Strategies in International Business - Enhancing Market Performance

1. International Business(Strategies & Organization of International Business)Erasmus programme IIILecturer Dr Pavlos Dimitratos pdimitr@aueb.gr

2. The role of strategy at the overall international marketplace • Create value for the international customer either by decreasing costs or by differentiating product offering (compared with competitors) • Differentiation of the product is likely to require increased responsiveness to individual country demands

3. Pressures for cost reductions • This is particularly true in industries producing commodity-type products where price is the main competitive weapon • This can be the case when tastes and preferences worldwide seem to be similar • E.g. Bulk chemicals, steel, sugar, semiconductor chips, PCs, tires

4. Pressures for local responsiveness • These stem from • Differences in consumer tastes and preferences (contrary to Levitt’s argument for a ‘global consumer’) • Differences in infrastructure and traditional practices • Differences in distribution channels • Host-government demands

5. Strategies at the overall international marketplace

6. Multidomestic strategy • In the ‘pure’ multidomestic strategy firms establish a complete set of value creation activities (R&D, production, sales etc.) in each national market. Each country constitutes a profit center. • Leveraging of core competencies within the MNE is poor • Inability to realize location economies and exploit experience curve effects

7. Global strategy • In the ‘pure’ global strategy value-added activities are concentrated in a few favorable locations • A standardized product is produced/marketed • Exploitation of experience curve effects/location economies but lack of local responsiveness • Mini-case discussion

8. Strategies at the overall international marketplace (con’d) • As multidomestic and global strategies are at the opposite ends of a continuum, intermediate strategies do exist • International strategy • Transnational strategy • Transfer of core competencies and global learning may occur • As presented in the text, international - transnational strategies may be ‘ideal cases’ of strategies

9. Strategies at the overall international marketplace (con’d) • Regional strategy • It calls for the pursuit of competitiveness within regionally trading groups of countries that share similar characteristics (such as the EU, North America, SE Europe etc.) • It has lower degree of geographical range of operations compared with multidomestic/global but has a similar degree of local responsiveness with either of the two (although mostly with that of global) • A multiregional strategy can be very close to either a global (mainly) or a multidomestic strategy

10. Organizational architecture of international business • The (international firm) must formulate its organizational architecture • Structure • Controls and incentives • People • Culture • Processes • … and align it with strategy and the external environment in order to attain superior (international) performance • Changes to the organizational architecture are much more difficult than changes to strategy

11. International division • This structure is used often at the initial stages of international expansion of the firm (emphasis still on the domestic market) May render potential conflict and coordination problems between domestic and foreign operations International department is not given much voice as domestic functions (or divisions)

12. Worldwide product divisional structure • This structure is used mainly by firms that are reasonably diversified (e.g. Motorola) Area or country managers are seen subservient to product division managers Well-suited for pursuit of a global strategy because synergies between domestic and foreign operations may be identified

13. Worldwide area structure • This structure is used mainly by firms with a low degree of diversification (e.g. Nestle has used this) This structure facilitates local responsiveness but may entail duplication of functions among areas Well-suited for pursuit of a multidomestic strategy

14. Global matrix structure • If firms have to balance both cost pressures and pressures for local responsiveness, then a matrix structure can be a solution (e.g. Unilever) This structure can facilitate global learning but may entail conflict between divisions Are flexible networks and heterarchy solutions?

15. Multidomestic & Global Firms • Mini-case discussion • Multidomestic firm: Decentralization in a worldwide area structure whereby low need for coordination and no integration mechanisms between country subsidiaries exist • Global firm: Centralization in a worldwide product division whereby high need for coordination and many integration mechanisms between country subsidiaries exist

16. Readings • Hill, chapters 12 & 13 Recommended: • Bartlett C.A., and Ghoshal S. (1989), Managing Across Borders: The Transnational Solution, Boston: Harvard Business School Press. • Leong S.M., and Tan C.T. (1993), “Managing across borders: An empirical test of the Bartlett and Ghoshal [1989] organizational typology”, Journal of International Business Studies, 24, 449-464. • Levitt T. (1983), “The globalization of markets”, Harvard Business Review, 61(3), 92-102. • Morrison A.J., Ricks D.A., and Roth K. (1991), “Globalization versus regionalization: Which way for the multinational?”, Organizational Dynamics, 19(3), 17-29.