Strategic & structure

Strategic ObjectivesMultinational companies need to meet the challenges of global efficiency, multinational flexibility and worldwide learning.

Global efficiency can be enhanced both by increasing revenues and by lowering costs.

Multinational flexibility is defined as ‘the ability of a company to manage the risks and exploit the opportunities of the global environment’

macro-economic factors, such as wars, interest and wage rates, exchange rates;

policy actions of national governments, such as expropriation and changes in exchange rates;

Responses of competitors in the host market;

Resources, including natural, financial and human resources.

The very presence of multinational companies in diverse national environments creates opportunities for worldwide learning.

Linking Means and ends

Companies that follow a multidomestic1 strategy will give

prime importance to one of the means – national

differences – to achieve the different strategic objectives.

increasing revenues,

through differentiating their products and services to respond

to differences in consumers’ tastes and preferences and

government regulations.

Companies that follow an international strategy focus

primarily on one of the ends – worldwide learning – and use

the three different means available to achieve this end.

The drawback of this strategy is that although it is very efficient

at transferring knowledge across borders, it does not do a very

good job in achieving either global efficiency or flexibility.

For companies that follow a global strategy, meeting the

objective of global efficiency takes pride of place and all

means are used to achieve this objective. (Mean)

differences in factor costs

by locating production in low cost countries

Concentration and centralization of production and R&D activities

Companies following a transnational strategy acknowledge

that all of these different combinations of means and ends

have their own merits and might be very suitable in specific

industries.

Structuring Multinational companies

The period between the two world wars was

characterized by a rise in nationalistic feelings.

Countries became more and more protectionist and

erected high tariff barriers.

There were large national differences in consumer

preferences and communication and logistical barriers

remained high.

Led to a decentralization of decision-making.

Family ownership had been the dominant tradition

and therefore organizational processes were built on

personal relationships and informal contacts rather

than formal structures and systems.

International Organizational Model

US companies developed new technologies and

products.

They were almost forced into the international

market by spontaneous export orders and

opportunities for licensing.

Later they started making their products in

manufacturing facilities in Western Europe and in

developing countries.

It involves sequential diffusion of innovations that

were originally developed in the home market.

Subsidiaries are dependent on the parent

company for new products, processes or ideas.

GlobalOrganizational Model

In the 1960s and 1970s the successive reductions in

tariff barriers began to have their full impact.

This was accompanied by declining international

transport costs and communication barriers.

Furthermore, new electronic technologies increased

the minimum efficient scale in many industries.

In this kind of industry, a firm’s competitive position

in one country is significantly influenced by its

position in other countries.

Rivals compete against each other on a truly

worldwide basis.

TransnationalOrganizational Model

Trade barriers were erected again to limit exports and foreign direct investments were regulated by industrial policies.

Flexible manufacturing reduced the minimum efficient scale by employing robotics and CAD/CAM technologies.

The use of software became important in a growing number of industries (from telecommunications to computers and consumer electronics).

A transnational strategy would be a deliberately planned strategy to have an ‘adaptive’, ‘incremental’, ‘muddling through’ or ‘emergent’ strategy.

Assets, resources and capabilities are neither centralized nor completely decentralized.