectives • To highlight the ways in which the international dimension in business activities is distinctive from national and local enterprises. • To appreciate the role of the entrepreneur and entrepreneurship in the international environment. • To gain an overview of the ways in which enterprises organize and adapt when they expand internationally. • To gain an understanding of the key players in the international environment with which businesses interact

2. International Business Lecture 7:Strategy and organizations

3. Aims of the lecture • To assess alternative internationalization strategies • To evaluate competitive forces in the changing environment, which influence corporate strategy • To identify differing approaches to organizational structure in light of strategic goals • To assess the impact of national environments on structure and behaviour of firms and networks • To take an overview of processes of organizational change and management implications

4. Entry strategies • Entry strategies vary according to the firm, the industry and the business environment in the foreign location. • Exporting involves a minimal commitment and no organizational presence. • Production under licenceoffers flexibility and lower commitment to the country than FDI, but carries risks, such as weak control over quality and working conditions. • FDI involves greater commitment, either greenfield or acquisition. Control over operations is an advantage over outsourcing. • Emerging MNEs are a growing force in FDI.

5. Figure 7.1:Internationalization strategies

6. Internationalization decision Export FDI Outsourceproduction Export Productionunder licence Greenfieldsiteinvestment Framnchise Internationalization Strategies

7. FDI motives • Market considerations • Proximity to markets is a ‘pull’ factor. • Saturation in home market is a ‘push’ factor. • Advantages in production, e.g. low-cost labour. Technological capacity and network linkages also feature. • Resource-related motives – Recall internalization advantages in OLI paradigm. • Desire for control over specific assets, such as brands or businesses.

8. Choosing location • PEST analysis of the national environment in possible foreign locations: • Political and legal • Economic • Social and cultural • Technological • The importance of the above dimensions differs according to the intentions of the firm. • Potential entrants must also consider production potentialand market characteristics.

9. Figure 7.2:Location decision

10. Firm strategy • Traditional SWOT analysis considers both internal and external factors. • Theorists of competitive strategy tend to focus on either internal analysis: • Resource-based theory (J. Barney) • Core competencies (Prahalad and Hamel) • …or external analysis: • Five-forces model (Porter)

11. Figure 7.3:SWOT analysis and beyond

12. Figure 7.4:Porter’s five forces model Source: Adapted from Porter, M. (1998) Competitive Strategy: Techniques for Analyzing Industries and Competitors (London: Free Press)

13. Resource-based view of the firm • Firm resources are: • Physical – plant and machinery, location. • Human – experience, skills, knowledge, relationships. • Organizational – structure, informal relations, stakeholder relations. • Key attributes of the resource: it is… • Valuable • Rare • Imperfectly imitable • and there is no strategically equivalent resource.

14. Core competencies • View of the firm as a portfolio of competencies • Core competencies: an organization’s collective skill and learning in specialist areas • Focus on competencies v products.Competencies… • Can be applied to a variety of products • Yield benefits to the end product which reaches the consumer • Difficult for competitors to imitate • Strategic implications • Clear goals needed to sustain leadership • Outsourcing and alliance strategies downplayed

15. Organizational structures go global • The multidivisional structure, or M form,was an early choice for international expansion. • Divisions based on product or geographic area. • Divisions can be added as the company expands. • Bartlett and Ghoshal’s typology highlights differences in multidivisional structures according to: • Strategy: local global • Organization: decentralized centralized

16. Figure 7.5:The multidivisional structure

17. Figure 7.6:Contrasting models of multidivisional companies

18. Figure 7.7:The global matrix

19. The network organization • Emphasis on relational ties, both within the organization and with outsiders • Openness in communication leads to flows of information and resources within the firm (including foreign locations) and with other organizations • Not so much a new structural model as a new managerial approach • Blurring of organizational boundaries • Network approach accords with a stakeholder view of the company

20. Figure 7.8:The network organization

21. Inter-organizational networks • Formal and informal ties across organizations – consonant with network organizations and decentralized decision-making • Concept of the value chain – value created at each stage in the production process. • May be producer driven or buyer driven. • The cluster – group of organizations which benefit through co-operation in a particular sphere of activity. • Can include manufacturing, services, R&D, enjoying complementarities. • The transborder cluster – benefits can be gained even when participants are dispersed geographically.

22. National environment and the firm(Whitley’s typology) • Particularistic– weak formal regulation & weak legal system • Collaborative – strong institutions and co-operative behaviour; guiding role of government • Arm’s length– strong institutions in the formal sense; emphasis on rules and formal processes Paternalistic authority, often found in developing countries. View of the firm in the social context; relations with stakeholders important (eg Germany, Japan) View of the firm as an economic entity, seeking wealth maximization (eg the US)

23. Networks in Japan and South Korea • Japanesekeiretsu – Loose groupings of firms, usually centred on a main bank; characterized by cross-shareholdings and relational ties between suppliers and customers. • Strengths – benefits of networks in sharing expertise; Weaknesses – became costly and inefficient. • Koreanchaebol – Family-owned conglomerates, ruled paternalistically; strong mutual ties between employees and owners; supported by government. • Strengths – forces of economic development in South Korea; • Weaknesses – weak governance and lack of transparency.

24. Organizational change • Change may be radical, altering structure and culture, or • narrower, altering systems and roles. • The turnaround involves rapid deliberate change, often to recover from poor performance. • Revitalization involves gradual change. • Change takes place at both formal and informal levels. • The international context of change: • Differing perspectives across the organization • Differing roles & responsibilities across dispersed locations • Need for integration of individual members in corporate vision

25. Figure 7.9:Aspects of strategic and organizational change

26. Conclusions • Internationalization strategy depends on the firm’s goals and on national environments in both its home country and foreign locations. • The multidivisional structure has evolved towards a balance between central co-ordination and local responsiveness, with changes in international operations and in differing environments. • Networks, both intra-firm and inter-firm have arisen in the context of globalized production and markets. • Managing organizational change in the international context must take account of environments and staff in differing locations.