Chapter 8 Strategy and organizations To highlight the ways in which the international dimension in business activities is distinctive from national and local enterprises. To appreciate the role of the entrepreneur and entrepreneurship in the international environment. To gain an overview of the ways in which enterprises organize and adapt when they expand internationally. To gain an understanding of the key players in the international environment with which businesses interact

International Business Lecture 7: Strategy and organizations

Aims of the lecture To assess alternative internationalization strategies To evaluate competitive forces in the changing environment, which influence corporate strategy To identify differing approaches to organizational structure in light of strategic goals To assess the impact of national environments on structure and behaviour of firms and networks To take an overview of processes of organizational change and management implications

Entry strategies Entry strategies vary according to the firm, the industry and the business environment in the foreign location. Exporting involves a minimal commitment and no organizational presence. Production under licence offers flexibility and lower commitment to the country than FDI, but carries risks, such as weak control over quality and working conditions. FDI involves greater commitment, either greenfield or acquisition. Control over operations is an advantage over outsourcing. Emerging MNEs are a growing force in FDI.

Figure 7.1: Internationalization strategies

Internationalization Strategies Internationalization decision Export Outsource production Export FDI Production under licence Framnchise Greenfield site investment

FDI motives Market considerations Proximity to markets is a ‘pull’ factor. Saturation in home market is a ‘push’ factor. Advantages in production, e.g. low-cost labour. Technological capacity and network linkages also feature. Resource-related motives – Recall internalization advantages in OLI paradigm. Desire for control over specific assets, such as brands or businesses.

Choosing location PEST analysis of the national environment in possible foreign locations: Political and legal Economic Social and cultural Technological The importance of the above dimensions differs according to the intentions of the firm. Potential entrants must also consider production potential and market characteristics.

Figure 7.2: Location decision

Firm strategy Traditional SWOT analysis considers both internal and external factors. Theorists of competitive strategy tend to focus on either internal analysis: Resource-based theory (J. Barney) Core competencies (Prahalad and Hamel) …or external analysis: Five-forces model (Porter)

Figure 7.3: SWOT analysis and beyond

Figure 7.4: Porter’s five forces model Source: Adapted from Porter, M. (1998) Competitive Strategy: Techniques for Analyzing Industries and Competitors (London: Free Press)

Resource-based view of the firm Firm resources are: Physical – plant and machinery, location. Human – experience, skills, knowledge, relationships. Organizational – structure, informal relations, stakeholder relations. Key attributes of the resource: it is… Valuable Rare Imperfectly imitable and there is no strategically equivalent resource.

Core competencies View of the firm as a portfolio of competencies Core competencies: an organization’s collective skill and learning in specialist areas Focus on competencies v products. Competencies… Can be applied to a variety of products Yield benefits to the end product which reaches the consumer Difficult for competitors to imitate Strategic implications Clear goals needed to sustain leadership Outsourcing and alliance strategies downplayed

The multidivisional structure, or M form, was an early choice for international expansion. Divisions based on product or geographic area. Divisions can be added as the company expands. Bartlett and Ghoshal’s typology highlights differences in multidivisional structures according to: Strategy: local global Organization: decentralized centralized Organizational structures go global

Figure 7.5: The multidivisional structure

Figure 7.6: Contrasting models of multidivisional companies

Figure 7.7: The global matrix

The network organization Emphasis on relational ties, both within the organization and with outsiders Openness in communication leads to flows of information and resources within the firm (including foreign locations) and with other organizations Not so much a new structural model as a new managerial approach Blurring of organizational boundaries Network approach accords with a stakeholder view of the company

Figure 7.8: The network organization

Inter-organizational networks Formal and informal ties across organizations – consonant with network organizations and decentralized decision-making Concept of the value chain – value created at each stage in the production process. May be producer driven or buyer driven. The cluster – group of organizations which benefit through co-operation in a particular sphere of activity. Can include manufacturing, services, R&D, enjoying complementarities. The transborder cluster – benefits can be gained even when participants are dispersed geographically.

National environment and the firm (Whitley’s typology) Particularistic – weak formal regulation & weak legal system Collaborative – strong institutions and co-operative behaviour; guiding role of government Arm’s length – strong institutions in the formal sense; emphasis on rules and formal processes Paternalistic authority, often found in developing countries. View of the firm in the social context; relations with stakeholders important (eg Germany, Japan) View of the firm as an economic entity, seeking wealth maximization (eg the US)

Networks in Japan and South Korea Japanese keiretsu – Loose groupings of firms, usually centred on a main bank; characterized by cross-shareholdings and relational ties between suppliers and customers. Strengths – benefits of networks in sharing expertise; Weaknesses – became costly and inefficient. Korean chaebol – Family-owned conglomerates, ruled paternalistically; strong mutual ties between employees and owners; supported by government. Strengths – forces of economic development in South Korea; Weaknesses – weak governance and lack of transparency.

Organizational change Change may be radical, altering structure and culture, or narrower, altering systems and roles. The turnaround involves rapid deliberate change, often to recover from poor performance. Revitalization involves gradual change. Change takes place at both formal and informal levels. The international context of change: Differing perspectives across the organization Differing roles & responsibilities across dispersed locations Need for integration of individual members in corporate vision

Figure 7.9: Aspects of strategic and organizational change

Conclusions Internationalization strategy depends on the firm’s goals and on national environments in both its home country and foreign locations. The multidivisional structure has evolved towards a balance between central co-ordination and local responsiveness, with changes in international operations and in differing environments. Networks, both intra-firm and inter-firm have arisen in the context of globalized production and markets. Managing organizational change in the international context must take account of environments and staff in differing locations.