The Impact of Globalisation on the Organisation of Activities Key Points International Division Structures Area Division Structures Global Product Division Structures Transnational Structures Affiliates

International Division Structure VP Product C VP International CEO Domestic Market International Market VP Product AVP Product B Domestic Market

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.)

Multidomestic Affiliates In multidomestic affiliates, local CEOs report to area presidents, manage a wide array of the parent company ’ s product lines, but have considerable leeway in making production, marketing, and servicing decisions. Host countries have long used the term miniature replica to describe the traditional multidomestic affiliate.

Multidomestic Affiliates Multidomestic affiliates are typically evaluated by profit center criteria keyed to results rather than adherence to head office policies. Usually, local nationals are appointed as country managers and management turnover is relatively slow. Each affiliate often takes on a character and personality of its own, and formulates its own internal strategy.

Problems with Multidomestic Affiliates Communications between home country product divisions and distant overseas affiliates are often more complex and risk breaking down. Corporate policies and standards may not be effectively communicated to or adopted by the affiliates.

Problems with Multidomestic Affiliates Affiliate autonomy is not conducive to global MNC learning. As affiliates develop self-sufficiency, the power of home country managers may be challenged.

Global Product Division Structure 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

Global Affiliates Affiliates  Do not operate with a great deal of autonomy.  Become an integrated part of a global organization and often play no independent strategic role at all.  Are evaluated as cost centers. The profit center concept just does not fit the strategy.  Largely treated as a source of supply or as sales offices.

Contrasting Structures 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 Structures Represents an attempt to concurrently capture all of the advantages of area and global product division structures. In transnational 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.

Transnational Structures In transnational structures  Company acts essentially as a network of activities with multiple headquarters spread across different countries.  Affiliate roles shift over time and learning and sharing are emphasized.  Emphasis on extensive horizontal linkages, effective communication and extreme flexibility.

Affiliate Competence and Affiliate 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 *This diagram is adapted from a diagram in Bartlett and Ghoshal's "Tap Your Affiliates for Global Reach".

Seamless Organisations A driving goal of an increasing number of companies is the development of a seamless organization. Barriers prevent learning, produce inefficiencies, and blunt responsiveness. Seamlessness comes only through destroying barriers inside and outside the organization. Teams are the primary unit of analysis in the seamless organization.

Seamless Organisations Seamless organizations are also pre-occupied with erasing 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.

Chapter 10 The Evolving Multinational Key Points Dimensions of Evolution MNC Evolution – An Integrated Process

Dimensions of Evolution Geographic Expansion  Geographic Proximity  Cultural Similarity  Similarity in Economic Development Line of Business Diversification  Liability of Foreignness Functional Migration

Geographic Expansion Geographic Proximity  MNC enters neighboring country/countries,  Sequential move to farther places Cultural Similarity  Move into country with low “psychic distance” vis-à-vis home country  Enables effective communication, better understanding of local customs and markets

Geographic Expansion Similarity in Economic Development  Entry into countries with high levels of disposable income  Similar buying habits as home market consumers

Line of Business Diversification Entry facilitated by competing in single line of business, other businesses progressively added Time Competitive advantage versus local firms LOB 1 LOB 2 LOB 3 LOB 4 Liability of foreignness Exhibit 10-1 Typical Pattern of Line of Business Diversification

Functional Migration Refers to development of activities performed by lines of business within a country Marketing and Distribution Assembly Local Design and Procurement Business Planning Strategic Leadership Time Exhibit 10-2 Typical Pattern of Functional Migration

MNC Evolution – An Integrated Process The dimensions of evolution are interconnected Ways of integration across dimensions  Accelerated Evolution MNC evolves along all the dimensions at the same time  Punctuated Evolution Evolution is discontinuous and skips steps Efficient evolution that maximizes salutary effects of scale and scope economies

MNC Evolution – An Integrated Process Reverse Evolution Restructuring of operations Consolidation of lines of business and shutting down subsidiaries