Transcript Managing the Multinational Enterprise

COURSE STRUCTURE
Classes 1-4
International business environment
Regional vs. global
Triad and IB activities
Politics, culture, trade and finance
Classes 5-9
Firm-specific advantages and firm management
Organization
Production
Marketing
International HRM
Political risk management
International financial management
Class 10
Country-specific advantages
Classes 11-14
Locational choice and regional management
European Union, North America, Japan, and Emerging Markets
REVIEW QUESTION:
THEORY OF
COMPARATIVE
ADVANTAGE
LECTURE 1
ORGANIZING STRATEGY
DOMESTIC BUSINESS ONLY
Internationalization process
EARLY STAGES
 Licensing/expor ts will be
assigned to marketing
depar tment as sales
activities.
Internationalization process
AN EXPORT DEPARTMENT STRUCTURE
Internationalization process
OVERSEAS SUBSIDIARIES
Internationalization process
T H E I N T E RNATI ONAL DI VI SI ON:
A N I N T E RMEDIARY BE T WE EN C E O A N D OVE RSE AS OP E RAT IONS
Internationalization process
AN INTERNATIONAL DIVISION
Advantages
Disadvantages
Reducing CEO’s burden
Increasing coordination cost for resource allocation
between domestic- and international operations
Further prioritizing international operations with a
devoted team
Creating difficulties if the management is not trained for
international markets
Despite all the
shortcomings, this
remains the dominant
form among US
MNEs.
A GLOBAL PRODUCT STRUCTURE
Internationalization process
A GLOBAL PRODUCT STRUCTURE
Advantages
Disadvantages
Allowing localized operating strategies (e.g., finance,
marketing, HR, govt relations, etc.)
Inefficiency in terms of duplicating HR teams under each
product line
Allowing centralizing by each production line to ensure
the quality standard of products
Overlooking and even mistakenly abandoning other
products that do not generate current profits but have
long-term potential in future.
Product managers are usually product professionals, and
not trained to have a global marketing mind.
A GLOBAL AREA STRUCTURE
Internationalization process
A GLOBAL AREA STRUCTURE
Advantages
Disadvantages
Allowing high national responsiveness to local tastes and
regulations
The usual product emphasis, as a usual firm-specific
advantage, must be subsumed to geographic orientation
and the authority of the area managers
Allowing economy of scale that requires a region-sized
unit for production
Duplicating facilities: each region has its own production
and marketing facilities.
Hard to coordinate an overall strategy/plan.
International cooperation and synergy is sacrificed.
Hard to centralize resources for risky activities like R&D
and new product development: one size doesn’t fit all.
A GLOBAL FUNCTIONAL STRUCTURE
Internationalization process
A GLOBAL FUNCTIONAL STRUCTURE
Advantages
Disadvantages
Allowing a small group of managers to maintain control
over a wide-reaching organization, little facility
duplication, and tight, centralized control.
Difficulty in coordinating the production and marketing
areas, which are independent of each other.
Profit responsibilities overburden the CEO since there is
very little diffusion of operation authority far down the
line.
Most common among raw materials extractors with
heavy capital investment, and energy firms.
A GEOGRAPHIC MATRIX STRUCTURE
 Regional manager: polycentric  national responsiveness
 Product manager: ethnocentric  company standard/profit
 Matrix manager: reports to both R and P managers
Internationalization process
A MULTINATIONAL MATRIX STRUCTURE
Internationalization process
LECTURE 2:
PRODUCTION STRATEGY
Integration by resource–based MNEs

MNEs need to organize their production management so that they
can minimize operating costs through the use of logistics and
inventor y control.



Backward integration: the ownership of equity assets used earlier
in the production cycle, such as an auto firm that acquires a steel
company.
Forward integration: the purchase of assets or facilities that move
the company closer to the customer such as a computer
manufacturer that acquires a retail chain, which specializes in
computer products.
Vertical integration
Horizontal integration: the purchase of firms in the same line of
business such as a computer chip firm, which acquires a
competitor.
INTEGRATION MODES
Suppliers
Industry
Customers
•Raw materials and intermediate goods
providers, designers, technology providers, etc.
backward
•Manufacturing & Production
horizontal
•Wholesalers & Retailers
forward
A resource-based view
BACKWARD, FORWARD, OR HORIZONTAL?
AN ANALYSIS
BACKWARD, FORWARD, OR HORIZONTAL?
STRATEGIC ACTION
Google Inc. were to expand its US market share by
diversifying the hosting equipment (e.g., new
devices other than PCs) of Google products (e.g.,
Android) and controlling the technologies that
support these hosting equipment.
MOTIVATION BEHIND INTEGRATION
• Moving up in the value chain
• Achieving the economy of scale
A value-chain-based view

Production strategies do not
begin with manufacturing. They
start with the research and
development of new or innovative
goods and services.

Innovation can be broadly divided
into:

product/service development:
innovation activities, which support
the creation or improvement of new
products and services

process development: innovation
activities, which improve the way
products/services are produced,
making them quicker cheaper or
better quality.
A TALE OF ONE OF THE MOST IMPORTANT
INNOVATIONS IN THE AUTO INDUSTRY
HISTORY:
IDENTIFY WHICH T YPE(S) OF INNOVATION THERE
IS(ARE)
M N E S A RE M ORE I N N OVATI VE T HA N DOM E ST IC F I RM S
 Tacit skills embodied in their global networks and
experiences
 Familiarity with global trends in new products and services
 Knowledge integration through multiple R&D centers in the
world
 The ability to find technological assets in a broader market
INNOVATION HIERARCHY
Blue-sky or basic R&D centers: often linked to universities or government
research institutes to tap into highly specialized expertise.
Applied R&D: practical, near-market
Technical center: incremental
improvements, minor adaptations
Applied R&D
Technical center
Technical center
GLOBAL R&D LOCATIONS
Local market
requirements


Adaptation,
design and
development, and
engineering
support
Local “national
system of
innovation”


Local tech
resources,
expertise,
contract
companies,
universities, and
so on
 Source: The Global Innovation Index 2013, BCG, retrieved from
http://www.globalinnovationindex.org/ .
 Source: The Global Innovation Index 2013, BCG, retrieved from
http://www.globalinnovationindex.org/ .
SPEED-TO-MARKET
The cost (benefits) of arriving late (early) to market
Source: Academy of Management Executive, “The New Competitors: They Think in Terms of ‘Speed-to-Market’,” by Joseph T.Vesey. Copyright © 1991
SPEED-TO-MARKET
 Increase the speed-to-market:

Time-to-market accelerators

Example 1: Modular integrated robotized system (MIRS)

Example 2: Concurrent engineering
 Global value chain (GVC)
 IB activities
 Transnational corporations (TNCs)
 Technology development
THEORY OF COMPARATIVE ADVANTAGE:
SPECIALIZATION AND TRADE
AS VALUE ADDING ACTIVITIES
THEORY OF COMPARATIVE ADVANTAGE:
SPECIALIZATION AND TRADE
AS VALUE ADDING ACTIVITIES
THEORY OF COMPARATIVE ADVANTAGE:
SPECIALIZATION AND TRADE
AS VALUE ADDING ACTIVITIES
FDI AND VALUE-ADDING
GVC PARTICIPATION AND DEVELOPMENT
GVC PARTICIPATION AND FIRM PRODUCTIVIT Y
IN CLASS ASSIGNMENT
 Read the case of Flextronics on the pages 317 -318 in your
textbook, and answer the following question:
 If Flextronics would want to move up its position in the global
value chain (GVC), should it choose forward, backward, or
horizontal integration? Please explain the reasons. Please
also give some specific examples, what industries/products
should Flextronics take over?