Operational Effectiveness is not enough, on its own, I posted about this some months ago.
However, good strategy is not enough on its own either. The two must be combined in implementation.
The Red Cross (a voluntary organisation) does not use the language of competition internally, and does not necessarily "compete" with other organisations to serve "customers", however it still takes part in a competitive marketplace for the resources it needs. Example u8p8
If an organisation like the red cross is inefficient, this will be reflected in the percentage of its income spent on administration costs. This can affect people's perception of the organisation, and as an organisation relying on public goodwill, this can affect income. A reduction in income can directly affect the organisation's ability to carry out its strategy. This is one example of how strategy depends on operational effectiveness. But operational effectiveness can also depend on strategy. Your strategy can drive or even define how you tackle operational effectiveness. If you find your organisation becoming inefficient, a new strategy can be implemented to change this. Control systems, part of your strategy, can help implement and measure operational effectiveness, and models such as Levers of Control (Simon) can be useful here.
Porter says that your strategy allows you to have "a particular set of activities to deliver a unique mix of value". Continuous improvement of operational effectiveness alone is not the basis of advantage. Your competitiors can copy that. Porter suggests that one reason that Sony and Matsushita (and I guess, Japanese car firms) are becoming less competitive is that their success was based predominantly on operational efficiency (quality, just-in-time, lean manufacturing etc) and their competitors have copied them and their lead in some sectors has been almost eradicated. Porter suggests that they now have to learn strategy.
In the 1980s the market positioning view of strategy was dominant, however in the 1990s the resource-based view took over. They are alternative views, although the reasoning today is that they should not be considered mutually exclusive because both are essential to understanding strategy.
Similarly, strategy and operational effectiveness are different and distinct, but both are key to an organisation's survival.
Certainly, at $EMPLOYER, there is currently a shift in $DEPARTMENT towards more operational effectiveness. "Lean" methods are being introduced, clean desk policy, orderly offices, etc (Look on Wikipedia for 5S). However this shift may well be due to a confusion of the difference between strategic positioning and operational efficiency.
Sunday, 27 March 2011
Reaching a conclusion - the dynamics of strategy u8
Unit 8 is the final unit of B820.
Its aim is to help
Strategy makes a difference to the potential long-term survival of organisations and has developed because of its practical importance to all types of organisations.
To be a strategic practitioner, is to be identifying issues that make a difference.
Its aim is to help
- explain why and in what ways strategy matters for organisations
- understand that strategy is about exercising judgement, in whatever context
- appreciate the context of continuous change in which strategy has to be formulated and implemented
- develop an overview of the scope and content of the subject of strategy, an ability to work with its frameworks and apply them appropriately to managerial decision making
- demonstrate that while the content of strategies will differ across sectors, the requirement for strategy does not
Strategy makes a difference to the potential long-term survival of organisations and has developed because of its practical importance to all types of organisations.
To be a strategic practitioner, is to be identifying issues that make a difference.
Monday, 21 March 2011
Managing multinationals - international cultural issues u7 p118
Conflict arising from differences in cultural styles can be made worse by people's ignorance of such differences. People tend to react adversely to behaviour that is culturally different to their own, and they also tend to interpret the behaviour of others by their own cultural standards.
There are examples of different attitudes to control systems in box 5.8 p120 u7
Hofstede's four core cultural dimensions (1980) u7 p121
Power distance - the extent to which a society accepts that power in institutions and organisations is distributed unequally
Uncertainty avoidance - the level of anxiety in a society when faced with unstructured or ambiguous situations
Individualism vs collectivism - individualists take care of themselves and their immediate families only, collectivists remain emotionally integrated into in-groups which protect them in exchange for loyalty
Masculinity or femininity - masculine societies have strongly differentiated gender roles, whereas femine have overlapping gender roles. Tough vs supportive.
1 and 2 above are most relevant at organisational level, 3 and 4 most relevant at personal level.
Woolsey et al carried out an analysis into the gulf between Asian and Western notions of industries and markets. For example, Westerners assume that social relations in a market lead to price fixing and other collusion. Western capitalism dictates that economic actors are kept apart.
Asian economies are organised through social networks and have institutions that encourage and maintain ties between people.
The role of the state is crucial to understanding management accounting and control in developing economies, as it is normally the major source of capital, controlling a large proportion of GDP and employment opportunities. Here, account must be taken of the interaction between subcultures and family sub-units, ethnic groups and status systems. Example cited by Hopper et al (2003) of a mine in Ghana where conflicts over rewards occurred between miners and office workers from different ethnic groups.
It is not a valid assumption that western norms of legal rationality will prevail in developing nations, or that decisions are based on collective goals, appointments are made on merit and that employees accept the hierarchy of authority. In many countries loyalty may lie with familym village, ethnic or religious group in precedence to employer.
There are examples of different attitudes to control systems in box 5.8 p120 u7
Hofstede's four core cultural dimensions (1980) u7 p121
Power distance - the extent to which a society accepts that power in institutions and organisations is distributed unequally
Uncertainty avoidance - the level of anxiety in a society when faced with unstructured or ambiguous situations
Individualism vs collectivism - individualists take care of themselves and their immediate families only, collectivists remain emotionally integrated into in-groups which protect them in exchange for loyalty
Masculinity or femininity - masculine societies have strongly differentiated gender roles, whereas femine have overlapping gender roles. Tough vs supportive.
1 and 2 above are most relevant at organisational level, 3 and 4 most relevant at personal level.
Woolsey et al carried out an analysis into the gulf between Asian and Western notions of industries and markets. For example, Westerners assume that social relations in a market lead to price fixing and other collusion. Western capitalism dictates that economic actors are kept apart.
Asian economies are organised through social networks and have institutions that encourage and maintain ties between people.
The role of the state is crucial to understanding management accounting and control in developing economies, as it is normally the major source of capital, controlling a large proportion of GDP and employment opportunities. Here, account must be taken of the interaction between subcultures and family sub-units, ethnic groups and status systems. Example cited by Hopper et al (2003) of a mine in Ghana where conflicts over rewards occurred between miners and office workers from different ethnic groups.
It is not a valid assumption that western norms of legal rationality will prevail in developing nations, or that decisions are based on collective goals, appointments are made on merit and that employees accept the hierarchy of authority. In many countries loyalty may lie with familym village, ethnic or religious group in precedence to employer.
Sunday, 20 March 2011
Managing multinationals
So your existing domestic market is saturated and you decide to branch out internationally. One of the decisions you have to make is how to set up your structure and capabilities to realise the options available.
There are issues in international strategy implementation, including operational issues, international management processes, centre<->periphery issues and network management issues. Normally, the most problematic is that of cross-cultures.
The trade off to be made is between
the search for global integration and scale efficiencies
the need for responsiveness to local markets and customer preferences
All international strategy decisions are/should be made with this trade off in mind. This approach is contingent upon context, and emphasises the optimal functioning of MNCs in the markets in which they operate. See Diagram 5.1 u7 p99
There is a need for strategic flexibility in international operations. Achieving this in practice is very difficult.
It takes a lot of skill to integrate and co-ordinate internationally. Mistakes can be highly visible (eg Dasani in Europe, u7 p102)
Previous posts have discussed that in a complex MNC, resources, responsibilities and decision-making are dispersed across all types of units, not just concentrated at the centre or the periphery. The units themselves may be asymmetrical in size and duration. This is what Bartlett and Ghoshal (1993) mean in "Beyond the M-form" where M is multidivisional. The N-form (Network) is here (Hedlund, 1994). In an N-form organisation, co-ordinating mechanisms are vital and senior management's role is different. There are many different types of co-ordinating mechanisms. Example - HP, P103, U7.
Bartlett et al (2004) say that the main responsibilities of managers in new transnational organisations are
close interplay between three key roles
frontline entrepeneurs
coaches (for the integration process)
corporate leaders (for the renewal process)
Each type of organisational structure resolves some problewms but causes others, and there can be competition for organisational resources. Close examination of the relationship between MNCs and their subsidiaries is a recent development within the field. Many organisations appear to neglect the creative potential of their subsidiaries.
Traditionally the subsidiary's role has been seen as reflecting the importance of its local market and its own competence. It was to identify local tastes by gathering market intelligence and then act as a local antenna to send signals about changing demand back to HQ. This is now perceived as a view that is much too narrow. In fact it sits an an interface with three sorts of markets.
Local market - competitors, suppliers, customers, regulatory bodies - all local stakeholders.
Internal market - head office and all other subsidiaries and related businesses
Global market - competitors, customers and suppliers beyond local and internal markets.
This is effectively viewing each subsidiary as operating in its own environment, with a "tunnel" through which it links itself to HQ.
Alliances can be an effective way of implementing your international strategy. Not all companies will be able to allocate resources or develop capabilities themselves for consistent management of quality and responsiveness across geographic boundaries. The favoured form of the firm has become a federal structure of operating divisions drawing on a common source of internal expertise, but where each division belonging to the federation is free to outsource expertise if it so desires (Buckley and Casson, 1998)
Rugman and D'Cruz (1997) concept of the flagship firm provides a good illustration as to how international collaborative networks and virtual organisations work in practice. A flasgship firm provides direction and strategic leadership to a network consisting of four other sets of partners
key suppliers
key customers
selected competitors
the non-business infrastructure (education, training, trade associations, government bodies, trade unions etc).
The presence of the flagship firm pulls the network together and provides strategic leadership for the network as a whole, and firms exist that have established key relationships with the flagship. Flagship firms are always an MNC. It is often in competition with other similar networks addressing the same end consumer. The flagship sets the strategy and the partners are intimately involved in implementing it but do not have any control over it. Example - DaimlerChrysler.
Many international strategies are now realised through strategic alliances. Stimuli for creating partnerships may be both external and internal. These are not just confined to the private sector. Virtual organisations require as much, if not more, management time, skill, effort and resources and have at least as many management pressures as wholly owned structures.
Example: the ending of the amazon/toys r us relationship, p117 u7
Virtual and network MNC forms are not easier options. Just different ones.
There are issues in international strategy implementation, including operational issues, international management processes, centre<->periphery issues and network management issues. Normally, the most problematic is that of cross-cultures.
The trade off to be made is between
the search for global integration and scale efficiencies
the need for responsiveness to local markets and customer preferences
All international strategy decisions are/should be made with this trade off in mind. This approach is contingent upon context, and emphasises the optimal functioning of MNCs in the markets in which they operate. See Diagram 5.1 u7 p99
There is a need for strategic flexibility in international operations. Achieving this in practice is very difficult.
It takes a lot of skill to integrate and co-ordinate internationally. Mistakes can be highly visible (eg Dasani in Europe, u7 p102)
Previous posts have discussed that in a complex MNC, resources, responsibilities and decision-making are dispersed across all types of units, not just concentrated at the centre or the periphery. The units themselves may be asymmetrical in size and duration. This is what Bartlett and Ghoshal (1993) mean in "Beyond the M-form" where M is multidivisional. The N-form (Network) is here (Hedlund, 1994). In an N-form organisation, co-ordinating mechanisms are vital and senior management's role is different. There are many different types of co-ordinating mechanisms. Example - HP, P103, U7.
Bartlett et al (2004) say that the main responsibilities of managers in new transnational organisations are
close interplay between three key roles
frontline entrepeneurs
coaches (for the integration process)
corporate leaders (for the renewal process)
Each type of organisational structure resolves some problewms but causes others, and there can be competition for organisational resources. Close examination of the relationship between MNCs and their subsidiaries is a recent development within the field. Many organisations appear to neglect the creative potential of their subsidiaries.
Traditionally the subsidiary's role has been seen as reflecting the importance of its local market and its own competence. It was to identify local tastes by gathering market intelligence and then act as a local antenna to send signals about changing demand back to HQ. This is now perceived as a view that is much too narrow. In fact it sits an an interface with three sorts of markets.
Local market - competitors, suppliers, customers, regulatory bodies - all local stakeholders.
Internal market - head office and all other subsidiaries and related businesses
Global market - competitors, customers and suppliers beyond local and internal markets.
This is effectively viewing each subsidiary as operating in its own environment, with a "tunnel" through which it links itself to HQ.
Alliances can be an effective way of implementing your international strategy. Not all companies will be able to allocate resources or develop capabilities themselves for consistent management of quality and responsiveness across geographic boundaries. The favoured form of the firm has become a federal structure of operating divisions drawing on a common source of internal expertise, but where each division belonging to the federation is free to outsource expertise if it so desires (Buckley and Casson, 1998)
Rugman and D'Cruz (1997) concept of the flagship firm provides a good illustration as to how international collaborative networks and virtual organisations work in practice. A flasgship firm provides direction and strategic leadership to a network consisting of four other sets of partners
key suppliers
key customers
selected competitors
the non-business infrastructure (education, training, trade associations, government bodies, trade unions etc).
The presence of the flagship firm pulls the network together and provides strategic leadership for the network as a whole, and firms exist that have established key relationships with the flagship. Flagship firms are always an MNC. It is often in competition with other similar networks addressing the same end consumer. The flagship sets the strategy and the partners are intimately involved in implementing it but do not have any control over it. Example - DaimlerChrysler.
Many international strategies are now realised through strategic alliances. Stimuli for creating partnerships may be both external and internal. These are not just confined to the private sector. Virtual organisations require as much, if not more, management time, skill, effort and resources and have at least as many management pressures as wholly owned structures.
Example: the ending of the amazon/toys r us relationship, p117 u7
Virtual and network MNC forms are not easier options. Just different ones.
Types of international strategy u7 p73
Many national markets are segments within a broader global market.
MNCs carry out global strategies, produce standard products with minor variations and market them around the world, sourcing assets and activities on an optimal cost basis and adapting where necessary to local cultures and tastes.
Their organisation can be anywhere from a centralised structure to a decentralised network of companies. The opportunity for a variety of different international strategies exists.
There are two basic types of international industry structure and strategy: 'multinational' industries and 'global' industries.
Multinational industries: significant differences exist between country markets. Each national market is standalone and requires a standalone multinational strategy that treats competition in each country or region as separate. Porter (1986) calls these multidomestics
Global industries: those which have significant similarities across all country markets. That makes possible integrated global strategies across countries and regions.
examples: p&g p74, philips p74+
Trying to follow a multinational strategy in a global industry will result in significant cost disadvantage to globally-organised competitors. Likewise, following a global strategy in a multinational industry is likely to be disadvantageous as individual country markets are too different to be treated in a homogeneous way.
There are four approaches to being international: multinational, global, international and transnational. You may pass through different stages during your own international development. You may also pursue different strategies in different countries in which you operate. The differences may weaken the company by creating an inflated cost structure, unnecessary duplication, confused image and poor bargaining power, as happened at Nestlé and Philips. It may be that the duplication of dedicated overhead and varied positioning is the reason for success.
The important thing is that different strategies are viable in different context, for different products in different markets.
The 4 most frequently adopted approaches are:
As already mentioned,
1. Multinationals (multidomestic) - treat each country market as independent and best serviced by local subsidiary
2. Global - emphasise worldwide strategies to benefit from operational scale. Heavily centralised.
Plus
3. International - copy from the centre to transfer and share knowledge around the various business units to allow the whole organisation to benefit from experience gained in any one part
4. Transnationals - generate and transfer knowledge and expertise both locally and centrally - the ability to learn from any part of the organisation
See table 4.1 p78
The development from one international organisational form to another is path dependent. The forms can be transitional, but need not be. They may represent the optimal organisational form for the context, at least for a period.
Multinational, multidomestic, and multilocal are all different words for the same thing.
Often, sales and marketing functions are performed locally, even in a Global industry. Ghoshal's "organising framework" (1987) presents the benefits of global strategies in terms of effectiveness in managing efficiency, risk and innovation. These are achieved through the ability to exploit comparative advantage, economies of scale and economies of scope.
While porter's diamond helps explain how national conditions can affect the international competitiveness of firms, Ghoshal's organising framework gives specific guidance on the relevance of global strategy for individual organisations. He helps us to think about and answer "What is the point of having a global strategy?"
This framework can be used prescriptively. In other words if you cannot identify any of these nine elements to justify a potential global strategy, then you should not be thinking about developing a global strategy at all.
Branding could be an example of achieving economies of scope, and as an MNC you will select key brands to standardise and send a consistent worldwide message, and promote one brand, one packaging etc. Simplified brand portfolios help realised scale and scope economies. eg Access->Mastercard, Marathon->Snickers, Bounty->Plenty, Jif->Cif etc.
The transnational is a result of the continuing search for international organisation structures to match the complexity of evolving international strategies. It could be considered as a state of mind or an attitude, rather than just a structure.
It is a state of mind within a flexible structure which is adaptable and which sees efficiency across international boundaries as something that can be achieved through learning and sharing that learning. It requires managers to be global and multinational at the same time.Standardisation rately means the same product in all markets, but rather local adaptations around a standardised core. The question is how to tailor the global marketing concept to fit each business (Quelch and Hoff 1986, p67). This has become known as glocalisation. Example - KFC & nappies, p85.
It is possible to provide variety at low cost through mass customisation via automation. Global strategies should not focus only on the benefits of standardisation as skill at adaptation is becoming more important. Global firms sell almost no standardised products. They all have some degree of adjustment suited to the local consumer, whether it is how it is packaged or the foltage at which it operates. These trends for glocalisation and mass customisation require complex and flexible organisations to make them work across borders. That is what the transnational can do.
Bartlett and Ghoshal (1989) define the transnational as an integrated network. They say that "simple global" organisations have a centralised hub where key roles and influence are located. Communications go from the centre out to the peripheries - top down. Multinationals have the peripheries where the roles and influences are and the centre is just for co-ordination, communications go in from the peripheries to the centre, a multidomestic, multilocal, multinational or now a "decentralised federation".
In the transnational type, communications are bidirectional and multilateral, there is no one central area of influence or co-ordination. This is the emegence of the N-form - "beyond the M form" - |Bartlett and Ghoshal 1993. One way of understanding the structure of a transnational organisation is as an effective international learning organisation.
Example - Siemens, p88
Nonaka (1990) says that MNCs that can manage globalisation are doing it as part of a self-renewing process. This involves continuous information creation, requiring internal cross-border integration and establishment multiple corporate headquarters.
International service delivery is about providing a standard quality service to the customer. In service, it is often the customer who internationalises first, with the service company following to meet the needs of important clients. Examples are Interpublic and WPP.
Branding of services has become an important international guarantee of reputation, quality and consistency around the world. Service industries and multinational service firms have distinct characteristics that add risk and delivery problems to the design and implementation of global strategies for services.
These include those of intangibility (of the service itself) and simultaneity (simultaneous production and consumption of a service). This makes management of the quality of the experience for the customer or client critical.
Normally the way to do this is through standardisation. International strategy literature has given relatively little attention to service industries.
Service firms have historically located close to the customer due to simultaneity. For example, fast food chains. However they do not always need to, eg software outsourcing in india.
Much modern international strategy literature suggests that global stgrategy is declining in influence, or has possibly never actually been global and that regional strategy is becoming more significant. Arising from the formation of regional trading blocs, regionalisation may be viewed as a stepping stone to full globalisation. It may also be viewed as an entirely different construction of resources, trading partners and patterns. It is therefore possible to make a case for globalisation as the obsolete concept with regionalisation emerging as the dominant form!
The triad of Europe-North America-Asia is dominant. Only 1 of the top 49 retail MNCs is global with at least 20% of sales in each region of the triad (Rugman 2003). The world's largest retailers are mainly strongly segmented regional (not global) players.
It is also possible to argue that regional strategies are replacing national ones, at least in some key parts in the value chain.
Hart and Christensen(2002) argued that the poor of the world are inadequately served by MNCs. They suggested that international strategies should focus on customers in emerging markets and transition economies, rather than developed countries. This would be to focus on the "base of the pyramid" (There are approx 4bn people in the world who are at the bottom of the economic pyramid but aspire to join the market economy).
MNCs carry out global strategies, produce standard products with minor variations and market them around the world, sourcing assets and activities on an optimal cost basis and adapting where necessary to local cultures and tastes.
Their organisation can be anywhere from a centralised structure to a decentralised network of companies. The opportunity for a variety of different international strategies exists.
There are two basic types of international industry structure and strategy: 'multinational' industries and 'global' industries.
Multinational industries: significant differences exist between country markets. Each national market is standalone and requires a standalone multinational strategy that treats competition in each country or region as separate. Porter (1986) calls these multidomestics
Global industries: those which have significant similarities across all country markets. That makes possible integrated global strategies across countries and regions.
examples: p&g p74, philips p74+
Trying to follow a multinational strategy in a global industry will result in significant cost disadvantage to globally-organised competitors. Likewise, following a global strategy in a multinational industry is likely to be disadvantageous as individual country markets are too different to be treated in a homogeneous way.
There are four approaches to being international: multinational, global, international and transnational. You may pass through different stages during your own international development. You may also pursue different strategies in different countries in which you operate. The differences may weaken the company by creating an inflated cost structure, unnecessary duplication, confused image and poor bargaining power, as happened at Nestlé and Philips. It may be that the duplication of dedicated overhead and varied positioning is the reason for success.
The important thing is that different strategies are viable in different context, for different products in different markets.
The 4 most frequently adopted approaches are:
As already mentioned,
1. Multinationals (multidomestic) - treat each country market as independent and best serviced by local subsidiary
2. Global - emphasise worldwide strategies to benefit from operational scale. Heavily centralised.
Plus
3. International - copy from the centre to transfer and share knowledge around the various business units to allow the whole organisation to benefit from experience gained in any one part
4. Transnationals - generate and transfer knowledge and expertise both locally and centrally - the ability to learn from any part of the organisation
See table 4.1 p78
The development from one international organisational form to another is path dependent. The forms can be transitional, but need not be. They may represent the optimal organisational form for the context, at least for a period.
Multinational, multidomestic, and multilocal are all different words for the same thing.
Often, sales and marketing functions are performed locally, even in a Global industry. Ghoshal's "organising framework" (1987) presents the benefits of global strategies in terms of effectiveness in managing efficiency, risk and innovation. These are achieved through the ability to exploit comparative advantage, economies of scale and economies of scope.
While porter's diamond helps explain how national conditions can affect the international competitiveness of firms, Ghoshal's organising framework gives specific guidance on the relevance of global strategy for individual organisations. He helps us to think about and answer "What is the point of having a global strategy?"
This framework can be used prescriptively. In other words if you cannot identify any of these nine elements to justify a potential global strategy, then you should not be thinking about developing a global strategy at all.
Branding could be an example of achieving economies of scope, and as an MNC you will select key brands to standardise and send a consistent worldwide message, and promote one brand, one packaging etc. Simplified brand portfolios help realised scale and scope economies. eg Access->Mastercard, Marathon->Snickers, Bounty->Plenty, Jif->Cif etc.
The transnational is a result of the continuing search for international organisation structures to match the complexity of evolving international strategies. It could be considered as a state of mind or an attitude, rather than just a structure.
It is a state of mind within a flexible structure which is adaptable and which sees efficiency across international boundaries as something that can be achieved through learning and sharing that learning. It requires managers to be global and multinational at the same time.Standardisation rately means the same product in all markets, but rather local adaptations around a standardised core. The question is how to tailor the global marketing concept to fit each business (Quelch and Hoff 1986, p67). This has become known as glocalisation. Example - KFC & nappies, p85.
It is possible to provide variety at low cost through mass customisation via automation. Global strategies should not focus only on the benefits of standardisation as skill at adaptation is becoming more important. Global firms sell almost no standardised products. They all have some degree of adjustment suited to the local consumer, whether it is how it is packaged or the foltage at which it operates. These trends for glocalisation and mass customisation require complex and flexible organisations to make them work across borders. That is what the transnational can do.
Bartlett and Ghoshal (1989) define the transnational as an integrated network. They say that "simple global" organisations have a centralised hub where key roles and influence are located. Communications go from the centre out to the peripheries - top down. Multinationals have the peripheries where the roles and influences are and the centre is just for co-ordination, communications go in from the peripheries to the centre, a multidomestic, multilocal, multinational or now a "decentralised federation".
In the transnational type, communications are bidirectional and multilateral, there is no one central area of influence or co-ordination. This is the emegence of the N-form - "beyond the M form" - |Bartlett and Ghoshal 1993. One way of understanding the structure of a transnational organisation is as an effective international learning organisation.
Example - Siemens, p88
Nonaka (1990) says that MNCs that can manage globalisation are doing it as part of a self-renewing process. This involves continuous information creation, requiring internal cross-border integration and establishment multiple corporate headquarters.
International service delivery is about providing a standard quality service to the customer. In service, it is often the customer who internationalises first, with the service company following to meet the needs of important clients. Examples are Interpublic and WPP.
Branding of services has become an important international guarantee of reputation, quality and consistency around the world. Service industries and multinational service firms have distinct characteristics that add risk and delivery problems to the design and implementation of global strategies for services.
These include those of intangibility (of the service itself) and simultaneity (simultaneous production and consumption of a service). This makes management of the quality of the experience for the customer or client critical.
Normally the way to do this is through standardisation. International strategy literature has given relatively little attention to service industries.
Service firms have historically located close to the customer due to simultaneity. For example, fast food chains. However they do not always need to, eg software outsourcing in india.
Much modern international strategy literature suggests that global stgrategy is declining in influence, or has possibly never actually been global and that regional strategy is becoming more significant. Arising from the formation of regional trading blocs, regionalisation may be viewed as a stepping stone to full globalisation. It may also be viewed as an entirely different construction of resources, trading partners and patterns. It is therefore possible to make a case for globalisation as the obsolete concept with regionalisation emerging as the dominant form!
The triad of Europe-North America-Asia is dominant. Only 1 of the top 49 retail MNCs is global with at least 20% of sales in each region of the triad (Rugman 2003). The world's largest retailers are mainly strongly segmented regional (not global) players.
It is also possible to argue that regional strategies are replacing national ones, at least in some key parts in the value chain.
Hart and Christensen(2002) argued that the poor of the world are inadequately served by MNCs. They suggested that international strategies should focus on customers in emerging markets and transition economies, rather than developed countries. This would be to focus on the "base of the pyramid" (There are approx 4bn people in the world who are at the bottom of the economic pyramid but aspire to join the market economy).
The growth of the multinational u7p57
MNCs are complex organisations, difficult to manage, unpopular in the press and with the public, often decline into bureaucracy, inflexible and unresponsive, slow to change and sometimes guilty of fraud or corrpution (Enron etc). So what's the point?!
Well there are advantages. Strategic benefits include flexibility and options. In international competition, options allow you to choose between ways of doing things. Once you go global, you have a wider range of strategies available. For example, you can exploit market imperfections.
It's a fair point that if there was one global market, then global strategies would be irrelevant, they could be identical to your national strategy.
Trade barriers include high tariffs, import quotas, refusal to grant licences, nationalistic purchasing and ownership policies, centralise command economies and excessively nationalistic domestic demand. Your job as a global firm is to try and exploit the barriers which favour you and avoid those that don't
Governments are careful to tax at levels just high enough to produce useful revenue without being so high as to force corporations to shift investments elsewhere. They may actually try to convince you to invest through capital grants, regional grants (eg in low employment areas), tax free zones etc.
It can pay to be larger. Kogut (1985) points out that production shifting (eg outsourcing IT function to India), tax minimisation, financial markets, information arbitrage (transfer of knowledge), global co-ordination and reducing political risk are all options open to larger MNCs.
Example, Wipro, p59
Multinational companies have part of their activities located outside their home base and operate in international markets. The location is influenced by comparative costs, risks and regulatory contexts.
Trade may be carried out in different ways. The four types are exporting, foreign direct investment (FDI), licensing and joint ventures/strategic alliances. Rugman et al developed a rational decision tree for choosing between the various strategic options (1985, p130), u7p61.
International strategy and structure
Remember chandler said "structure follows strategy" - his view was that where there were economies of scale and scope to be had then these lead to national and international concentration, so competition becomes oligopolistic (only a few large organisations).
Stopford and Wells developed a simple descriptive model to illustrate the typical stages of development for companies progressively moving towards an international organisation structure. They saw this as a process driven by two dimensions.
1. Foreign product diversity, ie. the number of products sold internationally,
2. The importance of international sales to the company (foreign sales as a percentage of total sales)
They suggested that you should set up your international division at an early stage of internationalisation when the figures for diversity and percentage were low. Then you will follow either a pathway leading to a worldwide product division structure due to substantial foreign product diversity or if you expand overseas without increasing diversity you will adopt a geographical area structure. But when both foreign sales and the diversity of products are high you will have a global matrix. You often see MNCs with a geographic dimension and a product group dimension in a matrix structure.
Example: Nestlé, p63.
According to the Uppsala model (Johanson and Vahlne, 1977), you will increase your international involvement in stages, beginning in countries culturally most similar to yourself/your own before broadening out as you gain increased knowledge of and commitment to foreign markets.
Kogut (1985) says that once you become an MNC, you can take advantage of the comparative advantage of the nations in which you carry out FDI (foreign direct investment) and achieve competitive advantage by investing in your value chain. International configuration of the value chain allows you to identify sources of comparative (country) and competitive (firm) advantage.
Why internationalise? "Global strategies rest on the interplace of the competitive advantage of firms and the comparative advantage of countries" - Kogut 1985. An MNC may pick and choose between the comparative advantages of countries, a luxury not available to you if you stay local.
An organisation that competes internationally can benefit from the geographic dispersion of its activities through configuration of the international value chain. You must decide how to spread the activities of your value chain among countries. All organisations have a wide choice of how to configure their value chain, but if you operate across borders you should use your choice of configuration as a source of advantage.
You have different issues that arise depending on how you configure your value chain. For example, if you configure your value chain so that all R&D is centralised, you have few co-ordination issues, except to ensure it is in touch with all your markets. If it is distributed, you have to co-ordinate to ensure you are not duplicating effort, which can be costly.
High levels of co-ordination may result in higher costs. These additional costs must be weighed against the cost savings in other parts of the value chain. eg. Mexico's lower labour costs were almost cancelled out by the higher costs associated with its poor transport infrastructure. Grant says the benefits derived from breaking the value chain and locating individual activities in different countries must be traded off against the costs of weaker linkages between stages in the chain.
The configuration of the value chain will also depend on the type of strategy being pursued. For example, Dell Computers, with its strategy of fast delivery and customising for individual customer requirements, needs to locate manufacturing close to its markets. Conversely Acer competes mainly on price and has located its manufacturing mainly in Asia.
Three of the most common approaches to the international value chain are
A - seeking scale efficiencies - everything is geared to scale. Can form the basis of a global cost-based strategy
B - Seeking efficiency in each separate link in the chain. This treats each part of the chain equally
C - Seeking efficiency in the links and through the linkages.
Successful international competitors "seek out competitive advantages from global configuration/coordination anywhere in the value chain, and overcome the organisational barriers to exploiting them" (Porter, 1986, p56)
Well there are advantages. Strategic benefits include flexibility and options. In international competition, options allow you to choose between ways of doing things. Once you go global, you have a wider range of strategies available. For example, you can exploit market imperfections.
It's a fair point that if there was one global market, then global strategies would be irrelevant, they could be identical to your national strategy.
Trade barriers include high tariffs, import quotas, refusal to grant licences, nationalistic purchasing and ownership policies, centralise command economies and excessively nationalistic domestic demand. Your job as a global firm is to try and exploit the barriers which favour you and avoid those that don't
Governments are careful to tax at levels just high enough to produce useful revenue without being so high as to force corporations to shift investments elsewhere. They may actually try to convince you to invest through capital grants, regional grants (eg in low employment areas), tax free zones etc.
It can pay to be larger. Kogut (1985) points out that production shifting (eg outsourcing IT function to India), tax minimisation, financial markets, information arbitrage (transfer of knowledge), global co-ordination and reducing political risk are all options open to larger MNCs.
Example, Wipro, p59
Multinational companies have part of their activities located outside their home base and operate in international markets. The location is influenced by comparative costs, risks and regulatory contexts.
Trade may be carried out in different ways. The four types are exporting, foreign direct investment (FDI), licensing and joint ventures/strategic alliances. Rugman et al developed a rational decision tree for choosing between the various strategic options (1985, p130), u7p61.
International strategy and structure
Remember chandler said "structure follows strategy" - his view was that where there were economies of scale and scope to be had then these lead to national and international concentration, so competition becomes oligopolistic (only a few large organisations).
Stopford and Wells developed a simple descriptive model to illustrate the typical stages of development for companies progressively moving towards an international organisation structure. They saw this as a process driven by two dimensions.
1. Foreign product diversity, ie. the number of products sold internationally,
2. The importance of international sales to the company (foreign sales as a percentage of total sales)
They suggested that you should set up your international division at an early stage of internationalisation when the figures for diversity and percentage were low. Then you will follow either a pathway leading to a worldwide product division structure due to substantial foreign product diversity or if you expand overseas without increasing diversity you will adopt a geographical area structure. But when both foreign sales and the diversity of products are high you will have a global matrix. You often see MNCs with a geographic dimension and a product group dimension in a matrix structure.
Example: Nestlé, p63.
According to the Uppsala model (Johanson and Vahlne, 1977), you will increase your international involvement in stages, beginning in countries culturally most similar to yourself/your own before broadening out as you gain increased knowledge of and commitment to foreign markets.
Kogut (1985) says that once you become an MNC, you can take advantage of the comparative advantage of the nations in which you carry out FDI (foreign direct investment) and achieve competitive advantage by investing in your value chain. International configuration of the value chain allows you to identify sources of comparative (country) and competitive (firm) advantage.
Why internationalise? "Global strategies rest on the interplace of the competitive advantage of firms and the comparative advantage of countries" - Kogut 1985. An MNC may pick and choose between the comparative advantages of countries, a luxury not available to you if you stay local.
An organisation that competes internationally can benefit from the geographic dispersion of its activities through configuration of the international value chain. You must decide how to spread the activities of your value chain among countries. All organisations have a wide choice of how to configure their value chain, but if you operate across borders you should use your choice of configuration as a source of advantage.
You have different issues that arise depending on how you configure your value chain. For example, if you configure your value chain so that all R&D is centralised, you have few co-ordination issues, except to ensure it is in touch with all your markets. If it is distributed, you have to co-ordinate to ensure you are not duplicating effort, which can be costly.
High levels of co-ordination may result in higher costs. These additional costs must be weighed against the cost savings in other parts of the value chain. eg. Mexico's lower labour costs were almost cancelled out by the higher costs associated with its poor transport infrastructure. Grant says the benefits derived from breaking the value chain and locating individual activities in different countries must be traded off against the costs of weaker linkages between stages in the chain.
The configuration of the value chain will also depend on the type of strategy being pursued. For example, Dell Computers, with its strategy of fast delivery and customising for individual customer requirements, needs to locate manufacturing close to its markets. Conversely Acer competes mainly on price and has located its manufacturing mainly in Asia.
Three of the most common approaches to the international value chain are
A - seeking scale efficiencies - everything is geared to scale. Can form the basis of a global cost-based strategy
B - Seeking efficiency in each separate link in the chain. This treats each part of the chain equally
C - Seeking efficiency in the links and through the linkages.
Successful international competitors "seek out competitive advantages from global configuration/coordination anywhere in the value chain, and overcome the organisational barriers to exploiting them" (Porter, 1986, p56)
Anti-globalisation (AG) u7 p34
AG pressure groups cite free trade, trade and wages, employment, exporting of jobs, the environment, the role of multinationals, intellectual property, migration and cultural imperialism all as issues affected negatively by globalisation.
There have been many NGOs, student groups and trade unions that have applied pressure to firms such as Gap and Nike to improve working conditions in developing economies where they do much manufacturing. The following are common criticisms of globalisation
Geography no longer matters
Big firms always win
The "race to the bottom"
Globalisation is a zero-sum game
1. Geography - Ohmae argued that business is now borderless, however this perspective does have limitations, for example transport costs. If these are high, the industry is uinlikely to become global and more likely to remain local. Geography still matters also because the "clusters" mentioned in previous posts are geographically located, and can often not be found elsewhere in the world or be easily imitated.
2. Big firms always win? - SMEs are typically more flexible and have faster response times to changing environments than large organisations. They can begin to compete on economies of scale in some ways as they can now use the internet to achieve purchasing economies of scale. Many big firms become inefficient and inflexible and gradually die. Look what happened to DaimlerChrysler.
3. Race to the bottom? Worker exploitation? Widening inequalities? Using developing economies as dumping grounds for products and processes no longer acceptable in rich countries? Global firms are accused of playing off governments and workforces against each other in a battle for the lowest wages and costs - ie striving to source competive advantate from comparative advantage. It depends on point of view. Efficiency for global firms translates into exploitation by the critics of those firms.
4. Globalisation is zero-sum? This suggests that for some people to benefit from globalisation, others must lose. This may be true, but there are winners and losers on both sides. Consumers in developed economies benefit from lower costs due to outsourcing, and lowering of trade barriers. But those same countries also see "losers" because of potential outsourcing, or the decline of "traditional" industries.
Example: Agriculture, p37
Globalisatioin is reversible. Apart from the AG movement, regionalism and protectionism can prevent globalisation.
Groups of countries have formed regional trading blocs or Free Trade areas. For example the EU, NAFTA, APEC, ASEAN etc.
The formation of most of the worlds economies into trading blocs could be a significant blocker for globalisation. Regional trade is seen as incompatible with global or world trade. Trade barriers are moved outwards from individual countries to regions. Regions such as Africa are outside the main blocs and likely to remain so. India and China are likely to exist as trading blocs in their own right.
There have been many NGOs, student groups and trade unions that have applied pressure to firms such as Gap and Nike to improve working conditions in developing economies where they do much manufacturing. The following are common criticisms of globalisation
Geography no longer matters
Big firms always win
The "race to the bottom"
Globalisation is a zero-sum game
1. Geography - Ohmae argued that business is now borderless, however this perspective does have limitations, for example transport costs. If these are high, the industry is uinlikely to become global and more likely to remain local. Geography still matters also because the "clusters" mentioned in previous posts are geographically located, and can often not be found elsewhere in the world or be easily imitated.
2. Big firms always win? - SMEs are typically more flexible and have faster response times to changing environments than large organisations. They can begin to compete on economies of scale in some ways as they can now use the internet to achieve purchasing economies of scale. Many big firms become inefficient and inflexible and gradually die. Look what happened to DaimlerChrysler.
3. Race to the bottom? Worker exploitation? Widening inequalities? Using developing economies as dumping grounds for products and processes no longer acceptable in rich countries? Global firms are accused of playing off governments and workforces against each other in a battle for the lowest wages and costs - ie striving to source competive advantate from comparative advantage. It depends on point of view. Efficiency for global firms translates into exploitation by the critics of those firms.
4. Globalisation is zero-sum? This suggests that for some people to benefit from globalisation, others must lose. This may be true, but there are winners and losers on both sides. Consumers in developed economies benefit from lower costs due to outsourcing, and lowering of trade barriers. But those same countries also see "losers" because of potential outsourcing, or the decline of "traditional" industries.
Example: Agriculture, p37
Globalisatioin is reversible. Apart from the AG movement, regionalism and protectionism can prevent globalisation.
Groups of countries have formed regional trading blocs or Free Trade areas. For example the EU, NAFTA, APEC, ASEAN etc.
The formation of most of the worlds economies into trading blocs could be a significant blocker for globalisation. Regional trade is seen as incompatible with global or world trade. Trade barriers are moved outwards from individual countries to regions. Regions such as Africa are outside the main blocs and likely to remain so. India and China are likely to exist as trading blocs in their own right.
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