International Strategy and Organization (ISO) ( Advanced Topics: Networks of the MNC )

1. International Strategy and Organization (ISO)(Advanced Topics: Networks of the MNC) Josef Windsperger Professor of Organization and Management

2. International Strategy and Organization (ISO)(Advanced Topics: Networks of the MNC) Lecturer: Josef Windsperger E-mail:josef.windsperger@univie.ac.at Homepage: www.univie.ac.at/IM Phone: 00431-4277-38180

3. The course consists of two parts (Hs. 4): • Lectures on ISO: 7. 4. , 28. 4., 5.5. 2006, 9.00 – 13.00 (course material is published on the web page: www.univie.ac.at/im under ‘Lehrveranstaltungen’). • Case Studies on ISO: 12.5. (9-13.00) , 19. 5. (9 – 14.30) and 16.6. 2006 (9.00 – 13.00) and 17. 6. 2006 (9 – 13.00) • The public lectures are on Friday (11.00 – 12.30); for details see www.univie.ac.at/im. • 1. Public Lecture: May 5, 2006: 11.00, Hs. 4 • Headquarter-Advantages of Vienna in CEE (Mag. Thumser, CEO Henkel Austria • 2. Public Lecture: May 19, 2006: 11.00, Hs. 4 • International Market Entry through Franchising (Mag. W.Martius, Synchon International)

4. Content Part I 1 MNC as Global Network: Existence and Evolution 1.1 Product Life Cycle Theory 1.2 Transaction Cost Theory 1.3 Eclectic Theory 1.4 Network Approach 2 Culture, Strategy and Organization of the MNC 2.1 Country and Organization Culture 2.2 Strategy and Organization Design 3. Theoretical Foundations of Networks 3.1 Economic Approaches of Networks 3.2 Efficiency of Network Design 3.3 Networks, Trust and IT

5. Content Part II 4 Design und Management of Networks of the MNC 4.1 International Licensing 4.2 International Strategic Alliances and Joint Ventures 4.3 International Franchising-Networks 4.4 Networks and M&As 4.5 Market Entry through Networks: An Integrative Approach 4.6 Internationalization through Countertrade 4.7 International Clusters 5 Organization Design of the MNC of the Future

6. 1 MNC als Global Network 1.1 Product Life Cycle Theory Vernon (1966): Extension of the product life cycle view to explain the internationalization of the firm.

8. 1.2 Transaction Cost Theory Transaction costs = • costs of using the price mechanism (Coase 1937) Search costs Information costs Costs of decision making Negotiation costs Planning period: Ex ante costs

9. Transaction Costs Monitoring or control costs Contract execution costs Adjustement costs Contract execution period: Ex post costs

10. Transaction Cost Theory O. E. Williamson (1975) Atmosphere Bounded Rationality Uncertainty/Complexity ‚Information Impactedness‘ Opportunism Transaction Specifity

11. Market and Hierarchy CC Organizational costs (Setup-costs) Transaction costs Degree of organization

12. Quasi-Rents, Specific Investments and Hold-up g BA A B g AB D g AC C g BD B‘s profit with A: gBA A‘s profit with B: gAB A‘s quasi-rent: QRAB = (gAB – gAC) B‘s quasi-rent: QRBA = (gBA – gBD) HOLD-UP Potential of B (HB) Quasi-rent of A (QRBA) =

13. Transaction Cost Theory of the MNC from Teece

14. 1.3 Dunning‘s Eclectic Theory

15. 1.4 Network Approach

16. 2 Culture, Strategy and Organization of MNC2.1 Country and Organization Culture • “Culture is the collective programming of the mind.”Geert Hofstede

18. Hofstede Individualism/collectivism Masculinity/femininity Uncertainty avoidance Power distance

19. Power Distance beschreibt The extent to which people tollerate unequal distribution of power in economy and society. Individualism beschreibt The degree of integration of individuals in groups Individualism: Individual values, individual responsibility, goal orientation Collectivism: Group values, loyal behavior, common responsibility

20. Masculinity beschreibt How strong are masculin values (for instance achievement, success, money) compared to feminin values (security, life quality, social contact)? Uncertainty Avoidance beschreibt How tolerant are the people concerning new and unstructured situations? high UA: Many Rules, regulations and legal norms to minimize risk

21. Model of Hofstede

25. Country Comparison

26. Uncertainty Avoidance • Family or tribe (Asiatic) • Centralized decision making • Loyal, personal relationships • Sozial control (clan control) low • Village market (nordic) • Decentralized, flexible • Coordination through personal and informal communication Formalization • Well-oiled machine • (Germanic) • Decentralized decision • making • Strong role of experts • Coordination through rules • and routines • Traditional bureaucracy • „Pyramid of people“ (Latin) • Centralized decision making • -Central personal coordination • Informal relationships high Power distance low high Hierarchy

27. Model of Trompenaars:Country and Organization Culture Decentralization Guided Missile Incubator Goal Orientation (formal) Persons (informal) Eiffel Tower Family Centralization

29. 2.2 Strategy und Organization design of the MNC2.2.1 Strategies of the MNC What is a competitive advantage? Sustainable cost and/or revenue advantages compared to the best competitor Ressources Capabilities Strategy Industry structure

30. I. Strategic Approaches: Porter‘s Model Competitive advantage through low costs and differentiation monopolistic Rents Low-cost, differentiation and focus strategy

31. Resource-based Approach (Barney, Wernerfelt) Strategy Strategic Rents Competitive advantage Change of the resource bundle Competencies Resources Tangible and intangible resources

32. II. International Strategies: Perlmutter Ethnocentric Strategy Polycentric Strategy Geocentric Strategy Regiocentric Strategy

33. Perlmutter‘s Model

34. Bartlett/Ghoshal-Model high Trans-national Strategy Global Strategy Cost pressures Multi-national Strategy International Strategy low high low Pressure for local responsiveness

35. 2.2.2 Strategy and Organisation Design Chandler (1962): „Structure follows Strategy“ Matrix structure Product-/geographic Structure Functional Structur Differentiation strategy Low-cost strategy

36. Barlett/Ghoshal-Model

37. International Division

38. Global Geographic Structure

39. ABB

40. Comparison

41. Global Heterarchy (Hedlund)Transnational Organization (Bartlett/Ghoshal) Country competence centers Local and global advantages Decentralisation of decision making Centralization of control IT-enabled strategy Organization culture as clan control

43. 3. Theoretical Foundations of Networks Hierarchy Stable Network Internal Dynamic Network Network One Firm Several Firms

44. External Networks Joint Venture Consortium High Countertrade Interaction Level Franchising Cluster Cross-Licensing Licensing Cooperation low Competition Cooperation Cooperation Propensity

45. Keiretsu Other Financial Institutions Banks Insurance Companies Trading Companies Production Companies Subcontractors A B C D F Internal Network External Network Equity: Finance: Goods:

47. Consortium: NewPC-Consortium in Taiwan