BU491 - Midterm

1. Expanding Abroad: Motivations, Means, and MEntalities (Chapter 1)

a. Distance Still Matters: The hard reality of global expansion (Harvard)

2.  Understanding the international context: Responding to conflicting

environmental force (chapter 2)
a.  Are businesses ready for deglobalization? 
b. Managing 21st-Century Political Risk
i. Sher-Wood Hockey Sticks: Global Sourcing

3.  Developing transnational strategies: Building layers of competitive advantage

(chapter 3)
a.  Managing differences: The central challenge of global strategy
b.  The state of globalization in 2019, and what it means for strategists. 
i. United Cereal: Lora Brill’s Eurobrand Challenge

4.  Developing a transnational organization: Managing integration,  responsiveness,

and flexibility (Chapter 4)
a. Have you restructured for global success?
b. Competing in the Age of AI
i.  Beiersdorf AG: Expanding Nivea’s global reach

5. Creating worldwide innovation and learning: Exploiting cross-border  knowledge

management (Chapter 5)
a. The Changing Face of Innovation in China
b. How GE is disrupting itself
i. P&G Japan: The SK-II Globalization Project

6. Engaging in Cross-Border Collaboration: Managing across Corporate Boundaries

(Chapter 6)
a.  How to manage alliances better than one at a time
b. Joint Ventures and Partnerships in a Downturn 
i.   Nora-Sakari: A Proposed JV In Malaysia

7. Implementing the strategy: Building multidimensional capabilities (Chapter 7)

The future of the transnational: An evolving global role (Chapter 8 )

i. Case: Silvio Napoli at Schindler India 
 Lecture 1 - Expanding Abroad: Motivations, Means, and Mentalities
(Chapter 1)
International trade is more important than ever ⇒ 100% Local Business is unlikely

Canada Trade Overview 

How COVID-19 impacted global trade?

What is multinational enterprise? (MNE)

 Substantial Direct Investment
In foreign countries (not just trading relationships of an import-export business
 Active coordinated management 
o Of these offshore assets (not simply holding them as a passive financial portfolio)
 Strategic and organizational integration
o Of operations located in different countries

Motivations to Internalize
Traditional Motivations
 1. Market Seeking: fill capacity, exploit CA and economies of scale and scope
2. Resource Seeking
a. Secure key Supplies
b. Exploit factor cost differences (access low-cost factors of production) lower cost
capital
Emerging Motivations
1. Industry internalizations forces: scale economies , ballooning R&D investments,
shortening PLC
2. Global scanning and learning capability: access emerging trends, new tech, and best
skills worldwide
3. Competitive positioning eg: use global operations to pre-empt others, cross subsidize
markets

Means of internationalization
 Classic Internationalization process
o Incremental process of increasing commitment and understanding of foreign
market (Uppsaala Model)
 Today many companies short-cut this process in an internet age, many competitors are
even “Born Global” (Ex: FB, Google, etc)

Means of Internationalization
1. Export
2. Licensing
3. Franchising
 4. Joint Ventures
5. Subsidiaries 

Paper - Distance Still Matters

 Companies routinely exaggerate the attractiveness of foreign markets, and that can lead
to expensive mistakes.
 Examples of failed internationalization efforts
o Ebay, Google, Bestbuy, homedepot in china etc
 A more rational approach to evaluating global opportunities:
o the CAGE framework

The Cage Framework - Dimensions of Distance

 1.  Cultural Distance
a. Diff lang’s, diff religions, diff social norms
2. Admin and Political Distance
a. Trade and political unions, common currency, tariffs , trade quotas, restrictions
on foreign direct investment, subsidies to local firms, property rights, Corruption,
weak institutions, political instability
3. Geographic Distance
a. Distance to country, within-country distances, access to waterways and oceans,
transportation and communication infrastructures
4.  Economic Distances: 
a. Wealth and income of customer, resource and factor costs

The Cage Framework

Mentalities and Strategic Approaches to Internationalization

 International Mentality
o Products developed for domestic market and only subsequently sold
internationally; resources are transferred from the parent firm to the foreign
operations: international operations as distant outposts that support the domestic
parent company; firm regards itself as domestic with foreign appendages
 Multinational Mentality
o Company overseas markets as portfolio of local opportunities; local adaptations
to products and strategies; considerable independence of subsidiaries from
headquarters
 Global Mentality
 o Company views world as a single unit of analysis; products are developed for the
global market; emphasis on global efficiency; operations managed centrally
 Transnational Mentality
o Company simultaneously responds to local needs and global demands; balance
local responsiveness and global efficiency; dispersed, specialized, and integrated
global activities 

Lecture 2 - Understanding the International Context

External Demands
1. The need for cross-market integration
2. National responsiveness
3. Worldwide innovation and learning

Forces for Global Integration and Coordination

Why do firms need to globally integrate?
 Globally integrate
 Achieve economies of scale 

What enables global integration & Coordination?

 Economies of scale
  Factor cost differentials (e.g. labour, raw material)
 Increasingly liberalized environment for trade ( EU, USMCA, WTO, CETA)
 Global competitors as change agents

Forces for Global Integration and Coordination

Canada’s trade and investment agreements

Protectionism, why?
 In 2016, attitudes towards free trade in the US and UK swung in the direction of greater
protectionism. 
 Protect local jobs which would otherwise go to countries with cheaper labour and
resource costs

Other Reasons for changes in the employment picture

 Automation ( Gatik and Loblaw Deploy Canada’s First Autonomous Delivery Fleet, Beg
Jan 2021
 Change in tech (ex: eclectic cars)
 Other economic changes (eg: financial crisis)
What are the potential solutions to this problem?

Paper - Are Businesses Ready for Deglobalization 

Impacts three key pillars of global corporations
 Technology
 Global Recruitment 
 The finance Function

The Splinternet
 Disrupts global supply chains
 Raises the cost of an reduces the efficiency gains from shared global services
 Companies will need to choose between the US and China Camps
 The Issue of data privacy

The Intensifying War for Talent

 Reduce diversity as a source of competitive advantage 
 Less opportunity to learn how to navigate across cultures and differing social norms 
 Fewer knowledge spillovers 

More Complicated Corporate Finances and Regulatory Regimes

 Raising capital 
 Return profits to shareholders
 Web of independent processes and regulations in different jurisdictions
  Require extraordinary levels of highly specialized knowledge at local level

Global Competitors as Change Agents 

 How can MNEs change the context to foster global integration? 
Examples:
 By changing national tastes and behaviour (starbucks, premium coffeeshops)
 By standardizing product formulations (P&G)
 By playing “global chess” (British Airways)
Global Chess Game
 The possibility of cross-subsidising of markets
 The cross-Subsidization strategy: support the weakest market using revenues generated
from another market

Forces for local differentiation and responsiveness 

 Why do firms need to be locally responsive? 
o Cultural differences: Customer behavioiur and preferences
o National infrastructure 
 Technical standards (E.g. voltage, TV broadcast, etc)
 Distribution channels (e.g. supermarkets vs bazaars)
o Government demands 
 National laws and regulations 
 Host country pressures and demands
 Business practice must be adapted to local regulations, market
characteristics, and customers
o Local competitors success
 Culturally sensitive flexibility and responsiveness
 Appeal to nationalism 
o Customers
 Income, preferences, habits, consumption patterns 
o Economy 
 GDP, disposable income, inflation, growth 

Paper - Managing 21st-century Political Risk

Political risk:  
 The probability that a “political action” will significantly affect the organization’s business,
positively or negatively 
 is the possibility that your business could suffer because of instability or political changes
in a country
Example:
 US Election & TC Energy

The New Forces Behind  Political Risk

 Politics: dramatic changes in politics since the end of the Cold War, today’s landscape
is much more crowded and uncertain 
  Supply Chains : longer leaner global supply chains allow for lower costs and better
inventory management, but leave companies more vulnerable to disruptions from
political actions in faraway places
 Technology: social media, cell phones, and the internet have dramatically lowered the
cost of collective action. By 2020 more people are expected to have mobile phones than
running water and electricity. [ today 83.96% of teh world’s population owns a
smartphone and 91.69% own a cell phone

The Political Risk Framework

Effective risk management requires four core competencies:
1. Understanding risks
2. Analyzing risks
3. Mitigating risks
4. Responding to crises 

Understand Risks
 What is the organization’s political risk appetite
 Influenced by factors such as the time horizon of major investments, the
availability of alternative investments, the ease of exiting investments, and
visibility to consumers. (industries like oil and gas vs. consumer-facing industries
like theme parks)
  Is there a shared understanding of the risk appetite?
 Ensure that political is a concern for everyone in the organization from the
boardroom to the sales floor 
 How can we reduce blind spots?
 Do not expect the future to look like the present
 Foster creative thinking and guard against groupthink 

Analyzing Risk
 Good information
 Rigorous analysis: challenge assumptions and mental models about how risk might
happen. Understand which assets are the most valuable, which are the most vulnerable.
Red teams, Monte Carlo computer simulation 
 Integrate political risk analsis into business decisions: Google Trends search data;
getting managers to use rigorous political risk analysis to defend investments 

Mitigating Risks
 How can we reduce exposure to the political risk we have identified?
 Useful strategies: dispersing critical assets, creating surge capacity and slack in
the supply chain, and sharing political risk assessments and mitigation strategies.
 Do we have a good system and team in place for timely warning and action?
 Set up effective warning systems, establish protocols so that responses to
specific conditions are triggered automatically.
 How can we limit the damage when something bad happens?
 Build relationships with external stakeholders

Techniques MNEs use to manage country political risk include:

 Recruiting local partners
 Limiting R&D in nations with leaky intellectual property protection
 Purchasing insurance against political risks 
 Multilateral Investment Guarantee Agency 
 American International Group Inc (AIG)
 Diversifying their FDI across different countries

Managing 21st-century Political Risk

 Biden indicates plans to cancel Keystone XL pipeline permit. 
 “TC Energy said in a release late Sunday that the company plans to spend $1.7 billion
US on a solar, wind and battery-powered operating system for the pipeline, hire a union-
only workforce, sign Indigenous equity partners and establish zero-emissions operations
by 2030, all with an eye toward securing Biden's approval”. (CBC, Jan 17, 2021)

Responding to Crises
 Good Crisis Management 
 Assess the situation, activate a response team , lead with values, tell your story
(honestly), and not fan the flames
 Continuous Learning
  Mechanisms for continuous learning must involve assessments of what to keep
doing, what to stop doing, and what to start doing, plus an inspirational approach
to motivate everyone to join in 

Forces for Worldwide Innovation & Learning

 Increased need for rapid and coordinated worldwide innovation driven by:
 Shortening product life-cycles
 Increased cost of R&D
 Emergence of global technology standards
 Competitors’ ability to develop and diffuse innovation globally

Responding to diverse Forces Simultaneously

 Diverse environmental forces shape industry structures and characteristics differently:
 Global industries:
  those shaped primarily by economic forces for globalization (e.g.,
consumer electronics)
 Successful MNE strategies in global industries:
 Global strategies:
  Those capitalizing on highly centralized, scale-intensive manufacturing
and R&D operations and leveraging them through worldwide exports of
standardized global products

 Diverse environmental forces shape industry structures and characteristics differently:

 Multinational industries: 
 those shaped primarily by national, cultural, social, and political forces of
localization (branded packaged goods)
 Successful MNE strategies in multinational industries:
 Multinational strategies: 
 Those building strong, resourceful national subsidiaries sensitive to local
needs and able to develop or adapt products and strategies to respond to
their local needs, opportunities and demands.

 Diverse environmental forces shape industry structures and characteristics differently:

 International industries: 
  those shaped primarily by technological forces for developing and
diffusing innovations (telecom)
 Successful MNE strategies in international industries:
 International strategies:
  Those exploiting technological forces by creating new products and
processes in one’s home market and sequentially adapting and diffusing
them to foreign affiliates.
 Increasingly Industries were becoming transnational
 Transnational strategies: 
 responding to all 3 diverse and competing sets of forces: global
integration, national responsiveness, and worldwide learning

 Sherwood Case
Sherwood Hockey

Problem Identification
 A drastic drop in stick sales in 2010
 Sales Drop was caused in part by its uncompetitive retail prices
 Has to decide how to reduce its production cost, how to boost their sales
Should they outsource the remainder of their hockey stick production?
Would such as action make sherwood competitive?

Decision:
 Moving high end hockey sticks production to China
 Currently losing market share due to high expenses
 
Hockey Equipment Industry
 Mature - only growing at 1 to 2 %
 Market in 2010 was 555M
o Skates and sticks account for 62% of those sales
 Number of hockey players in CAN expected to shrink by 5%
 Approx $600 for all equipment
 40% of all hockey players live in households with income in six figures
  Branding with player names is important
 
Competition
 Main
o Easton, Bauer, Warrior, CCM, Sherwood, Mission, Louisville
 80% of market belongs to CCM, Bauer and Easton
o All offer full range of equipment
 Easton
o Variety of sport products
o Number one stick choice in NHL
o Signed contracts with Pros
o Innovative technology
 Saw increase of 68% in synergy and stealth release
 
Introduction
 When: 2011
 Hockey stick manufacturer
 What: Should Sher-Wood move the remaining high-end composite hockey and goalie
stick production to China? Would outsourcing the “Canadian made” sticks help boost
demand?
 Problem: Sher-Wood has been losing market share, they’re high-priced, high-end, one
piece composite sticks, retail price is falling
 
History of Ice Hockey
 Rules were established in the late 1800’s but “ball and stick” games date back to ancient
times
 1892 – Stanley cup was born
 1917 – NHL was founded in Montreal
 1893 – expansion to the United States
 By the late 20th century, ice hockey presented as a great source of national pride to
Canadians, and become popular in other countries in the northern hemisphere (US,
Czech Republic, Finland, Russia, and Sweden)
 
Ice Hockey Stick
 Equipment used to facilitate participation of the game and for protection of injuries
 Five categories of equipment: goalie, head/face, protective, sticks, and skates
Those offering all categories are called “head-to-toe suppliers”
Sticks and skates leading the industry, accounting for two thirds of global equipment sales
 Hockey sticks are manufactured as either one-piece sticks with the blade permanently
fused to the shaft, or two-piece, where the blade and shafter are made as separate
pieces and joined later in manufacturing
 Great qualities in a stick: lightness, responsiveness, the feel, lie, flex, blade pattern,
flexibility etc.
 1960s – blades were asked to come pre-curved
 Three main materials to make a hockey stick: wood, aluminum, and composite
 
Basics of Hockey Equipment Industry
 The global hockey equipment market was showing signs of maturity
 Skates and sticks accounting for 62% of industry sales in 2010
Sales driven by global participation rates
  The number of registered hockey players is expected to shrink by 5% over the next five
years
Growth in unregistered hockey participants and women, Europeans
 Drivers of equipment sales: demand, introduction of innovations, shorter product
replacement cycle, macroeconomic conditions, level of discretionary spending
 The equipment required to participate in hockey is significantly more expensive than
other national sports
 
Competitor Brands and Strategies
 Main brands: Easton, Bauer, RBK/CCM, Warrior, Sher-Wood, and Louisville/TPS
Bauer, CCM, and Sher-Wood all Canadian brands
 Top three competitors are all head-to-toe suppliers, that is Easton, Bauer, and Reebok
 Generally, hockey companies provided one type of stick at three different price points –
junior, intermediate, and senior
 
Global Sourcing in the Hockey Equipment Industry
 Global sourcing: the process by which the work is contracted or delegated to a
company that may be situated anywhere in the world
 From the organizational perspective, the choice between insourcing and outsourcing
involves deciding whether to keep the work within the firm or contract it out to an
independent service provider
 From a locational perspective, there are three choices available:
Onshoring – within the nation
Nearshoring – to a neighbouring country
Offshoring – to a geographically distant country
 Offshore outsourcing has significant drawbacks in terms of cultural differences,
miscommunication, technology distance, extra training, geographic distance, extra
lead/cycle time etc.
Threaten company’s public image and reduce domestic employment
 Newer uncertainties to global sourcing: changing labour costs, raw material costs, and
exchange rates
For example: Chinese wages increasing, Yuan increasing (exhibit 4)
 Reshoring or backshoring: correctional behaviour to offshoring
 
Sher-Wood Hockey: Company Timeline
 Good reputation in Canada
 When famous players learned the company was looking to offshore there, was a
negative response
Stating that it would take longer to receive a new stick if they were being manufactured in
China
Losing their image in the NHL scene/credibility
 2008 – filed a proposal under the Bankruptcy and Insolvency Act
 Taking a hit from producing all composite sticks instead of wood
 
Production
 Introduce sticks twice a year, in May/June and end of October
 They provide 27 types of player and goalie sticks, thirteen of these are wooden
 Custom designed sticks can take up to 2-3 weeks to produced
 They need to provide a more competitive retail price to boost demand, have a higher
margin for retailers so they help present the product in store displays
 
Chinese Partner’s Condition and Collaboration
 Sher-Wood would have to send experts to China to coach the partners on how to
produce sticks according to specific specifications
 Sher-Wood also conducted tests on ice, for the feel of the product, something the
suppliers could not do
 Concern for rising labour costs, material costs, and the currency exchange in China
 Shipping is quite expensive from China to Quebec
 Hockey being perceived as a Western sport, so hockey equipment made in China has
more of a negative market perception
 
The Challenge
 How can they boost their hockey stick sales?
o Need to identify a solution to better the quality, better the retail price, and better
margins for retailers
 Should they move the manufacturing of the remaining high-end composite sticks to their
suppliers in China?
o To move outside of the company, they face a variety of issues
o To fully utilize Sherbrooke facilities (Quebec), they need to move equipment to
China, facing difficulties with export regulations
o Need to send experts to the manufacturing team in China
 How can this be communicated to the public? To the employees of Sher-Wood? 
 

 News Report Breakdown

 Lecture 3 -Developing Transnational Strategies 
Worldwide Competitive Advantage
 Goals (what) & Means (how)
o Efficiency   
 national differences
o Flexibility   
 scope economies
o Learning  
  scale economies
 Means (how)
 o Scale economies 
o National differences 
o Scope economies 

Building Global Efficiency

 Efficiency= value of outputs/value of inputs
o Higher the value of outputs = better efficiency
o Lower the cost of inputs = better efficiency
 Global contact
o Global integration lowers the costs of inputs
o Local responsiveness increases the value of outputs

Building Multinational Flexibility

 What is Multinational Flexibility?
o ability to manage risks and exploit opportunities arising from the diversity and
volatility of global environment
 Sources of Diversity and Volatility
o Macro risks – changes in prices and exchange rates
o Political risks
o Competitive risks – uncertainties about competitors actions
o Resource risks – availability of raw materials
 Multinational flexibility requires:
o Understanding and managing different forms of risk
o Scanning and responding to discontinuities in global environment
o Selecting most attractive markets
o

Building Worldwide Learning

 Capture external diversity
o Worldwide stimuli as potential source of competitive information advantage
   Leverage internal variety
o Worldwide human resources and capabilities as potential sources ofcompetitive
advantage
o Opportunity to leverage central and local innovations
o Create true global innovations by linking sensing, response and implementation
capabilities

Means to Achieve Strategic Goals:

There are three fundamental tools for building worldwide competitive advantage: 
 National Differences
 Scale Economies
 Scope Economies

Worldwide competitive advantage – Means

 National differences
o Differences in factor costs
 Different nations have different factor levels
  Different functions of MNE have different factor requirements
 Locate functions in countries that fit the factor requirements best
o Differences in output markets
 Countries have different customer tastes and preferences, distribution
systems, government regulations
 Exploit by reshuffling business models
 Scale economies
o Cost per unit decreases with increasing scale (volume)
o Learning and progressive cost reduction
o Macroeconomic theory: Cost per unit of output decreases with increasing sales
 Scope economies
o Share investments and costs across the same or different value chains
o Sharing can take place across segments, markets or products and may involve
the joint use of different kind of assets (eg: production machinery, ICT, marketing
etc)

Sources of Competitive Advantage

Traditional strategic postures

Traditional strategic postures with distinct sources of competitive advantages 

Transnational: developing global efficiency, multinational flexibility and worldwide learning

capability to achieve worldwide competitive advantage

Four Strategic Orientations

Multinational Global International Transnational

Decentralized and Centralized and Core Dispersed,

Configuration nationally self- globally scaled competencies interdependent
of assets and sufficient centralized, and specialized
capabilities others
decentralized
 Building flexibility to Exploiting Building cost Developing global
respond to national parent-company advantages efficiency,
differences through knowledge and through flexibility, and
strong, resourceful capabilities centralized worldwide learning
Strategic and entrepreneurial through global-scale capability
Orientation national operations worldwide operations simultaneously
diffusion and
adaptation

International context – traditional industries and strategic postures 

Worldwide competitive advantage – Strategic tasks 

How a company can respond to the strategic challenges
 Depends on the company’s international posture and history: 
1) Defend worldwide dominance
2) Challenge the global leader
3) Protect domestic niches

Defend worldwide dominance

 Competitive environment forced firms to develop new capabilities
o But this can be problematic and eroded core competency
 New Balancing Act required:
o Need to now reinforce existing competencies and develop new assets and
capabilities
o Compensate for deficiency or appropriate competitor’s source of Advantage

Challenging the global leader

 Step by STep approach to building competitive position
o Find and exploit niche 
o expand your product on both product geographic dimensions
o Become OEM Original Equipment Manufacturer suppliers for competitors
 o Move fast and convert to the niche position – global business or acquisition
Protect domestic niches
 Defend against the competitors global advantage through attempting to change industry
structure and marketing conditions eg: influence consumer preferences, tying uo key
assets, etc)
 Offset the competitors global advantage (Eg: lobby for tariff protection, gain government
sponsorship) 
 Approximate the competitors advantage by linking up in some form of alliance or
coalition with a viable global company

Paper: Managing Differences: Central Challenges

  Main goal: manage differences that arise at borders
  Responses to challenge
o Standardization
o Arbitrage
o Local responsiveness

   AAA Triangle

Adaption most similar to multinational?

Aggregation most similar to global strategy 
Arbitrage most similar to international?
  A Strategies: focused pursuit of just one of adaptation, aggregation or arbitrage
 AA Strategies: can win with competition with two dimensions, company can win
because it manages the tensions between the two A’s better than competitors
 AAA Strategies: complexity of attempting to win on 3 dimensions collides with limited
managerial bandwidth – external relationships can force focus on a particular dimension
– A one culture can get in the way of multiple strategic targets

SUMMARY
 Focus on 1 or 2 A’s
 Make sure the new elements of a strategy are a good fit organizationally
 Employ multiple integration mechanisms
 Think about externalizing integration
 Know when to not integrate

Strategies During Globalization's Turbulence

How to compete?

Aggregation? Arbitrage? Adaptation?

Reduce reliance of Arbitrage:

 The political and societal sensitivity arbitrage
  Arbitrage strategies are not sustainable 
 Weak escalation
  Do uk this one?
Should firms amp their adaptation in response to anti globalization backlash?
 Aggregation and arbitrage strategies directly generate value across borders and
distances
 Man companies may need to tilt towards aggregation or at least more judicious in their
reliance on arbitrage
 Adaption is what extends their reach
 When barriers to globalization rise, boosting adaptation is a logical response, but one
with clear limits 

GRE Example

United: Cereal Case

WHat is the problem?
 Should Lora Brill authorize the launch of HBC in France?
  Should HBC become the first Eurobrand and be introduced in a coordinated manner
Europe Wide?
 Should she create Eurobrand Teams to implement her proposed Eurobrand concept?
 How to ensure Eurobrand is an effective implementation?

Company
 Breakfast cereals accounted for 1/3 of its revenue
 Strong set of values

 Loyalty
 One of the best R&D in the market – more patents than any other competitors
o - Weak lateral communication, strong vertical communication
 The UC way: listen to customers, continuous innovation, high market testing prior to
launch of new products
Industry
 Highly competitive industry

US Industry:
  5 players account for 80% of sales
 Ready to eat: 90% of sales
 Profitability depends on: Operating efficiently, managing material cost, and maximizing
retail shelf space
 Several new products introductions typically occurred each year: expensive and time-
intensive

European:
  20% of UC worldwide sale
 Different consumption (8 kg a year in the UK and 0.5 kg a year in Italy)
 Different channels

Europe Strategy/Structure
 Established national subsidiaries “mini UCs”
 Each lead by CM who decide how to run the business in the country
o AAA??
o Global/International/Multinational??

France Entry Decision

Should HBC become a EuropeWide Brand?
Pro
 Tastes are converging Europe Wide
 Reduce product development and marking cost
 Standardized product allows for economies of scale
 Leverage worldwide learning

How do you make Eurobrand Teams work?

 Need to clarify the team's responsibility
 o - Focusing teams only on broad strategic items rather than on the operational
responsibilities of the local brand managers
 Reduce the size of the teams to allow for effective decision making from (12-20)
 Team Chairman should also be upgraded, from the low level brand management
assignment currently proposed

How will UC ensure that decisions made by the Eurobrand team will be implemented?
 Lead country roles could be spread around among all national subsidiaries which will
lead to a sense of interdependency

Multinational strategy:
 The market varied to a great extent in each of these countries. There were a variety of
breakfast traditions and national tastes that differed from each other.
 Distribution channels were also different for these countries.
 Each subsidiary is lead by the country manage (maximize local profit)
 Differences in product profiles and market strategies became a problem
 Same product positioned differently across different markets

International/global strategy: Eurobrand

 Apart from their current role of supervising subsidiaries by region, they were offered an
advisory role.
 They were tasked with cross-market coordination and communication of certain products
 Since the team consists of resources from R&D, purchasing & logistics, increased cost
pressures can now be addressed for Europe as whole and not country specific
 Original strategy was differentiation, but current strategy made them cost focus as SG&A
 cost was 25% higher than counterparts in US

Globalization strategy: standardization

 Consumer tastes are converging, old cultural habits are disappearing, and EU regulation
of labeling, advertising and general marketing practices is eroding market differences.

Italian CM: could not get shelf space for a specialty cereal
Spanish: in recovery from the recession -> no budget for a new launch
 Lecture 4 - Developing a Transnational Organization  
Strategy and Structure of the MNE

The Global Matrix

^ABB structure
Challenges?
 Informational logjam
  Problem resolution through escalation
 Overlapping responsibilities
 TUrf battles and a loss of accountability

Matrix Organization
 Does structure follow strategy or does strategy follow structure?

The Global Matrix

 Many companies experimented with matrix structures in 1970s (Dow, Citibank)
 The global matrix required dual chain of command (reporting to different organizational
groups), which amplified the differences in perspectives and interests
o Country vs. business tensions were amplified and conflict exacerbated
o Dual reporting led to informational logjams and responsibility confusion
o The result: slow, ineffective decision making
 Most companies abandoned formal matrix structures in the 1980s

Beyond Structural Solutions

 Matrix management focused solely on formal structure as a tool for organization design
 But to effectively manage a complex organization, executives need a much broader set
of tools…
o Administrative systems
o Communication channels
o Interpersonal relationships, etc.
 …. and have a deep understanding of the organization’s Administrative Heritage

Administrative Heritage
 A company’s organization is shaped not only by current external task demands but also
by past
 internal structures and management biases
 Each company is influenced by its org. history and the values, norms and practices of its
 management – known collectively as administrative heritage
 “Where to” is influenced by “where from”
 competitive advantage shaped by country of origin, time of expansion, and nature of
leadership
 the challenge is to build new capabilities while protecting existing strengths

 Three archetypes can be identified

a) European empire (multinational model)
b) American empire (international model)
c) Japanese empire (global model)

European Empires: Dominance of Decentralized Federation

Capability: National Responsiveness
 decentralized federation organization strategy of national responsiveness
o expanded abroad in a period of high international barriers;
  Europeans’ preferential access to their foreign empire markets
o organization developed as a portfolio of national companies; heritage of
management through personal relationships rather than formal structure
o strategy based on understanding and responding to national markets
o Key assets and resources are decentralized

American Empires: Dominance of the Coordinated Federation

Capability: Knowledge Transfer

 coordinated federation organization strategy of knowledge transfer

o expanded abroad in a time of economic reconstruction. US companies large,
advanced home market as knowledge source
o organization built on strong links to the parent company based on transfer of
expertise:
Fit heritage of professional management and systems control 
o strategy based on transferring parent company’s leadership in technology,
marketing and other skills
 o Foreign Units were often free to make adjustments to reflect market differences,
but were dependent on the parent firm  for new products, processes and ideas
o Coordination and control of firegign subsidiaries through headquarters
o Many Assets and resources decentralized but controlled from center

Japanese Empires: Dominance of the Centralized Hub

Capability: Global Efficiency

 Centralized Hub Organization Strategy of Global Efficiencies

o expanded abroad in a period of falling trade barriers: Japanese MNEs newly
added capacity and government industrial policy as assets
o organization grew as dependent foreign units tightly controlled from the center: fit
heritage of culturally dependent management practices dominated by group
processes
o strategy based on capturing global scale economies
o Competitive strategy demanded tight control over product development,
procurement and manufacturing
o Most key assets are centralized

Administrative heritage meets transnational challenge

Admin Heritage Meets Transnational Challenge

The Structure of NV Philips

Organizational Characteristics******* Important

Building and Managing the Transnational organization

The transnational organization attempts to resolve the inherent limitations of the three
organization archetypes 
The transnational organization is created around three key characteristics :
1. Builds and legitimizes multiple internal perspectives
 2. Dispersed and interdependent physical assets and capabilities
3. Robust and flexible integrative process

Building the transnational organization 

1. Build multidimensional internal perspectives
a. Develop strong national subsidiary management, global business management,
and worldwide functional management
b. Ensure multidimensionality in management perspectives and decision-making 
2. Build dispersed and interdependent physical assets and capabilities               
a. Achieve efficiency by specializing the activities of selected units
b. Most efficient local plants might become regional or global production centers
c. Most effective R&D and innovation labs might become ‘centers of excellence’ 
d. Interdependent relationships across organizational units
3.  Build flexible integrative processes
a. There is not a single static management model that is applied universally in the
company
b. Benefits from central control and integration or local responsiveness might differ
between business units, functions, and regions 
c. Centralization, formalization, and socialization

Building the transnational organization 

 Attributes of a transnational organization:
 Structure – Anatomy
o Redistributing assets and responsibilities
 Processes – Physiology
o Redefining information flows and relationships 
 Culture – Psychology
o Readjusting attitudes, mentalities and beliefs

Beyond structure
 Anatomy
o Cross-unit teams, task forces and committees supplement the formal line
structure
 Physiology
o Volume, content, and direction of information flows (the higher complexity and
uncertainty the greater the need for information)
o Informal and formal communication channels
 Psychology
o Shared understanding of the company‘s mission
o Behavior of senior management
o Personnel policies

Building the Transnational Organization

Classic change process driven by structural reconfiguration
Change process initiated  by changes in attitudes and mentalities

 Three Basic Archetypes:

 Decentralized Federation
o organization pattern was a loose federation of independent national subsidiaries,
each focused primarily on its local market
o corporate management treats subsidiaries as independent national businesses
o most key assets and resources decentralized
o loose, personal controls. Often managed more as a portfolio of offshore
o investments rather than a single international business
 Coordinated Federation
o build on a willingness to delegate responsibility while retaining overall control
through sophisticated management systems and specialist corporate staff
o main handicap was that the parent company management often adopted a
parochial and even superior attitude toward international operations – often
viewed the purpose of foreign operations as leveraging the capabilities and
resources developed in the home market
o parent technology and expertise locally adapted
 Centralized Hub
o most key assets and resources centralized
o tight strategic and operational control through centralized decision making. Good
flows: from center out
 o corporate management treats subsidiaries as delivery pipelines to the global
market

Paper - Competing in age of AI

Competing With AI
 Ant Financial (Ant Group)
 Serves more than 10 times as many customers as the largest U.S. banks with with less
than one-tenth the number of employees
 Owns Alipay with more than one billion users in China; handled more than $17 trillion of
digital payment transactions (WSJ, 2021)
 Unsecured short-term loans to roughly 500 million people (WSJ, 2021)

 Strong AI:
o Machines that can think and act in a way that matches or surpasses human
intelligence .
 Weak AI: 
o A computer system which able to perform tasks traditionally handled by people.

Digital Firms:
 Rather than rest on a traditional organizational model and operate through a variety of
specialized and siloed organizational processes, digital firms rest on an integrated,
highly modular digital foundation.
 Software makes up the core of the firm, while humans are moved to the edge.

4 Components of the “AI Factory”

1. The data pipeline
2. Algorithms, generate predictions about future
3. An experimentation platform
4. Infrastructure, the systems that embed this process in software and connect it to internal
and external users

How do AI-driven processes affect Scope, Scale, and Learning? 

 Scope: 
o allow for much greater scope because they can easily be connected with other
digitized businesses.
 Learning: 
o the ability to produce ever more accurate and sophisticated predictions and even
gain fundamental understanding
AI Driven Processes
 Are vastly more scalable than traditional processes
 Allow massive scope increase
 Enable companies to straddle industry boundaries
 Create powerful opportunities for learning
 Drive ever more accurate, complex, and sophisticated predictions

 Competing with digital rivals requires rearchitecting the firm’s organization and 
operating model.
 For a long time, companies have optimized their scale, scope, and learning through
greater focus and specialization.
 Specialization:
o  led to the siloed structures which is the enemy of AI-powered growth

 Competitive advantage is increasingly defined by the ability to shape and control digital
networks
 Organizations that excel at connecting businesses, aggregating the data that flows
among them, and extracting its value through analytics and AI will have the upper hand.

The Challenges


The AI Factory
 Decision factory comprised of AI
o Is a software that runs millions of daily ad auctions at Google and BAIDU
o Treats decision making as science using external and internal data to make
predictions
o Simulating human reasoning = STRONG AI
o Automating Traditional Practices is WEAK AI
 Four Crucial Components
o Data Pipeline - gathers, cleans, integrates and safeguards data in a systematic,
sustainable and scalable way
o Algorithms
 Help to make the predictions
o Experimentation Platforms
 Testing for algorithms to ensure success
o Infrastructure
 Connection to external and internal users
 Digital Firms: Software makes up the core of their business
 
Removing Limits
 Scale, scope and learning are radically changing in the business environment
 AI allows processes to scale up rapidly
o Also increase scope due to ease of connectivity
o Create incredibly efficient avenues for learning and improvement
o Ex. Ability to continually improve customer behaviour models based on
cumulative action and data points
 Not the same diminishing return effect as traditional operating models
 Collision
o Amplifying learning and network effects in turn increase value creation which
overwhelm traditional organizations
 
Rebuilding Traditional Enterprises
 Requires restructuring process for organization and operating model
 Silos are the enemy of AI growth
o Fragmentation occurs when each silo has its own data and code
o Lack of connectivity between different fragments
 
Rethinking Strategy
 Due to AI, competitive advantage has moved towards the ability to control and shape
digital networks
 Machine learning will transform the nature of every job
o Does not discriminate against income level, specialization etc.
  New focal point of strategy - network position, the accumulation of unique data, and
development of sophisticated analysis
 
Challenge in Leadership
 Massive growth may cause instability and is difficult to slow down
o One mistake can expose a huge network to a cyber attack
o May be bias and convey misinformation if algorithm fails
o Risks magnified

Beiersdorf AG: Expanding Nivea’s Global Reach Case

What were the building blocks of success?
 Internal Factors
Why Restructuring?

Does Restructuring the project tackle the issues required by a transnational strategy?

Transitioning from multinational to transnational

Downsizing
One of the main 
Is Heidenreich the right person to lead Beiersdorf back to growth?
Challenges and possible action for  Heidenreich

Lecture 5 - Creating Worldwide Innovation and

Learning 
Worldwide innovation and learning: Powerful force of competitive advantage
 - Innovation comes in multiple forms:
o o New technology-based products and services
 o o Organizational effectiveness breakthroughs
o o Pioneering marketing strategies
o o Leading-edge manufacturing processes
o o Logistics innovations
 - Reflected in high intangible asset valuations

 R&D expenditure globally more than doubled between 1992-2010

 Worldwide patent application 
  Reflected in high intangible asset valuations
 Intangible assets in the average S&P 500 company rose from 32% in 1985 to over 84%
in 2015 

Worldwide innovation and learning: the new competitive battleground

 - competitors achieving parity in scale and responsiveness
 - competitive battles shifting to innovation area
 - successful cross-border innovation and learning is driven by three key capabilities:
o o sensing (s)
o o responding (R)
o o Implementing (I)

Classic innovation models: focused either centrally or locally

 - Two classic processes:
o Center for global: 
 Headquarters senses opportunities
 Centralized assets and resources of the parent company are used to
create a new product or service 
 Implementing strategy decided centrally and executed locally
 Dominate in international and global companies
o  Local for local: 
 National units sense local needs
 Distributed assets and resources allow local response
 Local-for-local implementation
 Fit With Multinational Strategy

Problems
 o Center for Global
o Risk of market insensitivity, imperialism
o Technological/competitive advantage of home market may fade
o Resistance of global subsidiary management
 Local for Local
o Risk of duplication, reinventing the wheel, inefficient

Transnational Innovation
 - Have supplemented traditional innovation processes
  - Challenge: combine all 3 cross border innovation and learning processes into 1
organization

Locally leveraged
 Special resources and capabilities of each national subsidiary are available to other units
as well
 SRI
 Ex: nokia phone in India ⇒ began global expertise in mobile phone retail
 Developed in response to a locally sensed opportunity and diffused it worldwide under
local brands

  Globally linked
 Resources and capabilities of many unites pooled to jointly create and manage an
activity
 Ex: P&G New laundry detergent used technology strengths from Europe, japan and US
 Linked diverse stimuli with dispersed resource and capabilities to create transnational
innovations

Building collaborative advantage

Transnational Innovation
 Transnational innovation processes have supplemented rather than replaced traditional
innovation processes. 
 The challenge is to combine all four cross-border innovation and learning processes in
one organization.

Making Transnational processes Feasible

3 assumptions
1. Subsidiaries should be symmetrical
2. HQ subsidiary relationships is based on clear patterns of dependence or independence
3. Corporate management exercises decision making and control uniformly

Beyond the simple assumptions

1.  From symmetry to differentiation
a. Demands for integration and responsiveness need to be addressed separately
for each business, function and geographic region
2.  From dependence/ independence to interdependence
a. Implementation of an integrated network and inter-unit integration mechanism

Paper: How is GE Disrupting Itself

 Reverse innovation: develop products for markets in emerging economies
o Sell in developed markets
  Why is it important?
o Many emerging markets are no longer small
o They have high growth rates glocalization ignored faster growing middle or lower
end customer segments in emerging markets
o Potential local new entrants can enter developed markets with low cost
alternatives
   Conflicting needs
o Reverse innovation requires decentralization
o Traditional centralized structures provide cost benefits
o Two models must cooperate

Project Level Actions

   Establish Local Growth Teams (LGTs)
o Shift the power to where the growth is
 Authority will decide what to develop and how to product, sell and service
o Build new offerings from the ground up
o Build LGT from ground up
o Customize objectives, targets and measures
o Report to someone high in the organization

Paper: The Changing Face of Innovation In China

 Challenges to managing foreign R&D in China
1. In recruiting, foreigness is becoming a liability 
a. Only 18% of chinese university students want to work for a foreign company
compared to 70% in 2008
 b. R&D positions at Chinese tech companies are more attractivewhich may be a
product of imperfect localization attempts by foreign MNC’s
c. Chinese companies provide their R&D staffwith equal or greater benefits and
opportunities compared with their foriegn counterparts 
2. China’s intellectual property (IP) regime has been strengthened 
a. Starting in2014, specialized IP courts with well-trained judges have been rolled
out across China
b. The number of patents applications in China is rising, which reduces “Freedomto
operate”: the ability t develop and use a technology without infringing on the right
of others 
3. Innovation transaction costs can now jeopardize the lead
a. Transparency, predictability, and fairness in China’s regulatory environment
remains among the 10 most significant challenges to foreign business in China 
b. Chinese companies do not experience the same transaction costs because of
their close relationships with state and local officials 
4. Time to market (TTM) of innovative products and services is more important than ever
a. A culture of overengineering products, stringent quality standards, and strict
internal processes is costing many foreign companies time that they can no
longer afford
 What makes China so globally competitive today
o Having hundreds of millions of hyper-adoptive and hyper-adaptive consumer
o In the end, innovations must be judged by people’s willingness to use them and
China has no peer

 Strike a better balance between localization and the growing liability of foreignness.
o Have adequate local faces in management positions
o A reorientation of company culture to correct false perceptions about the ability of
the Chinese to innovate
 Speed up patenting when keeping trade secrets is not strategic.
o Utility model: “has a shorter allowable duration of protection and typically lower
requirements for granting than invention patents” (Prud'homme, 2017, p. 51)
o More collaboration between R&D and IP management functions

Utility Model
 Engage in cutting-edge innovation in China when returns exceed global risks
o Conduct more advanced innovation in China only if their global operations can
quickly and effectively respond to the strong Chinese competitors
o Aggressive global innovation strategy
 Focus talent, culture, and operations toward faster time to market.
o Adeptness in “good enough” innovation coupled with lightning-fast TTM.
o Systematic review of culture and processes that results in trimming away
unnecessary barriers to faster TTM
o Shortened decision paths and faster experimentation cycles


P&G Japan: The SK-II Globalization Project

Traditional innovation processes
 Local for local
o National units sense local needs
o Distributed assets and resources allow local response
o Local for local implementation

Local for local or locally leveraged?

 Why was SK-II successful in Japan

WHat is the SK-II Business Model

 Unique and effective product that has established a strong appeal to a core of
demanding consumers
 Highly sophisticated 

How Transferable is Business Model?

  Yes: 
o successful in HK Taiwan, 
o worldwide success of lipfinity & swiffer,
o  fine fragrances give channel access
 No: 
o Japanese consumers more sophisticated,
o  image not transferable,
o department store channel not dominant in other countries like it is in japan

Does 02005 support or impede skII transfer worldwide?

 Pro: 
o new organization is designed to support global innovation
o  innovation is a priority for jager
 Con: 
o MDO swamped with new products, 
o Not p&g core competence
o jager is not a supporter of high end products

Which Country? Japan, China, UK?

What they did: consolidate its positon then launch in China
China
The UK

Japan

WHich Country?

What Happened?
 Lecture 6: Engaging in Cross-Border Collaboration
Cross-border collaboration 
 Strategic alliance: 
o a formal and mutually agreed commercial collaboration between competitors
o Partners pool, exchange or integrate specific business resources
o Remain separate businesses, making alliances distinct from mergers and
acquisitions

BMW and Daimler Joint Ventures (YOUR NOW Joint Ventures)

Providing sustainable urban mobility for customers 

The cooperation comprises four joint ventures: 

 FREE NOW:  taxi and ride-hailing services
 SHARE NOW: car-sharing (grab a car off the streets anytime and park it back anywhere
in the city)
  CHARGE NOW: providing access to electric car charging
 REACH NOW: a smartphone-based route management and booking service

Key motivators for alliance formation

 Technology exchange
o Necessary technology, resources, capabilities, and R&D firms need to compete
is beyond their scope
o Need to collaborate is intensified by short product life cycles
 Global competition
o Firms need to collaborate to compete in global economy
 Industry convergence
o Industries are converging and require cross-industry alliances
o Strategic alliances as a way to develop complex and interdisciplinary skills
   Economies of scale and reduction of risk
o Pool resources and concentrate activities to increase the scale of activities
o Risk diversification through multiple partnerships
 Alliances as an alternative to mergers
o Countries preclude foreign ownership in some industries

Paper - Joint Ventures and Partnerships in a Downturn

Alliance formation in a downturn
Joint ventures and partnerships as a response to the recession and a growth strategy during the
recovery:
 Partial Divestment
o JVs as managed exit
 Selling a non-core business through a JV
o JVs to raise capital
 Selling a partial interest in a business, converting the business into a JV
 Asset sale with a leaseback
Joint Ventures and Partnerships in a Downturn
Benefits of existing JVs at the time of crisis :

Risks of competitive collaboration 

 Benefits from the collaboration might not be the same
o Explicit knowledge (easy) vs tacit (difficult to learn) knowledge
o Appropriate of the partners knowledge and skills while carefully protecting their
own assets
   One partner can develop a competitive edge over the other
   Successful partnerships will lead to the strengthening of the competitor
   Collaborating with a competitor might be the precursor to ta takeout
Building and Managing Collaborative Ventures
 Pre-alliance Tasks
o Partner selection
 Analysis of importance and complementarity of assets and capabilities
  Availability of information
 Barriers of cultural and physical distance
 Estimation of future development of partners – analyze the durability of
complementarity
 Mitigation Strategies
   Assess partners willingness to invest resources
   Ensure clear understanding of goals of a potential project
   Monitor partnerships continuously

o Escalating commitment
 Unrealistic expectations and wrong choices
  Managers personal enthusiasm can cause an unrealistic assessment of
the benefits and consequences of a partnership
 Mitigation Strategies
 Operational managers should be part of the pre decision
negotiation process
o Alliance scope
   Simple scope for the partnership
   Keep complexity as low as possible
   Mitigation Strategies
 Expand the scope of an alliance gradually as partners develop a
better understanding and trust

 Post Alliance Tasks

o Managing the boundary
 Management through joint committees, administrative control, and
governance mechanisms – creating a separate legal entity
o Managing knowledge flows
 Ensure full exploitation of learning potential
 Prevent the outflow of information or knowledge that should not be shared
 Ensure that gatekeepers transfer relevant information to other parts of the
organization
 Right managers at the face
o Providing strategic direction
 Equal distribution of decision making power can hinder effective
management
 Clear leadership in each task and each partner takes the responsibility for
each different tasks

Building and managing Collaborative Ventures JV Checklist

 Managing collaborative ventures checklist
o Strategic logic
o Partner selection
 o Shape and design

Paper: How to Manage Alliances Better than One at a

Time
 Create value on a stand alone basis and at the alliance portfolio basis
o Use an alliance business case framework that takes into account costs and
benefits on the individual level as well as the alliance portfolio level of Analysis
o Empower an individual or a department to oversee alliance formation decisions.
o Implement an integrated and codified decision process.

 Costs and benefits: Individual Alliance

 Costs and benefits: Alliance Portfolio

Alliance Assessment Decision Process

Precisely define the various actors and their responsibilities in the alliance formation
 Nora – Sakari A Proposed Joint-Venture in Malaysia
Motivations
 Sakari
o Expand into new markets with existing technology 
o
No Agreement  so far, Why?

What are Zainal’s options to ensure that Nora fulfills the TMB contract?
 Lecture 7 - Implementing the Strategy 
Implementing the strategy 
 Strategies to Develop a transnational organization
 Develop global efficiency and competitiveness
 Create worldwide innovation and learning
 Establish multinational responsiveness
 Three key management Positions in the Transnational Company
 The global business manager
 The worldwide function manager
 The country subsidiary manager 

Global business manager

 Responsibility 
 Develop global efficiency and competitiveness
 Role
1. Global business strategist 
a. worldwide perspective on strategic position 
b. Incorporate perspectives and interests of geographic and functional managers 
c. Keep consistency of business strategy and corporate strategy 
d. Reconcile different views and prepare an integrated strategy 
2. Architect of asset and resouce configuration
3. Cross boarder coordinator 
Management Positions in the Transnational Company
 The Global Business Manager
o Develop global efficiency and competiveness
o  Roles
 Global business strategist
 Worldwide perspective on strategic position
 Incorporate perspectives and interests of geographic and
functional managers
 Keep consistency of business strategy with corporate strategy
 Reconcile different views and prepare an integrated strategy
 Architect of asset and resource configuration
 Oversee the worldwide distribution of key assets and resources
 Shape the future configuration by leveraging existing resources
and capabilities
 Link resources and capabilities in a configuration that resembles
the integrated network form
 Cross border coordinator
 Decide on sourcing pattern: build on the most capable national
operations and capitalize on locations of strategic importance
 Organize cross border transfer processes
o Direct central control for products of high strategic
importance
o Develop internal market mechanisms for commodity like
products
 The Worldwide Functional Manager
o Provide support to line managers – diffusing innovations and transferring
knowledge on a worldwide basis
o Roles
 Worldwide intelligence scanner
 Captures and transmits leading edge information across national
boundaries in order to track trends, developments and potential
challenges and make adjustments
 Establish functional specialist information channels to link local
technologies, marketers and production experts
 Cross pollinator of best practices
 Identify and evaluate leading edge practices
 Take initiatives that will expose others to new ideas
 Use informal contacts
 Cross unit visits and transfers
 Champion of transnational innovation
 Locally leveraged: identify local innovations that have applications
else by scanning the company’s worldwide operations
 Globally liked: full exploit the company's access to worldwide
information and expertise by linking and
 leveraging intelligence sources with internal centers of excellence
 
 The Geographic Subsidiary Manager
o Defends the company’s market position against global competitors, responding
to local customers and host governments, leveraging local resources and
capabilities to strengthen the company’s competitive position worldwide
o Roles
 Bi cultural interpreter
 Local expert in needs of the local market, competitors strategies,
demands for the host government
 Interpret information for corporate management
 Communicate the importance of information to organizational
members whose perceptions might be biased by ethnocentric
mindsets
 Interpret and apply corporate goals and strategies to the local
level of operation
 Communicate the corporate strategies to local employees
 National defender and advocate
 Defend need for national responsiveness
 Ensure the needs and opportunities that exist in the local
environment are understood and incorporated into thedecision
making
 Advocate for role subsidiary within the global operations
 Identify key assets and capabilities that can contribute to MNE
 Frontline implementer of corporate strategy
 Corporate strategic plans into actions for subsidiaries while
responding to host country demands and pressures
 Action needs to respect diverse local constituencies and be
pragmatic enough to achieve the expected corporate outline
 Implement something the manager was against
  Subsidiary voice is especially important when: 
o subsidiaries were located far away from headquarters
o the subsidiary’s activities were focused solely on the local market

Implementing the Strategy

 Top level corporate management
o Provide long term direction and purpose
 Clarity: simplicity, relevance, reinforcement, etc.
 Continuity: commitment to direction and purpose 
 Consistency: shared by all
o Leverage corporate performance
 Provides controls, support, and coordination to leverage resources and
capabilities to their highest level of performance
o Ensure continuous renewal
 Ensure an external orientation 
 Develop a questioning attitude
 Legitimize new initiatives 
 Lecture 8 -The Future of Transnational

Four Types:

 4 types of MNE’s
o Exploitive
 Single minded focus on maximizing profits regardless of social impacts
  Attracted to developing countries for lower labor-related costs including
minimum wage, hour, and age restrictions, as well as lower safety
requirements, preferential treatment through bribery, or uninformed
consumers
 Response to stakeholder pressures is often to use indirect channels or
move to another exploitable area
 Adversarial attitudes toward NGOs
 Examples
 nestle pushing infant formula on mothers in developing countries
 Union Carbide refusing to be held accountable for gas leak that
killed thousands
 Glencore acquiring mining assets at a reduced price in the
Democratic Republic of Congo
 Jordanian factory producing for Target & Wal-Mart exploiting
workers

o Transactional
 Maximizing shareholder return is the primary goal, but other stakeholder
concerns are incorporated that do not conflict with that goal 
 Legally complaint and socially aware
 Adhere to the “spirit” as well as the “letter” of the law in developing
societies – do no harm
 They conform to labor laws and workplace regulations, but they will still
be likely to maintain pressure on employees and suppliers to capture the
value of the lower-cost labor that attracted their initial investment
 Relationship with NGOs is more based on monitoring and challenging
 Examples
 McDonald’s and KFC abiding by the laws but encouraging
unhealthy eating
 Apple publishing factory audits to prove its contractor’s
compliance with labor laws even though a watchdog group later
reported that the subcontractor (Foxconn) continued to force some
employees to work excessive hours without proper compensation

o Responsive
 More than just a law-abiding entity
 Stakeholder and Shareholder concerns are equally important for long-
term survival 
 Decisions are based on moral principles rather than legal codes
 Attempt to be proactive rather than reactive in dealing with stakeholder
pressures – often incorporate concerns during the planning process
 Examples
 Hindustan Lever changing products to adapt to rural communities
in India
 GE introducing a basic line of CT scanners
  GE Gold Seal Program (refurbished machines)
 Starbucks offering incentives for suppliers who meet high ethical
standards

o Transformative
 Go beyond just being a good corporate citizen and take a leading role in
helping developing countries
 Willing to sacrifice potential profits in order to address social issues at
their core 
 Employee practices are of the highest ethical standard and are constant
regardless of local standards
 Actively exerting their own influence on entire societies to bring about
positive change in partnership with NGOs and other stakeholders
 Examples
 Unilever committing to improve the health and well-being of 1
billion people by 2020, in addition to cutting the environmental
impact of its products by 50% and securing 100% of its
agricultural products from sustainable producers 
 Merck providing drugs to those afflicted with River Blindness
regardless of their ability to pay
 Heineken covering AIDS treatment for employees as well as their
families

Drivers of MNE Trends

 NGOs established themselves as watch dogs
 Supranational agencies have served as mediators of dialogue and voluntary cross
sector initiatives
 Corporations have began to adopt a broader, long term perspective to social issues as a
means to ensure sustainable streams of income and maintain their existence
Silvio Napoli at Schindler India 
Silvio / India Fit?