10

Chapter 10
Strategizing,
chapter

Structuring,
and Learning
Around the
World

Global Strategy
Global Strategy
Mike W. Peng
Mike W. Peng

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 TWO PRESSURES FOR MNE

MNEs confront two sets of pressures:

Cost reduction calls for global integration.

Local responsiveness calls for local
adaptation.

These two sets of pressures

are dealt with in the integration-
responsiveness framework.
MULTINATIONAL STRATEGIES AND
STRUCTURES
 MULTINATIONAL STRATEGIES

Home replication strategy duplicates home-

based competencies in foreign countries.

Easy to implement
Makes sense when most customers are
domestic.
Lacks local responsiveness.
Foreign customers might be alienated
 International Division Structure at Starbucks

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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part. Figure 10.2
 Multinational Strategies and Structures:
Organizational Structures (contd)
International Division
Typically set up when firms initially expand abroad, often when
engaging in a home replication strategy
Problems:
Foreign subsidiary managers in the international division are not
given sufficient voice relative to the heads of domestic divisions
The silo effect: International division activities are not
coordinated with the rest of the firm, which focuses on domestic
activities
Firms often phase out this structure after their initial overseas
expansion

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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
MULTINATIONAL STRATEGIES AND
STRUCTURES
 MULTINATIONAL STRATEGIES

Localization strategy focuses on a number of

countries/regions, each one regarded as a stand-alone
market.

Maximizes local responsiveness.

Effective when differences among markets
are clear and pressures for cost reduction are
low.
High costs due to duplication of efforts in
multiple countries.
Too much local autonomy.
 Geographic Area Structure at Avon Products

Avon
Avon
Avon Avon Avon Western Europe
Central & Eastern
North America Latin America Asia Pacific Middle East
Europe
Africa

Source: Adapted from avoncompany.com. Headquartered in New York, Avon Products, Inc. is the
company behind numerous Avon ladies around the world. Figure 10.3
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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
 Multinational Strategies and Structures:
Organizational Structures (contd)

Geographic Area Structure

Organizes the MNE according to different geographic
areas (countries and regions)
Is the most appropriate for a localization strategy
Its ability to facilitate local responsiveness is both a
strength and a weakness
Problems:
While being locally responsive can be a virtue, it may
also encourage the fragmentation of the MNE into
highly autonomous, hard-to-control fiefdoms
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accessible website, in whole or in part.
MULTINATIONAL STRATEGIES AND
STRUCTURES
 MULTINATIONAL STRATEGIES

Global standardization strategy development and

distribution of standardized products worldwide.

Best when pressure for cost reduction is high

and local responsiveness is low.

Too much centralized control.

Not limited to major operations at homemay

designate centers of excellence.
 Global Product Division Structure at
European Aeronautic Defense and Space Company
(EADS)

Source: Adapted from www.eads.com. Headquartered in Munich, Germany, and Paris, France,
EADS is the largest commercial aircraft maker and the largest defense contractor in Europe.
Figure 10.4
Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
 Multinational Strategies and Structures:
Organizational Structures
Global Product Division Structure
Supports a global strategy in treating each product division as a
stand-alone entity with full worldwideas opposed to
domesticresponsibilities for its activities
Facilitates attention to pressures for cost efficiencies in allowing
for consolidation on a worldwide (or regional) basis and
reduction of inefficient duplication in multiple countries

Problems:
It is the opposite of the geographic area structure: Little local
responsiveness

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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
MULTINATIONAL STRATEGIES AND
STRUCTURES
 MULTINATIONAL STRATEGIES

Transnational strategy endeavors to be both

cost effective and locally responsive.

Global learning and diffusion of

innovations.

Organizationally complex, difficult to

implement.
 Multinational Strategies and Structures:
Organizational Structures
Global Matrix
Is often used to alleviate the disadvantages
associated with both geographic area and global
product division structures
Is intended to support the goals of the transnational
strategyin practice, it is often difficult to deliver
Problems
May add layers of management, slow down decision
speed, and increase costs while not showing
significant performance improvement
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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
 A Hypothetical Global Matrix Structure

Copyright 2014 Cengage Learning. All Rights Reserved. May not

be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part. Figure 10.5
 MULTINATIONAL STRATEGIES
AND STRUCTURES

The relationship between strategy and structure is

reciprocal.

Usually strategy drives structure

The relationship is two-way (ABB example)
Neither strategy nor structure is static.
It is often necessary to change one,
the other, or both. (Dow example).
MULTINATIONAL STRATEGIES AND
STRUCTURES
 Worldwide Learning, Innovation
and Knowledge Management:
Knowledge Management in MNEs

Knowledge management can be defined as the

structures, processes, and systems that actively
develop, leverage, and transfer knowledge.

Explicit knowledge: codifiable.Transferred with little

loss of richness.

Tacit knowledge (implicit): non-codifiable. Transfer

requires hands-on practice.

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accessible website, in whole or in part.
KNOWLEDGE MANAGEMENT IN FOUR
TYPES OF MNEs
 Worldwide Learning, Innovation
and Knowledge Management:
Globalizing Research and Development
Globalizing R&D

Only recently has R&D started to be internationalized

(innovation-seeking investment)

A fundamental basis for competitive advantage is

innovation-based firm heterogeneity: decentralized R&D
in different locations around the world virtually guarantees
persistent heterogeneity.

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accessible website, in whole or in part.
Problems and Solutions in Knowledge Management

Knowledge acquisition: Prefer to invent in-house => diminishing

returns for R&D. A new model, called open innovation, is
emerging. This model relies on more collaborative research among
internal units, external firms and universities.
Knowledge retention: employee turnover which => knowledge
leakage. Compensation? Recognition? Means?
Knowledge outflow: Knowledge is power
Knowledge transmission: Global virtual teams, remotely
connected, may have communication and relationship barriers.
Face-to-face meetings still necessary.
Knowledge inflow: The not invented here syndrome causes some
managers to resist accepting ideas from other units

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accessible website, in whole or in part.
Problems and Solutions in Knowledge Management

Individual and organizational incentives (bonus)

Investing in codifying tacit knowledge
MNEs often must rely on a great deal of informal integrating
mechanisms
Some try to develop informal social capital (getting to know each
other)
Overall, the micro, informal interpersonal relationships among
managers of various units may create a micro-macro link

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accessible website, in whole or in part.