- Home Assignment - Number of Words: Copenhagen, 28 th May 2013

Transcription

1 Copenhagen Business School International Business and Politics (BSc) International Business Strategy - Home Assignment - Number of Words: 1533 Copenhagen, 28 th May 2013

2 Introduction (Max) The international business landscape is permanently changing. Markets for goods and services are subject to the exit and entry of competitors, alterations of political regulation and other forms of economic developments. United Cereal (UC) is an US- American multinational corporation (MNC), founded in 1910, with roots in the breakfast cereals industry and a diversified product portfolio in branded grocery products, worth 9bn US$ in annual global turnover; a strong player on the European market for breakfast cereals with an overall market share of 20%, second only to Kellog s with 26%, and numerous local subsidiaries apart from its London- based regional headquarter. UC is currently facing increased cost pressures resulting from a higher price sensibility of customers after the recent (and partly enduring) economic crisis. UC s European vice president, Lora Brill, is therefore re- considering the firm s European product strategy towards improved regional integration efforts. A proposal from the French subsidiary to launch a newly developed cereals product, named Healthy Berry Crunch, provides the opportunity to potentially test- run her revised Eurobrand strategy and indeed launch the product Europe- wide. This essay will briefly analyze and discuss UC s possibilities to align its overarching business strategy in accordance with this possible launch, and more specifically seeks to answer How can UC optimize its organisational structure to meet increased cost pressures on its operations? It will do so by assessing the firm s current setup using Lehrer and Asakawa s analytical framework (1999), to then consider possible alterations to UC s organizational structure using Bartlett & Ghoshal s extension (1988) on the contingency perspective, discuss the models used in the practical context given and conclude on implications towards Lora Brill s best- feasible option in the light of her and UC s situation. Analysis: Coordinating integration and responsiveness pressures at UC In following, this essay will identify UC s current organizational setup with a starting point in Prahalad & Doz s basic contingency model (1987), mapping out the relationship between its European subsidiaries and corporate headquarters to then adjust it for the regional level of operations by incorporating the regional headquarter into the model in

3 line with Lehrer and Asakawa s alteration of the framework employed. Consequently, it will analyze potential changes in UC s regional structure to match the new strategy envisaged. > The current setup (Nicholas) In short, the contingency model plots specifically the role of a given subsidiary along two variables: The pressure to maintain its local Responsiveness versus the pressure to Integrate globally short: The I- R framework. The former mainly relates to the need of catering specific local tastes, accommodate differences in distribution channels and responding to other specifics of the local market highly applicable in the case of UCs European local branches with varying breakfast preferences, competitors and market conditions. The pressure to integrate globally, on the contrary, mainly reflects the need to embrace economies of scale on the company s operational level in the case of UC increasingly to cut the costs of Sales, Generals and Administrative by using synergies in coordinated marketing efforts and match an increased pressure on its margins as described above. With the firm s subsidiaries operating as Mini- UCs, the pressure for local responsiveness so far has by far outweighed the needs for integration although the vertical integration along certain product lines has been fairly strong in reflection of UC s core values. This model, however, is missing a part of the picture. To accommodate for the increasing importance of regional particularities especially the advancement of the European Union s political and economic integration, as relevant for the UC case given an increasing focus in the scholarship on International Business has been put on regional management levels. Lehrer & Asakawa therefore have adapted the I- R Framework on the same premises (see figure 2), simply allowing for the display of a regional office role and splitting the plot in two parts: Each one plotting the regional office s role against the global headquarter and the local subsidiaries, reflecting the basic role as a mediator in the organizational structure: Allowing for regional integration and including regional firm- specific advantages (FSAs as per Rugman & Verbeke, 2004), while mitigating the possibly conflicting pressures between global headquarter and local subsidiary.

4 This framework allows for further analysis of UC s situation: With the current level of local autonomy, the vast majority of business operations of each subsidiary conducted at its own level and no dominant role for neither regional nor global headquarters, UC can clearly be categorized as a Multidomestic MNC, in line with industry standard of processed food corporations (and their environments, see Gaerber 2013). > Making a new strategy work by matching the organizational structure (Max) The recent economic crisis has negatively affected the income of households in Europe, putting downward pressure on retail prices in the cereals market and with it, corporate profit margins. To sustain its profitability, UC therefore has to improve its cost base. The most obvious way to go is by reducing operational costs through increased levels of regional integration of its marketing activities, with potential savings of 10-15%. An apparent divergence in consumer tastes makes Laura Brill hence pursue a regional branding strategy, with a coordinated product launch in several countries. This implies a shift from local to regional responsiveness, with an (arguably) sustained low level of global integration so that normally a boost the regional headquarters administrative responsibilities would be expected.

5 However, observations made by Lehrer & Asakawa suggest another possibility, much in line with a proposal made by Barlett & Ghoshal who - as well - built on Prahalad and Doz s contigency model; instead of leaving additional responsibilities with a too- static corporate headquarters 1 they see great potential in mitigating the conflict between global integration and national responsiveness through a more flexible value chain. This is achieved by incorporating a third dimension into the structural plot discussed earlier: The need for worldwide learning and two- way innovation, building a transnational strategy. The scholars describe it as an integrated network, aligning corporate goals and creating inter- unit linkages. The ideas, in fact, align neatly with the existing European Technical Teams at UC s European R&D division; whose structure shall be taken as blueprints for the Eurobrand Teams to accompany the respective launch discussed here. The only missing link in this particular analysis is the incorporation of the regional perspective. In this instance, Rugman & Verbeke s empirical study (2004) provide useful insight in the context of real- life examples re- inforcing the argument of the importance 1 The regional level shall be ignored for the time being and will be taken into perspective shortly

6 of regional management level; the less static, the better. Due to limitation in length of this essay, the details will not be discussed in more detail. Nonetheless, this approach is fairly complex and proves as a considerable challenge to the various actors in the MNC. The practical implications for the UC case will therefore be discussed in the following section. Putting the pieces together: Going ahead with Healthy Berry Crunch? (Max) It s questionable whether the complexity of installing a transnational strategy can be managed from the regional management level, under the responsibility of Brill alone. Given the high demands to the newly formed teams projected under this proposal, aligned expectations across the organization involved are paramount. Arguably, this alignment is not given at this point in time with serious reservations both on the subsidiary and global headquarter level regarding the Eurobrand project. Conclusion (Nicholas) This essay has sought to analyze and discuss the current organizational setup of UC, building on Prahalad and Doz s framework clearly identifying it as a Multidomestic MNC according to the augmented model by Lehrer and Asakawa, with strong autonomy of European subsidiaries allowing for considerable responsiveness. A stronger pressure to integrate regionally, hence, has to translate into a change in the regional organizational structure in accordance with the models used. Eventually, pursuing a transnational strategy seems to most viable option building on Barlett & Ghoshal s extension of the contingency model as the basis models used in the analysis of this essay. Given the complexity of this strategy and the lack of an organizational consensus on this matter, launching a regionally coordinated product at this point in whatever form seems to be a risky undertaking. However, with a timely preparation and the support from all necessary stakeholders the proposed regional integration, going hand- in- hand with a re- structuring of the working teams similar to the proposal should be the way to go.

7 List of References Barlett, C.A. and Ghoshal, S. (1988). Organizing for Worldwide Effectiveness: The Transnational Solution. Global Business Strategy Gaerber, Lisa K. (2013) Session 8: MNC Strategies in a Global Context. Powerpoint slides for IBS Course at the IBP program, Copenhagen Business School. Lehrer, M. and Asakawa, K. (1999) Unbundling European Opearations: Regional Management and Coporate Flexibility in American and Japanese MNCs. Journal of World Business 34 (3) Prahalad, C.K. and Yves Doz (1987). The Multinational Mission: Balancing Local Demands and Global Vision. New York: Free Press. Rugman, A. and Verbeke, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies 35, 3-18