Developing a Transnational Organization Managing integration, responsiveness, and flexibility

Global Strategy: Course Outline Session 1: Why and how do firms expand internationally? Session 2: How can firms manage conflicting environmental forces for global integration and local responsiveness? Session 3: What is a “transnational” strategy and how can firms develop layers of competitive advantage to develop such a strategy? Session 4: How can managers build and structure transnational organizations? Session 5: How can transnational firms create worldwide innovation & learning and exploit it as a competitive advantage? Session 6: How can firms implement “transnational” strategies?

Integration Responsiveness Framework: Evolving Strategic Perspectives High Global Transnational Global Integration International Multinational Low Low High National Responsiveness

Transnational Strategy: Goals and Means Three strategic objectives (goals): Efficiency Flexibility Learning Three ways to achieve the objectives (means): National differences Scale Scope

Building Global Efficiency Efficiency = value of outputs / value of inputs Achieved by increasing value of outputs or lowering cost of inputs (or doing both simultaneously – as in the case of transnational strategies) In global context Costs of inputs lowered through global integration (lower costs from scale and scope economies) Value of outputs increased through local responsiveness (higher revenues from more effective response to local market conditions)

Building Multinational Flexibility The ability to manage risks and exploit opportunities arising from the diversity and volatility of the global environment Understand and manage different forms of risk Scan and respond to discontinuities in global environment Select most attractive markets (i.e., for different value chain activities)

Building World-Wide Learning Capture external diversity Worldwide stimuli as potential source of competitive information advantage Need to convert “delivery pipelines” into “sensory feelers” Leverage internal variety Worldwide human resources and capabilities as potential sources of competitive advantage Opportunity to leverage central and local innovations Create true global innovation by linking sensing, response, and implementation capabilities Key issue: Need to develop a world-wide learning system; innovative capability as the emerging source of competitive advantage

Worldwide Advantage: Goals & Means Sources of Competitive Advantage National Differences Scale Economies Scope Economies Achieving efficiency in current operations Benefiting from differences in factor costs – wages and cost of capital Expanding and exploiting potential scale economies in each activity Sharing of investments and costs across markets and businesses Managing risks through multinational flexibility Managing different kinds of risks arising from market- or policy-induced changes in comparative advantages of different countries Balancing scale with strategic and operational flexibility Portfolio diversification of risks and creation of options and side bets Innovation, learning & adaptation Learning from societal differences in organizational and managerial processes and systems Benefiting from experience – cost reduction and innovation Shared learning across organizational components in different products, markets, or businesses

Four Strategic Orientations: Asset & Resource Configurations Multinational International Global Transnational Strategic Orientation (goals) Building flexibility to respond to national differences through strong, resourceful and entrepreneurial national operations Exploiting parent- company knowledge and capabilities through worldwide diffusion and some adaptation Building cost advantages through centralized, global-scale operations Developing global efficiency, flexibility, and worldwide learning capability simultaneously Configuration of assets and capabilities (means) Decentralized and nationally self-sufficient Core competencies centralized, others decentralized Centralized and globally scaled Dispersed, interdependent and specialized

The I/R Framework & the AAA Triangle What are the similarities between the I/R framework discussed in class and the AAA framework described in the “Managing Differences” article? What are the differences? What new insights does the AAA framework provide?

Worldwide Competitive Advantage: The Strategic Tasks Major global players > defend worldwide dominance Smaller regional companies > Challenge the global leader Purely domestic firms > Protect domestic niches

Defend Worldwide Dominance: Balancing Act Required Competitive environment forced firms to develop new capabilities But this was problematic and eroded core competency New balancing act required: Reinforce existing competencies and develop new assets and capabilities Compensate for deficiency or approximate competitor’s source of advantage

Challenge the Global Leader: Step-by-Step Approach Firms with low-profile foothold have dominated industries, e.g. Dell, Magna, Electrolux, AB-InBev Focus on developing strong competence in a narrow niche Careful expansion along both product and geographic dimensions; step-by-step

Protect Domestic Niches: Three Courses of Action Defend against competitor’s global advantage (e.g. influence industry structure or market conditions) Offset competitor’s global advantage (e.g. lobby for government tariff assistance) Approximate competitor’s global advantage

Pressures for Integration/Responsiveness High Medium Low Globalization Pressures: Homogeneous customer needs Global buyers Investment intensity Global competitors Economies of scale/scope Localization Pressures: Trade barriers Differences in technical standards Unique distribution channels Cultural differences (that impact product use) Strong local/national competitors

The Global Branding of Stella Artois: Key lessons Illustrates how historically “multinational” industries can become more “transnational” Changes in the external environment Change agents (i.e., competitors) within the industry Demonstrates how MNEs may simultaneously pursue competing strategic objectives (efficiency, flexibility, learning; aggregation, adaptation, arbitrage) Shows how a company with historical strengths in one area (local adaptation) can to build competencies in others (global efficiency) Demonstrates how to build layers of competitive advantage over time

Case update: The World’s Largest Brewers