International Strategy and Organization

(Part I)

Josef WindspergerProfessor of Organization and Management

Center of Business Studies

Lecturer: Josef WindspergerE-mail:

josef.windsperger@univie.ac.atHomepage: www.univie.ac.at/IMPhone: 00431-4277-38180

Content

Part I1 MNC as Global Network: Existence and Evolution

1.1 Product Life Cycle Theory1.2 Transaction Cost Theory1.3 Eclectic Theory1.4 Network Approach

2 Culture, Strategy and Organization of the MNC2.1 Country and Organization Culture of the MNC2.2 Strategy and Organization Design of the MNC

Content

Part II

3 Management of Networks of the MNC

3.1 International Licensing

3.2 International Strategic Alliances, Joint Ventures and Consortia

3.3 International Franchising-Networks

3.4 Networks and M&As

3.5 Internationalization through Countertrade

3.6 International Clusters

3.7 Networks versus Hierarchies of the MNC of the Future

4 Market Entry Decision of the MNC

1 MNC als Global Network 1.1 Product Life Cycle Theory

Vernon (1966):Extension of the product life cycle view to explain the internationalization of the firm.

Product Life Cycle

1.2 Transaction Cost Theory

Transaction costs =» costs of using the price mechanism (Coase 1937)

Search costs

Information costs

Costs of decision making

Negotiation costs

Planning period:Ex ante costs

Transaction Costs

Monitoring or control costs Contract execution costsAdjustement costs

Contract execution period: Ex post costs

Transaction Cost Theory O. E. Williamson (1975)

Atmosphere

Bounded Rationality Uncertainty/Complexity

‚Information Impactedness‘

Opportunism Transaction Specifity

Market and Hierarchy

CCTransaction costs Organizational costs

(Setup-costs)

Degree of organization

Quasi-Rents, Specific Investments and Hold-up

g AB

A‘s quasi-rent: QRAB = (gAB – gAC)

A Bg BA

CD g ACg BD

A‘s profit with B: gAB B‘s profit with A: gBA

B‘s quasi-rent: QRBA = (gBA – gBD)

HOLD-UP Potential of B (HB)Quasi-rent of A (QRBA) =

Transaction Cost Theory of the MNC - David Teece

Definition:– Eclectic Theory offers a framework to identify

firm specific and industry specific characteristics, referring to

ownership, location and internalization advantages(OLI).

1.3 Dunning‘s Eclectic Theory

Ownership Advantages

Internalization Advantages

Local Advantages

Export YES NO YES

Direct Investment YES YES YES

Eclectic Theory

1.4 Network Approach

Internationalization Process– current position in the international market– level of internationalization of the other firms

– Four internationalization situations:» The early starter» The late starter» The lonely international» The international among others

LOW HIGH

LOWThe Early Starter The Late

Starter

HIGHThe Lonely International

The International

Among Others

Degree of internationalization of the market

Degreeof the

Internation-alization of the firm

2 Culture, Strategy and Organization of MNC2.1 Country and Organization Culture

•“Culture is the collective programming of the mind.”Geert Hofstede

Hofstede

Individualism/collectivism Masculinity/femininity Uncertainty avoidance

Power distance

Power Distancebeschreibt

The extent to which people tollerate unequal distribution of power in economy and society.

Individualismbeschreibt

The degree of integration of individuals in groups

Individualism:Individual values, individual responsibility, goal orientationCollectivism:Group values, loyal behaviour, common responsibility

Percentage opting for Individual Freedom

89%71%

69%67%

65%64%

61%60%

53%52%

44%41%41%

39%37%

32%30%

0% 20% 40% 60% 80% 100% 120%

IsraelCanada

USADenmark

NetherlandsFinland

UKRussia

GermanyItaly

IndonesiaChina

FranceJ apanIndia

MexicoEgypt

Masculinitybeschreibt

How strong are masculin values (for instance achievement, success, money) compared to feminin values (security, life quality, social contact)?

Uncertainty Avoidancebeschreibt

How tolerant are the people concerning new and unstructured situations?

high UA: Many Rules, regulations and legal norms to minimize risk

Model of Hofstede

Country Comparison

Village market (nordic)-Decentralized, flexible-Coordination through personal and informal communication

Family or tribe (Asiatic)-Centralized decision making-Loyal, personal relationships-Social control (clan control)

Well-oiled machine(Germanic)-Decentralized decision making-Strong role of experts-Coordination through rules and routines

Traditional bureaucracy„Pyramid of people“ (Latin)-Centralized decision making-Central personal coordination-Informal relationships

highlowhigh

low

Powerdistance

Uncertainty Avoidance

Hierarchy

Form

aliza

tion

EIFFEL TOWERRule-oriented

culture

Fulfillment-orientedculture

INCUBATOR

FAMILYPower-oriented

culture

Project-orientedculture

GUIDED MISSILE

Decentralization

Centralization

TaskPerson

Trompenaars‘ Cultural Model

Family Culture

Power-oriented culture Diffuse relationships Status is ascribed (parent figures) People are seen like family members Father makes the changes Management by subjectives

Eiffel Tower Culture Role-oriented culture Specific relationships Status is ascribed to superior roles Rationally thinking People are seen like human ressources Change through rules and procedures Management by job description Everything is planned, structured

Guided Missile Culture

Project-oriented culture Egalitarian and task-oriented Specific relationships Problem centered way of thinking People are seen as experts Management by objectives

Incubator Culture

Self-fulfilment oriented culture Diffuse relationships Thinking is process-oriented and creative People are seen as co-creators Management by enthusiasm

2.2 Strategy und Organization design of the MNC2.2.1 Strategies of the MNC

What is a competitive advantage?Sustainable cost and/or revenue advantages compared to the best competitor

StrategyRessources Capabilities Industry structure

I. Strategic ApproachesPorter‘s Model

Competitive advantage through low costs and differentiation

Low-cost, differentiation and focus strategy

monopolistic Rents

Resource-Based Theory (Barney, Grant)

1. Identify and classify the firm‘s resources

2. Identify the firm‘s capabilities

3. Appraise the rent-generating potential of resources and capabilities

4. Select a strategy which best exploits the firm‘s resources and capabilities relative to external opportunities.

Resources

CompetitiveAdvantage

Capabilities

Strategy

5. Identify resource gaps which need to be filled Invest in replenishing, augmenting and upgrading the firm‘s resource base

Strategic Rents

II. International Strategies: Perlmutter

Ethnocentric StrategyPolycentric StrategyGeocentric StrategyRegiocentric Strategy

Perlmutter‘s Model

Bartlett/Ghoshal-Model

high

highlow

low

Cost pressures

Pressure for local responsiveness

Global Strategy

International

Strategy

Multi-national Strategy

Trans-national Strategy

International strategy– create value by transferring valuable skills and

products to foreign markets – differentiated products developed at home and

transferred to other markets– sources of core competencies (e.g. R&D) centralized,

others decentralized

UK Chile

IndiaJapan

USA

HK

Mexico

Multidomestic/multinational strategy– decentralized and nationally self-sufficient– exploiting local opportunities– value creation activities (production, marketing and

R&D) in each major national market

UK Chile

IndiaJapan

USA

HK

Mexico

Global strategy– focus on profitability – prefer a low-cost-strategy– standardized products, aggressive pricing – do not customize their products– implementing parent company strategy

UK Chile

IndiaJapan

USA

HK

Mexico

Transnational strategy– transfer of skills from the home company to the

foreign subsidiaries and vice versa– knowledge developed jointly and shared worldwide,

“global learning”– interdependent and specialized

UK Chile

IndiaJapan

USA

HK

Mexico

Yip‘s Model: A Framework for Analyzing ‚Globalization‘

Locus of decision making power on corporate, business, functional strategy issues

Corporate headquarters Regional centers National units

World product 1

Global strategy4 7

Region-based or adapted product

2 5Regional strategy

8

Nation-based or adapted product

3 6 9National strategy

Actual product Characteristics

2.2.2 Strategy and Organisation DesignChandler (1962): „Structure follows Strategy“

Matrix structure Product-/geographic Structure Functional Structur

Differentiation strategy Low-cost strategy

Bartlett/Ghoshal-Model

‚Structure follows Strategy‘

Global Strategy

International

Strategy

Multi-national Strategy

Trans-national Strategy

Global Product Structure

Matrix Structure

Multidivi-sional Structure

Transna-tional Structure

Interna-tional Division

International Division

CEO

HR Finance R & D Int. Division

Europe

Middle East

Brazil

Staff

Global Geographic Structure

CEO

Pacific Division

European Division

Latin American Division

Corporate Staff

Long Term Planning

ProductCoordination

ABB

Comparison

Global Heterarchy (Hedlund)Transnational Organization (Bartlett/Ghoshal)

Country competence centersCountry competence centers

Local and global advantagesLocal and global advantages

Decentralisation of decision makingDecentralisation of decision making

Centralization of controlCentralization of control

IT-enabled strategyIT-enabled strategy

Organization culture as clan controlOrganization culture as clan control

Transnational Form

Objective: Globally integrated and locally responsive

Global Product

Form Transnational Form

Multidomestic Form