1. © Devinney, 2008 Managing the Global Corporation Timothy Devinney Australian Graduate School of Management

2. © Devinney, 2008 The Context and Complexity of Internationalization

3. © Devinney, 2008 The Complexity of International Management Local Economic Conditions Intl Economic Conditions Local Cultural / Sociodemographic Conditions Local Political Environment Local Economic Conditions Local Cultural / Sociodemographic Conditions Local Political Environment Firm Strategic Disposition Firm Strategic Disposition Org n Cultural Org n History Technology Org n Structure Dist n of Business Product Struct r Org n Cultural Org n History Technology Org n Structure Dist n of Business Product Struct r

4. © Devinney, 2008 The International Mindset How does this complexity change your view Of the notion of ‘a’ strategy? Of the operational details of developing such a strategy? Of the operational details of implementing a strategy?

5. © Devinney, 2008 Why Do Companies Invest ‘Overseas’? Seeking greater operational efficiency Communication with: Operations, customers, suppliers, competitors or R&D Proximity to: Operations, customers, suppliers, competitors or R&D Seeking new markets Proactive vs reactive Direct vs indirect Seeking new resources Physical vs intangible

6. © Devinney, 2008 Does it Make Sense? The Liability of Foreignness Business Characteristics (What we do) Market Characteristics (What they want) Zone of death Firm Centric Path Market Centric Path We do what markets want even thought they are increasingly distant from our strengths We do what we do even thought they are increasingly distant from what the markets demand Distance from Home Risk Adjusted Margin The Liability of Foreignness We do what we can’t do for people who don’t want what we can’t do Why does this happen?

7. © Devinney, 2008 The Liability of Foreignness in Reality

8. © Devinney, 2008 How Do You Go International? Export Make or buy? Fast or slow? Partner or no? ….. There is no “free lunch”: Each has a cost and benefit

9. © Devinney, 2008 What are the Pitfalls? Spent too much, got too little (Tesco) Partner from hell (Danone) Arrested for bribery (Siemens) …..

10. © Devinney, 2008 Tim’s 3-Steps to Success Internationalization Do “something” well Move that “something” from point A to point B Make money on that “something” at point B CEOs

11. © Devinney, 2008 Applying The Rules (Globalizing Cement) Cemex built a dominant position in Mexico based on: Technological/Cost excellence Protection of IP Integration of capacity acquired via M&A It leveraged this position by purchasing marginal producers at scale Then utilized its M&A integration capabilities to transfer its technological and managerial systems

12. © Devinney, 2008 Thinking about an International Strategy

13. © Devinney, 2008 Levels of ‘Strategy’ Global Subsidiary/ Market Product Customer

14. © Devinney, 2008 Economics of Production “Global is Better” Economics of Production “Global is Better” Economics of Adaptation “Local is Better” Economics of Adaptation “Local is Better” PUSHPULL Conflicting Globalization Pressures: How to React?

15. © Devinney, 2008 Dimensions of International Organisation Structure Local Responsiveness High Low Global Integration High Transactional Completeness High Diversity of sources, type and uses increase Becomes more proprietary and protectible Economies of scale and scope increase the sources and applications and efficiency in use Source: Adapted from Devinney, Midgley & Venaik The extent to which the markets are efficient; i.e., markets > firms The extent to which the markets are efficient; i.e., markets > firms Strategic Decision: Own, Rent or Buy Strategic Decision: Centralization/ Adaptation

16. © Devinney, 2008 The Fundamental Problem Potentially, each component of the value chain will have different underlying pressures (GI, LR, TC) facing it: In each product/market At each value chain link in each product/market Across products/markets This implies that these fundamental pressures will create a complex organizational pressure to “mix and match” Market 1 Market 2 Market 4 Market 3

17. © Devinney, 2008 The Complexity of Value Chain Positioning in International Competition Firms face environments with different pressures (G,L) These are dependent on location choice These can be endogenous Affected by prior firm choices Firm Strategy can be decomposed Tasks (G,L)  Value chain activities (VCA) VCA (G,L)  Strategic Position (C,A) Example: Pharmaceuticals Pressures for Local Differentiation Pressures for Global Integration Structural Choice (Adaptation) Structure Choice (Centralization) Finance Component Manufacturing After Sales Service Compounding & Packaging Marketing & Sales R&D Clinical Tests Government Relations Procurement Biological Technology Local Regulatory Demands Clinical Trial Mgt

18. © Devinney, 2008 Carrefour & Walmart Carrefour and Walmart are facing some similar pressures and realities but many are different due to different histories Pressures are a function of location This has led to differential structural choices across the value chain by both firms Structure is a function of past choices and future expectations Strategic disposition (administrative heritage) Pressures for Local Differentiation Pressures for Global Integration Structural Choice (Adaptation) Structure Choice (Centralization) WM (Supply) WM (Design) Procurement Technology Local Retail Demand (EU) CF (Supply) CF (Design) CF (Mktg) WM (Mktg)Local Retail Demand (US) Supplier Fragmentation

19. © Devinney, 2008 How Should the Global Value Chain be Organized? Value Chain Disintermediation HQ Market 1: Own Everything HQ Market 2: Own Contiguous Parts HQ Market 3: Own Non-Contiguous Parts HQ Market 4: Own Structure Not Parts HQ ETC ……

20. © Devinney, 2008 The Key Organizational Question is How can competitiveness be enhanced by: Worldwide or regional integration of all scale-sensitivity activities? Decentralization of locally differentiated tasks with management accountability? Close coordination of local activities which have cross- market implications? Simultaneously! Three rules should apply Centralize “scale-sensitive” activities whenever possible Centralize control over those activities which are the source of the firm’s competitive advantage, wherever located Set up as many cross-business or cross-country interactions as possible and feasible Trade off between simplicity and complexity

21. © Devinney, 2008 Strategy/Management at the Subsidiary Level: Operationalization at the Market Level

22. © Devinney, 2008 A Country Operation’s Strategic Role? Stand Alone Value Size of market and growth rate Competitive environment Price levels Favorable cost structure Tax rates Macroeconomic conditions Political risk Synergy Value Shared activities with other businesses Shares upstream/downstream capacity (e.g., raw material production, final assembly or distribution) Proximity to other markets Ë Strategic Market Value Ô Home market of global customers Ô Home market of global competitors Ô Significant market for global competitors Ô Major source of industry innovation Ô Home of most demanding customers Ô Prestige value

23. © Devinney, 2008 Local Competence Importance of Local Market High Low HighLow Source: Bartlett & Ghoshal The Roles for Country/Regional Organisations Contributor Strategic Leader Black Hole Implementor

24. © Devinney, 2008 Internal Competitiveness External Competitive Intensity High Low HighLow Source: Birkinshaw & Hood Setting the Environmental Conditions Firm Driven Firm Driven Dual Benign Market Driven Market Driven

25. © Devinney, 2008 A Few Final Words

26. © Devinney, 2008 Is There a Thing Called International Strategy? The short answer is NO! Intl strategy is strategy in a more complex environment Rather on one set of economic environments you have many –Big implications for financing, marketing, accounting Rather than one set of cultural environments you have many –Big implications for marketing and human resources Rather than one set of political environments you have many –Big implications for all aspects of business subject to political risk Intl strategy is strategy with more complex managerial choices Organisational form is more complex and requires an interaction between more players both inside and outside the firm –Trade-offs between centralized and decentralized models of organizational design have never been solved –Alliances, licensing/franchising, FDI, exporting and a plethora of mixtures of this are always on the table

27. © Devinney, 2008 Managerial Responses Essence of international operations is: The expansion of managerial control (expertise and knowledge) The simultaneous Exploitation of existing advantage Exploration for future advantage The development of distinctive MNE competences The ability to exploit internal and external networks System-wide optimization

28. © Devinney, 2008 Managerial & Organizational Factors Leading to International Success The firm sees itself as a MNE led by a TMT that is comfortable on the world stage Develop integrated strategies that are costly and difficult to duplicate Understand that innovation is a global Operate as if the world was one market Have systems that keep them abreast of political/environment developments Are well managed—stick close to customers, run a lean organisation, and encourage autonomy and entrepreneurial activity MNEs must be able to accommodate their natural disadvantage, the cost of managing far flung operations

29. © Devinney, 2008 How Do You Become a Successful MNC? Short answer is no one really knows how to do it. We do know, however, to what it is related: More successful MNCs have a greater percentage of intangible assets More successful MNCs establish a dominant organisational culture that allows it to be less effected organisationally More successful MNCs are better at disaggregating their value chains