Strategy and Structure of

International Business

Week 5 – Module 5
Intended Learning Outcomes
1.Describe the relationship between multinational
strategy and structure.
2.Explain how institutions and resources affect
strategy, structure, learning, and standards.
3.Identify the concept of multinational strategies and
structures.
Pressures for Cost Reductions and
Local Responsiveness
Integration-responsiveness framework
A framework of MNE management on how to simultaneously deal
with two sets of pressures for global integration and local
responsiveness.

Local responsiveness
The necessity to be responsive to different customer preferences
around the world.
Cost Reductions and Local
Responsiveness
In both domestic and international competition,
pressures to reduce costs are almost universal.
International competition is unique in the
pressure for local responsiveness. Consumer
preferences vary tremendously around the
world. For example, McDonald’s beef-based
hamburgers obviously would find few
customers in India, where cows are held
sacred by the Hindu majority. Host country
demands and expectations add to the pressures
for local responsiveness.
The argument
• The intellectual underpinning of the movement to
globalize offerings can be traced to a 1983 article by
Theodore Levitt: “The Globalization of Markets.‖ Levitt
argued that worldwide consumer tastes are
converging. As evidence, Levitt pointed to sales of Coke
Classic, Levi Strauss jeans, and Sony color TVs, all of
which were successful worldwide. Levitt predicted that
such convergence would characterize most product
markets in the future. Levitt’s idea has often been the
intellectual force propelling many MNEs to globally
integrate their products while minimizing local adaptation.
Failures who minimize local adaptation:
• Ford experimented with world car designs.
Ford found that consumer tastes ranged
widely around the globe
• MTV pushed ahead with the belief that
viewers would flock to global (essentially
American) programming.. MTV eventually
realized that there is no global song.
The reality…..
• In a nutshell, one size does not
fit all. This leads us to look at how
MNEs can pay attention to both
dimensions: cost reductions and
local responsiveness.
Four Strategic Choices

1.Home replication strategy

2.Localization strategy
3.Global standardization strategy
4.Transnational strategy
Four Strategic Choices
Home replication strategy
A strategy that emphasizes the replication of home country based
competencies in foreign countries.

• MTV started with a home replication strategy when first venturing

overseas; it simply broadcast American programming. It has now
switched to a localization strategy by broadcasting in local
languages.
Four Strategic Choices
Localization (multidomestic) strategy
A strategy that focuses on a number of foreign countries/ regions,
each of which is regarded as a stand-alone local (domestic) market
worthy of significant attention and adaptation.
Home replication
• In terms of disadvantages, localization
strategy has high costs due to duplication
of efforts in multiple countries. The costs
of producing such a variety of programming
for MTV are obviously greater than the costs
of producing one set of programming. As a
result, this strategy is only appropriate in
industries where the pressures for cost
reductions are not significant.
Four Strategic Choices

Global standardization strategy

A strategy that focuses on development and distribution of
standardized products worldwide in order to reap the maximum
benefits from low cost advantages.
Global standardization strategy is sometimes simply referred to as
global strategy.
Its hallmark is the development and distribution of standardized
products worldwide in order to reap the maximum benefits from low-
cost advantages.
Global standardization strategy in contrast….

As noted earlier, in industries ranging from

automobiles to consumer products, a one-
size-fits-all strategy may be inappropriate.
Consequently, arguments such as “all
industries are becoming global” and “all
firms need to pursue a global
(standardization) strategy” are potentially
misleading.
Four Strategic Choices
Transnational strategy
A strategy that endeavors to be cost efficient, locally responsive. And
globally learning driven simultaneously around the world.
Innovations not only flow from the home country to host countries
(which is the traditional flow), but also flow from host countries to the
home country and among subsidiaries in multiple host countries. Kia
Motors, for example, not only operates a design center in Seoul,
Korea, but also has two other design centers in Los Angeles and
Frankfurt, tapping into automotive innovations generated in North
America and Europe.
FOUR STRATEGIC CHOICES FOR MULTINATIONAL
ENTERPRISES(MNEs)
Four Strategic Advantages Disadvantages
Choices
Home Replication • Leverages home country-based • Lack of local responsiveness
advantages • May result in foreign customer
• Relatively easy to implement alienation

Localization • Maximizes local responsiveness • High costs due to duplication of

efforts in multiple countries
• Too much local autonomy

Global • Leverages low-cost advantages • Lack of local responsiveness

Standardization
Transnational • Cost efficient while being locally
responsive • Engages in global
learning and diffusion of
innovations
• Too much centralized control
• Organizationally complex • Difficult
to implement
Four Organizational Structures
1. International division
2. Geographic area
3. Global product division
4. Global matrix
Four Organizational Structures
International Division
Is typically used when firms initially expand abroad, often engaging in
a home replication strategy.

Geographic Area Structure

An organizational structure that organizes the MNE according to
different geographic areas (countries and regions).
Four Organizational Structures
Global Product Division Structure
An organizational structure that assigns global responsibilities to each
product division.

Global Matrix
An organizational structure often used to alleviate the disadvantages
associated with both geographic area and global product division
structures, especially for MNEs adopting a transnational strategy.
The Reciprocal Relationship between
Multinational Strategy and Structure
In one word, the relationship between strategy and structure is
reciprocal. Three key ideas stand out.

1. Strategy usually drives structure

2. The relationship is not a one-way street
3. Neither strategies nor structures are static
 HOW INSTITUTIONS AND
RESOURCES AFFECT
MULTINATIONAL STRATEGIES,
STRUCTURES, AND LEARNING
How Institution and Resources Affect Multinational Strategies,
Structures, and Learning
Institution-Based Considerations
Institution-based view primarily deals with the external environment

MNEs face two sets of rules of the game: Formal and informal
institutions governing (1) external relationships and (2) internal
relationships.

• Formal institutions include laws, regulations, and rules.

• In global business, formal institutions may be imposed by home
countries and host countries.
• An institution-based view suggests that the success and failure of
firms are enabled and constrained by institutions. By
institutions, we mean the rules of the game.
• Doing business around the globe requires intimate knowledge
about both formal rules (such as laws) and informal rules (such as
values) that govern competition in various countries. If you
establish a firm in a given country, you will work within that
country’s institutional framework, which is the formal and informal
institutions that govern individual and firm behavior. Firms that do
not do their homework and thus remain ignorant of the rules of the
game in a certain country are not likely to emerge as winners.
Institutional Based – Formal(Law)
• Formal institutions include regulations and laws. For example,
Hong Kong’s laws are well-known for treating all comers—whether
from neighbor mainland China (whose firms are still technically
regarded as ―nondomestic‖) or far-away Chile—the same as they
treat indigenous Hong Kong fi rms. Such equal treatment
enhances the potential odds for foreign firms’ success. It is thus not
surprising that Hong Kong attracts a lot of outside fi rms.
Institutional Based – Formal(Law)
• Other rules of the game discriminate against foreign firms and
undermine their chances for success.
• India’s recent attraction as a site for FDI was only possible after it
changed its FDI regulations from confrontational to
accommodating. Prior to 1991, India’s rules severely discriminated
against foreign fi rms. As a result, few foreign firms bothered to
show up, and the few that did had a hard time. For example, in the
1970s, the Indian government demanded that Coca-Cola either
hand over the recipe for its secret syrup, which it does not even
share with the US government, or get out of India. Painfully, Coca-
Cola chose to leave India. Its return to India since the 1990s
speaks volumes about how much the rules of the game have
changed in India.
Informal institutions - cultures, ethics, and norms.
• They also play an important part in shaping the success and failure
of firms around the globe..
• For example, individualistic societies, particularly the English-
speaking countries such as Australia, Britain, and the United
States, tend to have a relatively higher level of entrepreneurship as
reflected in the number of business start-ups. Why?
• Because the act of founding a new firm is a widely accepted
practice in individualistic societies.
• Conversely, collectivistic societies such as Japan often have a hard
time fostering entrepreneurship. Most people there refuse to stick
their necks out to found new businesses because it is contrary to
the norm. This explains why direct-selling companies such as Avon
have a hard time recruiting representatives in Japan.
Institutional-Based View
• Overall, an institution-based view suggests that institutions shed a
great deal of light on what drives firm performance around the
globe.
 Resource-Based Considerations
• Resources are defined as ―the tangible and intangible assets a firm
uses to choose and implement its strategies.‖

• Value - Do firm resources and capabilities add value?

• Rarity - Do firm resources and capabilities add value?
• Imitability - Valuable and rare resources and capabilities can be a
source of competitive advantage only if they are also difficult to
imitate by competitors.
• Organization. Valuable, rare, and hard-to-imitate resources and
capabilities may not give a firm sustained competitive advantage if the
firm is not properly organized.
RESOURCE-BASED VIEW
• Overall, an institution-based view suggests that institutions shed a
great deal of light on what drives firm performance around the
globe.
• The resource-based view focuses on a firm’s internal resources
and capabilities.
For example:
• Despite the former Soviet Union’s obvious hostility toward the
United States during the Cold War, PepsiCo began successfully
operating in the former Soviet Union in the 1970s (!).
• Most of the major airlines have been losing money since
September 11, 2001. But a small number of players, such as
Southwest in the United States and Ryanair in Ireland,
• Avon has been able to grow its revenue during the devastating
2008–2009 recession.