Welcome to class of Impact of Globalization on Organization of Firm’s Activities by Dr. Satyendra Singh

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… VP Product C VP International CEO Domestic Market International Market VP Product AVP Product B Domestic 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… General Manager (Latin America) VP International Country Manager (Germany) General Manager (Far East) General Manager (Europe) 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…

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…

VP Product C Worldwide CEO VP Product A Worldwide VP Product B 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…

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..

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 Configuration –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