What does it mean?

1. Welcome to class ofImpact of Globalization on Organization of Firm’s ActivitiesDr. Satyendra SinghProfessor, Marketing and International BusinessUniversity of WinnipegCanadas.singh@uwinnipeg.cahttp://abem.uwinnipeg.cawww.abem.ca/conference

3. What does it mean?

4. Why now? • Old business model is not competitive • ↓ Trade barrier • ↑ Trust b/w governments • ↑ FDI permitted • ↑ Democracy • ↑ Emerging markets • ↑ Education • ↑ Travel • ↑ Technology • .

5. So, Strategic Mindset is Needed • Activities • Research and Development (R&D) • Production • Marketing • Services • Configured and Coordinated • ↑ Sustainable Competitive Advantage (SCA) across countries • Strategic • That is, we need strategies

6. This is not a Strategy

7. The Strategies

8. Strategy and Structure • Sustainable Competitive Advantage • Efficiency and Responsiveness • Structure • International Division Structure • Area Division Structure • Global Product Division • Transnational (Hybrid) Structure • Seamless Organization  team and Internet • Reducing internal and external barrier

9. International Division Structure… CEO VP Product A VP Product B VP Product C VP International Domestic Market Domestic Market International Market Domestic Market • Evolves from export department • Shipping across borders • When successful, add Int’l division • More % of sales coming from overseas

10. International Division Structure • Except sales, all activities are centered at HO • Advantages • Oversee export and foreign investment • Building and cultivating foreign business ↑ • Because of dedicated international division • HO gives much support and attention to sales • Share learning across product division • No duplication of activities • Easy to negotiate abroad with governments, suppliers, retailers… • Because of size of company

11. Area Division Structure… VP International General Manager (Far East) General Manager (Europe) General Manager (Latin America) Country Manager (Germany) Country Manager (France) Country Manager (Italy, etc.) • When International sales grow as a % of total company sales • Success of intl div leads to area div

12. Area Division Structure… • Advantages • ↑ Efficiency due to globalization • ↑ Effectiveness • ↑ Local responsiveness • ↑ Communication efficiency • ↑ Improved employee morale • ↑ Faster delivery • ↓ Reduced bureaucracy • ↓ Small inventory

13. Area Division Structure… • Strategic decision (↑ responsiveness) • Activities are dispersed or duplicated • GM has assembly plant in each regional market • Product development, purchasing, marketing, sales are regionally coordinated • HO decides which brand to sell, manufacture or market in regions -- Kellogg • However, Regional or Country manager has autonomy and discretionary power over • Marketing, pricing, production, sourcing • To meet the needs of region/country • GM, IBM, Philips

14. Multidomestic Affiliate Structure…

15. Multidomestic Affiliate Structure… • More power to CM acts as parent CEO • CM reports to RM • Manages HO product lines • But has considerable leeway in making production, marketing, service decisions • Affiliate/country is smaller version of parent • Performance is based on profit-centre criteria

16. Multidomestic Affiliate Structure… • Advantages • Disperse activities • Control through local decision making • HO managers do not need to • Travel much • Worry about local issues • Keep abreast with foreign markets, customers • Develop global managers  hire local CM • ↓ Management Turnover

17. Multidomestic Affiliate Structure • Disadvantages • Does not do R & D • Transfer technology and adapt it • Does not export  does not bring $ • Not competitive because they produce multiple products in small volume – efficiency is low • Production cost is higher than parent • Communication between Home and affiliate product division is more complex • HO does not learn from Affiliates • When self-sufficient, CM challenges RM • Dysfunctional behavior and moral problem

18. Global Product Divisions…

19. Global Product Divisions… CEO VP Product A Worldwide VP Product B Worldwide VP Product C Worldwide ---R&D ---Production ---Marketing ---Accounting ---Service ---R&D ---Production ---Marketing ---Accounting ---Service ---R&D ---Production ---Marketing ---Accounting ---Service • Evolves from diversity of products

20. Global Product Divisions…

21. Global Product Divisions… • Activities are controlled - product group • HO managers run affiliate – 3/5 yr term • Specialization and global mindset is needed • Affiliates do not have much autonomy • Thus, play no independent strategic role • HO makes decision about products • Input from affiliates is discouraged • Because products are globally standardized • Role of affiliate is to implement strategy, and not to formulate it  Thus it is a cost centre • Highly efficient, but less responsive

22. Global Product Divisions… • Advantages • Chain of vertically integrated activities • Product division managers can configure activities based on costs and skills across countries • Thus efficient  adjust labor costs, political instability, product quality, exchange rate • Flexible – options among countries • Ideal for global strategies • Maximize competitiveness • By identifying competitors clearly

23. Comparison: Global and Area Structure Global Multidomestic Product StructureArea Structure Product-Line Specialized Duplicated Market Emphasis International National Transfers Product/Technology Technology/Skills Affiliate Evaluation Cost Center Profit Center Affiliate Role Implement Strategy Develop & Implement strategy Affiliate Autonomy Low High Affiliate Management Expatriates, Local, Short-Term Long-Term

24. Transnational (Hybrid) Structure..

25. Transnational (Hybrid) Structure.. • Get advantages of both 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. • Company acts essentially as a network of activities with multiple headquarters spread across different countries.

26. Transnational (Hybrid) Structure • Affiliate roles shift over time and learning and sharing are emphasized. • Emphasis on extensive horizontal linkages, effective communication and extreme flexibility.

27. Affiliate Competence vs. its Initiative

28. Seamless Organization • Destroy barriers inside and outside the organization • Barriers prevent learning, produce inefficiencies, and blunt responsiveness • Teams are the primary unit of analysis in the seamless organization • Seamless organizations try to remove 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.

29. Configuration and Coordination • Configuration • Geographic positioning of activities • Concentrated  in one country • Dispersed  in many countries • Coordination • ↓ if activity of business is independent • Single country, one place • ↑ if we need to integrate across countries