1. Multinational Management Peter Zettinig Spring 2015

2. Multinational Management Session 4 Overall question in this course: Which factors determine successful management of MNCs? [...] ‘Firms are social communities that specialise in the creation and internal transfer of knowledge. The multinational corporation arises not out of the failure of markets for the buying and selling of knowledge, but out of its superior efficiency as an organisational vehicle by which to transfer this knowledge across borders. [...]...the choice of transfer mode is determined by the efficiency of the multinational corporation in transferring knowledge relative to other firms, not relative to an abstract market transaction.’ Kogut & Zander (1993) Today we focus on the question: How can knowledge be the driver of sustainable competitive advantage of the MNC?

3. Multinational Management Session 4 But first: What did we take away from last session? Discuss with your neighbour: What are the different rationales that influence market entry strategies? Try to use these for a more integrative view on the task: O L I GI-LR Mindsets

4. Multinational Management Ad:Session 3Entry Mode Choices: Hierarchical Internalisation View Session 4 Source: Y. Pan & D. Tse, 2000, The hierarchical model of market entry modes (p. 538), Journal of International Business Studies, 31: 535–554. Adapted graphic by Peng (2005). e.g. Export-oriented firm; multidomestic, globally integrated, transnational

5. Multinational Management Session 4 Today we expand from a Resource-based perspective and take a more specific stance on knowledge. The Jollibee Foods Corp. is a very good case to bridge entry modes with considerations of Knowledge-based and Capabilities-based perspectives of the theory of the firm. As a warm up: Take a couple of minutes and write a concise prescription on: ‘How to ride a bike’ So that someone who has never tried could do it.

6. Multinational Management Session 4 CASE 2: Jollibee Foods Corporation International Expansion and Market Entry Modes Task. Analyse Jollibee Foods Corporation’s history in the light of ‘institutional heritage’. In your view, how does the firm’s past influence its further development post 1997? Evaluate Manolo P. Tingzon’s three strategic opportunities in 1997 (Papua New Guinea, Hong Kong and California). Utilising market entry mode knowledge, suggest a principle outline in how to enter one or more of these markets in order to reach the objective to operate an international service chain encompassing 1000 stores.

7. Multinational Management Session 4 CASE 2: Jollibee Foods Corporation International Expansion and Market Entry Modes 1.Lets start from scratch. When building a fast food business, what can we assume to be the ‘drivers for success’? 2. How do these drivers for success affect a positive outcome for a restaurant? 3. How would you take the above insights to create a successful restaurant? Formulate a ‘quick and dirty’ approach

8. Multinational Management Session 4 CASE 2: Jollibee Foods Corporation International Expansion and Market Entry Modes 1.Now we have successfully implemented a new restaurant. We know why it is successful (which might be a rare insight). 2. We now plan to open up restaurant 2 and 3. What do we need to consider? How has the challenge changed?

9. Multinational Management Session 4 CASE 2: Jollibee Foods Corporation International Expansion and Market Entry Modes 1.Now we have a domestic chain and know why it works well. We now construct a concept to enter a new country. 2. Specify what are the additional challenges that need to be considered? 3. Based on these insights: Make a ‘quick and dirty’ concept in how to quickly enter this new Country: Pay specific attention to: -Your firm specific advantages and their transfer to the new location. -The location specific advantages you like to draw on. -The market entry modes you like to employ (specify your rationales for your choice).

10. Multinational Management Session 4 CASE 2: Jollibee Foods Corporation International Expansion and Market Entry Modes Jollibee: Why did Kitchner fail? What is the issue with the objective: 1000 restaurants in 6 a? What would you do if you were Manolo?

11. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Bartlett, Ghoshal and Birkinshaw (2004) defined goals of the MNC: be efficient, flexible and learn. Efficiency is mainly seen as a result of scale economies, flexibility was explained via scope economies. How would a transnational model of the firm explain how the firm attains learning?

12. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Porter (1996) stated that : Operational effectiveness is not strategy – it is necessary, but not sufficient. What does he mean by that? By the turn of the 20 th century firms found ways to match each other in the more familiar attributes of global scale efficiency and local responsiveness (Bartlett, et al. 2004, 456). Firms in the same industry seem in the long-run to become more alike? Why? One explanation states for the development into a MNC: ‘Over time, and through interactions with selected [...] partners in multiple institutional environments [...] firms adapt to their partners’ structures and processes, gradually becoming more selective about which new Information to consider, and gradually developing routines... ‘ (Zettinig & Benson-Rea, 2008) Organisational routines are difficult to change – ‘routines as genes’ (Nelson & Winter, 2002), i.e. firms can be expect to behave in future according to acquired Routines. How can that be understood?

13. What effects do organizational routines have? Discuss with neighbors

14. What effects do organizational routines have? Source of stability Efficiency Legitimacy Power Encoding org. knowledge/memory Genealeogical information Ontological security Cognitive efficiency Complexity reduction Enabling structures (easier to do so people will do the easier) WHAT ARE THE EFFECTS ON INNOVATION… will look into that further…

15. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Gains in efficiency and differentiations are short-lived advantages (Porter, 1996, 61). Why? Management tools used to gain productivity, quality, and speed: TQM, benchmarking, time-based competition, outsourcing, partnering, reengineering, change management.... Very often introduced via the same channels (e.g. MBA programs of managers, consulting firms). This is worth a discussion (emphasis on Management programs and consulting) What to do think? What are the sources for longer-lived competitive advantages?

16. Knowledge and the survival of the firm

17. About: Knowledge Firm Survival Opportunity and Innovation Managing the package

18. The firm P = R t – (C f + C v ) Rt > Ct ->survival in the long run* * In absence of other cash flows

19. The firm Survival in the long run Requirements? Ambidexterity - Exploit given knowledge - Explore new knowledge

20. Ambidexterity -Exploit given knowledge -Explore new knowledge What is the role of UNCERTAINTY? What is uncertainty? Why does it complicate our lives?

21. UNCERTAINTY http://www.ejolt.org/2013/05/uncertainty/ Uncertainties about the past, the present and the future. What about RISK? What about AMBIGUITY? The role of knowledge?

22. KNOWLEDGE WHAT IS KNOWLEDGE?

23. KNOWLEDGE – about the world, reality, etc. Morgan & Smiercich, 1980

24. KNOWLEDGE http://www.ejolt.org/2013/05/uncertainty/ WHAT IS KNOWLEDGE? Where does the knowledge of the organization reside? Individual Group Organization

25. KNOWLEDGE – TACIT and EXPLICIT?

26. KNOWLEDGE Routines of the firm – institutionalised processes # stability/efficiency Dynamic capabilities of the firm – ability (or higher order routines) to re-configure knowledge and other resources of the firm # change/effectiveness

27. KNOWLEDGE – of the firm, under different environmental dynamics Sasaki, Zettinig & Sandberg (2013) WIP.

28. KNOWLEDGE – of the firm, different stages of firm development Greiner, 1972, HBR

29. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC ‘...leading-edge competitive battles shifted [in the 1990s] to companies’ ability to link and leverage their resources to capture advantages through worldwide learning’ (Bartlett et al, 2004, 456.) They propose three approaches: Centre-for- global Local-for- local Locally leveraged and globally linked Why are we not surprised? Where do these approaches conceptually come from?

30. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Worldwide Learning & Innovation Approaches: Centre-for- global Local-for- local Locally leveraged and globally linked Can we deduct the management mindsets and advantages behind these approaches? What limitations can we expect in the management of these Innovation approaches?

31. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Worldwide Learning & Innovation Approaches: Limitations: C-f-G: Market insensitivity (industry? examples?) Local subsidiary resistance; L-f-L: Needless differentiation (most people want the same?) Reinventing the wheel; Major managerial drive toward staying independent and autonomous locally; LL-GL:Locally leveraged – threat for transfer by ‘not-invented-here’ syndrome; Globally linked – high coordination cost of dispersed resources, assets, capabilities integration. ***More on the subsidiary - HQ – subsidiary –subsidiary MGMT in Session 5

32. Multinational Management Session 4Knowledge in the MNC GROUP 5. Analyse Kogut & Zander’s (1993) seminal article on the knowledge of the firm in an evolutionary theory of the MNC. How does their view challenge the common market failure/imperfection paradigms? What are their conclusions concerning the view that knowledge is a public good for which no markets may exist? How do they explain the implications of tacit knowledge for the theory of the firm without appealing to transaction costs and opportunism? How does the theory explain that firms may extend their operations beyond their strict advantage? Session 4

33. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Knowledge Public Good Character Easily transferred Hard to protect Therefore no Market for Knowledge Market Failure (Paradigm) MNC creates internal Process to transfer Knowledge (vs. Licencing) Markets appear to fail irrespective of degree of ‘tacitness’ Quote: ‘The licensee may lack the tacit know-how and informal routines that are Required to turn a technological blueprint into a successful product... Thus, by Establishing a WOS, the MNC can economise on the transfer costs of arm’s length Contracting and earn greater returns from its technology’ (Hill, Hwang & Kim, 1990, 117-28)

34. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Quote: ‘The licensee may lack the tacit know-how and informal routines** that are Required to turn a technological blueprint into a successful product... Thus, by Establishing a WOS, the MNC can economise on the transfer costs of arm’s length Contracting and earn greater returns from its technology’ (Hill, Hwang & Kim, 1990, 117-28) Kogut & Zander (1993, 630) Response: conclusion on transaction cost is superfluous. If the MNC Can make the transfer more efficiently, then choice of mode is fully motivated. **May this also explain why Acquisitions (rather than calling them mergers) are a very popular approach For MNCs to grow internationally? What are the managerial consequences?

35. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Theory of the MNC without transaction cost and opportunism? MNC is a community of people who coordinate (how can we define coordination?) Firms are efficient in creating knowledge and transferring it Routines are developed – through repeated interactions by individuals and groups, they create a common understanding – which facilitates the transfer from ideas, Into production and to markets. Therefore, what the firm does is not determined by a failure of the market, but the firm’s efficiency in this process of transformation relative to other firms. It is the difference in knowledge and the embedded capabilities between the creator And the users (possessed with complementary skills) which determine the firm boundary, not market failure itself.

36. Multinational Management Session 4Knowledge in the MNC GROUP 6. Analyse and introduce Eisenhardt & Martin (2000) key considerations on Dynamic Capabilities. What are they? Review Augier & Teece (2009) and investigate what is the manager’s role in the dynamic capabilities of organizations. Provide your synthesis in order to make practical managerial suggestions how a company may use this knowledge in its own pursue to stay relevant. Session 4

37. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Conclusions How can knowledge be the driver of sustainable competitive advantage of the MNC? [...] ‘Firms are social communities that specialise in the creation and internal transfer of knowledge. The multinational corporation arises not out of the failure of markets for the buying and selling of knowledge, but out of its superior efficiency as an organisational vehicle by which to transfer this knowledge across borders. [...]...the choice of transfer mode is determined by the efficiency of the multinational corporation in transferring knowledge relative to other firms, not relative to an abstract market transaction.’ Kogut & Zander (1993) What is the knowledge-based advantage of MNCs and how do firms manage it in complex organisations?

38. Multinational Management Session 4 KNOWLEDGE MANAGEMENT AND THE MNC Conclusions Return to the beginning of today’s session Thinking of Kogut & Zander’s (1993) idea of tacit knowledge and how the firm is more efficient in transferring it internally – how can you explain the use of Franchising (arguably a form of licensing) being so pupular for rolling out fast food operations? Using the Dynamic Capabilities approach – what would you say is the most important knowledge/capability for a company like Jollibee to grow profitably and internationally?