the impact of globalisation on the organisation of activities key points international division...
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The Impact of Globalisation on the Organisation of Activities
Key PointsInternational Division StructuresArea Division StructuresGlobal Product Division StructuresTransnational StructuresAffiliates
International Division Structure
VP Product C VP International
CEO
Domestic Market
Domestic Market
International Market
VP Product A VP 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 DuplicatedMarket Emphasis International NationalTransfers Product/Technology Technology/SkillsAffiliate Evaluation Cost Center Profit CenterAffiliate Role Implement Strategy Develop & Implement
strategyAffiliate Autonomy Low HighAffiliate 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 10The Evolving Multinational
Key PointsDimensions of EvolutionMNC 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 10-1Typical Pattern ofLine of BusinessDiversification
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
StrategicLeadership
Time
Exhibit 10-2Typical Pattern ofFunctional 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