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What are the three key strategic objectives for firms that aspire to become globally competitive?
Visionary leadership is important for building a global firm.
True
What does the Integration-Responsiveness Framework describe?
It describes how internationalizing firms simultaneously seek global integration and local responsiveness.
Which of the following are types of organizational structures in international business? (Select all that apply)
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What is the role of global teams within an MNE?
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The firm's ability to learn from operating in international environments and exploit this learning is known as _____
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What are typical pressures for local responsiveness faced by firms? (Select all that apply)
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Multidomestic industries compete on a country-by-country basis.
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What distinguishes a home replication strategy?
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What is a disadvantage of the geographic product structure?
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The product division structure results in economies of scale and knowledge sharing.
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What is one advantage of a functional structure?
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Which company is mentioned as an example of an organization with a global matrix structure?
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What are the three basic categories of internationalization strategies?
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A wholly owned subsidiary represents maximum ___ in foreign ventures.
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What typical challenge arises with a global matrix structure?
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What are 'push' factors in the context of international expansion?
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High-control strategies require minimal resource commitments by the focal firm.
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Exporting, countertrade, and global sourcing represent ___-control strategies.
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What is a common characteristic of firms with a decentralized structure?
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What is the primary focus of a firm that follows a home replication strategy?
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What best describes a multidomestic strategy?
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Which company is given as an example of a multidomestic strategy?
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A global strategy emphasizes significant autonomy for local subsidiaries.
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Which company is provided as an example of a global strategy?
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What is a primary advantage of a global strategy?
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What characterizes a transnational strategy?
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Which company is used as an example of a transnational strategy?
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Decentralization allows for substantial autonomy at foreign subsidiaries.
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Why might a firm create an export department?
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A firm using a __________ strategy focuses on achieving economies of scale by centralizing operations.
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What level of control does a wholly owned subsidiary provide for a firm in foreign ventures?
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Which of the following strategies are considered low-control strategies?
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What is a significant trade-off associated with high-control strategies like FDI?
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When managers consider internationalization, which factors must they balance?
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Which scenario best describes a risk-averse manager's approach to international ventures?
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What is a key aspect of highly committed firms in international market expansion?
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What does a strategic vision provide for a firm?
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What is one crucial aspect of investing in human assets for global firms?
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How can organizational culture impact employee behavior?
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What aspect of organizational processes is essential for a firm to function effectively?
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Which of the following factors contributes to a firm gaining a competitive advantage?
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What defines organizational culture within a firm?
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What role does management have concerning organizational culture?
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What is the primary function of strategic global teams within an MNE?
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Which of the following best describes the role of culturally diverse teams?
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What is a key benefit of global information systems for MNEs?
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In the context of multidomestic industries, how is competition typically structured?
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What is one characteristic of successful global teams?
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What advantage does a firm gain by utilizing global teams?
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Which factor is crucial for the success of global information systems?
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Which statement is most accurate concerning operational global teams?
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What challenge is often faced by MNEs due to cultural diversity in teams?
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Which is a reason why firms adopt global strategies?
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What is a primary advantage of high-quality products?
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What is one challenge faced by management in a global strategy?
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What is the focus of a transnational strategy?
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Which of the following is NOT a characteristic of transnational firms?
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What is encouraged by the integration of globalization and technology?
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Which statement about a firm's strategic implementation is true?
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What describes a flexible approach in a transnational strategy?
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What is one potential drawback of a transnational strategy?
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Which company is cited as an example of a transnational strategy?
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What is a strategy for optimizing local responsiveness in international operations?
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What is a primary characteristic of the multidomestic strategy employed by companies like Nestlé?
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What is one major disadvantage of the multidomestic strategy?
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How does Nestlé adapt its product distribution in China?
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Which of the following best describes a challenge faced by firms employing a multidomestic strategy?
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Why might companies view Nestlé as a local firm in different markets?
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What is an identified advantage of a multidomestic strategy?
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What term describes the inefficiencies that can arise from a company operating with a multidomestic strategy?
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In which market did Nestlé adapt its Nescafé brand to have an intense, full-bodied flavor?
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Which of the following describes why a firm with limited international experience might choose a multidomestic strategy?
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What aspect of Nestlé's strategy makes it capable of adapting its marketing approaches, like advertising in Russia, to local contexts?
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Study Notes
International Business Strategy
- Firms need to choose an international strategy that matches their goals, resources, and the competitive landscape.
Multidomestic Strategy
- Firms adapt products and marketing to local needs and preferences.
- Example: Northern Europe (mild and aromatic products), Nigeria (local warehouses and shipping via pickup trucks), China (simple distribution links among villages), Russia (advertising emphasizing history and literature), Africa (local singers for entertainment and product demonstrations).
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Advantages:
- Products better adapted to local markets.
- Minimal HQ staff pressure due to local management.
- Easy option for firms with limited international experience.
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Disadvantages:
- Divergent subsidiary strategies and processes.
- Limited knowledge sharing among subsidiaries, reducing economies of scale and potential for knowledge-based competitive advantage.
- Inefficiencies, redundant operations, and higher operating costs.
Global Strategy
- Headquarters seeks substantial control over operations for maximum efficiency, learning, and worldwide integration.
- Universal products and services, centralized coordination, and control of international operations are emphasized.
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Example: Samsung Electronics
- Leading manufacturer of consumer electronics.
- Global activities managed from HQ.
- Integrated value chains for sharing expertise in electronics, technology, production, and distribution.
- Cost-effective production methods based on common parts and components.
- Global R&D teams for semiconductor, flat-screen TV, smartphone development using standardized platforms.
- Internal software varies to accommodate national preferences.
- Parts and components sourced from a limited number of top global suppliers.
- Manufacturing in China, Brazil, and other emerging markets.
- Standardized marketing for global brand recognition.
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Advantages:
- Responsiveness to worldwide opportunities.
- Economies of scale and lower operational costs.
- Cross-national learning and knowledge sharing.
- Improved product and process quality due to simplified manufacturing and processes.
- Global brand recognition, consumer preference, and efficient international marketing.
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Disadvantages:
- Challenging to coordinate activities across dispersed operations.
- Requires strong communication between HQ and subsidiaries.
- Loss of responsiveness and flexibility in local markets.
Transnational Strategy
- A coordinated approach combining the responsiveness of multidomestic with the control and efficiency of global strategy.
- Flexible approach: Standardize where feasible, adapt where necessary.
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Key elements:
- Exploit scale economies through global sourcing and manufacturing.
- Organize production, marketing, and other value-chain activities globally.
- Optimize local responsiveness and flexibility.
- Facilitate global learning and knowledge transfer.
- Coordinate global competitive moves.
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Example: Lenovo
- Chinese producer of PCs and laptops, acquired IBM's PC arm, gaining a global sales force and strong brands.
- Headquarters rotate between China and USA.
- Planning and design in USA, manufacturing in China (for Asia), Mexico (for Americas), and Poland (for Europe).
- Basic computers are the same, but keyboards and internal software are adapted to each market.
- Marketing operations are centralized in Bangalore, India, with global campaigns in over 60 countries.
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Challenges:
- Balancing central control and local responsiveness.
- Most MNEs find implementation difficult.
- Local decision-making is essential for adapting to unique country characteristics.
Organizational Structure in International Business
- Structure should follow strategy to enable its implementation.
- Organizational structure defines reporting relationships, linking people, functions, and processes to enact the company's vision and strategies.
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Centralization vs. Decentralization:
- Centralized: More control and authority at headquarters, emphasizing global integration.
- Decentralized: Greater autonomy and decision-making power for subsidiaries, prioritizing local responsiveness.
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Example:
- Centralized: Product development or factory construction overseas.
- Centralized-Decentralized: Decisions affecting two or more countries.
- Joint: Decisions on local products sold in one country.
- Decentralized: Day-to-day HR issues in individual subsidiaries.
Organizational Structures for International Operations
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Firms evolve through various organizational structures as their international involvement grows.
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Export Department:*
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Initial foreign market entry strategy.
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Products are usually channeled through intermediaries, such as foreign distributors.
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A separate department is formed when export sales become significant.
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Closely associated with home replication strategy.
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International Division Structure:*
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A separate unit dedicated to managing international operations.
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Signals increased commitment to international business.
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Manages relationships with foreign suppliers, distributors, and value chain partners.
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Progresses to more advanced internationalization options like licensing and foreign direct investment.
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Advantages: Centralizes management and coordination of international operations.
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Disadvantages: Potential for domestic vs. international power struggles over resources. Limited knowledge sharing between domestic and international units.
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More Advanced Organizational Structures:*
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Geographic Area Structure: Decentralized, organized by geographic regions.
- Each area has local managers responsible for operations.
- Products are relatively standardized across regions.
- Example: Nestlé with divisions for South America, North America, Asia, etc.
- Advantages: Local responsiveness and regional balancing of global integration and adaptation.
- Disadvantages: Lack of communication and coordination with other areas and HQ. Limited global orientation for product development.
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Product Structure: Centralized, organized by product line.
- Each product division manages worldwide operations for specific products.
- Operates as a stand-alone profit center with autonomy.
- Examples: Motorola (Mobile phones and Network solutions), Apple (iPad, iPod, iPhone, and PCs).
- Advantages: Focus, global efficiencies, and sharing of technology and product knowledge.
- Disadvantages: Duplication of support functions and potential for managers focusing on subsidiaries with quick returns.
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Functional Structure: Centralized, organized by functional activities, such as production and marketing.
- Examples: Oil companies (production and marketing of petroleum products), Cruise ship lines (shipbuilding and marketing).
- Advantages: Strong centralized control, coordination, and focused global strategy.
- Disadvantages: Lack of expertise in coordinating functions across diverse locations.
- Unwieldy coordination with multiple product lines.
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Global Matrix Structure: Combines geographic area, product, and functional structures.
- Leverages global efficiencies and local responsiveness.
- Example: Lenovo with a global sales force but manufacturing in different regions.
- Advantages: Strong emphasis on coordination and control, response to country-specific needs, and inter-organizational learning.
- Challenges: Balancing multiple dimensions and potential for conflict between managers with shared responsibility.
Dual Reporting System
- Employees report to two managers, one within the local subsidiary and one within the corporate product division.
- This structure emphasizes flexibility and responsiveness in foreign operations.
- Aims to optimize operational efficiency and competitive effectiveness by enabling knowledge and decision-making sharing across the organization.
Unilever's Global Operations
- A $55 billion European company producing food, beverages, household, and personal care products.
- Owns global brands like Lipton Tea, Hellman's, Slimfast, and Dove.
- Faced challenges balancing global integration with local adaptation, including differences in retail distribution strategies, labeling requirements, and consumer incentives.
- Initially adopted a multidomestic structure but shifted towards a global matrix structure.
- Faced issues with its decentralized structure, including duplication of efforts and inefficiencies.
- Implemented a reorganization plan centralizing authority, reducing local subsidiary autonomy, and fostering a global employee culture.
- Divested hundreds of businesses, cut jobs, closed factories, and discontinued brands.
- Emphasis on developing new products using global teams focusing on commonalities across major markets.
- Local managers are restricted from altering packaging, formulation, or advertising of global brands.
- Transitioning towards a more balanced matrix approach for its global operations.
Philips' Global Operations
- A Dutch producer of electronics operating in over 100 countries worldwide.
- Structured its operations with product groups integrated across major markets, and its organizational functions integrated across all areas and product groups.
- Reorganized around three core units: consumer electronics, healthcare, and lighting products.
- The matrix structure assigns various roles to executives, including overseeing regions, core product units, and the functions associated with the product units.
Disadvantages of the Matrix Structure:
- Complex chain of command, potentially leading to mixed signals and contradictory instructions from different managers.
- Potential for managerial time waste and conflicts due to the intricate nature of the structure.
- Limitations may arise as the international operations become more complex over time.
- Many companies experimenting with the global matrix structure eventually revert to simpler organizational structures.
Foreign Market Entry Strategies
- A critical decision in international business, determining the way a firm enters a foreign market.
- Entry strategy selection is influenced by the nature of the business and the firm itself.
- Three main internationalization strategy categories:
- Trade of products and services (importing, exporting, countertrade)
- Equity or ownership-based international business activities
- Contractual relationships
- Each strategy has advantages and disadvantages, requiring specific managerial and financial resources.
Variables Influencing Entry Strategy Selection
- Goals and objectives (profitability, market share, competitive positioning)
- Degree of control over decisions, operations, and assets involved in the venture.
- Resource availability (financial, organizational, and technological)
- Risk tolerance in relation to company goals.
- Product/service characteristics.
- Legal, cultural, and economic conditions (e.g., infrastructure).
- Competition from existing and potential rivals.
- Partner availability and capabilities.
- Insourcing vs. outsourcing value-adding activities.
- Market's long-term strategic importance.
Control and Entry Strategies
- Control refers to the ability to influence decisions, operations, and strategic resources in a foreign venture.
- Low-control strategies (exporting, countertrade, global sourcing): Minimal control, delegating responsibility to foreign partners.
- Moderate-control strategies (licensing, franchising, project-based ventures): Moderate control, involving contractual arrangements.
- High-control strategies (equity joint ventures, FDI): Maximum control, establishing a physical presence and owning key assets.
Trade-offs in Entry Strategy Selection
- Costly: High-control strategies require substantial resource commitments, with FDI being particularly expensive.
- Flexibility: Establishing a permanent base can limit operational reconfiguration based on changing market and company conditions.
- Risk: Long-term involvement carries significant risk due to uncertainties in political and customer environments (political, cultural, currency risks).
Additional Variables in Entry Strategy Selection
- Fragility of the product or service.
- Perishability of the product or service.
- Ratio of product value to weight.
Examples of Entry Strategies
- Details about specific entry strategies are omitted from this summary.
The Nature of Internationalization
- Managers must consider balanced risk and return when internationalizing.
- Initial international expansion may be gradual, incremental, or unplanned (emergent).
- Push and pull factors can trigger internationalization:
- Push factors: Unfavorable domestic conditions (e.g., declining demand, domestic competition, product maturity).
- Pull factors: Favorable foreign conditions (e.g., growth potential, government incentives, competitive insights).
- Internationalization is a continuous learning experience, offering opportunities for acquiring new knowledge and leverage for other markets.
Committed firms
- Committed firms develop the resources they need to achieve their international goals.
- Committed firms engage in strategic international expansion.
- Committed firms allocate necessary resources and empower processes to ensure success.
Strategic vision
- Articulating a strategic vision: what the firm wants to be and how it will get there
- This vision drives plans, actions, and employees.
Investing in human assets
- Cultivating human capital is critical in global firms.
- Senior leaders adopt practices like hiring foreign nationals, promoting multi-country careers, and providing cross-cultural training.
Organizational culture
- Shared values, behavioral norms, systems, policies, and procedures employees learn.
- Cultures are often influenced by founders or unique history.
- Management should promote a culture of social responsibility.
Organizational processes
- The routines, behaviors, and mechanisms that allow the firm to function as intended.
- Processes include mechanisms for collecting strategic information, ensuring quality control, and maintaining efficient payment systems.
- Example: General Electric's competitive advantage through developing and improving processes, such as digitalization, intranets, and the internet.
Globalizing mechanisms
- Interconnectedness within MNE networks.
- Allow for knowledge sharing
- Include global teams and global information systems.
Global team
- Internationally distributed group of employees with problem-solving or best practice mandates.
- Drawn from geographically diverse units.
- Interact via in-person meetings, intranets, and video conferencing.
- Integrate employees with experience, knowledge, and skills to solve common challenges.
Strategic Global Teams
- Identify and implement initiatives that enhance the firm's position in its global industry.
Operational Global Teams
- Focus on efficient and effective operations across the whole network.
Successful global teams
- Are flexible, responsive, and innovative.
Culturally diverse teams
- Have three valuable roles:
- Create a global view within the firm while staying connected to local realities.
- Generate creative ideas and make informed decisions about global operations.
- Ensure team decisions are implemented throughout the firm's global operations.
Strategic Foundations
- Emphasizes universality and global efficiencies.
Global information systems
- Intranets, the internet, and EDI overcome geographical distances and cultural differences to share knowledge.
- Example: General Motors leveraged global information systems to develop the Equinox.
Distinction between multidomestic and global industries
- Two types of strategies:
- Multidomestic Industries
- Global Industries
Multidomestic Industries
- Competition is on a country-by-country basis.
- Products tailored to local markets.
- Example: Nestle
- Highly autonomous nationals meet local needs and conditions.
- Perceived as a local firm in each market.
- Taste, distribution, marketing, and prices vary by country.
Multidomestic Advantages
- Locally produced products can be better adapted to the local market.
- Minimal pressure on headquarters staff because local operations are managed individually.
- Multidomestic strategy is easier for firms with limited international experience as tasks are delegated.
Multidomestic Disadvantages
- Each subsidiary tends to develop a local strategic plan, culture, and processes that may differ from headquarters.
- Limited incentive to share knowledge - reduced economies of scale.
- Limited information sharing reduces the possibility of developing a knowledge-based competitive advantage.
- Inefficient manufacturing, redundant operations, proliferation of over-adapted products, and higher operating costs.
Global Industries
- Competition occurs on a global scale.
- Products are standardized and sold globally.
- Example: Toyota
- The Toyota Corolla is produced in many locations globally; it is a standardized product.
- Toyota creates global efficiencies by developing a standardized product with a consistent message.
Global Advantages
- Economies of scale through standardized products.
- Global brand recognition.
- Efficient international marketing programs.
Global Advantages (cont.)
- Global strategy is easier to implement due to:
- Converging buyer characteristics worldwide.
- Growing acceptance of global brands.
- Uniform technology diffusion.
- International collaborative ventures.
- Integration effects of globalization and communication technologies.
Global Disadvantages
- Challenging to coordinate dispersed international operations.
- Maintaining ongoing communications between headquarters and subsidiaries.
- May result in a loss of responsiveness and flexibility in local markets.
Transnational strategy
- Combines the benefits of multidomestic and global strategies.
- Responsive to local needs and retains centralized control for efficiency and learning.
- Maximizes advantages, minimizes disadvantages.
Transnational approach
- Standardize where feasible; Adapt where appropriate.
Transnational implementation
- Exploit scale economies by sourcing globally and concentrating manufacturing in strategic locations.
- Organize production, marketing, and other value-chain activities globally.
- Optimize local responsiveness and flexibility.
- Facilitate knowledge transfer.
- Coordinate global competitive tactics.
- Example: Lenovo
Control
- The ability to influence decisions, operations, and strategic resources in a foreign venture.
- Essential to implement strategies, coordinate actions, and resolve disputes.
Low-control strategies
- Exporting, countertrade, and global sourcing.
- Least control over foreign operations.
- Delegates responsibility to foreign partners, such as distributors or suppliers.
Moderate-control strategies
- Contractual relationships like licensing, franchising, and project-based ventures.
High-control strategies
- Equity joint ventures and FDI.
- Focal firm attains maximum control through a physical presence and ownership of assets.
Trade-offs: cost, flexibility, and risk
- High-control strategies require substantial resource commitments; FDI is especially costly.
- Permanent bases limit flexibility in reconfiguring operations.
- Longer-term involvement leads to greater risk due to political and customer uncertainties.
Additional variables
- Fragility
- Perishability.
- Ratio of value to weight.
The nature of internationalization
- Managers must:
- Balance risk and return.
- Carefully select their international expansion strategy.
- Understand the implications of internationalization for the organization.
Internationalization patterns and characteristics
- Risk and return must be balanced.
- Risk-takers prefer challenging markets and non-traditional strategies.
- Risk-averse managers prefer safe markets with similar cultures.
Internationalization Patterns and characteristics (cont.)
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- Gradual expansion: the process of gradually expanding into new markets, starting with relatively low-risk strategies and moving to higher-risk strategies over time.
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- Incremental commitment: investing in small, manageable steps to gain experience and reduce risk while minimizing exposure to losses.
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- Managing the psychological distance: the perceived differences in language, culture, and business practices between countries.
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- Leveraging location advantages: the competitive advantages that result from being in a particular location, such as access to raw materials, skilled labour, and transportation infrastructure.
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- Utilizing different entry modes: choosing the entry mode that best suits the company's strategy and resources.
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Description
Test your knowledge on international business strategies, focusing on multidomestic approaches. This quiz covers how firms adapt to local markets and the advantages and disadvantages of this strategy. Assess your understanding of real-world examples and implications for resource allocation.
