Lecture IVLecture IV

International Strategic International Strategic PlanningPlanning

(chs. 3 and 5)(chs. 3 and 5)

What complicates MNCs’ strategic planning?

- Strategy formulation process – SWOT analysis – international environmental forces – global competitive environment and the host government

1. Host government relationship

2. Competition

Host government relationship

A.A. Conflicts between developing Conflicts between developing countries and MNCs:countries and MNCs:

MNCs’ size, control, flexibility, and efficiency

Host government relationship (Contd..)

Allegations against MNCs activitiesAllegations against MNCs activities – Technology transfer (prices too high, sales too

restricted), MNCs’ ethnocentrism perpetuates a neocolonial

dependence of LDCs, MNCs introduce superfluous products, MNCs’ transfer pricing, Best jobs given to expatriates, local labor at a

disadvantage

Host government relationship (Contd..)

B. Host Governments’ bargaining B. Host Governments’ bargaining powerpower

C.C. MNCs’ negotiation methodsMNCs’ negotiation methodsPolicy approach Centralized approach Diffuse approach Coordinated approach

Competition

Global competitive environment of the industry (industry drives strategy)

Other MNCs

Domestic industries (Keiretsu )

SOEs

MNEs’ International Strategy [text, ch. 3]

Levit [1983]:Levit [1983]: product standardization

Hout, Porter, and Rudden [1982]:Hout, Porter, and Rudden [1982]: economies of scale through global volume, synergies across different activities

Hamel and Prahalad [1985]:Hamel and Prahalad [1985]: broad product portfolio to share MNCs’ infrastructure and capabilities

MNEs’ International Strategy (Contd..)

1. The Goals (of international operations) Global efficiency (p. 199, figure 3-1) Multinational

flexibility/responsiveness Worldwide learning2. The Means

National differencesScale economiesScope economies (p. 202,table 3-1)

3. Building blocks of worldwide advantage (p.203, table 3-2)

MNCs’ Strategic Orientation

(Bartlett and Ghoshal’s Organizational Topology)

BG Permultter Example

Multinational

International

Global

Transnational

Polycentric

Ethnocentric

Centocentric

Geocentric

MNCs’ Strategic Orientation (Contd..)

Between the two extremes of highly centralized, centocentric/global (standardization, global integration, efficiency, economies of scale…) and decentralized, multinational (host country focus, effectiveness…) strategies, there lies a possibility of combining the features of the two to better respond to the situation.

MNCs’ Strategic Orientation (Contd..)

(p.211, BG) “excentralization”? -decentralization? No. Certain resources may be concentrated but not necessarily at home.

J. S. Lublin, “Firms Ship Unit Headquarters Abroad,” WSJ, B1, 12-9-92

What an MNE needs to do to build worldwide advantage?

- p.206, table 3-3.

Responding to the strategic challenges

- by (pp. 206 - 209) Defending its worldwide dominance Challenging the global leader Protecting domestic niches

EPCG and MNE’s Strategy / Structure

(slides 14-18)

Empirical tests of the structural and strategic characteristics of firms have mostly failed to establish significant relationships between a geocentric mindset and companies’ strategic orientation and structures.

EPCG and MNC’s Strategy / Structure (Contd..)

S. J. Kobrin, “Is there a Geocentric Mindset and Multinational strategy?”, Journal of International Business Studies, Fall, 1994

--- Results of the study may help to explain business strategies of

Hi-tech companies

--- The cases of Google, Yahoo and Microsoft (MSN in China)

EPCG and MNC’s Strategy / Structure (Contd..)

In Kobrin’s study, an index of a geocentric mindset is found to correlate with geographic scope and various aspects of IHRM policy and practice, but no relationship is found with measures of MNCs’ strategy or structure.

Also, Kobin’s “speculative hypothesis” about the development of a geocentric mindset may relate to the information or knowledge intensity of the firm rather than its position on the strategic continuum.

MNE’s Strategy and Industry Characteristics Product requirementsProduct requirements and Market requirements Market requirements

(distribution channels, and Service needs/expectations)

Product and market requirements are influenced by market forces or dictated by the host government.

Operational requirementsOperational requirements – economies of scale, investment requirements in R&D, manufacturing facilities…etc.

The interaction between these two dimensions dictates MNE’s strategic direction

MNE’s Strategy and Industry Characteristics (Contd..)

National Global

National

Product/Market Requirements

OperationalRequirements

Global Transnational ?Global (Automobiles,

Electronics)

Multinational (Detergent)

The Worldwide Learning Challenge(ch.5,pp. 456-457)

MNE’s Learning Processes Center-for-global (market insensitivity) Local-for-local (duplication, inefficiency)

Transnational Innovation Locally leveraged (“not-invented-here”

syndrome) Globally linked (high coordination cost)

Strategic Implication of Cultural Differences

Cultural forces impact the interpretation of the environment, and therefore affect strategy formulation. 

Cultural differences in understanding our relationship with

The environment

Other people

“Conformity”– US and Japanese interpretations

The American concept of profit maximization?

Charles HandyCharles Handy, The Age of Paradox, 1995

Charles HandyCharles Handy, Beyond Capitalism: A Quest for Purpose in the Modern World”, 1999

SRC (Self Reference Criterion)