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A Presentation by A.V.Vedpuriswar
THE LONG TRADITION OF MUTINATIONALISM
Multinational races : Aryans, Mongolians Multinational religions : Christianity, Islam, Buddhism. Multinational empires : Greek, Roman, Spanish, Turkish, British Multinational companies : European, Japanese, American The East India Company
MULTINATIONAL, GLOBAL AND INTERNATIONAL COMPANIES
Multinational : builds strong local presence through sensitivity and responsiveness to national differences. Global : Builds cost advantages through centralized global scale operations. International : parent company¶s knowledge and capabilities transferred to individual countries accompanied by marginal adaptation. (Bartlett and Ghoshal)
MNC Configuration of assets. capabilities Decentralized nationally self sufficient Global Centralized. globally scaled International centralization of core competencies decentralization of other activities Role of overseas operations Sensing and exploiting local opportunities Implementing parent company strategies Adapting and leveraging parent company competencies Development and diffusion of knowledge Knowledge developed and retained within each unit Knowledge developed and retained at the center Knowledge developed at the center and transferred to overseas units .
Ethnocentric : Home office people put in charge of key international positions. Subsidiary and headquarters managers are treated on equal terms. Depends on local managers from a particular geographic region to handle operations in and around that area. Geocentric: Attempt to integrate diverse regions of the world through a global approach to decision making. . Regiocentric . Polycentric : Local nationals placed in key positions and allowed to appoint and develop their own people.
Ethnocentric means : ± top down style ± global integration ± culture oriented towards home country ± product development determined primarily by the needs of home country customers ± people of home country developed for key positions throughout the world .
Polycentric means ± bottom up approach ± national responsiveness ± culture oriented towards host country ± local product development based on local needs ± people of local nationality developed for key positions in their own country .
Regiocentric ± governance mutually negotiated between region and its subsidiaries ± regional integration and national responsiveness ± regional culture ± standardization within a region but not across regions ± regional people developed for key positions anywhere within the region .
. Geocentric means ± governance style mutually negotiated at all levels of the corporation ± global culture ± global products with local variations ± best people developed everywhere in the world for key positions everywhere in the world.
Extreme Stage of Globalisation Global market participation Global products and services Global location of activities Global marketing Global competitive moves .
Extreme Global value chain Country A B C D E F G H Activity Research & Development Design Purchasing Manufacturing Marketing Selling Distribution Service .
The traditional paradigm M.N Global Intnl Responsiveness : Unilever Kao P&G (Branded packaged goods) Efficiency : Philips Matsushita G.E (Consumer electronics) Transfer of knowledge : ITT NEC Ericsson (Telecom switching) .
TODAY¶S PARADIGM Need to compete on all three dimensions simultaneously: National responsiveness Global efficiency Need to share knowledge across the system A Transnational corporation has such capabilities. We shall use Global and Transnational interchangeably in this presentation. .
Overseas committee set up Need for more autonomy to divisions felt More local competition meant need for locally manufactured products .Unilever Founded in 1885 by William Lever Very early bid to enter export market Aided by Britain¶s capabilities as a colonial power Representatives sent to each markets Hands on centralized style of management After his death.
contd.Unilever. Expatriates replaced by local CEOs Outbreak of World War II Breakdown of Communications with London. Watchwords: ³Local initiative and decentralized control´ . Self-sufficient fully integrated National Operations ³Ization´ process in 1930s. Trade barriers in the 1920s and 1930s Soon...
Unilever. contd.Matrix structure All businesses however similarly managed Mid 1970s. Foods needed customization 1970s: P&G launched new laundry detergents based on rapeseed ...Differences across businesses felt Chemicals / Detergents needed standardization and integration. Geographically supported structure supported by product coordination groups to transfer learning. After World War II.
.. Advertising Manufacturing Pricing & Distribution Marketing & Sales Promotion . contd. Unilever companies responded individually with 13 different products Resistance from companies to accept technological guidance from centre Management soon realised the need to revamp processes Businesses Functions Tasks Chemicals Detergents Personal Products Packaged Foods Research Product Policy Product Devpt.Unilever.
Unilever now realises that organisational requirements vary from business to business. . Personnel: Need for a global mindset ± Job rotation ± Training programs in England ± Job assignments for International Managers in HQ ± Mike Heron . Only First Class people taken ± Cross Unit transfers.High recruitment standards. Responsibility to companies now given within a framework of more globally designed policies and strategies.
More expensive arrangement but Andreassen went ahead to develop a sense of identity and ownership ISS organized around small independent units to which employees felt intense loyalty. Paul Andreassen . entrepreneurship allowed to flourish. CEO broke up powerful national entities into half a dozen small companies per country. . In the process. INTERNATIONAL SERVICE SYSTEMS(ISS) $ 2 billion company in the commercial cleaning business with operations spanning 17 countries on three continents.
springboard for new ideas . abattoir cleaning. uniform cleaning and repair of shopping carts Andreassen¶s commitment to entrepreneurship in frontline units reinforced by building Chinese walls to keep senior executives from meddling in operations Separate Board of Directors for each national subsidiary. labeling. rubble disposals. Individual initiative helped in many ways: Specialized capabilities for cleaning meat section and freezers Entry into new areas such as airports.
5% profit before tax. Andreassen¶s visionary leadership. inspiration. Felt ISS should consider itself not to be a cleaning company but the world¶s best service organisation. Importance attached to development of employees . 12% growth target Andreassen less interested in running operations and more in building an ambitious organization. Autonomy and empowerment balanced by demanding performance standards. open mindedness.insightfulness.
employees move from applied chemistry to applied economics. They learn how to interpret contracts and evaluate profitability of each contract. grow them into operating level entrepreneurs. Five Star training and development program took motivated and competitive frontline cleaning supervisors and by systematically developing their technical and administrative skills. This training comes in handy when . After six months. employees given training in cleaning techniques such as which chemicals to use on specific stains and surfaces. as well as on safety. First six months on the job.
when employees become team leaders. Once employees become team leaders. In 1997. catering and laundry services to a hospital. they receive advice on dealing with customers and learn how to coach junior members of the team. a very demanding customer. the company can bid for complicated contracts offering cleaning. ISS won a contract to clean hotel rooms in Disneyland Paris. Thanks to the extensive training programs as well as its back office expertise. Team leaders are evaluated on the basis of both profitability and customer retention. .
business has recovered. Almost drove company to bankruptcy. Other international firms in the business. Sold the American business in 1998.Rentokil Initial (Britain).Subsequently. Abilis(Netherlands) and Service Master(US) . ISS has sold off its university in order to decentralise training and tailor the programs to suit local conditions Accounting crisis due to lax internal controls in the US. ISS a success story in globalization in an industry considered to the most local of businesses.
Lack of competitiveness in Servicing Need for centralization 1950s: R&D Strengthened ± Leadership position in Cross bar switch (earlier Strowger Switch) . Divergence in technology. subsidiaries became independent Duplication of effort.Ericsson By 1920s: Substantial Worldwide Network of National Operations Strong technological capabilities at Headquarters Gradually.
Australian Engineers led the development of AXE switch in 1982. Need to exploit comparative advantage in assembly processes Mid 1970s: R&D Centralized When National capabilities existed.Pressure from local Governments for technological transfer Development responsibilities delegated to local outfits. 1960s: New Challenges. They designed several key . local managers were transferred to HQ in the 1980s When local Govt insisted on local R&D.
Half the team attached . Later. The local manager¶s strong and entrepreneurial leadership strengthened the subsidiary¶s capabilities beyond what was needed. building excess resources in a non critical environment can be counterproductive. some technicians were transferred to HQ Motivation and transfer of knowledge achieved Without appropriate management. too many restrictions on the development activities of subsidiaries can frustrate skilled and experienced personnel. On the other hand. R&D team in Australia given worldwide development tasks. components.
frequent assignments on HQ subsidiary teams. allocation of worldwide product responsibilities to national firms. to HQ. HQ managers emphasise the importance of developing strong country organizations to generate sales and to tap into locally available resources.constant transfers. . Mechanisms. Contrast with American MNCs having Canadian subsidiaries. Local managers encouraged to think of themselves as part of worldwide group rather than as independent units.
Also balance of power retained between product and functional groups. When overseas units became independent. Software today represents a larger portion of value added. No one group allowed to dominate. Balanced two way flow of ideas between HQ and subsidiaries. Ericsson has been transferring some development activities to advanced overseas operations. Sensitiveness and flexibility in the wake of changes in the environment. reigned in. Differences resolved in national level board meetings which serve as legitimate forums. .
ABB 1988: Merger of Asea & Brown Boveri 1300 companies in 140 countries 65 Global business areas Companies reported to product as well as regional Managers New Information and Reporting system ABACUS (ABB Accounting & Communication System) .
Unambiguous performance standards Feedback by showing relative performance of various units Balance between Strategic and Operational objectives through matrix structure True empowerment 90% of R&D expenditure. 95% of HR activities left to subsidiaries Could borrow locally and retain up to 30% of earnings ABACUS used judiciously .
Compare electrical installation and service with combined cycle power plants. high level of coordination needed across subsidiaries. Barnevik : ³ The vast majority of our businesses fall somewhere between the super local and the superglobal.´ . Potential to globalize varies across businesses.For turnkey projects / total business solutions. Other businesses heavily local. These are the businesses in which building a multi domestic organization offers powerful advantages.
´ . a German company in Germany. ³ It is wrong to say that because we are global. The world is too different and human beings are too diverse. It is how well you bridge the differences that in turn will make you successful. we are uniform. You need to adapt to their individual needs« It is important in many of our markets to project a distinctive national profile. We have to be a Finnish company in Finland. a Swiss company in Switzerland and an US company in the United States. ABB Deputy CEO.
none of our rivals can watch. Marketing Manager and Production Manager. year after year and learning a tremendous amount. We want to create a process of continuous expertise transfer. If we do that. Design Manager.´ . this is a source of advantage. Head of Power Transformers:´ We have 25 countries around the world. each with its own President. These people are working on the same problems and opportunities day after day.
I tell him to go and interview candidates in other countries. Maybe it will make him think that it will be useful to have say an Italian or an American on his senior staff. . It is not because of nationality and language but because he usually knows the person better. Executive Committee to oversee ABB¶s global strategy and performance. a German manager has to appoint someone.´ Mixed nationality teams and personal alliances across borders encouraged. he very often will come up with a German. Members drawn from different nationalities. Barnevik: ³ The thing I watch when say.
Ninety to ninetyfive percent is in execution. big and small.Stretch & Trust Barnevik:´ Thinking.´ . Those close to scene of action allowed to take decisions. Behavioral Characteristics . companies to make the system more manageable Barnevik¶s vision: ³ global and local.the strategies and designsonly gets you 10% of the way. decentralised with central control´ Top management¶s role: create a congenial environment and lay down guidelines for management behaviours. Response to changing environment by reducing number of business areas.
It manufactures. It keeps in touch with technology and market trends all around the world. conducts research.A Global Corporation ³Running a global company is an order of magnitude more complicated than managing a multinational or International firm. National boundaries and regulations tend to be irrelevant or a mere hindrance. The Global or transnational corporation looks at the whole world as one market. raises capital and buys supplies where ever it can do the job best. Corporate headquarters might be anywhere´ .
VIJAY JOLLY. LAUSANNE A global company has the following characteristics : Ability to compete in any market it chooses Ability to bring entire worldwide capabilities to bear on any transaction elsewhere . IMD.
but if what it does in one country has no meaning for what it does in others. .A company can operate in all countries of the world. it is no different from the domestic companies with which it competes.
GLOBAL CHARACTERISTICS Market share Sourcing all assets not just production on an optimal basis Contestability Global orientation of all functions .
Wholly Owned. Acquired.Evolution of the Global Organisation Simple Export Export Manager Export Department / Warehousing Sales Branches / Subsidiaries Assembly abroad Production abroad ± Contract ± Licensing ± Direct Investment viz. Integration & Coordination of foreign affiliates . Turnkey. Joint Venture.
Sharing and Integration .Tailoring country specific strategies to maximize local competitive advantage.Coordinated Approach. Globalisation :.Multi Local Vs Globalised Multi Local :.
Key Issues Globalisation Vs Non Globalisation Degree of Globalisation Activities to be globalised ± Paint Industry ± Restaurants .
Key components of total global strategy Development of Core Business Strategy Internationalisation Globalisation .
Core Business Strategy Types of products. services to be offered Types of customers to be targeted Which geographical markets to target? Functional strategies Competitive strategies .
Business Strategy: A paradigm shift Satisfying demand Excellence in operations Hardware Vertical Integration Natural resources Tangibles Commodities Mass production Creating demand Strategic vision Software Outsourcing Knowledge Intangibles Brands Mass Custmn .
culture. preferences.Internationalisation Selecting the geographic markets Adaptation of products & programs to take into account foreign needs. language etc. System not tightly integrated .
Globalisation Integration & Management of strategies for world wide business leverage & competitive strategy Aspects of strategy to be globalized Evaluating the costs & benefits of globalization .
65(1930) $3.Macro Factors encouraging Globalisation Growing Similarity in Consumer tastes Reduction of tariff & non tariff barriers Heavy technology investments Communications & Information Revolution Impact of Japanese Corporations Air transport : cents 68/mile(1930) 11/mile(1990) 3minute call: $244. Sea freight fell by 70% between early 1980s and 1996 .32(1990) Unit of Computing power -.steep fall.
Common customer needs Global customers & competitors Global channels Transferable marketing Lead countries
Increasing Globalisation of the World Economy
EXPORTS AS A PERCENTAGE OF GLOBAL OUTPUT 1913 1950 1973 1990s 9 7 11 14
In 1996, global FDI was $ 3200 billion.
Role of Government
Favorable trade policies Compatible technical standards Common marketing regulations Government owned competitors/consumers Host Government concerns
The Headquarters hierarchy syndrome Clear superior-subordinate leadership Attempt by headquarters to control key decisions and resources . The UN Model assumption ± Subsidiaries have similar importance and requirements ± Resources and competencies are centralized ± Subsidiaries are expected to implement standardized global strategies B.THE GLOBAL MENTALITY A.
Japan Germany USA Denmark Italy France Consumer electronics Industrial control equipment Computer software Insulin Ceramic tiles Cosmetics
COORDINATION MECHANISMS Centralization Coordination in most Japanese companies shaped by a consensus decision making process which is culture specific and which requires intensive communication. Difficulties in transferring this style abroad. Many Japanese companies have developed international coordination processes that rely on direct actions and intervention of the Headquarters Management Group
Centralization is very costly to operate. As the organization grows in size and complexity, HQ might find it difficult to deal with requests from subsidiaries. Size and bureaucracy of the central decision making unit increases till it reaches the limit. Subsidiary managers might also find it demotivating. Formalization The growth of US MNCs was shaped in an era of professional management in which greater delegation of responsibility was made possible by the development of sophisticated management
Thus. policies and standards. systems that allowed corporate managers to control operations and hold other managers accountable for delegated tasks. The routinisation of decision making delivers important operating efficiencies that are the hallmark of this means of coordination. the coordination process for most American companies was based largely on formal systems. . Decision making is subjected to a set of impersonal policies that assume a power independent of the interests and motives of either headquarters or subsidiary.
A routine decision making approach may not be appropriate in the face of complex and changing tasks that MNCs often face. Socialisation European companies expanded at a time when global communication was slow and expensive. Management of subsidiaries was typically given to family members or trusted acquaintances. The problems associated with this method include the high cost of establishing the systems. They also did not have the systems expertise of American companies. The management process relied on . policies and rules.
Decisions reached by negotiations between . Socialisation is attractive because it does not have the problem of headquarters overload associated with centralization and the inflexibility associated with formalization. individuals¶ understanding of corporate objectives and their personal relationships. This coordination mechanism depended heavily on careful recruitment. it represents a more flexible and robust means of coordination. Since it depends on shared values and objectives. development and acculturation of decision makers.
priorities and values demands indoctrination and training requiring substantial investments. knowledgeable groups with common objectives should be much better than those made by superior authority or standard policy. In addition. The major problem associated with socialisation is cost. Socialisation depends heavily on transfer . ambiguous and more complex. decision making processes are usually slower. However. ensuring that mangers share objectives. It takes the decision load off top management by institutionalising its goals throughout the organisation.
of managers and use of expatriate managers which can be very expensive. Sometimes negotiations can also be long drawn out consuming plenty of time and energy. .
DESIGNING GLOBAL PRODUCTS AND SERVICES Standardize core product Build additions and features to customize ± Automobiles ± Canon ± Computer hardware ± Textbook publishing ± Process control instruments ± Chocolates ± Telecom.convergence of standards .
GLOBAL MARKET PARTICIPATION Significant global market share Balance between geographic and market spread Presence in globally strategic country markets Globally strategic markets: ± Large source of revenues/profits ± Home market of global competitors ± Home market of global customers ± Significant market of global competitors ± Major source of industry innovation .
Portfolio approach is useful. quality control. manufacturing. Stand alone management . MNC strategies.multilocal or global CNDs : Leverage parent¶s expertise in product development. marketing .
Approaches ± Develop products with global market in mind ± Understand reasons for product variations Pay equal importance to product similarities and differences across markets .
superior technological infrastructure Core formula strategy : Strategic advantage Cost based export strategy : Comparative advantage Globally leveraged strategy Untenable strategy .FORMULATING A GLOBALLY LEVERAGED STRATEGY Strategic advantage : core business strategy Comparative advantage : low labour costs.
Coordination of geographically dispersed activities can substitute in some cases for global centralization Consider both strategic and comparative advantage .Guidelines for locating global activities Start with zero based approach Different activities have different centralisation/decentralisation needs Ideal pattern of locations is dynamic Some activities such as R&D need presence in globally strategic countries.
globally strategic countries are characterized by : a) major source of industry innovation b) presence of highly skilled low cost/ R&D workers c) highly demanding customers For manufacturing.In the case of R&D. globally strategic countries are characterized by : a) favorable factor conditions b) close location to major markets c) favorable country of origin effect d) manufacturing presence of global competitors .
Examples (Location of Activities) BECKTON DICKINSON ± Production : USA. Brazil ± Standardized products ± Standardized production processes ± Benefited during Mexican peso crisis . Ireland. Mexico.
. Skill oriented ± Base in Germany. ± 1960s. Portugal Production Germany.. new technology ± Skills available in Italy: Low cost of capital. Later. cheap labour ± 1990s : Paris.1970s : Batch process. US Marketing . Milan Design Italy.Examples CERAMIC TILE INDUSTRY contd. continuous process operations.
ARROW SHIRT Cotton Ginning Spinning Weaving Finishing Dyeing Designer Tailor Wholesaler Retailer Promotion Organiser 1 1 1 1 1 1 6 6 6 18 12 6 Total cost = $ 60 ..
purchase motivation and use/ consumption pattern Brand Name: Global acceptance/ prestige of home country brand name. acceptability of multi language labeling .DEVELOPING A GLOBAL MARKETING STRATEGY Positioning: Similarity of business competitive position. meaning. usage patterns & measurement systems. ease of pronunciation Packaging: Similarity in the information to be communicated.
DEVELOPING A GLOBAL MARKETING STRATEGY contd. Advertising: Same copy strategy Same script.. Trade shows an important exception . different execution Identical advertisements Global + Local tactical campaign combination often used Sales promotion: Least likely candidate for globalisation..
Mango Shakes (Hong Kong) General Foods .Magnetic tapes Nissan / Datsun Fosters Mc Donald¶s ± Beer (Germany) ± Coconut.Global Marketing in action Marlboro 3M .Coffee ± Black (France) ± With Milk (UK) ± Chicory (Latin America) .
. Coca Cola Unilever ± Lux ± Sunsilk ± Food Products .Global Marketing in action contd..
Zenith . involve country managements Dimensions: Product lines and customers of the competitor to target.Making global competitive moves Cross country subsidization Counter parry Globally coordinated sequence of moves Preemptive Global plan necessary to attack global competitors. However. Matsushita Vs GE. selection and timing of countries for offensive moves Eg:VCR Industry. RCA.
costs and quality advantages Global approach means more options for both offence and defence.Market share. Pitfalls . standards. deterioration of competitive position in individual countries.Dip in revenues. profits . Lack of perspective among individual country managers . Early mover advantages .
Building a global organisation Organisation structure Management processes People Culture .
international split Management processes Coordination Technology sharing Information systems Strategic planning Budgets & control Performance review and compensation . Structure Centralised global authority No domestic.
People Comfortable with multi country careers Prepared with extensive travel Culture Global identity .
Some assimilators use critical incidents. attitudes. A situation is classified as a critical incident if it meets one of the following conditions: a) An expatriate and host national interact in the situation . Cultural assimilator : Programmed learning technique designed to expose members of one culture to some of the basic concepts. role perceptions. customs and values of another culture.
b) The situation is puzzling or likely to be misinterpreted by the expatriate. c) The situation can be accurately interpreted if sufficient knowledge about the culture is available d) The situation is relevant to the expatriate¶s task or mission requirements. .
Masculinity ± Situation in which the dominant values in society are success. money and things . Uncertainty avoidance ± extent to which people feel threatened by ambiguous situations and have created beliefs and institutions that try to avoid these. Individualism ± Tendency of people to look after themselves and their immediate family only. Cultural dimensions Power distance ± extent to which less powerful members of institutions and organisations accept that power is distributed unequally.
.American & European Retailers Clothing.Li & Fung Largest export trading company in Hong Kong.7 billion in 1997 Innovative Supply Chain Management practices Customers . Turnover: $ 1. Fashion Accessories.S. Luggage etc.Case Study .B. Both from H.Toys. Founded in 1906 In the 1970s Victor Fung & William Fung joined the family business. Consumer Goods .
Extended Geographic reach. Knowledge of region generated key competitive advantage. Challenge .to transform Li & Fung¶s role of buying agent who was getting squeezed between buyers and factories. Hong Kong strong in Cotton. Working with a large number of countries led to assortment packing by sourcing at the most efficient location . Korea and Singapore. Quotas. Taiwan better in Synthetics. Set up offices in Taiwan.
Discussion with client to develop prototype. Dolls: ± Design in Hong Kong ± Molds in Hong Kong ± Manufacture of dolls & Painting in China ± Final testing. Reconfiguration of value chain by moving Labour intensive production to China. packing in HK ± Distribution & Finance coordinated from HK . Coordinate with factories to ensure quality and on time delivery.Management of manufacturing programs. product mix. production schedule. Next Step . inspection.
± Make Garments in Thailand based on Cheap labour and availability of quotas. ± Weaving & Dyeing in Taiwan. We¶re not asking which country can do the job overall. ³We dissect the manufacturing process and look for the best at each step. ± Manufacturing done at number of factories in Thailand. ± Buy zippers from Japanese company YKK¶s production facility in China. Garments: ± Buy yarn from Korean Producer. Instead we are pulling apart the value chain and optimising each step and we¶re doing it globally.´ .
procurement & inspection of Raw materials.70% of Factory production purchased by Li & Fung Building blocks . 30 . do not own factories.³Today. don¶t manage workers. inspect output.Design. The hard part is managing your suppliers and the flow of parts. However. Each product group executive also given country responsibilities. assembly is the easy part. set up production.´ Smokeless Factory Responsibilities .Customer focused divisions. .
add value for our customers by using information and relationships to manage the network. Cash flows managed centrally in HongKong. ³As a pure intermediary.´ . But as the member of the supply chain options expands. LCs sent to Hongkong for approval. We help the companies navigate through a world of expanded choice. And the expanding power of IT helps us do that. our margins were squeezed. Financial controls & Operating procedures Tightly Centralized. Increasing use of Information Technology but equal importance given to relationships.
Logistics.Value Chain Configuration Hong Kong Front End: Design Engineering Production Planning Back End: Quality Control Testing. Finance Outside Raw material and component sourcing Management of production. .
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