Chapter 9 Entry Strategies and Organizational Structures 1. DESCRIBE how an MNC develops and...

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pter 9

Entry Strategies andOrganizational Structures

1. DESCRIBE how an MNC develops and implements entry strategies and ownership structures.

2. EXAMINE the major types of organizational structures used in handling international operations.

3. ANALYZE the advantages and disadvantages of each type of organizational structure, including the conditions that make one preferable to others.

The specific objectives of this chapter are:

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pter 9

Entry Strategies andOrganizational Structures

4. DESCRIBE the recent, nontraditional organizational arrangements coming out of mergers, joint ventures, keiretsus, and other new designs including electronic networks and product development structures.

5. EXPLAIN how organizational characteristics such as formalization, specialization, and centralization influence how the organization is structured and functions.

The specific objectives of this chapter are:

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Entry Strategies and Ownership Structures

DEVELOPED MARKETS

% OF RESPONDENTS

0 20 40 60 80 100

North America

Western Europe

Japan

Australia and New Zealand

Adapted from Figure 9–1: Preferred Strategies for Global Expansion

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% OF RESPONDENTS

EMERGING MARKETS

0 20 40 60 80 100

Adapted from Figure 9–1: Preferred Strategies for Global Expansion

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An overseas operation that is totally owned and controlled by an MNC

MNC’s desire for total control and belief that managerial efficiency is better without outside partners

Some host countries are concerned that the MNC will drive out local enterprises and others prohibit fully owned subsidiaries

Home-country unions sometimes view foreign subsidiaries as an attempt to “export jobs”

Today many multinationals opt for a merger, alliance, or joint venture rather than a fully owned subsidiary

Wholly owned subsidiary


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The cross-border purchase or exchange of equity involving two or more companies

The strategic plan of merged companies often calls for each to contribute a series of strengths toward making the firm a highly competitive operation



Mergers and Acquisitions


7


Alliance Any type of cooperative relationship among

different firms.

International joint venture (IJV) An agreement under which two or more partners

from different countries own or control a business Nonequity venture Equity joint venture

Advantages Improvement of efficiency Access to knowledge Political factors Collusion or restriction in competition





Alliances and Joint Ventures


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An agreement that allows one party to use an industrial property right in exchange for payment to the other party

By licensing to a firm already there, the licensee may avoid entry costs

Licensor usually may be is a small firm that lacks financial and managerial resources

Companies that spend a relatively large share of their revenues on research and development (R&D) are likely to be licensors

Companies that spend very little on R&D are more likely to be licensees







LicensingLicensing





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Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee

Widely used in the fast-food and hotel/motel industries

With minor adjustments for the local market, it can result in a highly profitable international business







LicensingLicensing

FranchisingFranchising

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Often the only available choices for small and new firms wanting to go international

Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment

Exporting and importing can provide easy access to overseas markets

Strategy usually is transitional in nature







LicensingLicensing

FranchisingFranchising

Exporting and Importing

Exporting and Importing

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Organizational Consequences of Internationalization

Pressure for local responsiveness

Pre

ssu

re f

or

glo

bal

izat

ion

Low

High

Low High

Adapted from Figure 9–2: Organizational Consequences of Internationalization

Aircraft

Cameras

Consumer electronics

Computers

Automobiles

Telecommunications

Aerospace

Synthetic fibers

Cement

Steel

Clothing

Packaged goods

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Basic Organizational Structures

Initial division structures Subsidiary

Common for finance-related businesses or other operations that require an onsite presence from the start

Export arrangement Common among manufacturing firms, especially those with

technologically advanced products On-site manufacturing operations

In response to local governments when sales increase Need to reduce transportation costs

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Basic Organizational Structures

Chief Executive OfficeHome-office departments

Overseas subsidiaries

Production Marketing FinanceHuman

Resources

V.P. International Operations

France Japan Egypt Australia Argentina

Adapted from Figure 9–3: Use of Subsidiaries during the Early Stage of Internationalization

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International Division Structure

International division structures A structural arrangement that handles all international

operations out of a division created for this purpose Assures that international focus receives top management

attention Unified approach to international operations Often adopted by firms still in the developmental states of

international business operations Separates domestic from international managers (not good) May find it difficult to think and act strategically, or to allocate

resources on a global basis

See example next slide

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International Division Structure

Chief Executive Officer

Human Resources

FinanceMarketingProduction

Domestic Division:Plant

Domestic Division:Tools

Domestic Division:Hardware

Domestic Division:Furniture

International Division:

Government Relations

MarketingOffice

Operations

Home-office departments

Operating divisions

(Partial Organization Chart)

Japan ItalyAustralia

Adapted from Figure 9–4: An International Division Structure

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Global Product Division

Global product division A structural arrangement in which domestic divisions are

given worldwide responsibility for product groups Global product divisions operate as profit centers Helps manage product, technology, customer diversity Ability to cater to local needs Marketing, production and finance can be coordinated on a product-

by-product global basis Duplication of facilities and staff personnel within divisions Division manager may pursue currently attractive geographic

prospects and neglect others with long-term potential Division managers my spend too much time tapping local rather than

international marketsSee example next slide

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Global Product Division

Human Resources



Operating divisions


Adapted from Figure 9–5: A Global Product Division Structure

Product Division A

Product Division B

Product Division C

Product Division D

Product Division E

Africa EuropeS. America Australia Far East

Great BritainFranceGermanyItalyNetherlands

FinanceMarketingProduction Human Resources


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Global Area Division

Global area division A structure under which global operations are organized on a

geographic rather than a product basis International operations are put on the same level as domestic

operations Global division managers are responsible for all business operations in

their designated geographic area Often used by firms in mature businesses with narrow product lines By manufacturing in a region, the firm is able to reduce cost per unit

and price competitively Difficult to reconcile a product emphasis with a geographic orientation New R&D efforts often ignored because divisions are selling in

mature market


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Global Area Division

Human Resources



Operating divisions


Adapted from Figure 9–6: a Global Area Division Structure

North America

South America

Europe Asia Africa

Great BritainFranceGermanyItalyNetherlands


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Global Functional Division

Global functional division A structure that organizes worldwide operations primarily

based on function and secondarily on product Approach not used except by extractive companies such as oil and

mining firms Favored only by firms that need tight, centralized coordination and

control of integrated production processes and firms involved in transporting products and raw materials between geographic areas

Emphasizes functional expertise, centralized control, and relatively lean managerial staff

Coordination of manufacturing and marketing often is difficult Managing multiple product lines can be very challenging because of

the separation of production and marketing into different departments


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Global Functional Division


Marketing FinanceProduction

Adapted from Figure 9–7: a Global Functional Structure


Domestic Production

Product AProduct BProduct CProduct D

Foreign Production


Domestic Production


Foreign Production


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Mixed Organization Structures

Mixed organization structures A structure that is a combination of a global product, area, or

functional arrangement Allows the organization to create the specific type of design

that best meets its needs As the matrix design’s complexity increases, coordinating the

personnel and getting everyone to work toward common goals often become difficult

Too many groups go their own way


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Mixed Organization Structures

Adapted from Figure 9–8: A Multinational Matrix Structure


Operating divisions


North America Industrial Goods Europe

Human Resources



Manager, Industrial GoodsNorth America

Manager, Industrial Goods

Europe

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Transnational Network Structures

Transnational network structures A multinational structural arrangement that combines

elements of function, product, and geographic designs, while relying on a network arrangement to link worldwide subsidiaries

At the center of the transnational network structure are nodes, which are units charged with coordinating product, functional, and geographic information

Different product line units and geographical area units have different structures depending on what is best for their particular operations


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Transnational Network Structures

Adapted from Figure 9–9: The Network Structure of N.V. Philips

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Control Mechanisms

Adapted from Table 9-2: Control Mechanisms Used in Select Multinational Organization Structures

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Nontraditional Organizational Arrangements

Organizational arrangements from mergers and acquisitions

Organizational arrangements from joint ventures and strategic alliances

Organizational arrangements from Keiretsus

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Asian and Western Management Features

BASIC VALUES

MANAGEMENT STYLE

ACTION

ORGANIZATION

Adapted from Figure 9-10: A Comparison of Asian and Western Management Features

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Electronic Network Form of Organization

Electronic freelancers Individuals who work on a project for a company, usually via the

Internet, and move on to other employment when the assignment is done (http://elance.com)

Temporary companies Serve a particular, short-term purpose and then go on to other

assignments Outsourcing function (can be delivered online) Electronic network is a version of the matrix design

Many of the people in the structure are temporary, contingent employees, never see each other and communicate exclusively in an electronic environment

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Organizing for Product Integration

Cross-functional coordination Six organizational mechanisms used by Toyota

1. Mutual adjustments

2. Direct, technically-skilled supervisors

3. Integrative leadership

4. Technical training is provided in-house, and people are rotated within only one for most, if not all, of their careers

5. Complex forms and bureaucratic procedures

6. Design standards are maintained by the people who are doing the work and are continually changed to meet new design demands

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Changing Role of Information Technology in Organizing

Adapted from Table 9–3: Contrasting Approaches to Using Information Technology: Western and Japanese Views

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Organizational Characteristics of MNCs

Formalization Specialization Centralization

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Adapted from Table 9–4: Organizational Characteristics of U.S. and Japanese Firms in Taiwan

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Adapted from Table 9–5: Internal vs. External Networks

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Adapted from Table 9–6: Managers’ Influence in U.S. and Japanese Firms in Taiwan

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Cases

Australia (p. 290) Getting in on the ground floor (p. 291) Reliance (p. 350)

Chapter 9 Entry Strategies and Organizational Structures 1. DESCRIBE how an MNC develops and...

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