Mid-term Exam PDF

Clase 2: Globalization and International Business (IB) ★ What is globalization? The interconnectedness of nations and economies around the world, allowing for easier access and exchange across borders in terms of goods, services, capital, technology and people. Example: fruits and vegetables (...

Clase 2: Globalization and International Business (IB) ★ What is globalization? The interconnectedness of nations and economies around the world, allowing for easier access and exchange across borders in terms of goods, services, capital, technology and people. Example: fruits and vegetables ( 🍎🥕), gasoline (⛽), etc. ★ Value chain and global production Value chains are a series of consecutive steps that go into the creation of a finished product, from its initial design to its arrival at a customer’s door. The chain identifies each step in the process at which value is added, including the sourcing, manufacturing, and marketing stages of its production. Sometimes it can be broken En español y simple: Generar valor en el proceso productivo a través de actividades, desde la creación hasta que está en manos del cliente. I can have somebody else to do some of the process for me. For example, Wom can not do this but other companies can. For example: A. Parts of an aircraft ✈️ “An airplane is composed of some six million components, and it takes about four months to build it from its individual parts” There’s different suppliers in a lot of countries, the aircraft is build around the world. B. The iphone 📞 Iphone (in this case the 6s) has 34 individual components, each one of them from different countries around the world. Most parts of the iphones are assembled in China because they are cheaper. Problems Labor exploitation: low cost but really bad work conditions. Pollution/ contamination due to travel matters. When you have a situation like a pandemic or war, it happens that the supply chain gets disrupted and the phones can not be assembled, for example.  Depending in other suppliers VIDEO "We shouldnt be dependent or something or someone" US: they want to supply chains begin in "America" ★ Factors that lead to globalization 1. Rise and application of technology This brings innovations in communication and transportation. Allows people move fastly from one country to another, communicate, learn, exchange ideas. Examples: Telephone, mobile phone, internet, automobile, ships, airplanes. 2. Liberalization of trade The principal reason is to create a competitive advantage supported by Technology Free trade agreements Currency exchanges (US-dollar, euros) EYE: Sometimes the government has to cut it due to the protection of domestic production. There's the possibility for the country not surviving to the competition and the government needs to take action. You have to follow the rules of the agreement of free trade, because if you don’t there will be consequences/punishment and the solution of this type of problem takes years to solve. Example: SWIFT is a tool that helps banks around the world. 3. Growing consumer pressure Consumers also grow, having more expectations. Rising standards of living + more purchasing power + information availability. EYE: Related to human development index and GDP per capita Consumers demand more, this means improvement. Human development index: measures health, life expectancy and education Logic? If your country is developing well you may have a long life or more access to the health system. More education you have, you will demand more things (income for example) You will be a consumer with HIGHER EXPECTATIONS, consuming more.  4. Increase in global competition Companies have always competed with each other. The global competition increases: If you go there, I'll go there because I don't want to arrive late due to power issues. Born global firms Based on the internet. They move faster and internationalize faster because they don't need a physical space. Businesses who from inception creates competitive advantage through using resources and sales in multiple countries. Examples: Spotify, Netflix or Skype En español, simple: Empresas que desde su creación crean (jaj) una ventaja competitiva con recursos y ventas a lo largo del mundo. 5. International migration and mobility People moves from one country to another for better: Work Education Live conditions (due to political issues like Venezuela) EYE: Think about the migración campo-ciudad en la historia. 6. Expansion of cross-national cooperation Globalization leads to cross international cooperation: Gain reciprocal advantages (access to products, services and knowledge). Fights international problems: common quality standards (ISO), common currencies (EU) or to fight international crime (interpol). Deal with areas of concern that lie outside the territory of any nation (non coastal areas of the oceans, outer space, and Antarctica). En español: La globalización crea expansión de la cooperación internacional, como la interpol, estándares de calidad, protección de océanos, etc. Others: Language learning and English, increased mobility. ★ Criticism of Globalization Globalization also has some negative aspectos a. National level: threats to national sovereignty. Example: Russia and social media privacy.  b. Global level: environmental issues. Example: pollution. c. Individual and society level: growing income inequality and personal stress. “Some people gain, some people lose” ★ Why is IB important? Even tho production chains are global: Production takes place locally. People and companies are located in specific environments. Each one of them belongs to different cultures and people speak different languages. Regulations, laws and institutions are local. Value creation occurs when collaborating internationally. IB knowledge helps understanding global phenomena (price, labor, resources, etc) “INTERNATIONAL BUSINESS KNOWLEDGE DRIVES GLOBAL BUSINESS SUCCESS” ★ Why do companies engage in IB? 1. Sales expansion: reaching more customers 2. Resource acquisition: products and services with higher quality or lower costs, human resources and their knowledge (IT), workforce diversity (“war for talents”) 3. Risk reduction: diversification of risks, competitors, internalization together with customers or supplies) Clase 3 and 4: Culture in IB ★ Culture as an onion 🧅(Los ogros son como cebollas, ambos tienen capas)  🚩 🦸 a. Symbols : words, accents, flags, slang. 🎉 b. Heroes : role models, fictive or real. c. Rituals : collective activities, greetings, memories, holidays. Example: September 18th in Chile d. Values 🪞: Perception or life as good or bad, ugly or beautiful, normal or abnormal. Example: The idea of beauty in Asia (the ideal body type, height) comes with a lot of esthetic surgery. In Latin America, for example, there’s a lot of types of beauty wich are equally accepted. e. Practices 🙋: behavior in real life ★ Multiple Cultures Organizations can create a culture that develops naturally or they can make it according to what they pursue (quality, greatness, etc.) ¡Organizations have to know about CULTURE as an interpretation system! Searching for the meaning of: Punctuality Leadership Creativity Innovation Teamwork Status Quality Other Each culture has its own perception of these concepts. Organizations need to study these concepts and how they interact in each culture. Example: For Japan, the quality of the packages is very important because it gives an idea of how the product is going to look like. Cultural differences Cultures and societies deal differently with Use of power and its distribution Status of social groups Relationships Role of the individual and the family Materialism and motivation  Balance work -life Cultural dimensions help to explain these differences ★ Culture dimensions “Categories or variables that describe social phenomena and which serve for their analysis. Often used to characterize or compare social systems as societies, organizations or groups” The goal is to make culture understandable: Suitable for description and comparison cultures Show similarities and differences Serve to understand your own and foreign cultural perceptions, thinking, styles, beliefs, feelings and behaviors. En español, simple: Variables que describen el fenómeno social, usado para comparar subsistemas, organizaciones o grupos sociales. There’s been a loot of scholars that studied cultural dimensions through the years: ★ Edward T.Hall (1970) a. Proxemics: Spatial understanding (all about space) 🫱🫲 Physical proximity: distance, body weight, body orientation. Spatial behavior expresses social and emotional relationships, roles, affiliations and sympathies. Varies with people’s relationship: status, age, gender, etc. Example: Here in Chile, kissing on the cheek is considered fine but in Korea that’s totally different. b. Monochronic v/s polychronic ⏳ Understanding of time (management) How the perception of time changes according to the culture. Time talks. Even more than words Example/Business application Affects prioritization of tasks/accomplishments Dealing with schedules/deadlines Processing of tasks Exchange of words in conversations c. High v/s low context culture 🗣️ Explains direct - indirect communication 1. Low context cultures: central information is conveyed verbally and explicitly. The listener must concentrate exclusively on what is being said in order to understand the message. Focus on problems rather than people Emphasis on words  Communication is explicit Details are required 2. High context cultures: the information can only be decoded by considering the entire communication context, such as nonverbal signals, atmosphere, etc. Focus on people and relationships Emphasis on nonverbal communication Communication is implicit Time to build trust is required Example: In Japan, nobody is going to tell you “i don't like you”, you have to figure it out yourself. Information: High context – Low context Relationships between people are more important in high-context cultures than in low-context cultures. Rules remain unspoken in high-context cultures, as they presuppose knowledge of forms of communication and behavior. En español: Se supone que ya es sabido por los demás. The more individualistic the culture, the more likely it is that rules must be communicated explicitly (greater variety). En español: Cuanto más individualista es el país, más explícita debe ser la comunicación de las reglas. Example: Dealing with problems - There's one, you solve it (now or soon) - In some cultures, people try to ignore problems. It doesn't exists until is an emergency  ★ The 360° feedback Western instrument that provides a solution to give feedbacks Problem: is subject to the risk of cultural misinterpretation. For example, in Japan nobody is going to tell you about your reality because maintaining the group is more important than the work itself. ★ Greet Hofstede a. Power Distance (PDI): IWays to deal with social inequality and authority. “The extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally.“ The five Confucian relationships Ruler↔️ Servant Father ↔️ Son Man ↔️ Woman Senior ↔️ Junior Friend ↔️ Friend Supreme principle = harmonious relations Except "friend - friend" are all relationships hierarchical ("above" and "below") b. Individualism vs Collectivism: The degree of integration of individuals in groups c. Masculinity vs Femininity: Differences in the social roles of men and women. ➔ Masculinity as a preference in society for achievement, heroism, assertiveness and material rewards for success. ➔ Femininity as a preference for cooperation, modesty, caring for the weak and quality of life. Example: Girls and pink, Boys and blue d. Uncertainty Avoidance: The lack of tolerance for the unknown. When members feel threatened by ambiguous or unknown situations (stress, unhappiness) e. Long vs Short Orientation: Time orientation. f. Indulgence vs Restraint: Dealing with leisure. (ocio)  ★ Cultural dynamics and change Cultures can change by: choice (rural people choose to accept factory jobs) imposition (laws, colonialism, imperialism) Examples: The Japanese constitution was written by “Americans”. ★ Strategies of cultural adjustment Four issues that affect degrees of successful adjustment: 1. The extent to which a culture is willing to accept the introduction of anything foreign. ➔ How open is society to foreign people. ➔ Countries can be very multicultural or not 2. Whether key cultural differences are small or big (cultural distance) Example: Chile - Brazil not so much difference except for language or food maybe. 3. The ability of individuals to adjust what they find foreign cultures (flexibility) 4. The general management orientation of the company involved ★ Strategy: Managing Subsidiaries How do international organizations deal with internationalization and the resulting cultural plurality and how do they shape it strategically? Ethnocentric Polycentric ➔ Headquarters in chile ➔ In brazil we need brazilian employees ➔ In colombia , colombian employees  Geocentric ➔ If this diversity is managed in a good way the exchange of ideas will be great Class 5: Political and legal systems Depending on the political and legal frameworks you have to be careful about your business/company. Politics, political freedom, and legality dynamic. Political risk of countries differs in degree and time. Differences between home and host countries matter. Political spectrum: Democracy or Totalitarianism Before entering a new country, the company needs to know about the current political system. Democracy Totalitarianism ➔ Elections ➔ No elections ➔ Rights and duty ➔ Duties but not rights ➔ Free press ➔ Control of the press Problem: in a democracy it is very difficult to Problem: Nobody can deny or question the lie. If you try to change results, there are results that the government provides organisms to take care of the credibility of because it will be the only truth. them.  Both want results because it will provide credibility to the system. State of political freedom EYE - Not free countries: “They normally said they are democratic”. Rules of man: Fidel Castro in Cuba, Hitler. Ex: China, Russia Implications of multinational corporations In some authoritarian states, MNC can only enter when starting a Joint Venture with a local company (e.g. Volkswagen in China) Preference of local companies over foreign MNC (e.g. taxation, work regulations) Risk of expropriation and nationalization Relationship between business and government ➔ There are different ideals about how the relationship between the state and businesses / the market should look like ➔ How much interference by the state is necessary to govern markets? How much regulation is necessary, required and desired? Intertwined with societal values and culture and ideals of individualism and collectivism Individualism vs collectivism Individualism Collectivism - Primacy of individual freedom, - Emphasizes the primacy of the self-expression, and personal collective over the interests of the independence individual - Exercise of one’s ambitions while - Allocation of resources to improve opposing regulations that constrain the welfare of the collective them - Regulations that promote social - Laissez-faire culture equality, labor rights, income - Assumes that the government equality, and workplace democracy  should not interfere in business affairs Examples: Argentina, China, Vietnam, - Advocates a market and neoliberal Japan, South Korea, Egypt, Brazil, Taiwan, principles and Mexico Examples: Australia, Canada, the Netherlands, United States The legal environment - Just as political systems, laws differ across countries - The legal system specifies the rules that regulate behavior, the processes that enforce laws, and the procedures that resolve grievances. - Legal systems differ across countries due to variations in tradition, precedent, usage, custom, or religious precepts. Types of legal systems a. Civil law Relies on systematic codification of laws Judges apply relevant statutes to resolve disputes b. Common law Originates from Anglo-American legacies Based on prior court decision: precedent cases Doctrine of stare decisis (“to stand by things decided) Relies on tradition Judicial officials refer to statutory codes and legislation, but only after considering the rules of the court, custom, judicial reasoning, prior court decisions, and principles of equity c. Customary law Reflects the wisdom of daily experience or spiritual legacies and time-honored philosophical outlooks Based on norms of behavior that gain legitimacy through ongoing practice. d. Islamic or theocratic Law Relies on religious doctrines and beliefs Religious leaders define what‘s right and wrong Islamic law, Shari’a, based on Qur’an (Koran), Sunnah (decisions and sayings of the Prophet Muhammad), writings of Islamic scholars, and consensus of communities. Rule of Man Rule of Law - Ultimate authority resides in one - No one, whether a public official or person whose word is law private citizen, is above the law. - Sovereign leader’s actions are not - “All men are created equal” (U.S. restricted by a constitution, Declaration of Independence) holds regulated by criminal codes, or open that everyone is subject to the same to opposition. laws.  - Sovereign leader creates the law, - Justice is blind so that justice is officials follow the law, and citizens impartial are subject to it. - Laws are clear, publicized, and protective of fundamental rights- VIDEO: Islamic finance - based of islamic law - two key aspects: asset- based and risk sharing - still faces many challenges: economic and financial stability standard & codes islamic finance: Prohibition of charging or receiving interests not excessive leverage financial outcome it's the same Implications on IB a. Starting a business - Registering a name - Choosing the legal form (limited, stockholder company, etc.) - Obtaining licenses - Registering brands - Getting insurances b. Contracting - Degree of details in contracts, and their forms. - Length of minimum employment. - Time to quit and fire. - Number of work hours. Here too: labor laws, labor unions c. Product regulations Example: Ketchup in Israel d. Product safety e. Intellectual property Class 6: MNC and IB Strategy ★ Strategy “An integrated overarching set of choices of how a business will achieve its objectives” Business terms: Achieving goals under constrained resources just as time, money, etc How a business will achieve its objectives It defines and communicates how an MNC Uses its resources, capabilities, and competencies to compete in different countries Plans to create value, for itself and stakeholders under conditions of uncertainty Specifies what to do (and not) in the future Deals with the questions and complexities of the environment ★ Key attributes of strategy 1. Aspirations or goals of the company 2. Where the company is going to do its activities 3. How will we win chosen markets? 4. Which capabilities do we need to win? - Mission: declaration of its purpose and aspirations (like a desiree) - Vision: grounded statement about the way to achieve goals. How practically the goals are achieve ★ Value added strategy All companies try to create value in terms of design, color, production, etc, to generate value added by making products that competitors can’t replicate. In other words, create a competitive advantage.  1. Cost leadership strategy Key: efficiency How to create it? By perfecting processes and products in order to do things more efficiently than others, making products at the lower cost possible 2. Differentiation strategy Key: authenticity How to create it? By doing something no one else can do (unique), and doing it effectively, thereby making products for which consumers pay a premium price Companies tend to combine both strategies. Example: Zara, Volkswagen Problem: To be caught in the middle: short of optimizing production or differentiation ★ VIDEO: The real reason Temu can offer such low prices - Sep 2022, Boston/Shanghai - Prices are extremely cheap - They spend millions of dollars in marketing - PDD “Team price” - China’s work culture - Labor exploitation - How can temu be cheaper? - Amazon uses sea freight - Temu use air freight - They are losing money constantly, not making any profits - How can temu be cheaper? 1. “PDD got Temu’s back” 2. Product selection 3. Shipping rates 996: From 9 to 9, 6 days a week Companies tend to combine both strategies EX: Zara, Volkswagen Problem: to be caught in the middle short of optimizing production or differentiation ★ Value Chain Strategies How to organize business strategy? 1. Concentration: If a single market provides the lowest- cost, highest-productivity environment for all activities. Example: Codelco , McDonalds (They bring the whole supply chain to the local business) 2. Dispersion: If some activities cost less in country X, others cost less in country Y, and still others less in country Z. Example: Apple ★ Locations advantages and disadvantages 1. Liability (responsabilidad) of foreignness: the additional cost that an MNE operating outside its home country incurs above those experienced by a local firm En español:El costo adicional en que incurre una multinacional que opera fuera de su país de origen además de los costos de una empresa local. 2. Assets (bienes) of foreignness: the resources and competitive advantage an MNE has when operating outside its home country En español: Los recursos y ventaja competitiva que una multinacional obtiene por operar fuera de su país de origen. International corporate-level strategies Articulates how managers plan to reconcile global integration and local responsiveness that support the MNE’s vision and mission Defines how managers will integrate the MNE’s various parts into a strategic whole. Specifies the decision-making role the headquarters and subsidiaries take The dilemma is try to find the balance between: ★ Types of international strategies  ★ Motivations for Global Integrations or Local Responsiveness Class 7: Selection of countries and entry model ★ Choosing a country(ies) of operation If companies reach the sales maximum in one country, the new question is: Where to sell or produce? Decisions to be made: - Location of sales, production, and administrative and auxiliary services, such as R&D (research and development). - The sequence for entering in different countries (step by step). - The portion of resources and efforts to allocate to each country where they operate. ★ Marketing analysis procedure  1. Scanning (Superficial research) Answer a few questions with “yes or no” answers. Comparing statistics between countries (poverty, ghini, etc.) Indirect indicators Quality assessment Examples: - Does the country allow you to be 100% owner of direct investmetns? If the answer is no, what are my options? - What are the potential sales? - What is the level of taxes? - What will happen with the political leaders in the following years? 2. Detailed analysis - On site - visits. - Talking to experts. - Identifying opportunities and risks (SWOT analysis, FODA in spanish). Variables to consider Economic and demographic (studying customers, for example) Resource acquisition and cost considerations Infrastructure (positive effects: The more you have, the easier it is to make business) Foreign direct investment (FDI) positives effects - It will be easy to do trades with countries (in the long term we are talking about investments) - Marketing size (how much people) - Infrastructure Bad effect: corruption ★ Risks in foreign market entries Types of risks Political Foreign-exchange Natural disaster Differing consumer preferences Competitive risk (the one who enter the market first has an advantage, oligopolistic competition advantage of local companies) Existence of absence or suppliers (there’s a problem if the suppliers don’t have quality supplies) Analyzing risk (Grids and matrices) Help the company what countries are acceptable or not to do business with. Grids: depict acceptable or unacceptable country conditions, rank countries by important variables. - Pro: face overview factors that are important for the company and the country’s connection to it. - Con: Selection of indicators and their weighing is subjective (that’s because companies decided what are the most important factors). Matrices: Allow a company to make a more precise distinction in weighting and comparing variables. - Pro: Fast overview and comparison on a few countries. - Con: Momentum (Does not show the future).  ★ IB Entry Models - Companies have to choose how to enter to a foreign market (exportations, building a factory, etc) - Types of operating models define degree of engagement in foreign markets, ownership and collaboration. (exportations do not have the same connection to the market as being located in the country) - Can use several at once (not exclusive but can follow each other). Entry models can be classified according to: - Extent of investment and risk - Degree of ownership and control ★ Uppsala Model - Johanson & Vahlne (1977) presented a theory that suggests that the internationalization of business occurs in sequential steps. - Companies might go little by little (it’s not an obligation, you can jump from one another) * Greenfield: You build the factory from the “grown”  ★ OLI FRAMEWORK (Eclectic paradigm) OLI Framework (Ownership, Location and Internalization) is a theory in economics. It is a further development of the internalization theory and was published by John H. Dunning in 1979. For a company to do FDI needs to have three types of advantages. En español, ayuda a las empresas a analizar cómo deben entrar a otro(s) país(países). (o en caso de que el ownership no aplica, se mantengan en su país de origen). a. Ownership Advantage: Comparative advantage (intellectual property, patent, trademark,what makes your company unique).The greater the competitive advantages of the investing firms, the more they are likely to engage in their foreign production. Question: Does our firm have a certain competitive advantage that can be transferred abroad to offset our liability of foreignness? b. Location Advantage: refer to the alternative countries or regions, for undertaking the value adding activities of multinational enterprises (MNEs). The more the immobile, natural or created resources, which firms need to use jointly with their own competitive advantages, favor a presence in a foreign location, the more firms will choose to augment or exploit their specific advantages by engaging in FDI Question: Are any of these location advantages present in the market we are thinking of entering? Example: Codelco c. Internalization advantage (critical one): Internalization advantages signal whether an organization should produce a particular product by itself or contact a third party. What’s better: Doing the business by yourself or giving it to someone else (franchising)? Question: It is more attractive to perform the value chain activity in house than to have it performed by an external party?  ★ VIDEO: Tesla in Shanghai ➔ Ownership advantage: Sustainable business model and its focus on innovation. ➔ Location advantage: China is the world’s largest market for electric vehicles and Tesla's 2nd largest market after the U.S. ➔ Internalization advantage: If Tesla chooses to license or form a joint venture with a local auto company in China, it increases the risk of losing its intellectual property to other companies. ★ Entry mode strategies a. Exports and imports Produce in one country, selling in another country. Seller is the exporter, buyer the importer Motivations (Pros) Dynamic virtuous cycle Exporting improves productivity by innovation.Learning how to do things better and how to sell your products better next time Problems ➔ Taxes, logistics, transportations, languages or cultural barriers. ➔ Government regulations: many rules and regulations governing trade. Depending on product and service: payment of high fees to obtain maintain certification ➔ National market protection rules. For example: due to protect the domestic production, a country can rise the taxes ➔ Importers and exporters must have all shipments scanned by freight firms such as FedEx, TNT, Up or establish high security sites. ➔ Hiring and sending personnel abroad requires to comply with local laws (working hours, rights and duties of employees) Example: In Thailand, the Alien occupation act reserves architecture and engineering services jobs for Thai nationals only. ➔ Trade documentation Classifications, value declarations, duty management Paperwork tracks international trades Missing or inaccurate documents boost costs, disrupt schedules, or halt the transaction. Goods must match the importing country’s tariff classification b. Licensing Companies can obtain exclusive rights for use of intangible property: Patents, inventions, formulas, processes, designs, patterns Copyrights Trade marks, names, brand names Methods, programs, procedures, systems Licensor is obliged to give sufficient information and assistance, licensee is obliged to exploit the rights effectively and pay compensation to the licensor. Ex: Mickey mouse, Pepsi, Visa, National football league c. Franchising (specific type of license) Specialized form of licensing A distribution and marketing system that involves a legal agreement, whereby the franchisee conducts business according to the terms specified by the franchisor Product and service standardization, high identification through promotion, and effective cost controls Franchisor: Party that specifies methods and terms to be followed Franchisee: Entrepreneur  d. Strategic alliance Collaborative arrangements: Why? ➔ spread/reduce costs (disney theme park in HK) ➔ specialize in core competencies ➔ avoid competition (sony and samsung in LCD tech) ➔ secure vertical and horizontal links ➔ gain knowledge/learn (chinese companies buying in german factures) An arrangement between two companies to undertake a mutually beneficial project while each retains its independence Agreement is less complex and less binding than a JV, in which two businesses pool resources to create a separate business entity Relationships may be short- or long-term and the agreement may be formal or informal. Ex: renault-nissan e. Joint venture (FDI) Business created by two or more parties, characterized by shared ownership, returns, risks and governance (usually 50-50) Consortium Ex: LATAM and Delta Reasons of failure ➔ Relative importance to partners (shade due to power and resource distribution) ➔ Divergent objectives ➔ Control problems ➔ Comparative contributions and appropriations (uno se queda con la plata de algo que le otro hizo) ➔ Differences in culture f. Wholly owned foreign direct investment The more ownership, the more control has over decisions.  If equity shares are widely held, a company may be able to effectively control with even a minority interest. Governments often protect minority owners so that majority owners do not act against their interests Companies may opt for 100 percent ownership. Four primary explanations for companies to make a wholly owned Foreign Direct Investments (FDI): 1. market failure 2. internalization theory 3. appropriability theory 4. freedom to pursue global objectives Class 8: Organization, coordination, and control of the international firm Managers must decide HOW: To orchestrate the organization Employees get work done To coordinate activities spanning many markets To control difficult situations To create values that support a common cause To set up an organizational structure ★ Organizational coordination and control Three elements: 1. Structure to arrange workplace 2. System of coordination and control 3. Organizational culture “Structure follows strategy” Strategy-structure situation forces a cascade of decisions: - Degree of vertical differentiation (deciding who has what authority to make which decision) - Degree of horizontal differentiation (the task of specifying which people in which units do which jobs) Centralization vs. Decentralization  ★ Changing ways of organizing Historically - 21st century Hierarchical structures of command, control, constraint, and contract Manager decided tasks top-down “Lines and boxes” 21st century Demand for flatter hierarchies Bottom-up decision making Changing dynamics  ★ Types of organizational structure ★ Classical 1. Functional structure Arranged by business functions (i.e., production, marketing, finance) Efficiently arranging responsibilities and relationships for decision-making Limits: cross-functional knowledge exchange for decision-making; hierarchy and power struggles between functions limit collaboration Examples: ExxonMobil, Vale, Rio Tinto, Airbus,Boeing, Bombardier. 2. Divisional structure Division of structure according to product (e.g., soap, toothpaste, and cosmetics) or markets (e.g., North America, Europe, Africa, and Asia) Each division is responsible for its assigned products or markets 2.1 International division structure Domestic units supervise the home market, while the international division takes responsibility for the foreign sectors. Appropriate when international activities represent a small share of its total activity. Risks: Limited collaboration, or even conflict between domestic and international units. 2.2 Worldwide Product División Most widely used structure among MNE Division according to products. E.g. Gore’s structure sets four product divisions: electronics, fabrics, industrial, medical Risks: Missing communication among units, losing economies of scale, resource distribution among units by headquarters 2.3 Worldwide Area Division Used when sales are not dominated by a single country or region Division Alpha is responsible for region/country A, Division Beta takes region/country B, etc... Gives local managers more authority to adapt value activities Risks: Administrative inefficiency, each area division builds a “mini- me” operation 3. Global Matrix structure: “Unity-of-command principle” Institutes overlap among functional and divisional forms Horizontally differentiates the MNE along two dimensions (e.g., geography and product) Dual-reporting relationships rather than single line command Promotes cross-divisional communication and multifunctional collaboration Risks: dual hierarchy, power struggles for resources among units 3.1 Mixed Some MNEs combine features of functional, geographic, and product structures into a mixed structure  MNEs see no superior single organizational model given changing industry conditions, market trends, strategic capabilities, and company legacies Example: Nestlé organizes most of its food and beverage business in terms of geographies (Areas EMENA, Americas, and Asia/Oceania/ Africa) but runs some businesses globally (e.g., Nestlé Waters, Nestlé Nutrition, Nespresso) ★ Neoclassical structures 1. Network structure Arranges roles, relationships, responsibilities in a patterned flow of activity that allocates people and resources to decentralized projects Outsourcing of non-core competency activities “Do what you do best and outsource the rest.” Minimization of rules and regulations, specialized decision-making relationships based on long-term common interests, self-organizing and self-regulating teams in loosely connected networks Risks: Complexity, dependency on partners (pandemic!) Example: The Starbucks coffee chain is structured as a network of independently owned and operated stores, each of which licenses the Starbucks brand and sells its products. This allows Starbucks to scale rapidly while maintaining control over its stores' quality and customer experience. 2. Virtual organization Uses technologies to connect otherwise detached entities Work across space, time, and boundaries Instead of command and control, a virtual organization uses associations, agreements, and alliances. 3. Holacracy Counterpart to many bureaucratic and hierarchical forms of corporate governance Main principles: ➔ Team-based decision making and self-organization ➔ No formal authority and hierarchy anymore ➔ Based on systemic principles and self-determination ➔ Use of talents and strengths of people, according to their goals and needs ➔ Positive impact on the organization‘s environment and all stakeholders COORDINATION SYSTEMS MNEs develop coordination systems to link the people and processes that run its various ‘pieces. Ranges from nonexistent (each piece is independent) to comprehensive (all pieces are interdependent) a. Coordination by standardization Do the same thing, the same way, everywhere. b. Coordination by plan Plans regulate how units accept, adopt, and, where legitimate, adjust tactics Managers of interdependent units can mutually adjust goals and schedules, provided they reach targets Coordination by standardization helps MNE maximize operational efficiency while coordination by plan helps to optimize organizational effectiveness c. Coordination by mutual adjustment Relies on social networking outlooks and methods Promotes collaboration among coworkers Focus on collaboration and personal exchange of ideas Depending on formal roles, status, and power Examples: Renault-Nissan Mutual adjustment: This mechanism involves informal communication and collaboration among individuals or groups to align their actions and goals. For example: in a small team of software developers, everyone discusses their progress and dependency on each other to ensure that the final project is delivered on time. CONTROL SYSTEMS Methods and means of problem correction Control systems regulate executive efforts, resource allocation, and self-interest Complement coordination processes and structural designs Examples: ➔ Bureaucratic control (e.g. Six Sigma or TQM) ➔ Market control (e.g. By market share)  ➔ Clan control (e.g. By executives or family through organizational culture) ORGANIZATION CULTURE Embedded set of shared values and normative principle (that) guides actions and sanctions behaviors within the MNE A “coherent, consistent system of workplace norms and idealized values that describe the goals and endorse the practice shared by employees” Legitimates standards, endorses common beliefs about how the world works, and frames how workers make decisions, take actions, and sustain a common cause Embedded set of shared values and normative principle (that) guides actions and sanctions behaviors within the MNE A “coherent, consistent system of workplace norms and idealized values that describe the goals and endorse the practice shared by employees” (Daniels et al., 2019, p. 497) Legitimates standards, endorses common beliefs about how the world works, and frames how workers make decisions, take actions, and sustain a common cause ★ What is the importance of culture to a company? Improve recruitment efforts of workers consider a company’s culture before applying Improve employee retention stay in their job Improve brand identity Improve engagement-companies with a positive culture ★ 8 STEPS TO BUILT A HIGH-PERFORMING ORGANIZATIONAL CULTURE  ★ Google's 10 Core Values 1. Focus on the user and all else will follow. 2. It’s best to do one thing really, really well. 3. Fast is better than slow. 4. Democracy on the web works. 5. You don’t need to be at your desk to need an answer. 6. You can make money without doing evil. 7. There’s always more information out there. 8. The need for information crosses all borders. 9. You can be serious without a suit. 10. Great just isn’t good enough Class 9: Digital Platforms Digital platforms work differently than other type of organizations. Business environment are getting increasingly digital Existing companies shift their business activities from offline to online (Ex: Falabella) Types of digital platform Product markets (Temu, Alibaba) Traffic and maps (Google Maps)  Social media platforms Delivery (Uber eats) Service providers Definition of digital platforms ➔ Internet-based intermediaries that enable exchange and interaction between two or more market sides. ➔ Multi Sided markets considered software platforms or digital infrastructure made up of hardware (serves, cables) and software (code). Born digitals They were born digital Rely on the internet for its production, operating and delivery processes Transferwise Build and leverage digital infrastructure Can be physical (have offices) but it’s not its main characteristic They are highly scalable Case: Streaming platforms are doing bad Why? Netflix doesn’t have a large catalog because other platforms like Amazon, Hulu What's going on with streaming platforms? Some companies will buy each other to have large and better catalogs ★ Characteristics of (born) digital firms a. Direct engagement with stakeholder Direct and frequent contact with end users: quick insights from users and their feedback all over the world May rely on local stakeholders in the respective markets: Even tho some of this digital companies do not need a big amount of adaptation to do business in a new market, they need to do “little adaptations” like Ex: Udemy The Gig economy “Platform economy” Gig for “performance” “A labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs”  Instead of hiring an employee for fixed contract, services are easily bought when they are needed Loose contracts that can easily be dissolved Include values of freedom, agility, and flexibility b. Automation Use of computer technology for communication, networking, distribution and payment Because of the nature of technology there is lower communication and transaction costs Low impact if geographic separation Services can be connected and complementary through interfaces (Ex: Paypal integration in Amazon) Pro:some businesses need a review of what they provide and this can be easy through computers. (Ex: Airbnb and reviews where reputation rankings attract more customers to a specific home; trust building through reputation rankings) Con: How do you know if the opinion that someone is giving is real? c. Network effects Digital firms are characterized by direct and indirect network effects, between users, or between service providers and users (e.g. Instagram/Facebook) Quantity over quality: a digital platform attracts more people if there are more people (more possible interactions). Platforms must build a critical mass to be attractive. Direct (e.g. Instagram, Facebook) and indirect (e.g. Pinterest, ResearchGate) network effects The value platforms create for an individual user increases with the total number of users Direct: Social media Ex: Facebook, the more people that you have, the more will come. Indirect: Android, the more applications or games you have in the system, more people will buy a phone with an Android system. d. Flexibility Technological flexibility (different services can be easily integrated) in response to fast changes in the environment (“VUCA world“) VUCA = volatility, uncertainty, complexity and ambiguity Lower levels of investment in physical infrastructure Flexibly attract, employ and follow individuals regardless of their location  Generate data on user behavior and are thus more flexible to learn and adapt to changes (e.g. “machine learning“) Ex: Alibaba *allow for innovation, customization, and firm organization e. Scalability Platform firms are quickly able to leverage economies of scale in core business processes. ★ Blocks of building platforms ★ Internationalization of platform firms Traditional companies can use the UPPSALA MODEL but digital companies are different in terms of internationalization. UPPSALA MODEL OLI FRAMEWORK Tells you how to internationalize Tells you why are you internationalizing Ex: If you don’t have the ownership advantage, you have to remain domestic There’s an argument : Traditional frameworks like Uppsala model can not be apply to digital platforms WHY? a. Digital platform has less physical networking ➔ Networks are not as important as the platform owners can outsource their activities easily or rely on others. ➔ Hire senior leaders in local contexts to overcome liabilities of foreignness.  ➔ Networks are not as important as the platform owners can outsource their activities easily or rely on the gig economy b. Lower transaction costs ➔ Platform firms rely on digital assets, thus have lower transaction costs (data) than production companies (products and services) ➔ Trust mechanisms: online certifications, reputation ratings, payment verification: “digital trust” ➔ Amount of time and financial investment for managing operations is reduced which facilitates rapid internationalization c. Easier control ➔ Increasing digitalization allows firms to more easily control resources outside of their formal boundaries, and blur the line between external market and internal control (Cuervo-Cazurra, Mudambi, & Pedersen, 2018; Mudambi & Puck, 2016) ➔ Platform firms, in particular, are premised on coordinating external resources without internalizing them, as Uber has done with taxis and drivers ➔ Use of subsidiaries or “satellite offices” ➔ Control through digital communication channels (Coviello et al., 2017) d. Competition ➔ Fierce competition to obtain a “critical mass” in a new country: remember UBER in China! ➔ Platform firms are more prone to experience “winner-takes-all” phenomena, i.e., one competitor has the largest market share or user base (e.g. Facebook, Netflix, Uber) ➔ Cross-country platforms: winner takes it all (Android vs. Apple) ➔ Within-country platforms (e.g. delivery have multiple “regional champions”: Grubhub in the US, Ele.me in China, Lieferando and Lieferheld in Germany, Just Eat in the United Kingdom, PedidosYa and Rappi in Chile) ➔ Partnering (or JV) can be a solution, e.g. Paypal integration in Amazon Case: Temu is selling products below the costs because they need to grow and eliminate competitors. They are losing money but eventually they will increase the prices, expecting consumers buying in Temu regarding the prices. Lower risks of liability of foreignness? Platform firms rely less on experiential learning, but represent technological, physical and cognitive flexibility. ★ Do platform firms need to adapt to local markets? It depends on the platform! Stallkamp and Schotter (2019) differentiate between location-bound and non- location bound firm specific advantages (FSA) ➔ Location bound: are valuable only in a specific country or location  ➔ Non-location bound: are valuable across borders and can be easily transferred Depending on whether the FSA is location-bound, users can or cannot profit from the platforms’ indirect or direct networks They argue that cross-country network platforms (users benefit from a global user base) may internationalize with greater ease than platforms that are highly dependent on a within-country network platform Examples: a. Whatsapp - The more people use it, the more people will use it as well - Has direct network externalities cross country - I can talk with someone in Germany or here in Chile b. Meetup or Tinder - You want to meet someone in person so its focused on the country - The advantage is creating locally c. Just Eat and AirBnb - Indirect network externalities - I don’t need to talk to anybody EYE: Facebook moved: At first they only had people’s profile. Then they start to advertising Airbnb - The more options available, more people will use it. - It’s cross country because people travel from one country to another - If I stay in México I need a place to crash there.  ★ Culture is an issue in IB Some companies can provide standard services but in other cases adaptations are needed. Dealing with privacy and security Dealing with Intellectual property (Temu and its products) Cultural differences in rating and performance measures