Regional

&
Global Strategy
Khurram Zafar

Objectives
1. Define the terms International
Business and MNC.
2. Discuss the 2 primary ways in which
international business occurs:
a) Trade &
b)Foreign Direct Investment (FDI).
3. Examine the impact of the TRIAD
on
international
trade
and
investment.
4. Describe the current state of world
economies
and
the
role
of
government and trade regulations

Objectives
5. Discuss
the
importance
of
technology and the role of SMEs in
the international business arena.
6. Examine how MNCs use triad /
regional strategies to compete
effectively
in
the
international
market place.
7. Discuss
the
determinants
of
national competitive advantage.

Introduction
International Business: the study of
transactions taking place across national
borders for the purpose of satisfying the
needs of individuals and organizations.
Multinational Corporations (MNCs): a
company headquarter in one country but
having operations in other countries.

Multinational Strategies & Structures

Pressures for Cost Reductions and Local Responsiveness
Four strategic choices for MNCs

1.Home
Replication
Strategy
emphasizes
the
international
replication
of
home
country-based
competencies
2.Localization (multidomestic) strategy is an extension
of the home replication strategy, focusing on a number of
foreign countries/regions, each regarded as a stand-alone
local market worthy of significant attention and adaptation
3.Global standardization strategy is the opposite of the
localization strategy
4.Transnational strategy aims to capture the best of
both worlds by endeavoring to be both cost efficient and
locally responsive
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Multinational Strategies and Structures:

The IntegrationResponsiveness Framework

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Four Organizational Structures

Four organizational structures that
are appropriate for the four strategic
choices:
1. International division
2. Geographical area
3. Global product division
4. Global matrix

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1. International Division
International Division
Typically set up when firms initially expand
abroad, often when engaging in a home
replication strategy

Problems:
Foreign
subsidiary
managers
in
the
international division are not given sufficient
voice relative to the heads of domestic divisions
The SILO effect: International division
activities are not coordinated with the rest of
the firm, which focuses on domestic activities
Firms often phase out this structure after their
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initial
overseas expansion
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2. Geographic Area Structure

Geographic Area Structure
Organizes the MNC according to different
geographic areas (countries and regions)
Is the most appropriate for a localization
strategy
Its ability to facilitate local responsiveness is
both a strength and a weakness

Problems:
While being locally responsive can be a virtue,
it may also encourage the fragmentation of the
MNC into highly autonomous, hard-to-control
fiefdoms
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3. Global Product Division Structure

Global Product Division Structure
Supports a global strategy in treating each
product division as a stand-alone entity with full
worldwideas
opposed
to
domestic
responsibilities for its activities
Facilitates attention to pressures for cost
efficiencies in allowing for consolidation on a
worldwide (or regional) basis and reduction of
inefficient duplication in multiple countries

Problems:
It is the opposite of the geographic area
structure:
Little local responsiveness
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4. Global Matrix
Global Matrix
Is often used to alleviate the disadvantages
associated with both geographic area and
global product division structures
Is intended to support the goals of the
transnational strategyin practice, it is often
difficult to deliver

Problems
May add layers of management, slow down
decision speed, and increase costs while not
showing significant performance improvement
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A Comprehensive Model of
Multinational Structure,
Learning, and Innovation

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Figure 10.6

12

Industry-Based Considerations
Industry characteristics
Industrial products firms: Favor global product divisions
Consumer goods firms: Favor geographic areas

Porters forces
Interfirm rivalry increasingly focuses on learning and
innovation
Need to heighten entry barriers: Behind some recent
moves to phase out multi-domestic strategy and to erect
world-scale facilities to deter entrants
Bargaining power of suppliers and buyers: They also have
to internationalize if the focal MNE goes overseas
MNE R&D often generates competing substitute products
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Resource-based Considerations
Value
Does any new structure (such as matrix) really add value?
Does innovation really add value? Not always!

Rarity
When all rivals adopt a global strategy, it is not rare

Imitability
It is easier to imitate formal structure. But how to imitate an
elusive, informal matrix which is a philosophy?

Organization
Some MNCs are better able to take advantage of complex
organizational structures such as matrix than others

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Institution-Based Considerations
Formal and informal external institutions
Formal Institutions
Externally, MNEs, are subject to the formal institutional
frameworks erected by various home- and host-country
governments
Host-country governments often encourage, or coerce MNEs
into undertaking certain activities

Informal Institutions
Strategists weigh the informal backlash against activities which
result in domestic job losses

Formal and informal internal institutions

Formal organizational charts do not necessarily reveal the
informal rules of the game
Three choices: (1) a home-country national as the head of a
subsidiary, (2) a host-country national, or (3) a third country
national
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MNCs Activity
Most MNCs activity can be classified into
two major categories:
1. Trade (exports and imports):
More than 50% of all trade is made by
the worlds largest 500 MNCs.
2. Foreign Direct Investment (FDI):
80% of all FDI is made by the worlds
largest 500 MNCs.

Trade & Investment

Trade consists of exports and imports:
Exports: goods and services produced
in one country and then sent to
another country.
Imports: goods and services produced
in one country and bought in another
country.
Foreign
Investment:
consists
of
companies investing funds to start or
improve operations in another country.

The Triad
Most global transactions take place within
and between three key regions:
1. The United States,
2. The European Union and
3. Japan;
These are referred to as:
The TRAID

The Triad: The United States (US)

1. The US has the largest economy in the world
with a GDP of over $10 trillion.
2. The US is part of the North American Free
Trade Agreement (NAFTA) with Canada and
Mexico.
3. The US economy is significantly larger than
that of its two trading partners and is therefore
a triad member on its own.

The Triad: The European Union

(EU)

1. The EU (or EU27) is composed of the

countries in the EU15 (Austria, Belgium,
Denmark, Finland, Germany, Greece,
France, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain, Sweden,
and the UK) and twelve new, mainly
Central European, countries that joined
in 2004 and 2007.
2. The collective GDP of the EU is greater
than that of the US and Japan.
3. The EU27 is the worlds largest importer
and exporter.

The Triad: Japan

Japan is the Largest economy in Asia.
Japan is the 4th Largest importer and 4th Largest
exporter in the world.

Todays
International
Environment

International Business
Environment
The international
business environment has
changed rapidly in recent years as a result
of:
1. An
overall
slowdown
of
triad
economies;
2. Increased trade liberalization through
trade agreements;
3. Improvements in technology;
4. The emergence of SMEs.

Slowdown of Triad Economies

In the late 1990s and in 2000s, the United
States, the EU and Japan all experienced a
reduction in economic activity, which in
turn decreased international business
activity.

International Trade Regulation

An important international business trend has
been the emergence of regional and global trade
and investment liberalization and international
regulation.

1. The World Trade Organization (WTO).

2. General Agreement on Tariffs and Trade
(GATT).

The World Trade Organization

1. Established on January 1, 1995.
2. An international organization that deals with
rules of trade among member countries.
3. Enforces the provisions of the General
Agreement on Tariffs and Trade (GATT).
4. Acts as a dispute-settlement mechanism.

General Agreement on Tariffs &

Trade (GATT)
1. Established in 1947 to liberalize trade
and to negotiate trade concessions
among member countries.
2. Today, the WTO is enforcing the
provisions of the GATT.

Improved Technology
More powerful and affordable technology
has
promoted
fast
easy
worldwide
communication and improved production
capabilities enabling organizations to
operate
more
effectively
in
the
international marketplace.

Small & Medium Size Enterprises

(SMEs)
1. The definition of SMEs varies according
to the nation. In general, it refers to
companies with between 11 and 500
employees with sales of less than $5
million.
2. MNCs often purchase from SMEs. This is
because their specialized workforces,
innovation and technology allows SMEs
to provide goods and services more
efficiently than if the MNC were to source
these internally.

Globalization and
Strategic
Management
Regional Triad

Misconceptions about MNCs

Common misconceptions about MNCs:
1. MNCs have far-flung operations or earn
most of their revenues overseas.
2. MNCs are globally monolithic and
excessively powerful in political terms.
3. MNCs produce homogeneous products
for the world market and through their
efficient techniques are able to dominate
local markets everywhere.

Misconceptions about MNCs

(Cont.)

In fact,
4. MNCs earn most of their revenues in
their home regions.
5. The largest 500 MNCs are not spread
around the world but clustered around
the triad.
6. These MNCs engage not in global
competition but in triad / regional
competition; this rivalry effectively
eliminates enduring political advantage.
7. MNCs adapt their products for the local

Globalization and strategic

Globalization
and
management
Strategic
Management

Maintaining
Economic

Porters Determinants of
National Competitive Advantage
Why are some firms able to innovate
consistently while others are not?
1. Factor conditions
2. Demand conditions
3. Related and supporting industries
4. Firm strategy, structure, and rivalry.
Each of these determinants depends on the
others as a system.

The Study of
Multinational
Global
From General to Strategic
Business
Emphasis