Entering the Global Arena Motivations for Global Expansion

Transcription

1 Entering the Global Arena -The world is becoming a unified global field; today s companies must think global or get left behind -Extraordinary advancements in communications, technology, and transportation have created a new, highly competitive landscape -Products can be made and sold anywhere in the world -No company is isolated from global influence Motivations for Global Expansion -Economic, technological, and competitive forces have combined to push many companies from a domestic to a global focus -In some industries, being successful now means succeeding on a global scale Economies of Scale -Building a global presence expands an organization s scale of operations, enabling it to realize economies of scale -Economies of scale also enable companies to obtain volume discounts from suppliers, lowering the organization s cost of production Economies of Scope -Scope refers to the number and variety of products and services a company offers, as well as the number and variety of regions, countries, and markets it serves -Having a presence in multiple countries provides marketing power and synergy compared to the same size firm that has present in fewer countries Low-Cost Production Factors -Obtain raw materials and other resources at the lowest possible cost -Many companies also turn to other countries as a source of cheap labour -Other organizations have gone international in search of lower costs of capital, sources of cheap energy, reduced government restrictions, or other factors than lower the company s total production costs -Companies can locate facilities wherever it makes the most economic sense in terms of needed employee education and skill levels, labour and raw materials costs, and other production factors Stages of International Development -Managers have to consciously adopt a strategy for global development and growth -Four stages of international evolution: Domestic, International, Multinational, Global -Domestic stage the first stage of international development in which a company is domestically oriented while managers are aware of the global environment -International stage the second stage of international development, in which the company takes exports seriously and begins to think multidomestically -Multidomestic company that deals with competitive issues in each country independent of other countries -Multinational stage the stage of international development in which a company has marketing and production facilities in many countries and more than one-third of its sales outside its home country -Global stage the stage of international development in which the company transcends any one country Global Expansion through International Strategic Alliances -One of the most popular ways companies get involved in international operations is through international strategic alliances -Typical alliances include licensing, joint ventures, and consortia

2 -Joint venture separate entity created with two or more active firms as sponsors -Companies often seek joint ventures to take advantage of a partner s knowledge of local markets, achieve production cost savings through economies of scale, share complementary technological strengths, or distribute new products and services through another country s distribution channels -Another increasingly popular approach is for companies to become involved in consortia, groups of independent companies including suppliers, customers, and even competitors that join together to share skills, resources, costs, and access to one another s markets -A type of consortium, the global virtual organization, is increasingly being used and offers a promising approach to meeting worldwide competition -A company may be involved in multiple alliances at any one time Designing Structure to Fit Global Strategy Model for Global vs. Local Opportunities -When organizations venture into the international domain, managers strive to formulate a coherent global strategy that will provide synergy among worldwide operations for the purpose of achieving common organizational goals -The globalization strategy means that product design, manufacturing, and marketing strategy are standardized throughout the world -Other companies in recent years have also begun shifting away from a strict globalization strategy economic and social changes, including a backlash against huge global corporations, have prompted customers to be less interested in global brands and more in favour of products that have a local feel -A multidomestic strategy means that competition in each country is handled independently of competition in other countries -Thus, a multidomestic strategy would encourage product design, assembly, and marketing tailored to the specific needs of each country -Companies can be characterized by whether their product and service lines have potential for globalization, which means advantages through worldwide standardization -Some companies have products and services appropriate for a multidomestic strategy, which means local-country advantages through differentiation and customization to meet local needs -In many instances, companies will need to respond to both global and local opportunities simultaneously, in which case the global matrix structure can be used International Division -The international division of a company is divided according to geographical interests -The international division has its own hierarchy to handle business in various countries, selling the products and services created by the domestic divisions, opening subsidiary plants, and in general moving the organization into more sophisticated international operations -Firms typically start with an international department and, depending on their strategy, later use product or geographical division structures Global Product Structure -In a global product structure, the product divisions take responsibility for global operations in their specific product areas -One of the most commonly used structures through which managers attempt to achieve global goals because it provides a fairly straightforward way to effectively manage a variety of businesses and products around the world -Managers in each product division can focus on organizing international operations as they see fit and directing employees energy toward their own division s unique set of global problems or opportunities -Each division s manager is responsible for planning, organizing, and controlling all functions for the production and distribution of its products for any market around the world

3 -Works best when the company has opportunities for worldwide production and sale of standard products for all markets Global Geographical Structure -Divides the world into geographical regions, with each geographical division reporting to the CEO -Each division has full control of functional activities within its geographical area -Ex. Local managers have the authority to tinker with a product s flavouring -Companies that use this type of structure have typically been those with mature product lines and stable technologies -Many manufacturing firms are emphasizing the ability to customer their products to meet specific needs, which requires a greater emphasis on local and regional responsiveness -All organizations are compelled by current environmental and competitive challenges to develop closer relationships with customers, which may lead companies to shift from productbased to geographical-based structures Global Matrix Structure -Works best when pressure for decision making balances the interests of both product standardization and geographical localization -Many international firms apply this in which two or more different structures or elements of different structures are used Building Global Capabilities -Managers taking their companies international face a tremendous challenge in how to capitalize on the incredible opportunities that global expansion present The Global Organizational Challenge -Organizations have to accept an extremely high level of environmental complexity in the international domain and address the many differences that occur among countries -Environmental complexity an country variations require greater organizational differentiation -Organizations must find ways to effectively achieve coordination and collaboration among farflung units and facilitate the development and transfer of organizational knowledge and innovation for global learning Increased Complexity and Differentiation -Companies have to create a structure to operate in numerous countries that differ in economic development, language, political systems and government regulation, cultural norms and values, and infrastructure such as transportation and communication facilities -A growing number of global consumers are rejecting the notion of homogenized products and services, calling for greater response to local preferences -As environments become more complex and uncertain, organizations grow more highly differentiated, with many specialized positions and departments to cope with specific sectors in the environment Need for Integration -As organizations become more differentiated, with multiple products, divisions, departments, and positions scattered across numerous countries managers face a tremendous integration challenge -Integration refers to the quality of collaboration and collaboration that is necessary for a global organization to reap the benefits of economies of scale, economies of scope, and labour and production cost efficiencies that international expansion offers -High differentiation among departments requires that more time and resources be devoted to achieving coordination because employees attitudes, goals,, and work orientations differ widely

4 Transfer of Knowledge and Innovation -Organizations need to learn from their international experiences by sharing knowledge and innovations across the enterprise -The diversity of the international environment offers extraordinary opportunities for learning and the development of diverse capabilities -Organizational units in each location acquire the skills and knowledge to meet environmental challenges that arise in that particular locale -Most organizations tap only a fraction of the potential that is available from the cross-border transfer of knowledge and innovation Global Coordination Mechanisms -Managers meet the global challenge of coordination and transferring knowledge and innovation across highly differentiated units in a variety of ways Global Teams -Global teams are cross-border work groups made up of multiskilled, multinational members whose activities span multiple countries -Teams are of two types: -Intercultural teams members come from different countries and meet face-to-face -Virtual global teams members remain in separate locations around the world and conduct their work electronically -Global teams help companies address the differentiation challenge, enabling them to be more locally responsive by providing knowledge to meet the needs of different regional markets, consumer preferences, and political and legal systems -Teams provide integration benefits, helping organizations achieve global efficiencies by developing regional or worldwide cost advantages and standardizing designs and operations across countries -These teams contribute to continuous organizational learning, knowledge transfer, and adaptation on a global level Stronger Headquarters Planning -Headquarters needs to take an active role in planning, scheduling, and control to keep the widely distributed pieces of the global organization working together and moving in the same direction -Plans, schedules, and formal rules and procedures can help ensure greater communication among divisions and with headquarters, and foster cooperation and synergy among far-flung units to achieve the organization s goals in a cost efficient way Specific Coordination Roles -Creating specific organizational roles or positions for coordination is a way to integrate all the pieces of the enterprise to achieve a strong competitive position -Some organizations create formal network coordinator positions to coordinate information and activities related to key customer accounts -International companies today have a hard time staying competitive without strong interunit coordination and collaboration -Benefits that result from interunit collaboration include the following: -Cost savings -Better decision making -Greater revenues -Increased innovation Cultural Differences in Coordination and Control -Management values and organizational norms of international companies tend to vary depending on the organization s home country -Organizational norms and values are influenced by the values in the larger national culture, and these in turn influence the organization s structural approach and the ways managers

5 coordinate and control an international firm National Value System -Hofstede said that cultural differences can be identified using five dimensions, with two being important in this course: -Power distance -Uncertainty avoidance -GLOBE Project s Nine Cultural Dimensions: GLOBE Dimensions Power distance Gender egalitarianism Uncertainty avoidance Collectivism 1 (institutional collectivism) Collectivism 2 (in-group collectivism) Future orientation Assertiveness Performance orientation Humane orientation Characteristics Extent to which a society expects power to be distributed equally Degree to which society discourages gender role differences and inequality Extent to which society relies on rules, procedures, and policies to minimize ambiguity and unpredictability of the future Degree to which a society encourages and rewards collective action and resource distribution Extent to which members express pride and cohesiveness in their relations with others Extent to which members engage in such behaviours as planning for and investing in the future Extent to which members are confrontational toward each other Extent to which a society rewards individuals for innovation Extent to which a society encourages altruism and caring for others Three National Approaches to Coordination and Control Centralized Coordination in Japanese Companies -Japanese companies have typically developed coordination mechanisms that rely on centralization -Top managers at headquarters actively direct and control overseas operations, whose primary focus is to implement strategies handed down from headquarters -This approach allows companies to leverage the knowledge and resources located at the corporate centre, attain global efficiencies, and coordinate across units to obtain synergies and avoid turf battles -Strong linkages are used to ensure that managers at headquarters remain up-to-date and fully involved in all strategic decisions -As the organization grows, headquarters can become overloaded and decision making slows -The quality of decisions may also suffer as greater diversity and complexity make it difficult for headquarters to understand and respond to local needs in each region European Firms Decentralized Approach -International units tend to have a high level of independence and decision-making autonomy -Companies rely on a strong mission, shared values, and informal personal relationships for coordination North America: Coordination and Control through Formalization -These organizations have delegated responsibility to international divisions, yet retained overall

6 control of the enterprise through the use of sophisticated management control systems and the development of specialist headquarters staff -Decision making is based on objective data, policies, and procedures which provides for many operating efficiencies and reduces conflict among divisions and between divisions and headquarters The Transnational Model of Organization -Rather than building capabilities primarily in one area, such as global efficiency, national responsiveness, or global learning, the transnational model seeks to achieve all three simultaneously -Creates an integrated network of individual operations that are linked together to achieve the multidimensional goals of the overall organization -Management philosophy is based on interdependence -It is a managerial state of mind, a set of values, a shared desire to make a worldwide learning system work, and an idealized structure for effectively managing such a system -Characteristics are as follows: 1. Assets and resources are dispersed worldwide into highly specialized operations that are linked together through interdependent relationships 2. Structures are flexible and ever-changing 3. Subsidiary managers initiate strategy and innovations that become strategy for the corporation as a whole 4. Unification and coordination are achieved primarily through organizational culture, shared visions and values, and management style, rather than though formal structures and systems -These characteristics facilitate strong coordination, organizational learning, and knowledge sharing on a broad global scale