T5_ Strategy and Organization of the Multinational Company (MNC) PDF

SECTION 3 Unit 5: Strategy and Organization of the Multinational Company (MNC) Internationalization of Businesses: Management and Strategies (EUS) Maite Ugalde Enríquez 2 Contents 1. Local vs. Global pressures 2. Alternative strategi...

SECTION 3 Unit 5: Strategy and Organization of the Multinational Company (MNC) Internationalization of Businesses: Management and Strategies (EUS) Maite Ugalde Enríquez 2 Contents 1. Local vs. Global pressures 2. Alternative strategic frameworks to internationalization 3. Organizational structures at an international level 4. Coordination and control mechanisms in a Multinational Company *Images in these slides have been downloaded from the internet for teaching purposes. They are property of third parties. 3 Contents 1. Local vs. Global pressures 2. Alternative strategic frameworks to internationalization 3. Organizational structures at an international level 4. Coordination and control mechanisms in a Multinational Company 4 Local vs. Global pressures Once the company has been already internationalized, how does it organize and structure its international activity? 5 Local vs. Global pressures Once the company has been already internationalized, how does it organize and structure its international activity? Homogenization of policies Dispersion of Activities Concentration of Resources Adaptation to Local Markets 6 Local vs. Global pressures Elements that act as globalizing (integrating) and fragmenting forces in the international strategy (causes) 1. Technical conditions of the Integration Fragmenting pressures activity pressures Economies of scale / of scope High Low Comparative advantage (countries) High Low Rhythm of Obsolescence High Low Logistics costs Low High Requirements from local governments Low High Assets in the territory Low High 7 Local vs. Global pressures Elements that act as globalizing (integrating) and fragmenting forces in the international strategy (consequences) 2. Competitive conditions of the Integration Fragmenting industry pressures pressures Needs and tastes of the consumers Homogenous Heterogenous Types of clients (and products) Multinationals Locals Types of competitors Multinationals Locals Price/ Global image Personalization/ local image Source of the competitive advantage (standardization) (adaptation) Structure of the distribution network Homogenous Heterogenous Existence of substitutive products and Low High the need to adapt 8 Local vs. Global pressures (Prahalad y Doz, 1987) “Once the two sets of pressures have been analyzed, we introduce international integration of activities and local sensitivity as the response that the company adopts separately to confront the two forces and coordination as the instrument to simultaneously combine integration and sensitivity.” 9 Contents 1. Local vs. Global pressures 2. Alternative strategic frameworks to internationalization 3. Organizational structures at an international level 4. Coordination and control mechanisms in a Multinational Company 10 Alternative strategic frameworks to internationalization Strategic focus of the international company 11 Alternative strategic frameworks to internationalization Multidomestic multinational - Polycentric 12 Alternative strategic frameworks to internationalization Multidomestic multinational - Polycentric Companies perceiving intensive local pressure ○ Sensitivity to local needs Strategy country by country ○ Adapting products to each country Decentralized structure Duplicity of activities between countries Scarce communication among unities 13 Alternative strategic frameworks to internationalization Multidomestic multinational - Polycentric Key features: ○ Strategies per country-market ○ Decision making is decentralised ○ Maximize benefits of meeting local market needs through extensive customisation ○ Local businesses are treated as separate business Examples: https://empresa.nestle.es/es/marcas/cereales vs. https://www.nestle.fr/nosmarques/cereales 14 Alternative strategic frameworks to internationalization Global multinational - Ethnocentric 15 Alternative strategic frameworks to internationalization Global multinational - Ethnocentric Companies perceive intensely the globalizing pressure Understanding each market as one market ○ Homogenous products Centralization at the headquarters → assets, resources and key responsibilities Commercial subsidiaries or specialized at an operational level Key features: ○ Highly centralized ○ Focused on efficiency and economies of scale ○ Little sharing of expertise (locally) 16 Alternative strategic frameworks to internationalization Transnational company 17 Alternative strategic frameworks to internationalization Transnational company Companies that simultaneously perceive globalising and localising pressures ○ Global integration and local sensitivity / responsiveness Interdependency between disperse units and international working teams Knowledge generation anywhere within the MNC Intense knowledge, information and products flows among subsidiaries Different profiles 18 Alternative strategic frameworks to internationalization Transnational company Key features: ○ Complex structures organization wise (by product categories and geographic approach) ○ Complex to achieve objectives to maximise local responsiveness but also gain benefits from global integration (economies of scale) ○ Wide sharing of expertise (technology, staff, etc.) 19 Contents 1. Local vs. Global pressures 2. Alternative strategic frameworks to internationalization 3. Organizational structures at an international level 4. Coordination and control mechanisms in a Multinational Company 20 Organizational structures - International level Functional structure (U form) with an export department Charts and functional structures describe how is the MNC approaching internationalization, decision making and accountability (hierarchy) as well as information flows 21 Organizational structures - International level Functional structure (U form) with an export department Once the export function has been introduced into the structure, it is accountable in front of the GM ○ The export department is 100% dependent of the GM is due to the fact that it is a new business unit ○ Additional subsidiaries will depend on the Export department as the international activities grow → Relationship headquarters-subsidiary has been created; this is also called as a “mother-son” structure Holding or headquarters are the mother company; the subsidiary is the “son” company 22 Organizational structures - International level Holding (Headquarters) - Subsidiary structure 23 Organizational structures - International level Holding (Headquarters) - Subsidiary structure Within a subsidiary structure the “mother-son” hierarchy is very clear ○ Each additional international market that is added to the operations, implies the incorporation of a new subsidiary GM is able to know the results of each market in order to assess trends and performance results However, it does not provide clarity to the GM on which products or business units are the most profitable ○ Business units are mixed up and there is not clarity for decision making 24 Organizational structures - International level Multidivisional o M-form structure 25 Organizational structures - International level Multidivisional o M-form structure M-form structure can be divided based on geographies/ markets, product categories or brands. ○ Each of these would be a business unit This structure makes it easier for operations to be accountable for specific and clear priorities markets/brands or products ○ Clarity on the results and performance of each business unit It allows the headquarters/ corporate services to focus on support tasks (human resources, finance, legal, etc.) as well as strategy and planning 26 Organizational structures - International level Global division per product in a M-form structure 27 Organizational structures - International level Global division per product in a M-form structure Based on the so called M form, however as it has a global approach, each product team includes domestic and international operations ○ International and domestic operations and results should be similar in terms of relevant or weight The basis of this division and of each business units are product or product categories (they could also be brands) Advantages: global approach and economies of scale in R&D, marketing, operations, among others 28 Organizational structures - International level Global division per geographic area in a M form structure 29 Organizational structures - International level Global division per geographic area in a M form structure Equivalent approach as per product (requires certain turnover or profit volumes) Advantages: ○ Each business unit is a profit centre focused on performance and results, easy for corporate services and GM to follow ○ Quick decision making: agile communication and coordination Disadvantages ○ Some functions might be done twice in each division duplicities; higher expenses and loss of synergies (labour, procurement purchase wise) ○ Requires a global strategy and alignment among executives to understand market as a whole, otherwise international and domestic operations will suffer 30 Organizational structures - International level Matrix structure 31 Organizational structures - International level Matrix structure Combines 2 dimensions: products and geographies ○ This structure breaks with the 1 person responsible or accountable for the performance ○ Diverse and separate authorities Advantages in terms of communications and coordination and agility in decision making It is an interesting academic approach but it is difficult to implement successfully: ○ Reporting to 2 different bosses is difficult 32 Organizational structures - International level Chandler (1962) → “The structure follows the strategy and divisions are a consequence of the strategy’s breakdown” 33  34 Source: http://imba.tjufe.edu.cn/__local/E/FF/41/0768DE2F22A3FF59F3BD86E8D7C_09CFBC16_8A3D8.pdf?e=.pdf Organizational structures - International level More Examples - Org. Charts How Apple Is Organized for Innovation: The Leadership Model 35 Contents 1. Local vs. Global pressures 2. Alternative strategic frameworks to internationalization 3. Organizational structures at an international level 4. Coordination and control mechanisms in a Multinational Company 36 Coordination mechanisms in a Multinational Company Centralization: division of the authority Where and at what level are decisions taken (decisions regarding strategy of the subsidiary) Is there a strong hierarchy within the company? Dependency of the subsidiary regarding other subsidiaries and business units ○ Relevant factor to decide yes or no to centralization Degree of experience of the subsidiary ○ Relevant factor to decide yes or no to centralization Strategic Planning 37 Coordination mechanisms in a Multinational Company Formalization: rules and processes Internal and external compliance GOAL → guide actions and reduce ambiguity, especially for subsidiaries that are more distanced from HQ Standardization and processes ○ Example: business expenses, time sheets, etc. 38 Coordination mechanisms in a Multinational Company Socialization: behaviours Companies aim to achieve their employees behave in “the same way” or with similar behaviours, as they all shared the same personality Focused on identifying employees with the company’s mindset allows the company to decentralize authority and adapt to local needs Requires time and low employee rotation Cultural interviews 39 Control mechanisms in a Multinational Company Controlling behaviours ○ Developed by expatriates being sent overseas to “control” subsidiaries or deployed by regular visits form HQ employees/executives Controlling results ○ Feedback and appraisals: every 6 12 months, based on goals achievements; yet it requires Setting goals to each professional category Comparing performance planned vs achieved Analysis of the improvements to achieve “full performance” ○ Usual in multinational companies where the behaviour is difficult and highly costly to control Is The Golden Age Of Remote Work Over? 40