Entry Strategies and Organizational Structures

1. Entry Strategies andOrganizational Structures 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. The specific objectives of this chapter are:

2. Entry Strategies andOrganizational Structures 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. The specific objectives of this chapter are:

3. North America Western Europe Japan Australia and New Zealand 0 20 40 60 80 100 Entry Strategies and Ownership Structures DEVELOPED MARKETS % OF RESPONDENTS Adapted from Figure 9–1: Preferred Strategies for Global Expansion

4. 0 20 40 60 80 100 Entry Strategies and Ownership Structures EMERGING MARKETS % OF RESPONDENTS Adapted from Figure 9–1: Preferred Strategies for Global Expansion

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. High Low Low High Organizational Consequences of Internationalization Aircraft Cameras Consumer electronics Computers Telecommunications Aerospace Automobiles Pressure for globalization Synthetic fibers Steel Clothing Cement Packaged goods Pressure for local responsiveness Adapted from Figure 9–2: Organizational Consequences of Internationalization

12. 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

13. Production Marketing Finance Human Resources France Japan Egypt Australia Argentina Basic Organizational Structures Chief Executive Office Home-office departments V.P. International Operations Overseas subsidiaries Adapted from Figure 9–3: Use of Subsidiaries during the Early Stage of Internationalization

14. 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

15. Production Marketing Finance Human Resources Domestic Division: Plant Domestic Division: Tools Domestic Division: Hardware Domestic Division: Furniture Australia Japan Italy Office Operations Marketing Government Relations International Division Structure (Partial Organization Chart) Chief Executive Officer Home-office departments Operating divisions International Division: Adapted from Figure 9–4: An International Division Structure

16. Global Product Division • 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

17. Production Marketing Finance Human Resources Product Division E Product Division A Product Division B Product Division C Product Division D S. America Africa Europe Australia Far East Production Marketing Finance Human Resources Global Product Division (Partial Organization Chart) Chief Executive Officer Home-office departments Operating divisions Great Britain France Germany Italy Netherlands Adapted from Figure 9–5: A Global Product Division Structure

18. 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

19. Production Marketing Finance Human Resources Africa North America South America Europe Asia Global Area Division (Partial Organization Chart) Chief Executive Officer Home-office departments Operating divisions Great Britain France Germany Italy Netherlands Adapted from Figure 9–6: a Global Area Division Structure

20. Global Functional Division • 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

21. Production Marketing Finance Domestic Production Product A Product B Product C Product D Domestic Production Product A Product B Product C Product D Foreign Production Product A Product B Product C Product D Foreign Production Product A Product B Product C Product D Global Functional Division (Partial Organization Chart) Chief Executive Officer Adapted from Figure 9–7: a Global Functional Structure

22. Mixed Organization Structures • 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

23. Production Marketing Finance Human Resources Europe North America Industrial Goods Mixed Organization Structures (Partial Organization Chart) Chief Executive Officer Home-office departments Operating divisions Manager, Industrial Goods North America Manager, Industrial Goods Europe Adapted from Figure 9–8: A Multinational Matrix Structure

24. Transnational Network Structures • 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

25. Transnational Network Structures Adapted from Figure 9–9: The Network Structure of N.V. Philips

26. Control Mechanisms Adapted from Table 9-2: Control Mechanisms Used in Select Multinational Organization Structures

27. Nontraditional Organizational Arrangements • Organizational arrangements from mergers and acquisitions • Organizational arrangements from joint ventures and strategic alliances • Organizational arrangements from Keiretsus

28. BASIC VALUES Asian and Western Management Features ORGANIZATION MANAGEMENT STYLE ACTION Adapted from Figure 9-10: A Comparison of Asian and Western Management Features

29. 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 (http://elance.com) • 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

30. 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

31. Changing Role of Information Technology in Organizing Adapted from Table 9–3: Contrasting Approaches to Using Information Technology: Western and Japanese Views

32. Organizational Characteristics of MNCs • Formalization • Specialization • Centralization

33. Organizational Characteristics of MNCs Adapted from Table 9–4: Organizational Characteristics of U.S. and Japanese Firms in Taiwan

34. Organizational Characteristics of MNCs Adapted from Table 9–5: Internal vs. External Networks

35. Organizational Characteristics of MNCs Adapted from Table 9–6: Managers’ Influence in U.S. and Japanese Firms in Taiwan

36. Australia (p. 290) Getting in on the ground floor (p. 291) Reliance (p. 350) Cases