International Strategic Management

Entry Strategies and Organizational Structures

Mark McKenna BUS 162 (6), International and Comparative Management San Jose State University
Chapters 9, Hodgetts, Luthans and Doh, International Management: Culture, Strategy and Behavior , 6th edition (New York: McGraw-Hill Irwin, 2006)
Adapted from PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University

OVERVIEW
1.

Patterns of Internationalization

2.
3.

Entry Strategies
Organizational Structures

Patterns of Internationalization

Why go international?
Expand markets (exporting) Acquire resources (labor, materials, capital) Diversification/minimize competitive risk

How do firms go international?

Import and export of goods/materials Import and export of services Direct investment

Source: Mary Yoko Brannen

Entry Strategies
Exporting and Importing

Advantages
Only available choices for small and new firms wanting to go international Exporting and importing can provide easy access to overseas markets

Constraints
Reliance on foreign distributors and suppliers Competitive risk

Strategy usually is transitional in nature

Entry Strategies
Exporting and Importing
Wholly Owned Subsidiary

Advantages
Desire for total control Belief that managerial efficiency is better without outside partners Host countries concerns may limit or prohibit fully owned subsidiaries Home-country unions may view foreign subsidiaries as exporting jobs

Constraints

Increasing attention to other options

Mergers, alliances, and joint ventures

Entry Strategies
Exporting and Importing
Wholly Owned Subsidiary Mergers and Acquisitions

Advantages
Each company contributes its strategic strengths to increase the global competitiveness of the firm Each firm has relevant local knowledge for its domestic market

Constraints
Challenges of post-merger integration Commitment of capital limits flexibility and adaptability

Entry Strategies
Exporting and Importing
Wholly Owned Subsidiary Mergers and Acquisitions Alliances and Joint Ventures

Advantages
Improved efficiency Increased access to knowledge Reduced political risk Gain insider advantages Lack of knowledge about local partners Time required to develop relationships Concerns to protect IP rights Dependence on partner skills High switching costs

Constraints

Entry Strategies
Exporting and Importing
Wholly Owned Subsidiary Mergers and Acquisitions Alliances and Joint Ventures

Advantages
Improved efficiency Increased access to knowledge Reduced political risk Gain insider advantages Lack of knowledge about local partners Time required to develop relationships Concerns to protect IP rights Dependence on partner skills High switching costs

Constraints

Entry Strategies
Exporting and Importing
Wholly Owned Subsidiary Mergers and Acquisitions Alliances and Joint Ventures Licensing and Franchising

Advantages
Allows small firms that lack financial and managerial resources to avoid entry costs Allows firms to enter markets without making a direct investment (WOS, merger or acquisition)

Constraints
New competitors created Dependence on licensee Concerns about trademark protection Difficulty in maintaining quality control

ORGANIZATIONAL STRUCTURES
1.

Basic Organizational Structures

a. b. Initial division structure International division structure
Global product division Global area division Global functional division Mixed or matrix structures Transnational network structures Keiretsus-like arrangements

2.

Global Structural Arrangements

a. b. c.

3.

New Organizational Structures

a. b. c.

Initial Division Structures

Home-office departments
Chief Executive Office

Production Overseas subsidiaries, distributors or manufacturing operations

Marketing

Finance

Human Resources

V.P. International Operations

France

Japan

Egypt

Australia

Argentina

Adapted from Figure 93: Use of Subsidiaries during the Early Stage of Internationalization

Initial Division Structures

Subsidiary
Common for financial and other service firms where main export is expertise

Export Arrangements
Common among manufacturing firms, especially those with technologically advanced products

On-site Manufacturing Operations

Responds to local government pressures and competition Reduces transportation costs

International Division Structure

Home-office departments Chief Executive Officer Human Resources
Production Marketing Finance

Operating divisions
Domestic Division: Plant Domestic Division: Tools Domestic Division: Hardware Domestic Division: Furniture Australia Office Operations
Adapted from Figure 94: An International Division Structure

International Division:

Japan

Italy

Marketing

Government Relations

International Division Structure

Description

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

Advantages

Disadvantages

Separates domestic from international managers May find it difficult to think and act strategically, or to allocate resources on a global basis

Global Product Division

Home-office departments Production Operating divisions Product Division A S. America Product Division B Africa Product Division C Europe Product Division D Australia
Great Britain France Germany Italy Netherlands

Chief Executive Officer Marketing Finance

Human Resources

Product Division E Far East

Production

Marketing

Finance

Human Resources

Adapted from Figure 95: A Global Product Division Structure

Global Product Division

Description
Domestic divisions given worldwide responsibility for product groups Global product divisions operate as profit centers

Advantages
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

Disadvantages
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

Global Area Division

Home-office departments Production Operating divisions North America South America Europe Asia Great Britain France Germany Italy Netherlands
Adapted from Figure 96: a Global Area Division Structure

Chief Executive Officer Human Resources

Marketing

Finance

Africa

Global Area Division

Description

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

Advantages

Disadvantages

Global Functional Division

Chief Executive Officer

Production

Marketing

Finance

Domestic Production Product A Product B Product C Product D

Foreign 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

Adapted from Figure 97: a Global Functional Structure

Global Functional Division

Description

Organizes worldwide operations primarily based on function and secondarily on product

Emphasizes functional expertise, centralized control, and relatively lean managerial staff Favored by firms that
Need tight, centralized coordination and control of integrated production processes Are involved in transporting products and raw materials between geographic areas

Advantages

Disadvantages

Approach not used except by extractive companies such as oil and mining firms 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

Mixed or Matrix Structures

Home-office departments Chief Executive Officer Human Resources

Production Operating divisions North America

Marketing

Finance

Industrial Goods

Europe

Manager, Industrial Goods North America

Manager, Industrial Goods Europe

Adapted from Figure 98: A Multinational Matrix Structure

Mixed or Matrix Structures

Description

Combination of global product, area, and functional arrangements

Cross-cutting committee structures Matrix structures

Advantages

Structure can be designed to best meet needs Promotes an integrated strategic approach tailored to local needs and priorities As the matrix designs complexity increases, coordinating the personnel and getting everyone to work toward common goals often become difficult Too many groups go their own way

Disadvantages

Transnational Network Structures

Adapted from Figure 99: The Network Structure of N.V. Philips

Transnational Network Structures

Description
Nodes linking a worldwide network of subsidiaries, alliances and joint ventures Networks consist of dispersed units, specialized operations, and interdependent relationships

Advantages
Allows firms to take advantage of economies of scale while being responsive to local customer needs Flexible and adaptable, since different product line units and geographical area units can have different structures depending on what is best for their particular operations

Disadvantages
Highly decentralized, control depends on a shared organizational culture Complex to develop, manage and sustain

Keiretsu-like Arrangements

Description
Vertically and/or horizontally integrated groups of companies Linked through cross-ownership, interlocking directorates, long-term business dealings, and social ties

Advantages
More reliable access to materials, capital, and markets Ensure access to high quality inputs and just-in-time delivery Sharing of R&D costs and information Cross-marketing of products and services

Disadvantages
May limit shareholder rights and promote management complacency Interdependence and inward focus can over-insulate the firm and limit innovation

Review: Four Strategic Options

National responsiveness
Low High

Global integration

High

Global strategy

Transnational strategy

Low

International strategy

Multi-domestic strategy

Adapted from Figure 81: Global Integration vs. National Responsiveness

Organizational Structures
Pressure for globalization High
Aircraft Cameras Consumer electronics Computers
Telecommunications

Aerospace

Global Structural Arrangements

Automobiles Synthetic fibers Steel

Mixed and Transnational Structures

Low

Initial Division Structures

Clothing

International Division Structures

Packaged goods

Cement

Low High Pressure for local responsiveness

Adapted from Figure 92: Organizational Consequences of Internationalization

Coda: Electronic Networks

Forms
Electronic freelancers: Individuals who work on a project, usually via the Internet, and move when assignment done Temporary companies: Individuals assigned for a particular, short-term purpose and then go on to other assignments

Characteristics
Services outsourcing function (delivered online) People in structure are temporary, contingent employees, and never see each other