Welcome to class of Impact of Globalization on Organization of Firm’s Activities Dr. Satyendra Singh Professor, Marketing and International Business University of Winnipeg Canada s.singh@uwinnipeg.ca http://abem.uwinnipeg.ca www.abem.ca/conference

What does it mean?

Why now? Old business model is not competitive ↓ Trade barrier ↑ Trust b/w governments ↑ FDI permitted ↑ Democracy ↑ Emerging markets ↑ Education ↑ Travel ↑ Technology .

So, Strategic Mindset is Needed Activities Research and Development (R&D) Production Marketing Services Configured and Coordinated ↑ Sustainable Competitive Advantage (SCA) across countries Strategic That is, we need strategies

This is not a Strategy

The Strategies

Strategy and Structure Sustainable Competitive Advantage Efficiency and Responsiveness Structure International Division Structure Area Division Structure Global Product Division Transnational (Hybrid) Structure Seamless Organization  team and Internet Reducing internal and external barrier

International Division Structure… CEO VP Product A VP Product B VP Product C VP International Domestic Market Domestic Market Domestic Market International Market Evolves from export department Shipping across borders When successful, add Int’l division More % of sales coming from overseas

International Division Structure Except sales, all activities are centered at HO Advantages Oversee export and foreign investment Building and cultivating foreign business ↑ Because of dedicated international division HO gives much support and attention to sales Share learning across product division No duplication of activities Easy to negotiate abroad with governments, suppliers, retailers… Because of size of company

Area Division Structure… VP International General Manager (Far East) General Manager (Europe) General Manager (Latin America) Country Manager (Germany) Country Manager (France) Country Manager (Italy, etc.) When International sales grow as a % of total company sales Success of intl div leads to area div

Area Division Structure… Advantages ↑ Efficiency due to globalization ↑ Effectiveness ↑ Local responsiveness ↑ Communication efficiency ↑ Improved employee morale ↑ Faster delivery ↓ Reduced bureaucracy ↓ Small inventory

Area Division Structure… Strategic decision (↑ responsiveness) Activities are dispersed or duplicated GM has assembly plant in each regional market Product development, purchasing, marketing, sales are regionally coordinated HO decides which brand to sell, manufacture or market in regions -- Kellogg However, Regional or Country manager has autonomy and discretionary power over Marketing, pricing, production, sourcing To meet the needs of region/country GM, IBM, Philips

Multidomestic Affiliate Structure…

Multidomestic Affiliate Structure… More power to CM acts as parent CEO CM reports to RM Manages HO product lines But has considerable leeway in making production, marketing, service decisions Affiliate/country is smaller version of parent Performance is based on profit-centre criteria

Multidomestic Affiliate Structure… Advantages Disperse activities Control through local decision making HO managers do not need to Travel much Worry about local issues Keep abreast with foreign markets, customers Develop global managers  hire local CM ↓ Management Turnover

Multidomestic Affiliate Structure Disadvantages Does not do R & D Transfer technology and adapt it Does not export  does not bring $ Not competitive because they produce multiple products in small volume – efficiency is low Production cost is higher than parent Communication between Home and affiliate product division is more complex HO does not learn from Affiliates When self-sufficient, CM challenges RM Dysfunctional behavior and moral problem

Global Product Divisions…

Global Product Divisions… CEO VP Product A Worldwide VP Product B Worldwide VP Product C Worldwide ---R&D ---Production ---Marketing ---Accounting ---Service ---R&D ---Production ---Marketing ---Accounting ---Service ---R&D ---Production ---Marketing ---Accounting ---Service Evolves from diversity of products

Global Product Divisions…

Global Product Divisions… Activities are controlled - product group HO managers run affiliate – 3/5 yr term Specialization and global mindset is needed Affiliates do not have much autonomy Thus, play no independent strategic role HO makes decision about products Input from affiliates is discouraged Because products are globally standardized Role of affiliate is to implement strategy, and not to formulate it  Thus it is a cost centre Highly efficient, but less responsive

Global Product Divisions… Advantages Chain of vertically integrated activities Product division managers can configure activities based on costs and skills across countries Thus efficient  adjust labor costs, political instability, product quality, exchange rate Flexible – options among countries Ideal for global strategies Maximize competitiveness By identifying competitors clearly

Comparison: Global and Area Structure   Global Multidomestic Product Structure Area Structure Product-Line Specialized Duplicated Market Emphasis International National Transfers Product/Technology Technology/Skills Affiliate Evaluation Cost Center Profit Center Affiliate Role Implement Strategy Develop & Implement strategy Affiliate Autonomy Low High Affiliate Management Expatriates, Local, Short-Term Long-Term  

Transnational (Hybrid) Structure..

Transnational (Hybrid) Structure.. Get advantages of both structures Configuration and coordination of activities are mixed Affiliates play leadership roles for some activities and supporting roles for others. Decisions are based on maximizing the use of company skills and competencies, irrespective of activity location or affiliate nationality. Company acts essentially as a network of activities with multiple headquarters spread across different countries.

Transnational (Hybrid) Structure Affiliate roles shift over time and learning and sharing are emphasized. Emphasis on extensive horizontal linkages, effective communication and extreme flexibility.

Affiliate Competence vs. its Initiative Low affiliate capability High affiliate capability High localization pressures Form Alliances or make Acquisitions Take strategic Initiative High globalization pressures Follow Parent Instructions Influence Parent Strategies

Seamless Organization Destroy barriers inside and outside the organization Barriers prevent learning, produce inefficiencies, and blunt responsiveness Teams are the primary unit of analysis in the seamless organization Seamless organizations try to remove boundaries inside the company  The growth of Internet exchanges now enables companies of all sizes to access global suppliers and buyers without necessarily having a global presence.

Configuration and Coordination Geographic positioning of activities Concentrated  in one country Dispersed  in many countries Coordination ↓ if activity of business is independent Single country, one place ↑ if we need to integrate across countries