what is international strategy report (repaired)

7/21/2019 What is International Strategy Report (Repaired)

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WHAT IS INTERNATIONAL STRATEGY, AND WHY IT IS IMPORTANT?

International strategy is concerned with the way firms make fundamental choices about developing anddeveloping scarce resources internationally. International strategy involve decisions that deal with the all thevarious functions and activities of a company, not merely a single areas such as marketing and production.To be effective, a companys international strategy needs to be consistent among the various functions,

products and regional units of the company internal consistency as well as with the demands of the

international competitive environment.

GOAL OF INTERNATIONAL STRATEGY:

COMPETITIVE ADVANTAGE:

The goal of the international strategy is to achieve and maintain a unique and valuable competitive positionboth within the nation and globally, a position that has been termed as competitive advantage. This suggeststhat the international company either must perform activities different from those competitors or perform thesame activities in different ways. To create a competitive advantage that is sustainable over time, theinternational company should try to develop skills or competencies that

!. "reate value for customers and for which customer are willing to pay.#. $re rare, since competencies shared among many competitors cannot be a basis for competitive

advantage.%. $re difficult to imitate or substitute for, and ,4. $re organi&ed in a way that allows the company to e'ploit fully the competitive potential of these

valuable, rare and difficult to imitate competencies.

CHALLENGES:

(anagers of international companies that are attempting to develop a competitive advantage face a

formidable challenge resource ) time, talent and money ) are always scarce. There are many alternativeways to use these scarce resources for e'ample, which nations to enter, which technology to invest in, andwhich product to develop, and these alternative are not equally attractive. $ company*s managers are forcedto make choices regarding what to do, and what not to do, now and overtime. +ifferent companies makedifferent choices and those choices have implications for each companys ability to meet the needs ofcustomers and create a defensible competitive position internationally. ithout adequate planning, mangersare more likely to make decisions that do not make good sense competitively and the companysinternational competitiveness may be harmed.

GLOBAL STRATEGIC PLANNING:

WHY PLAN GLOBALLY?

-ecause of the challenges mentioned, many international firms have found it necessary to institute formalglobal strategic planning to provide a means for top management to identify opportunities and threats fromall over the world, formulate strategies to handle them and stipulate how to finance the strategiesimplementation. /lobal strategic plans not only provide for consistency of action among the firms managersworldwide but also require the participants to consider the ramifications of their actions in the othergeographical and functional areas of the firm. These plans provide a thorough, systematic foundation formaking decisions regarding what resources and competencies to develop, when and how to develop them,and how to use these competencies to achieve competitive advantage.

INTRODUCTION:

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STRATEGIC PLANNING:

0trategic planning is the process of evaluating the enterprises environment and its internal strengths, ne'tidentifying long and short range ob1ectives and then implementing a plan of action for attaining these goals .(ultinational enterprises 2(34s5 rely heavily on this process because it provides them with both generaldirection and specific guidance in carrying out their activities. ithout a strategic plan, these enterpriseswould have great difficulty in planning, implementing and evaluating operations. ith strategic planning,

however, research shows that many (34s have been able to increase their profitability.

STRATEGIC ORIENTATIONS:

-efore e'amining the strategic planning process, we must reali&e that (34s have strategic predispositionstoward doing things in a particular way. This predisposition helps determine the specific decisions the firmwill implement. There are four such predispositions ethnocentric, polycentric, regiocentric and geocentric.

ETHNOCENTRIC PREDISPOSITION:

$n (34 with an ethnocentric predisposition will rely on the values and interests of the parent company in

formulating and implementing the strategic plan. 6rimary emphasis will be given to profitability and thefirm will try to run operations abroad the way they are rum at home.

POLYCENTRIC PREDISPOSITION:

$n (34 with polycentric predisposition will tailor its strategic plan to meet the needs of a local culture. Ifthe firm is doing business in more than one culture, the overall plan will be adapted to reflect theseindividual needs. The basic mission of a polycentric (34 is to be accepted by the local culture and to blendinto the country. 6rofits will be put back into the country in the form of e'pansion and growth.

REGIOCENTRIC PREDISPOSITION

$n (34 with regiocentric predisposition will be interested in obtaining both profit and public acceptance2 a combination of the ethnocentric and polycentric approaches5 and will use a strategy that allows it toaddress both local and regional needs. The company is less focused on a particular country than on ageographic region.

GEOCENTRIC PREDISPOSITION:

$n (34 with a geocentric predisposition will view operations on a global basis. The largest internationalcorporations often use this approach. They will produce global products with local variations and will stafftheir offices with the best people they can find, regardless of country of origin. (ultinationals, in the truemeaning of the word, have a geocentric predisposition. 7owever, it is possible for an (3" to have a

polycentric or regiocentric predisposition if the company is moderately small or limits operations to specificcultures or geographic regions.

The predisposition of an (34 will greatly influence its strategic planning process.

EXAMPLE:

Some MNEs are more interested in profits and/or growth than they are in developing a comprehensive

corporate strategy that exploits their strengths Some are more interested in large scale man!fact!ring

that will allow them to compete on a price "asis across the co!ntry or region# as opposed to developing a

high degree of responsiveness to local demand and tailoring a prod!ct to these specific mar$et niches

Some prefer to sell in co!ntries where the c!lt!res are similar to their own so that the same "asicmar$eting orientation can "e !sed thro!gho!t the regions %hese orientations or predispositions will

greatly infl!ence the strategy

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% The International Business


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(34

Orientation Ethnocentric Polycentric Regiocentric Geocentric

"ompany *sbasic missions

6rofitability 6ublic acceptancelegitimacy

-oth profitability andpublic acceptance

-oth profitability and publicacceptance

Type ofgovernance

Top down -ottom up eachlocal unit setsob1ectives

(utually negotiatedbetween the regionand its subsidiaries

(utually negotiated at the levelsof the organi&ation

0trategy /lobal integration 3ationalresponsiveness

8egional integrationand nationalresponsiveness

/lobal integration and nationalresponsiveness

0tructure 7ierarchal productdivisions

7ierarchal areadivisions andautonomousnational units

6roduct and regionalorgani&ational tiedtogether throughmatri' structure

$ network of organi&ations insome cases this includesstockholders and competitors

"ulture

technology

7ome country

(ass production

7ost country

-atch production

8egional

9le'iblemanufacturing

/lobal

9le'ible manufacturing

(arketingstrategy

6roductdevelopment isdetermined

primarily by theneeds of the homecountrycustomers.

:ocal productdevelopment

based on localneeds.

0tandardi&ed withinthe region, but notacross regions.

/lobal regions with localvariations.

6rofit strategy 6rofit are brought

back to homecountry

6rofits are kept in

the host country.

6rofits are

redistributed withinthe region

8edistribution is done on the

global basis

7uman resourcemanagement

practices

;verseasoperations aremanaged by

people from thehome country

:ocal nationals areused in keymanagement

practices

8egional people aredeveloped for keymanagerial positionanywhere in the region

The best people anywhere in theworld are developed for key

positions everywhere in theworld.

0; 0trategic 6lanning for a /lobal-usiness,? Colombia Journal of World Business, 0ummer !@AB,pp. B CD. -ased on some 6erlmutter*s earlier work.

STRATEGIC FORMULATION:

0trategy formulation is the process of evaluating the enterprises environment and its internal strengths. Thistypically begins with consideration of the e'ternal arena since the (34 will be directed to the internalenvironment and the resources the organi&ation has available or can develop, to take advantage of theseopportunities.

EXTERNAL ENVIRONMENT ASSESSMENT:

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The analysis of the e'ternal environment involves two activities information gathering and informationassessment. These steps help to answer two key questions hat is going on in the e'ternal environmentF7ow will these developments affect our companyF

INFORMATION GATHERING:

Information gathering is a critical phase of international strategic planning.


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competitive force including !5 lowering prices #5 offering similar products and %5 increasing services to thecustomer.

RIVALRY:

The (34 will e'amine the rivalry that currently e'ists between itself and the competition and seek toanticipate future changes. "ommon strategies for maintaining andJor increasing market strength include !5offering new goods and services #5 increasing productivity and thus reducing overall costs %5 working to

differentiate current goods and services from those of the competition E5 increasing overall quality of goodsand services B5 targeting specific niches with a well designed market strategy.

$s the (34 e'amines each of these five forces, it will decide the attractiveness and unattractiveness ofeach.

Thr Threats of new entrants

-argainingpower ofsuppliers

-argaining power of buyers

Threats of substitute productsJservices

The Five Forces of Industry Competiveness

0ources (ichael 6orter, Competitive dvantage, 3ew ork 9ree 6ress, !@AH, p. E

EXAMPLE:

&ollowing fig!re shows the five forces model applied to the semicond!ctor ind!stry

Notice in fig!re that the s!ppliers in the semicond!ctor ind!stry# at the time this analysis was cond!cted#

were not very powerf!l# so this was an attractive force for the MNE '!yers did not have many s!"stit!te

prod!cts from which to choose (an attractive development)# "!t there was some "ac$ward integration

toward p!rchasing their own so!rces of s!pply (an !nattractive development) *verall# the attractiveness

of the "!yer power was regarded as inconcl!sive %he third force# entry "arriers# was +!ite attractiveness

of "eca!se of the high costs of getting into the ind!stry and the short prod!ct life cycles that existed there

,t was very diffic!lt for a company to enter this mar$et %he fo!rth force# s!"stit!tes# was !nattractive

"eca!se new prod!cts were "eing developed contin!ally and c!stomer loyalty was somewhat low %he

D The International Business

Industry

Competitor

Potential

Substitutes

Suppliers Buyers


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fifth and final force# ind!stry rivalry# was also !nattractive "eca!se of the high cost of doing "!siness# the

cyclical nat!re of sales and the diffic!lty of differentiating one-s prod!ct those of the competition

*n an overall "asis# however# the ind!stry was classified as attractive MNEs operating in the

semicond!ctor ind!stry wo!ld !se this analysis to help them increase the attractiveness of those forces

that c!rrently are not highly attractive

"yclical sales

7igh corporate stakes

+ifferentiation becoming difficult

:arge vertically integrated competitors

9avorable growth trends

The Five Forces Model Applied To Semiconductor Industry

Sources: Scott Beardsley and Kenji Sakagami,Advanced Micro Devices: Posed for ChipGreatness.Unpublished student paper, Sloan School o !anagement, !IT, "#$$. %eported in

&rnold '. (a) and *icolas S. !ajlu, The Strategy of Concept and Process: A PragmaticApproach +ngleood 'li-s, *. : /rentice (all, "##", p. 40.

INTERNAL ENVIRONMENTAL ASSESSMENT:

G The International Business

Entry

Barriers

1ery

&ttracti2e

Suppliers

Power1ery

&ttracti2e

Substitute

s

Unattracti2e

Power

Buyers

Inconclusi2

e

&ttracti2ene

ss 7igh capital investments

0hort product life cycles

8 and +

6roprietary products

Industry standards

4conomies of scale

:arge distribution channels

needed

0ome closed markets

Intensity of

ivalry and

Competition

1ery

Unattracti2e

0ome backward integration

6roprietary products means

low substitutes -uyers are noted

confederated

7igh percentage price J total

purchase

"onventional material used

0uppliers not concentrated

3o threat of forward integration

:ong term substitutes redesigns

0ome low customers loyalty.

"onclusionsThe industry can be classified as attractivedespite intense rivalry. The changes taking

place favor consolidation into larger firms,which have substantial resources necessary to

commit 8 and + throughout the cycles of theindustry.


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The internal environmental assessment helps to pinpoint (34 strengths and weaknesses. There are twospecific areas that a multinational will e'amine in this assessment !5 physical resources and personnelcompetencies and #5 the way in which value chain analysis can be used to bring these resources together inthe most synergistic and profitable manner.

PHYSICAL RESOURCES AND PERSONNEL COMPETENCIES:

The physical resources are the assets the (34 will use to carry out the strategic plan. (any of these arereported on the balance sheet as reflected by the firms cash, inventory, machinery, and equipment accounts.The location and disposition of these resources is also important.

STRATEGIC BUSINESS UNIT:

$nother important consideration is the degree of integration that e'ists within the operating units of thd(34. :arge companies, in particular, tend to be divided into strategic business units 20-


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knowledge, research and development and procedures that can result in improved goods and services K andE5 procurementK which involves the purchasing of ram materials, supplies and similar goods.

A Basic !alue Chain

Source: !ichael /orter, Competitive Advantage, *e 3ork ree /ress, "#$5, p. 40.

(34s can use these primary and support activities to increase the value of the goods and services theyprovide.

EXAMPLE:

An example is provided in fig!re# which helps to explain why ,'M has "een so effective in the

international mar$et %he company com"ines the primary and s!pport activities so as to increase the

val!e of its prod!cts ,'M-s alliance with .*LM and M2, and its strengths in software and hardware

technologies provide the company with a solid fo!ndation for la!nching s!ccessf!l strategies in the

telecomm!nications ind!stry

(argin

(argin

@ The International Business

Firm Infrastructure

"uman esource Mana#ement

Technolo#y $evelopment

Procurement

Mar%etin# and Sales

Inbo

und

lo#i

stics

&

perations

&ut

bound

lo#i

stics

!a

rketing

man

agement

&d2ertising

Sale

s

orce

6p

eration

Sale

s

orce

&dm

inistratio

n

Te

chnical

7it

erature

/ro

motion

Services

(ulti domestic presence$ccess to most ma1or corporations

InChouse technical

training

4'perienced buyer

training

;wns 8;:(

"64manufacturer

:ifetimeemployment

InChouse careerdevelo ment

$ll employeesthink in

marketing terms

0trong 8 and +resources

0trongsoftware

capability

:eading computertechnology used

inChouse

6artnership with("I

0trong reputationfor e'cellence

$lready sells to

most ma1orcorporations

4'perienced salesforce

7uman

resource

management

hnologyvelopment

curement

rm

astructure


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The !alue Chain for IBMSource: %eported in &rnold '. (a) and *icolas S. !ajlu ,The Strategy of Concept andProcess: A Pragmatic Approach +ngleood 'li-s, *. : /rentice (all, "##", p. $8.

GENERIC STRATEGIES:

$nalysis of the value chain can also help a company to determine the type of strategy that will be mosteffective. In all, there are three generic strategies cost, differentiation and focus.

1) COST STRATEGY:relies on such approaches an aggressive construction efficient avoidance of

marginal customer accounts, and cost minimi&ation in areas like 8N+, service, sales and advertising.

2) DIFFERENTIATION STRATEGY is direct toward creating something that is perceived as being

unique. $pproaches to differentiation can take many forms, including the creation of design or brand image,improved technology or features, and increased customer service or dealer networks.

3) FOCUS STRATEGY:involves concentrating on a particular buyer group and segmenting that niche

based on product line or geographic market. hile lowCcost and differentiation strategies are aimed atachieving ob1ectives industry wide, a focus strategy is built around servicing a particular target market, andeach functional policy is developed with this in mind.

In addition, the firm will determine its competitive scope, which is the breadth of its target within theindustry.

GOAL SETTING:

The e'ternal and internal environment analyses will provide the (34 with the information needed forsetting goals. 0ome of these goals will be determined during the e'ternal analysis, as the company identifiesopportunities that it wants to e'ploit. ;thers will be finali&ed after the value chain analysis is complete. Ineither event one of the outcomes of strategy formulation will be the identification of goals.

There are two basic ways of e'amining the goals or ob1ectives of international operations. ;ne is to reviewthem on the basis of operating performance or functional area. 0ome of the ma1or goals will be related to

profitability, marketing, production, finance, and human resources. $ second way is to e'amine these goalsby geographic area or on an 0-< basis. There will be accompanying functional goals for marketing,production and finance. If the (34 has 0-


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LOCATION:

:ocation is important for a number of reasons. :ocal facilities often provide a cost advantage to theproducer. This is particularly true when raw materials, parts or labor needed to produce the product can beine'pensively obtained close to the facility. :ocation is also important because residents may prefer locally

produced products.

Imported goods may be sub1ect to a tariff, quota, or other governmental restriction, making localmanufacture more desirable. 9inally, the (34 may be doing so much business in a country that the localgovernment will insist that it set up local operations and begin producing more of its goods internally.

$lthough the benefits can be great, there can be a number of drawbacks associated with placing operationsoverseas. $n unstable political climate may leave an (34 vulnerable to low profits and bureaucratic redtape. $ second drawback is the possibility of revolution or armed conflict.

Example:

Some opt for locales where the cost of r!nning a small enterprise is significantly lower than that of

r!nning a large one ,n this way they spread their ris$# setting !p many small locations thro!gho!t the

world rather than one or two large ones Man!fact!ring firms are a good example Some prod!ctionfirms feel that the economies of scale associated with a large1scale plant are more than offset "y the

potential pro"lems that can res!lt sho!ld economic or political diffic!lties develop in the co!ntry %his

firm3s strategy is to spread the ris$ "y opting for a series of small plants spread thro!gho!t a wide

geographic region

OWNERSHIP:

;wnership of international operations has become an important in foreignCowned business in the


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$ strategic partnership is an agreement between two or more competitive (34s for the purpose of serving aglobal market. In contrast to a 1oint venture where the partners may be from different businesses, strategic

partnerships are almost always formed by firms in the same line of business.

EXAMPLE:

&or example# Motorola and %oshi"a have a man!fact!ring facility in 4apan# and they exchange a "road

range of microprocessor and memory chip technology Motorola is strong in the microprocessor area and

%oshi"a is a leader in chip technology# so the strategic alliance has "enefits for "oth firms

This alliance helps to illustrate the growing popularity of international business ownership agreements. Thefinal determinant will always be whether the arrangement is in the best interests of all involved parties.hen it is, a strategic alliance is likely to be formed.

FUNCTIONAL STRATEGIES:

9unctional strategies are used to coordinate operations and to ensure that the plan is carried out properly.hile the specific functions that are key to the success of the (34 will vary, they typically fall into si'ma1or areas marketing, manufacturing, finance, procurement, technology and human resources. 9or

purposes of analysis, they can be e'amined in terms of three ma1or considerations marketing,manufacturing and finance.

MARKETING:

The marketing strategy is designed to identify consumer needs and to formulate a plan of action for sellingthe desired goods and services to these customers. (ost marketing strategies are built around what iscommonly known as the >four 6sL of marketing product, price, promotion and place. The company willidentify the products that are in the market niches they are pursuing. It will apprise the manufacturingdepartment of any modifications that will be necessary to meet local needs, and it will determine the price atwhich the goods can be sold. Then the companys attention will be devoted to promoting the products and to

selling them in the local market.

MANUFACTURING:

The manufacturing strategy is designed to dovetail with the marketing plan and to ensure that the rightproducts are built and delivered in time for sale. (anufacturing will also coordinate its strategy with theprocurement and technology people, so as to ensure that the desired materials are available and that theproducts have the necessary stateCofCtheCart quality. If the (34 is producing goods in more than onecountry, it will be giving attention to coordinating activities where needed. 9or e'ample, some firms producegoods in two or more countries and then assemble and sell them in other geographic regions. Mapanese autofirms send car parts to the


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control5 to ensure that the desired return on investment is achieved. In the lag position, the financial strategyis used to evaluate performance and to provide insights regarding how future strategy should changed.

Typical 'oals of an M(E

Profitability !ar"eting Production #inance $uman Resource

!anagement

:evels ofproducts8eturn on assets,investment,equity, sales$nnual profitgrowth$nnual earnings

per share growth

Total sales volume(arket share )worldwide, region,country/rowth in salesvolumeIntegration ofcountry markets formarketingefficiency andeffectiveness.

8atio in foreignto domestic

productionshares.4conomies ofscale viainternational

productionintegrationOuality and costcontrolIntroduction ofcostC efficient

productionmethods

9inance of foreignaffiliates )retainedearnings or local

borrowingTa'ationC minimi&ingthe burden globally;ptimum capitalstructure9oreign e'changemanagement )minimi&ing lossesfrom foreignfluctuations

+evelopment of managerswith global orientationmanagement+evelopment of hostcountry national

Source: &dapted rom &r2ind 1. /hatak, 9 International Dimensions of Management,8d ed.Boston: /S Kent /ublishing, "#$#, p. ;8

INTERNATIONAL STRATEGIES:

"ompanies have three different strategies that they can use to compete internationally

(ultiC domestic

/lobal

Translational

$s the figure suggested that the strategy that would be appropriate for the company , overall and forvarious activities in the value chain , depends on the amount of pressure the company faces in the terms ofadapting to local markets and achieving cost reductions. 4ach of these strategies has its own set ofadvantages and disadvantages.

!% The International Business


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Cost and Adaption Pressures and Their Implications for InternationalStrate#ies

GLOBAL STRATEGY:

$ global strategy tends to be used when a company faces strong pressures for reducing costs and limitedpressure to adapt products for local markets. 0trategy and decision making is typically centrali&ed atheadquarters and the company tends to offer standardi&ed products and services. =alue chain activities are

often located in only one or a few areas, to assist the company in achieving cost reductions due to economiesof scale. There tends to be strong emphasis on close coordination and integration of activities across marketsand products as well as the development of efficient logistics and distribution capabilities. These strategiesare common in industries such as semiconductors or large commercial aircrafts. 7owever, global strategiesmay also confront challenges such as limited ability to ad1ust quickly and effectively to changes in customerneeds across national or regional markets, increased transportation and tariff costs from e'porting productsfrom centrali&ed production sites and the risks of locating activities in a centrali&ed location 2which can, fore'ample, cause the firm to confront risks from political changes or trade conflicts, e'change rate fluctuationsand similar factors5

MULTI-DOMESTIC STRATEGY:

!E The International Business

/lobal

0trategy Translationa

l 0trategy

(ultiC

domestic

0trategy

:ow

:ow

7igh

7igh

6ressure to reducecosts

6ressure for local adaption


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$ multi domestic strategy tends to be used when there is strong pressure for the company to adapt itsproduct or services for local markets.


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If the comparison and the evaluation show that strategic business unit or overseas operation is performingaccording to e'pectations, then things will continue as before. The ob1ectives may be altered because ofchanges in the strategic plan but otherwise nothing ma1or is likely to be done. ;n the other hand, if therehave been problems, the (34 will want to identify the causes and work to eliminate or minimi&e them.0imilarly, if the unit has performed e'tremely well and achieved more than forecasted, the management maywant to reset the ob1ectives to a higher level because there is obviously greater market demand than was

believed initially. In making these decisions, the company will use a variety of measures. 0ome will behighly quantitative and depend on financial and productivity performanceK others will be more qualitativeand 1udgmental in nature.

es

3o

The Control and Evaluation Process

COMMON METHODS OF MEASUREMENT:

The following discussion e'amines si' of the most common methods of measurement used for control andevaluation purposes.

RETURN ON INVESTMENT:

8eturn on investment, which is measured by dividing net income before ta'es by total assets, is a ma1orconsideration. There are a number of reasons that 8;I is popular as a control and evaluation measure. Theseinclude the fact that

6) is a single comprehensive res!lt that is infl!enced "y everything that happens in the "!siness#

7) is a meas!re of how well the managers in every part of the world are !sing the investments at their

command and

8) allows a comparison of res!lts among !nits in the same co!ntry as well as inter1co!ntry "asis

;f course, there are shortcomings in using 8;I, such as

!D The International Business

4stablishment ofpredetermined

standards

(easurement of these

standards

+oes the

performance match the

standardsF

"ontinue as

beforeIdentificationof goals and

other endpoints to be

measured

Take corrective

actions


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6) the .*L in a growing mar$et will "e higher than that in mar$ets which are 9!st getting off the gro!nd

or which are mat!ring # so that a comparison of the .*, performance "etween !nits can "e misleading

and

7) the .*, is a short term meas!re of performance and if is relied on too heavily# managers will not

develop the necessary long1term time hori;ons

SALES GROWTH AND/OR MARKET SHARE:

$nother measure is sales growth andJor market share.


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Thesemethodsof

measurement will be used in arriving at an overall assessment of the units performance. -ased on theresults, the (34 will then set new goals and the international strategic planning process will begin anew.

3intendo is the most successful company in the worldwide home video game market. The success is

accounted for by its powerful products and viselike grip on the distribution channels, where marketers sell

3intendo games e'clusively. 3intendo offers more than #HH different games, ranging from baseball to

medieval warfare. The bestCknown game is (ario -rothers, the allC time highest selling series of games

more than %@ million copies which involves quests through fantasy realms by an Italian plumber who can

transform himself into a raccoon. The game is so well known that a recent poll of


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critical

to

success

in the

industry

that

competitors such as $tari /ames have filed antitrust suits against 3intendo in the


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INTRODUCTION:

;rgani&ational challenges abound in this era of globally dispersed resources and operations. Internationalmanagers must create structures, systems, and a culture that will effectively implement their companysstrategies around the world. 9ormulating the appropriate strategy is merely the first step of a long processthat includes crafting an organi&ation that will work to implement that strategy. The organi&ation ofinternational business is challenging due to

!. the geographic and cultural distances that separate countries#. the need to operate differently among countries%. the large number of uncontrollable factorsE. the high uncertainty resulting from rapid change in the international environmentB. problems in gathering reliable data in many places

THE CAUSES OF CHANGE:

In the past, structuring the organi&ation was thought to be merely a matter of reorgani&ing the lines andbo'es of the formal organi&ational chart. In times of rapid change, however, it is necessary to 1umpstart thedevelopment of knowledgeCgenerating and decisionCmaking relationships rather than to wait for them toform according to the prescribed organi&ational chart. /lobali&ation has changed the opportunity set andefficiency frontier for companies and has resulted in new strategies that demand more sophisticatedorgani&ations. Rnowledge has become the engine of sustainable competitive advantage, requiring (34s to

build organi&ations that spread powerful ideas throughout their worldwide business. 9inally, workplacetrends in which the conduct and conte't of 1obs are changing require that organi&ations change the nature of

management and structure to fit the changes in the nature of work.

#H The International Business


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ORGANIZATION IN THE INTERNATIONAL BUSINESS:

"ompanies seek to develop a complementary mi' of structure, coordination and control systems, andorgani&ational culture in order to thrive in the face of significant environmental and workplace changes.9le'ibility is fostered in many organi&ations through the use of crossCfunctional task forces, dual reportingrelationships, informal networking, and incentive compensation tied to group performance.

ORGANIZATION STRUCTURE:;rgani&ational structure is the formal arrangement of roles, responsibilities, and relationships within anorgani&ation and is a powerful tool with which to implement strategy. $ companys choice of structuredepends on many factors, including the configuration of a companys value chain in terms of the locationand type of foreign facilities, as well as the impact of international operations on total corporate

performance. Two central issues in organi&ation structure are vertical and horizontal dierentiation!

&r#ani)ational Structure of Coco Cola

A.VERTICAL DIFFERENTIATION: CENTRALIZATION VERSUS

DECENTRALIZATION"ertical dierentiation refers to the issue of determining where in the company hierarchy is theauthority to make what decisions. This issue becomes a decision between centrali&ation versusdecentrali&ation of decision making authority. This relates to the discussion in "hapter !!, whichillustrated the issue of balancing global integration 2centrali&ation5 with local differentiation

2decentrali&ation5. 2entrali;ationis the degree to which highClevel managers, usually above thecountry level, make important decisions and pass them down to lower levels for implementation.Decentralizationis the degree to which lower level managers, usually at or below the country

#! The International Business


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level, make and implement important decisions . "entrali&ed decision making is usually associatedwith an international or global strategy, decentrali&ed decision making is usually associated with amultidomestic strategy, and a transnational strategy usually relies on a combination of both.

B. HORIZONTAL DIFFERENTIATION: THE DESIGN OF THE FORMAL

STRUCTURE

Horizontal dierentiationdescribes how the company designs its formal structure in order to 2i5specify the total set of organi&ational tasks, 2ii5 divide those tasks into 1obs, departments,subsidiaries, and divisions, and 2iii5 assign authority and reporting relationships.

I! INTRODUCTION

;rgani&ational challenges abound in this era of globally dispersed resources and operations.International managers must create structures, systems, and a culture that will effectively implementtheir companys strategies around the world. 9ormulating the appropriate strategy is merely the firststep of a long process that includes crafting an organi&ation that will work to implement that strategy.9igure !B.! summari&es the challenge of integrating different elements into a unified whole.

II. THE CAUSES OF CHANGEIn the past, structuring the organi&ation was thought to be merely a matter of reorgani&ing the lines and

bo'es of the formal organi&ational chart. In times of rapid change, however, it is necessary to 1umpstartthe development of knowledgeCgenerating and decisionCmaking relationships rather than to wait for

them to form according to the prescribed organi&ational chart. /lobali&ation has changed theopportunity set and efficiency frontier for companies 2see "hapter 4leven5 and has resulted in newstrategies that demand more sophisticated organi&ations. Rnowledge has become the engine of

## The International Business

!ertical $i*erentiation

Concerned with where decisions are made

"entrali&ation:

9acilitates coordination

4nsure decisions consistent

with organi&ations ob1ectives TopClevel managers have means

to bring about organi&ationalchange

$voids duplication of activities

+ecentrali&ation

/ive top management time to

focus on critical issues (otivational research favors

decentrali&ation 6ermits greater fle'ibility

"an result in better decisions

"an increase control


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sustainable competitive advantage, requiring (34s to build organi&ations that spread powerful ideasthroughout their worldwide business. 9inally, workplace trends in which the conduct and conte't of

1obs are changing require that organi&ations change the nature of management and structure to fit thechanges in the nature of work.

III. ORGANIZATION IN THE INTERNATIONAL BUSINESS"ompanies seek to develop a complementary mi' of structure, coordination and control systems, and

organi&ational culture in order to thrive in the face of significant environmental and workplace changes.9le'ibility is fostered in many organi&ations through the use of crossCfunctional task forces, dualreporting relationships, informal networking, and incentive compensation tied to group performance.

IV. ORGANIZATION STRUCTURE&r#ani)ational structureis the ormal arrangement o roles, responsibilities, and

relationships ithin an organiguration o a company=s 2alue chain in terms o the location and type o oreign

acilities, as ell as the impact o international operations on total corporate perormance.

To central issues in organi


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B. Vertical Differentiation: Centraliation !er"#" Decentraliation"ertical dierentiation refers to the issue of determining where in the company hierarchy is theauthority to make what decisions. This issue becomes a decision between centrali&ation versusdecentrali&ation of decision making authority. This relates to the discussion in "hapter !!, whichillustrated the issue of balancing global integration 2centrali&ation5 with local differentiation2decentrali&ation5. 2entrali;ationis the degree to which highClevel managers, usually above the

country level, make important decisions and pass them down to lower levels for implementation.Decentralizationis the degree to which lower level managers, usually at or below the countrylevel, make and implement important decisions 20ee Table !B.!5. "entrali&ed decision making isusually associated with an international or global strategy, decentrali&ed decision making is usuallyassociated with a multidomestic strategy, and a transnational strategy usually relies on acombination of both.

B. Horiontal Differentiation: T$e De"i%n of t$e For&al Str#ct#reHorizontal dierentiationdescribes how the company designs its formal structure in order to 2i5specify the total set of organi&ational tasks, 2ii5 divide those tasks into 1obs, departments,subsidiaries, and divisions, and 2iii5 assign authority and reporting relationships.

C. F#nctional Str#ct#re$ functional structure groups personnel according to business function. It is ideal when productsand production methods are undifferentiated across countries. 7owever, as new and different

products are added, the structure becomes cumbersome.D. Di!i"ional Str#ct#re"

+ivisional structures specify roles and relationships within the company in terms of outputs. 4achdivision is assigned responsibility for a different set of products or markets.

'. International Di!i"ion Str#ct#re.$n international division groups all internationalactivities into a single division within a firm. hile this structure creates a critical mass ofinternational e'pertise, the relationship between the international and domestic divisions isoften complicated.

(. )ro*#ct Di!i"ion Str#ct#re. 6roduct divisions are very popular among internationalcompanies today because most companies businesses involve a variety of diverse products.This structure is well suited for a global strategy and enhances a companys ability to sell orspin off certain product lines. There will, however, likely be some duplication of activitiesamong product divisions and knowledge transfer between divisions is minimal.

+. Geo%ra,$ic -Area Di!i"ion Str#ct#re.$ geographic division groups activities on aregional basis and is used when a firm has e'tensive foreign operations that are not dominated

by a single country or area. The structure is useful when ma'imum economies of scale andscope can be captured on a regional rather than a global basis.

#E The International Business


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E. /atri0 Str#ct#re$ matri' structure is a twoCtiered structure designed to give functional, product andJor geographicgroups a common focus. It is based on the theory that the groups will become interdependent andthus will more readily e'change information and resources with each other. 7owever, the dualreportingJoversight responsibilities can also create conflicts across groups with differing ob1ectives.

F. /i0e* Str#ct#reirms seldom i e2er get all o their acti2ities to neatly correspond to a single

organi


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sets universal rules and procedures that apply worldwide and enforces consistency inperformance of activities in geographically dispersed units. 8ules and regulations about howemployees interact, also calledformali%ation, aims to reduce workplace uncertainty andsimplify the e'change of ideas and resources. 0tandardi&ation is undermined when frequente'ceptions to rules are made, and is best suited for strategies that champion constancy and

predictability in stable industries. "ompanies with an international or geocentric strategy areinclined to emphasi&e standardi&ation.

(. Coor*ination 71 )lan. This type of coordination requires interdependent units to meetcommon deadlines and ob1ectives. (34s following a multidomestic strategy may opt toestablish ob1ectives and schedules that give interdependent units greater discretion indeveloping coordination systems. This process is often complicated by the difficulties imposed

by distance and cultural differences. /reater e'pense, time, and possibility of error areinherent in planning across national boundaries.

+. Coor*ination 71 /#t#al A*5#"t&ent. Coordination by mutual ad+ustmentrequires managers to interact with counterparts to enable fle'ible coordination mechanisms,largely informally. (34s that opt to encourage mutual ad1ustment also adopt a formalstructure and install standardi&ation and planning systems, but they see great value inencouraging the use of informal mechanisms that create more incentive for parties to talk toone another. (utual ad1ustment can be a very effective coordination tool when an (34 facesnew problems that cannot be defined with customary rules or procedures. The frequentdiscussion and feedback needed to make mutual ad1ustment work, however, can be costly interms of both time and money.

(. Vi"it" to S#7"i*iarie".ithin many (34s certain members of the corporate staff spendconsiderable time visiting foreign subsidiaries in order to collect information and providedirection.

+. /ana%e&ent )erfor&ance E!al#ation.(34s should evaluate a subsidiary managerseparately from the subsidiarys performance so as not to penali&e or reward managers forconditions beyond their control. That said, precisely what is within their control is frequently amatter for disagreement.

8. Co"t an* Acco#ntin% Co&,ara7ilit1.7eadquarters needs to use considerable discretionin interpreting the data it uses to evaluate and change subsidiary performance, especially if it iscomparing a subsidiarys performance with competitors from other countries whose currenciesand accounting methods are different from its own.

9. E!al#ati!e /ea"#re&ent".$ system that relies on a combination of measurements is morereliable than one that doesnt. The most important criteria tend to be budgetCcomparedCwithC

profit and budgetCcomparedCwithCrevenue. ;ther nonCfinancial criteria such as market share,quality control, and host government relations are also important.

. Infor&ation S1"te&".ith everCe'panding computer and global telecommunications links,

managers can share information more quickly and easily than ever before. In fact, informationtechnology can facilitate both the centrali&ation and the decentrali&ation of operations. Theprimary problems associated with information systems concern the cost of information relativeto its value, its redundancy, and its irrelevance.

VI. ORGANIZATION CULTUREOr%anization c&lt&reis a system of shared values about what is important and beliefs about how theworld works. There is a significant link between organi&ation culture and the financial performanceof a firm and can be the most critical component of a companys transition from >good? to >great?status. Rey features of culture include values and principles of management, work climate andatmosphere, patterns of >how we do things around here?, traditions, and ethical standards.

A! The 'ro#in% I()ortance o C&lt&re

#D The International Business


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;rgani&ation culture often shapes the strategic moves a company will consider and re1ect and candramatically influence the success of corporate initiatives. "ulture is increasingly important as team

based approaches to management and reliance on individualClevel behaviors such as learning andcollaboration become more commonplace. The shared values that make up organi&ation cultureinfluence what employees perceive, how they interpret, and what they do to respond to their world.hen confronted with opportunities or threats, organi&ational culture acts as a primary influence on howemployees act and react.

*! Challen%e+ and Pitall+

"ompanies increasingly develop and manage their cultures, rather than allowing them to emergenaturally. This becomes increasingly difficult in an international conte't, where managers from differentcountries often have different values than those endorsed by the company. "onvergent values ease thee'change of ideas between people from different countries, while different values tend to create

boundaries and barriers. To overcome these challenges, many (34s promote closer contact amongmanagers from different countries by rotating mangers among operations in different countries.

C! Strate%, and Or%anization C&lt&re

The type of strategy a company is pursuing both influences and is limited by the principles and practices

of its organi&ation culture . "ompanies pursuing a global strategy often aim to develop a forceful culturethat reinforces standardi&ed goals, priorities, and practices. (ultidomestic strategies require sensitivityto local outlooks and norms and do not lend themselves well to a strong companyCwide culture.

VII. ORGANIZATION IN S)ECIAL SITUATIONS

A. Ac;#i"ition"

$n acquired company usually does not completely mesh with the e'isting organi&ation and requireschanges in structures, control systems, and cultural values in order to integrate more fully with thecompanys other operations.

B. S$are* O2ner"$i,

0hared ownership usually makes control harder than it would be with wholly owned operations, butthere are mechanisms that can work, such as spreading the remaining ownership among manyshareholders, contract stipulations that board decisions require more than a ma1ority, dividing equity intovoting and nonvoting stock, and side agreements on who will control decision making.

C. D1na&ic Nat#re of )erfor&ance

$s companies grow, and particularly as they e'pand internationally, organi&ational structure and controldemands evolve. "ompanies change their structures and control systems to meet the new requirementsthat come with growth.

VIII. THE ROLE OF LEGAL STRUCTUREShen operating in a host country, companies may choose among legal forms that affect their decisionCmaking, ta'es, maintenance of secrecy and legal liability. (ost choose a subsidiary form for which thereare additional legal alternatives that vary by country.C. Branc$ an* S#7"i*iar1 Or%aniation"

$ foreign branch is a foreign operation not legally separate from the parent company. -ranchoperations are possible only if the parent holds !HH percent ownership. $ foreign subsidiary#however, is a separate legal entity, established through foreign direct investmentK the parent may ormay not own all of the voting stock. -ecause a subsidiary is legally separate from its parent, legalauthorities generally limit liability to the subsidiarys assets. This concept of limited liability is a

ma1or factor in the choice of the subsidiary form. ith few e'ceptions, claims against a firm for itsactions are settled by courts either where the actions occur or where the subsidiary is legallydomiciled.

#G The International Business


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D. T1,e" of S#7"i*iarie" an* O,eratin% For&hen establishing a subsidiary in a foreign country, a firm can usually choose from among a number ofalternative legal forms. In addition to differences in liability, forms vary in terms of

S the ability of the parent to sell its ownershipS the number of stockholders required to establish a subsidiaryS the percentage of foreigners allowed to serve on a board of directorsS the amount of required public disclosure

S whether equity may be acquired by nonCcapital contributionsS the types of eligible businessesS the minimum capital requirements for establishing a subsidiary.

#A The International Business

CONCLUSION

&s e all kno that international business is the study o transactions

taking places across national borders or the purposes o satisying the

needs o indi2iduals and organirst need to understand

the dynamic en2ironment o international business and then they must

>nd out the anser o this ?uestion: (o can they sur2i2e in this

comple) en2ironment@ To anser this ?uestion they need to adopt the

hole and comprehensi2e process o Strategic /lanning. Theinternational strategic planning process consists o three major steps:

strategy ormulation, strategy implementation and the control and the

e2aluation process. Strategy ormulation helps in achie2ing short range

and long objecti2es. Strategy implementation is the process o attaining

predetermined goals by properly e)ecuting the ormulated strategy.

&nd the last process o the control and e2aluation in2ol2es an

e)amination o the !*+s perormance or the purpose determining ho

ell the organi


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#@ The International Business


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Bibliography

1.Ball Don, International Business, Wendell Mccullough

2.wps.prenhall.com/index.html

3.www.scribd.com

4.www.prenhall.com/daniels5.www.encarta .com

6.www.prenhall.com/chap15 ppt the organization of international business

7.books.google.com/books

8.www.globalization101.org
http://www.scribd.com/http://www.prenhall.com/danielshttp://www.prenhall.com/chaphttp://www.scribd.com/http://www.prenhall.com/danielshttp://www.prenhall.com/chap

what is international strategy report (repaired)

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