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Entry Strategies and Organizational Structures
The specific objectives of this chapter are: DESCRIBE how an MNC develops and implements entry strategies and ownership structures. EXAMINE the major types of organizational structures used in handling international operations. ANALYZE the advantages and disadvantages of each type of organizational structure, including the conditions that make one preferable to others.
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Entry Strategies and Organizational Structures
The specific objectives of this chapter are: DESCRIBE the recent, nontraditional organizational arrangements coming out of mergers, joint ventures, keiretsus, and other new designs including electronic networks and product development structures. EXPLAIN how organizational characteristics such as formalization, specialization, and centralization influence how the organization is structured and functions.
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Entry Strategies and Ownership Structures
DEVELOPED MARKETS North America Western Europe Japan Australia and New Zealand % OF RESPONDENTS Adapted from Figure 9–1: Preferred Strategies for Global Expansion
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Entry Strategies and Ownership Structures
EMERGING MARKETS 20 40 60 80 100 % OF RESPONDENTS Adapted from Figure 9–1: Preferred Strategies for Global Expansion
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Entry Strategies and Ownership Structures
Wholly owned subsidiary An overseas operation that is totally owned and controlled by an MNC MNC’s desire for total control and belief that managerial efficiency is better without outside partners Some host countries are concerned that the MNC will drive out local enterprises and others prohibit fully owned subsidiaries Home-country unions sometimes view foreign subsidiaries as an attempt to “export jobs” Today many multinationals opt for a merger, alliance, or joint venture rather than a fully owned subsidiary
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Entry Strategies and Ownership Structures
Wholly owned subsidiary The cross-border purchase or exchange of equity involving two or more companies The strategic plan of merged companies often calls for each to contribute a series of strengths toward making the firm a highly competitive operation Mergers and Acquisitions
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Entry Strategies and Ownership Structures
Wholly owned subsidiary Alliance Any type of cooperative relationship among different firms. International joint venture (IJV) An agreement under which two or more partners from different countries own or control a business Nonequity venture Equity joint venture Advantages Improvement of efficiency Access to knowledge Political factors Collusion or restriction in competition Mergers and Acquisitions Alliances and Joint Ventures
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Entry Strategies and Ownership Structures
Wholly owned subsidiary Wholly owned subsidiary An agreement that allows one party to use an industrial property right in exchange for payment to the other party By licensing to a firm already there, the licensee may avoid entry costs Licensor usually may be is a small firm that lacks financial and managerial resources Companies that spend a relatively large share of their revenues on research and development (R&D) are likely to be licensors Companies that spend very little on R&D are more likely to be licensees Mergers and Acquisitions Mergers and Acquisitions Alliances and Joint Ventures Licensing
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Entry Strategies and Ownership Structures
Wholly owned subsidiary Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee Widely used in the fast-food and hotel/motel industries With minor adjustments for the local market, it can result in a highly profitable international business Mergers and Acquisitions Alliances and Joint Ventures Licensing Franchising
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Entry Strategies and Ownership Structures
Wholly owned subsidiary Often the only available choices for small and new firms wanting to go international Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment Exporting and importing can provide easy access to overseas markets Strategy usually is transitional in nature Mergers and Acquisitions Alliances and Joint Ventures Licensing Franchising Exporting and Importing
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Organizational Consequences of Internationalization
Aircraft Cameras Consumer electronics Computers Telecommunications Aerospace Low High Automobiles Pressure for globalization Synthetic fibers Steel Clothing Cement Packaged goods Pressure for local responsiveness Adapted from Figure 9–2: Organizational Consequences of Internationalization
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Basic Organizational Structures
Initial division structures Subsidiary Common for finance-related businesses or other operations that require an onsite presence from the start Export arrangement Common among manufacturing firms, especially those with technologically advanced products On-site manufacturing operations In response to local governments when sales increase Need to reduce transportation costs
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Basic Organizational Structures
Chief Executive Office Home-office departments Production Marketing Finance Human Resources V.P. International Operations Overseas subsidiaries France Japan Egypt Australia Argentina Adapted from Figure 9–3: Use of Subsidiaries during the Early Stage of Internationalization
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International Division Structure
International division structures A structural arrangement that handles all international operations out of a division created for this purpose Assures that international focus receives top management attention Unified approach to international operations Often adopted by firms still in the developmental states of international business operations Separates domestic from international managers (not good) May find it difficult to think and act strategically, or to allocate resources on a global basis See example next slide
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International Division Structure
(Partial Organization Chart) Chief Executive Officer Home-office departments Human Resources Finance Marketing Production Operating divisions Domestic Division: Plant Tools Hardware Furniture International Division: Japan Italy Australia Government Relations Marketing Office Operations Adapted from Figure 9–4: An International Division Structure
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Global Product Division
A structural arrangement in which domestic divisions are given worldwide responsibility for product groups Global product divisions operate as profit centers Helps manage product, technology, customer diversity Ability to cater to local needs Marketing, production and finance can be coordinated on a product-by-product global basis Duplication of facilities and staff personnel within divisions Division manager may pursue currently attractive geographic prospects and neglect others with long-term potential Division managers my spend too much time tapping local rather than international markets See example next slide
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Global Product Division
Chief Executive Officer (Partial Organization Chart) Home-office departments Human Resources Finance Marketing Production Operating divisions Product Division A Product Division B Product Division C Product Division D Product Division E Africa Europe S. America Australia Far East Great Britain France Germany Italy Netherlands Finance Marketing Production Human Resources Adapted from Figure 9–5: A Global Product Division Structure
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Global Area Division Global area division A structure under which global operations are organized on a geographic rather than a product basis International operations are put on the same level as domestic operations Global division managers are responsible for all business operations in their designated geographic area Often used by firms in mature businesses with narrow product lines By manufacturing in a region, the firm is able to reduce cost per unit and price competitively Difficult to reconcile a product emphasis with a geographic orientation New R&D efforts often ignored because divisions are selling in mature market See example next slide
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Global Area Division (Partial Organization Chart)
Chief Executive Officer Home-office departments Human Resources Finance Marketing Production Operating divisions North America South America Europe Asia Africa Great Britain France Germany Italy Netherlands Adapted from Figure 9–6: a Global Area Division Structure
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Global Functional Division
A structure that organizes worldwide operations primarily based on function and secondarily on product Approach not used except by extractive companies such as oil and mining firms Favored only by firms that need tight, centralized coordination and control of integrated production processes and firms involved in transporting products and raw materials between geographic areas Emphasizes functional expertise, centralized control, and relatively lean managerial staff Coordination of manufacturing and marketing often is difficult Managing multiple product lines can be very challenging because of the separation of production and marketing into different departments See example next slide
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Global Functional Division
(Partial Organization Chart) Chief Executive Officer Marketing Finance Production Domestic Production Product A Product B Product C Product D Foreign Production Domestic Production Product A Product B Product C Product D Foreign Production Adapted from Figure 9–7: a Global Functional Structure
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Mixed Organization Structures
A structure that is a combination of a global product, area, or functional arrangement Allows the organization to create the specific type of design that best meets its needs As the matrix design’s complexity increases, coordinating the personnel and getting everyone to work toward common goals often become difficult Too many groups go their own way See example next slide
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Mixed Organization Structures
(Partial Organization Chart) Chief Executive Officer Home-office departments Human Resources Finance Marketing Production Operating divisions North America Industrial Goods Europe Manager, Industrial Goods North America Manager, Industrial Goods Europe Adapted from Figure 9–8: A Multinational Matrix Structure
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Transnational Network Structures
A multinational structural arrangement that combines elements of function, product, and geographic designs, while relying on a network arrangement to link worldwide subsidiaries At the center of the transnational network structure are nodes, which are units charged with coordinating product, functional, and geographic information Different product line units and geographical area units have different structures depending on what is best for their particular operations See example next slide
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Transnational Network Structures
Adapted from Figure 9–9: The Network Structure of N.V. Philips
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Control Mechanisms Adapted from Table 9-2: Control Mechanisms Used in Select Multinational Organization Structures
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Nontraditional Organizational Arrangements
Organizational arrangements from mergers and acquisitions Organizational arrangements from joint ventures and strategic alliances Organizational arrangements from Keiretsus
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Asian and Western Management Features
BASIC VALUES Asian and Western Management Features ORGANIZATION MANAGEMENT STYLE ACTION Adapted from Figure 9-10: A Comparison of Asian and Western Management Features
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Electronic Network Form of Organization
Electronic freelancers Individuals who work on a project for a company, usually via the Internet, and move on to other employment when the assignment is done ( Temporary companies Serve a particular, short-term purpose and then go on to other assignments Outsourcing function (can be delivered online) Electronic network is a version of the matrix design Many of the people in the structure are temporary, contingent employees, never see each other and communicate exclusively in an electronic environment
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Organizing for Product Integration
Cross-functional coordination Six organizational mechanisms used by Toyota Mutual adjustments Direct, technically-skilled supervisors Integrative leadership Technical training is provided in-house, and people are rotated within only one for most, if not all, of their careers Complex forms and bureaucratic procedures Design standards are maintained by the people who are doing the work and are continually changed to meet new design demands
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Changing Role of Information Technology in Organizing
Adapted from Table 9–3: Contrasting Approaches to Using Information Technology: Western and Japanese Views
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Organizational Characteristics of MNCs
Formalization Specialization Centralization
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Organizational Characteristics of MNCs
Adapted from Table 9–4: Organizational Characteristics of U.S. and Japanese Firms in Taiwan
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Organizational Characteristics of MNCs
Adapted from Table 9–5: Internal vs. External Networks
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Organizational Characteristics of MNCs
Adapted from Table 9–6: Managers’ Influence in U.S. and Japanese Firms in Taiwan
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Cases Australia (p. 290) Getting in on the ground floor (p. 291)
Reliance (p. 350)
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