1. Strategizing, Structuring, and Learning Around the World
Chapter 10
Strategizing, Structuring, and Learning Around the World
Global Strategy Mike W. Peng
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2. Outline Multinational strategies and structures
A comprehensive model of multinational strategy, structure, and learning
Worldwide learning, innovation, and knowledge management
Debates and extensions
The savvy strategist
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3. Multinational Strategies and Structures
Pressures for cost reductions and local responsiveness
Four strategic choices for MNEs (1) home replication, (2) localization, (3) global standardization, and (4) transnational
Home replication strategy emphasizes the international replication of home country-based competencies
Localization (multidomestic) strategy is an extension of the home replication strategy, focusing on a number of foreign countries/regions, each regarded as a stand-alone local market worthy of significant attention and adaptation
Global standardization strategy is the opposite of the localization strategy
Transnational strategy aims to capture “the best of both worlds” by endeavoring to be both cost efficient and locally responsive
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4. Multinational Strategies and Structures: The Integration–Responsiveness Framework
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Figure 10.1

5. Four Strategic Choices for Multinational Enterprises
ADVANTAGES
DISADVANTAGES
Home replication
Leverages home country-based advantages
Lack of local responsiveness
Relatively easy to implement
May result in foreign customer alienation
Multidomestic
Maximizes local responsiveness
High costs due to duplication of efforts in
multiple countries
Too much local autonomy
Global
Leverages low-cost advantages
Lack of local responsiveness
Too much centralized control
Transnational
Cost-efficient while being locally responsive
Organizationally complex
Engages in global learning and diffusion
of innovations
Difficult to implement
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Table 10.1

6. Multinational Strategies and Structures: Four Organizational Structures
Four organizational structures that are appropriate for the four strategic choices:
International division
Geographical area
Global product division
Global matrix
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7. International Division Structure at Starbucks
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Figure 10.2

8. Multinational Strategies and Structures: Organizational Structures (cont’d)
International Division
Typically set up when firms initially expand abroad, often when engaging in a home replication strategy
Problems:
Foreign subsidiary managers in the international division are not given sufficient voice relative to the heads of domestic divisions
The “silo” effect: International division activities are not coordinated with the rest of the firm, which focuses on domestic activities
Firms often phase out this structure after their initial overseas expansion
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9. Geographic Area Structure at Avon Products
North America
Avon
Latin America
Avon
Asia Pacific
Avon
Western Europe
Middle East
Africa
Avon
Central & Eastern
Europe
Source: Adapted from avoncompany.com. Headquartered in New York, Avon Products, Inc. is the
company behind numerous “Avon ladies” around the world.
Figure 10.3
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10. Multinational Strategies and Structures: Organizational Structures (cont’d)
Geographic Area Structure
Organizes the MNE according to different geographic areas (countries and regions)
Is the most appropriate for a localization strategy
Its ability to facilitate local responsiveness is both a strength and a weakness
Problems:
While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms”
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11. Global Product Division Structure at European Aeronautic Defense and Space Company (EADS)
Source: Adapted from Headquartered in Munich, Germany, and Paris, France,
EADS is the largest commercial aircraft maker and the largest defense contractor in Europe.
Figure 10.4
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12. Multinational Strategies and Structures: Organizational Structures
Global Product Division Structure
Supports a global strategy in treating each product division as a stand-alone entity with full worldwide—as opposed to domestic—responsibilities for its activities
Facilitates attention to pressures for cost efficiencies in allowing for consolidation on a worldwide (or regional) basis and reduction of inefficient duplication in multiple countries
Problems:
It is the opposite of the geographic area structure: Little local responsiveness
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13. A Hypothetical Global Matrix Structure
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Figure 10.5

14. Multinational Strategies and Structures: Organizational Structures
Global Matrix
Is often used to alleviate the disadvantages associated with both geographic area and global product division structures
Is intended to support the goals of the transnational strategy—in practice, it is often difficult to deliver
Problems
May add layers of management, slow down decision speed, and increase costs while not showing significant performance improvement
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15. A Comprehensive Model of Multinational Structure, Learning, and Innovation
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Figure 10.6

16. Industry-based Considerations
Industry characteristics
Industrial products firms: Favor global product divisions
Consumer goods firms: Favor geographic areas
Porter’s forces
Interfirm rivalry increasingly focuses on learning and innovation
Need to heighten entry barriers: Behind some recent moves to phase out multidomestic strategy and to erect world-scale facilities to deter entrants
Bargaining power of suppliers and buyers: They also have to internationalize if the focal MNE goes overseas
MNE R&D often generates competing substitute products
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17. Resource-based Considerations
Value
Does any new structure (such as matrix) really add value?
Does innovation really add value? Not always!
Rarity
When all rivals adopt a “global strategy,” it is not rare
Imitability
It is easier to imitate formal structure. But how to imitate an elusive, informal matrix which is a “philosophy”?
Organization
Some MNEs are better able to take advantage of complex organizational structures such as matrix than others
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18. Institution-based Considerations
Formal and informal external institutions
Formal Institutions
Externally, MNEs, are subject to the formal institutional frameworks erected by various home- and host-country governments
Host-country governments often encourage, or coerce MNEs into undertaking certain activities
Informal Institutions
Strategists weigh the informal backlash against activities which result in domestic job losses
Formal and informal internal institutions
Formal organizational charts do not necessarily reveal the informal rules of the game
Three choices: (1) a home-country national as the head of a subsidiary, (2) a host-country national, or (3) a third country national
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19. Worldwide Learning, Innovation and Knowledge Management: Knowledge Management in MNEs
Knowledge management can be defined as the structures, processes, and systems that actively develop, leverage, and transfer knowledge.
Knowledge management is considered by some writers the defining feature of MNEs
Explicit knowledge (e.g., a driving manual): Captured by IT
Tacit knowledge (e.g., knowledge about how to drive)
Its acquisition and transfer require hands-on experience
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20. Knowledge Management in Four Types of Multinational Enterprises
GLOBAL
STANDARDIZATION
STRATEGY
HOME REPLICATION
LOCALIZATION
TRANSNATIONAL
Interdependence
Moderate
Low
Moderate
High
Role of foreign
subsidiaries
Adapting and leveraging
parent company
competencies
Sensing and exploiting
local opportunities
Implementing parent
company initiatives
Differentiated contributions
by subsidiaries to
integrate worldwide
operations
Development and
diffusion of
knowledge
Knowledge developed
at the center and
transferred to
subsidiaries
Knowledge developed
and retained within
each subsidiary
Knowledge mostly
developed and retained
at the center and key
locations
Knowledge developed
jointly and shared
worldwide
Flow of
knowledge
Extensive flow of
knowledge and
people from
headquarters to
subsidiaries
Limited flow of
knowledge and people
in both directions (to and
from the center)
Extensive flow of
knowledge and people
from the center and key
locations to subsidiaries
Extensive flow of
knowledge and people in
multiple directions
Sources: Adapted from (1) C. Bartlett & S. Ghoshal, 1989, Managing Across Borders: The Transnational Solution (p. 65), Boston: Harvard Business School Press; (2) T. Kostova & K. Roth, 2003, Social capital in multinational corporations and a micro-macro model of its formation (p. 299), Academy of Management Review, 28 (2): 297–317.
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Table 10.2

21. Worldwide Learning, Innovation and Knowledge Management: Globalizing Research and Development
A crucial arena for knowledge management
Driven by the intensification of competition for innovation
Provides a vehicle for access to, or extract benefits from, a foreign country’s local talents and expertise
The resource-based view: A fundamental source for competitive advantage is being different (the assumption of heterogeneity)
Decentralized R&D work performed by different locations and teams around the world means that there will be persistent heterogeneity (differences) in the solutions generated
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22. Problems in Knowledge Management
ELEMENTS OF KNOWLEDGE MANAGEMENT
COMMON PROBLEMS
Knowledge acquisition
Failure to share and integrate external knowledge
Knowledge retention
Employee turnover and knowledge leakage
Knowledge outflow
“How does it help me?” syndrome and “knowledge is power”
mentality
Knowledge transmission
Inappropriate channels
Knowledge inflow
“Not invented here” syndrome and absorptive capacity
Source: Adapted from A. Gupta & V. Govindarajan, 2004, Global Strategy and Organization (p. 109), New York: Wiley.
Table 10.3
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23. Problems and Solutions in Knowledge Management
For large firms, there are actually diminishing returns for R&D. Consequently, a new model, called “open innovation,” is emerging. This model relies on more collaborative research among various internal units and with external organizations
In knowledge retention, there is the problem of employee turnover which may lead to knowledge leakage
Global virtual teams, which do not meet face to face, may have communication and relationship barriers
The “not invented here” syndrome causes some managers to resist accepting ideas from other units
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24. Problems and Solutions in Knowledge Management
As solutions to combat these problems, corporate headquarters can manipulate the formal rules of the game through individual and organizational incentives as well as investing in tacit knowledge
MNEs often must rely on a great deal of informal integrating mechanisms
Some try to develop informal social capital
Overall, the micro, informal interpersonal relationships among managers of various units may create a micro-macro link
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25. Debates and Extensions
One multinational versus many national companies
Central controls versus subsidiary initiatives
Subsidiaries may be in full compliance of commands, pay lip service to commands, or ignore them
Some subsidiary-level strategies may contribute to entrepreneurship (or empire building)
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26. Debates and Extensions
Customer-focused dimensions versus integration, responsiveness, and learning
Two primary customer-focused dimensions
Global account structure to supply customers across various countries
Solutions-based structure is often used
One recommendation is to simplify both product and geographic scope to add the customer-focused dimensions
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27. The Savvy Strategist Consider four implications
First, understand the evolution of your industry in order to come up with the right strategy-structure configurations
Second, managers need to actively develop learning and innovation capabilities to leverage multinational presence
Third, mastering the external rules of the game governing MNEs and home/host country environments becomes a must
Finally, managers need to understand and be prepared to change the internal rules of the game governing MNE management
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