Cha
pter 9
Entry Strategies andOrganizational Structures
1. DESCRIBE how an MNC develops and implements entry strategies and ownership structures.
2. EXAMINE the major types of organizational structures used in handling international operations.
3. ANALYZE the advantages and disadvantages of each type of organizational structure, including the conditions that make one preferable to others.
The specific objectives of this chapter are:
Cha
pter 9
Entry Strategies andOrganizational Structures
4. DESCRIBE the recent, nontraditional organizational arrangements coming out of mergers, joint ventures, keiretsus, and other new designs including electronic networks and product development structures.
5. EXPLAIN how organizational characteristics such as formalization, specialization, and centralization influence how the organization is structured and functions.
The specific objectives of this chapter are:
3
Entry Strategies and Ownership Structures
DEVELOPED MARKETS
% OF RESPONDENTS
0 20 40 60 80 100
North America
Western Europe
Japan
Australia and New Zealand
Adapted from Figure 9–1: Preferred Strategies for Global Expansion
4
Entry Strategies and Ownership Structures
% OF RESPONDENTS
EMERGING MARKETS
0 20 40 60 80 100
Adapted from Figure 9–1: Preferred Strategies for Global Expansion
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Entry Strategies and Ownership Structures
An overseas operation that is totally owned and controlled by an MNC
MNC’s desire for total control and belief that managerial efficiency is better without outside partners
Some host countries are concerned that the MNC will drive out local enterprises and others prohibit fully owned subsidiaries
Home-country unions sometimes view foreign subsidiaries as an attempt to “export jobs”
Today many multinationals opt for a merger, alliance, or joint venture rather than a fully owned subsidiary
Wholly owned subsidiary
Wholly owned subsidiary
6
Entry Strategies and Ownership Structures
The cross-border purchase or exchange of equity involving two or more companies
The strategic plan of merged companies often calls for each to contribute a series of strengths toward making the firm a highly competitive operation
Wholly owned subsidiary
Wholly owned subsidiary
Mergers and Acquisitions
Mergers and Acquisitions
7
Entry Strategies and Ownership Structures
Alliance Any type of cooperative relationship among
different firms.
International joint venture (IJV) An agreement under which two or more partners
from different countries own or control a business Nonequity venture Equity joint venture
Advantages Improvement of efficiency Access to knowledge Political factors Collusion or restriction in competition
Wholly owned subsidiary
Wholly owned subsidiary
Mergers and Acquisitions
Mergers and Acquisitions
Alliances and Joint Ventures
Alliances and Joint Ventures
8
Entry Strategies and Ownership Structures
An agreement that allows one party to use an industrial property right in exchange for payment to the other party
By licensing to a firm already there, the licensee may avoid entry costs
Licensor usually may be is a small firm that lacks financial and managerial resources
Companies that spend a relatively large share of their revenues on research and development (R&D) are likely to be licensors
Companies that spend very little on R&D are more likely to be licensees
Wholly owned subsidiary
Wholly owned subsidiary
Mergers and Acquisitions
Mergers and Acquisitions
Alliances and Joint Ventures
Alliances and Joint Ventures
LicensingLicensing
Wholly owned subsidiary
Wholly owned subsidiary
Mergers and Acquisitions
Mergers and Acquisitions
9
Entry Strategies and Ownership Structures
Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee
Widely used in the fast-food and hotel/motel industries
With minor adjustments for the local market, it can result in a highly profitable international business
Wholly owned subsidiary
Wholly owned subsidiary
Mergers and Acquisitions
Mergers and Acquisitions
Alliances and Joint Ventures
Alliances and Joint Ventures
LicensingLicensing
FranchisingFranchising
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Entry Strategies and Ownership Structures
Often the only available choices for small and new firms wanting to go international
Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment
Exporting and importing can provide easy access to overseas markets
Strategy usually is transitional in nature
Wholly owned subsidiary
Wholly owned subsidiary
Mergers and Acquisitions
Mergers and Acquisitions
Alliances and Joint Ventures
Alliances and Joint Ventures
LicensingLicensing
FranchisingFranchising
Exporting and Importing
Exporting and Importing
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Organizational Consequences of Internationalization
Pressure for local responsiveness
Pre
ssu
re f
or
glo
bal
izat
ion
Low
High
Low High
Adapted from Figure 9–2: Organizational Consequences of Internationalization
Aircraft
Cameras
Consumer electronics
Computers
Automobiles
Telecommunications
Aerospace
Synthetic fibers
Cement
Steel
Clothing
Packaged goods
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Basic Organizational Structures
Initial division structures Subsidiary
Common for finance-related businesses or other operations that require an onsite presence from the start
Export arrangement Common among manufacturing firms, especially those with
technologically advanced products On-site manufacturing operations
In response to local governments when sales increase Need to reduce transportation costs
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Basic Organizational Structures
Chief Executive OfficeHome-office departments
Overseas subsidiaries
Production Marketing FinanceHuman
Resources
V.P. International Operations
France Japan Egypt Australia Argentina
Adapted from Figure 9–3: Use of Subsidiaries during the Early Stage of Internationalization
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International Division Structure
International division structures A structural arrangement that 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 Separates domestic from international managers (not good) May find it difficult to think and act strategically, or to allocate
resources on a global basis
See example next slide
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International Division Structure
Chief Executive Officer
Human Resources
FinanceMarketingProduction
Domestic Division:Plant
Domestic Division:Tools
Domestic Division:Hardware
Domestic Division:Furniture
International Division:
Government Relations
MarketingOffice
Operations
Home-office departments
Operating divisions
(Partial Organization Chart)
Japan ItalyAustralia
Adapted from Figure 9–4: An International Division Structure
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Global Product Division
Global product division A structural arrangement in which domestic divisions are
given worldwide responsibility for product groups Global product divisions operate as profit centers 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 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 marketsSee example next slide
17
Global Product Division
Human Resources
FinanceMarketingProduction
Home-office departments
Operating divisions
(Partial Organization Chart)
Adapted from Figure 9–5: A Global Product Division Structure
Product Division A
Product Division B
Product Division C
Product Division D
Product Division E
Africa EuropeS. America Australia Far East
Great BritainFranceGermanyItalyNetherlands
FinanceMarketingProduction Human Resources
Chief Executive Officer
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Global Area Division
Global area division A structure under which 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
See example next slide
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Global Area Division
Human Resources
FinanceMarketingProduction
Home-office departments
Operating divisions
(Partial Organization Chart)
Adapted from Figure 9–6: a Global Area Division Structure
North America
South America
Europe Asia Africa
Great BritainFranceGermanyItalyNetherlands
Chief Executive Officer
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Global Functional Division
Global functional division A structure that organizes worldwide operations primarily
based on function and secondarily on product Approach not used except by extractive companies such as oil and
mining firms Favored only by firms that need tight, centralized coordination and
control of integrated production processes and firms involved in transporting products and raw materials between geographic areas
Emphasizes functional expertise, centralized control, and relatively lean managerial staff
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
See example next slide
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Global Functional Division
(Partial Organization Chart)
Marketing FinanceProduction
Adapted from Figure 9–7: a Global Functional Structure
Chief Executive Officer
Domestic Production
Product AProduct BProduct CProduct D
Foreign Production
Product AProduct BProduct CProduct D
Domestic Production
Product AProduct BProduct CProduct D
Foreign Production
Product AProduct BProduct CProduct D
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Mixed Organization Structures
Mixed organization structures A structure that is a combination of a global product, area, or
functional arrangement Allows the organization to create the specific type of design
that best meets its needs As the matrix design’s complexity increases, coordinating the
personnel and getting everyone to work toward common goals often become difficult
Too many groups go their own way
See example next slide
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Mixed Organization Structures
Adapted from Figure 9–8: A Multinational Matrix Structure
Home-office departments
Operating divisions
(Partial Organization Chart)
North America Industrial Goods Europe
Human Resources
FinanceMarketingProduction
Chief Executive Officer
Manager, Industrial GoodsNorth America
Manager, Industrial Goods
Europe
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Transnational Network Structures
Transnational network structures A multinational structural arrangement that combines
elements of function, product, and geographic designs, while relying on a network arrangement to link worldwide subsidiaries
At the center of the transnational network structure are nodes, which are units charged with coordinating product, functional, and geographic information
Different product line units and geographical area units have different structures depending on what is best for their particular operations
See example next slide
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Control Mechanisms
Adapted from Table 9-2: Control Mechanisms Used in Select Multinational Organization Structures
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Nontraditional Organizational Arrangements
Organizational arrangements from mergers and acquisitions
Organizational arrangements from joint ventures and strategic alliances
Organizational arrangements from Keiretsus
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Asian and Western Management Features
BASIC VALUES
MANAGEMENT STYLE
ACTION
ORGANIZATION
Adapted from Figure 9-10: A Comparison of Asian and Western Management Features
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Electronic Network Form of Organization
Electronic freelancers Individuals who work on a project for a company, usually via the
Internet, and move on to other employment when the assignment is done (http://elance.com)
Temporary companies Serve a particular, short-term purpose and then go on to other
assignments Outsourcing function (can be delivered online) Electronic network is a version of the matrix design
Many of the people in the structure are temporary, contingent employees, never see each other and communicate exclusively in an electronic environment
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Organizing for Product Integration
Cross-functional coordination Six organizational mechanisms used by Toyota
1. Mutual adjustments
2. Direct, technically-skilled supervisors
3. Integrative leadership
4. Technical training is provided in-house, and people are rotated within only one for most, if not all, of their careers
5. Complex forms and bureaucratic procedures
6. Design standards are maintained by the people who are doing the work and are continually changed to meet new design demands
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Changing Role of Information Technology in Organizing
Adapted from Table 9–3: Contrasting Approaches to Using Information Technology: Western and Japanese Views
33
Organizational Characteristics of MNCs
Adapted from Table 9–4: Organizational Characteristics of U.S. and Japanese Firms in Taiwan
35
Organizational Characteristics of MNCs
Adapted from Table 9–6: Managers’ Influence in U.S. and Japanese Firms in Taiwan