Chapter

Entry Strategies and Organizational Structures

The specific objectives of this chapter are:
1. 2. 3.

DESCRIBE how an MNC develops and implements entry strategies and ownership structures. EXAMINE the major types of organizational structures used in handling international operations. ANALYZE the advantages and disadvantages of each type of organizational structure, including the conditions that make one preferable to others.

Chapter

Entry Strategies and Organizational Structures

The specific objectives of this chapter are:
4.

DESCRIBE the recent, nontraditional organizational arrangements coming out of mergers, joint ventures, keiretsus, and other new designs including electronic networks and product development structures. EXPLAIN how organizational characteristics such as formalization, specialization, and centralization influence how the organization is structured and functions.

5.

Entry Strategies and Ownership Structures

DEVELOPED MARKETS North America Western Europe Japan Australia and New Zealand 0 20 40 60 80 % OF RESPONDENTS 100

Adapted from Figure 91: Preferred Strategies for Global Expansion

Entry Strategies and Ownership Structures

EMERGING MARKETS

0
Adapted from Figure 91: Preferred Strategies for Global Expansion

20 40 60 80 100 % OF RESPONDENTS

Entry Strategies and Ownership Structures

Wholly owned subsidiary

An overseas operation that is totally owned and controlled by an MNC MNCs desire for total control and belief that managerial efficiency is better without outside partners Some host countries are concerned that the MNC will drive out local enterprises and others prohibit fully owned subsidiaries Home-country unions sometimes view foreign subsidiaries as an attempt to export jobs Today many multinationals opt for a merger, alliance, or joint venture rather than a fully owned subsidiary

Entry Strategies and Ownership Structures

Wholly owned subsidiary
Mergers and Acquisitions

The cross-border purchase or exchange of equity involving two or more companies

The strategic plan of merged companies often calls for each to contribute a series of strengths toward making the firm a highly competitive operation

Entry Strategies and Ownership Structures

Wholly owned subsidiary
Mergers and Acquisitions Alliances and Joint Ventures

Alliance

Any type of cooperative relationship among different firms.

International

joint venture (IJV)

An agreement under which two or more partners from different countries own or control a business Nonequity venture Equity joint venture
Improvement of efficiency Access to knowledge Political factors Collusion or restriction in competition

Advantages

Entry Strategies and Ownership Structures

Wholly owned subsidiary
Mergers and Acquisitions Alliances and Joint Ventures Licensing

An agreement that allows one party to use an industrial property right in exchange for payment to the other party By licensing to a firm already there, the licensee may avoid entry costs Licensor usually may be is a small firm that lacks financial and managerial resources Companies that spend a relatively large share of their revenues on research and development (R&D) are likely to be licensors Companies that spend very little on R&D are more likely to be licensees

Entry Strategies and Ownership Structures

Wholly owned subsidiary
Mergers and Acquisitions Alliances and Joint Ventures Licensing

Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee
Widely used in the fast-food and hotel/motel industries

Franchising

With minor adjustments for the local market, it can result in a highly profitable international business

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Entry Strategies and Ownership Structures

Wholly owned subsidiary
Mergers and Acquisitions Alliances and Joint Ventures Licensing

Often the only available choices for small and new firms wanting to go international
Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment Exporting and importing can provide easy access to overseas markets

Franchising Exporting and Importing

Strategy usually is transitional in nature

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Organizational Consequences of Internationalization

Pressure for globalization High
Aircraft Cameras Consumer electronics Computers Telecommunications Aerospace

Automobiles Synthetic fibers Steel

Low

Clothing

Cement

Packaged goods

Low High Pressure for local responsiveness

Adapted from Figure 92: Organizational Consequences of Internationalization

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Basic Organizational Structures

Initial division structures

Subsidiary

Common for finance-related businesses or other operations that require an onsite presence from the start Common among manufacturing firms, especially those with technologically advanced products In response to local governments when sales increase Need to reduce transportation costs

Export arrangement

On-site manufacturing operations

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Basic Organizational Structures

Home-office departments Chief Executive Office

Production

Marketing

Finance

Human Resources

Overseas subsidiaries

V.P. International Operations

France

Japan

Egypt

Australia

Argentina

Adapted from Figure 93: Use of Subsidiaries during the Early Stage of Internationalization

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International Division Structure

International division structures A structural arrangement that handles all international operations out of a division created for this purpose

Assures that international focus receives top management attention Unified approach to international operations Often adopted by firms still in the developmental states of international business operations Separates domestic from international managers (not good) May find it difficult to think and act strategically, or to allocate resources on a global basis
See example next slide

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International Division Structure

(Partial Organization Chart) Chief Executive Officer Home-office departments Production Operating divisions Domestic Division: Plant Domestic Division: Tools Domestic Division: Hardware Domestic Division: Furniture Australia Office Operations
Adapted from Figure 94: An International Division Structure

Marketing

Finance

Human Resources

International Division:

Japan

Italy

Marketing

Government Relations

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Global Product Division

Global product division

A structural arrangement in which domestic divisions are given worldwide responsibility for product groups

Global product divisions operate as profit centers Helps manage product, technology, customer diversity Ability to cater to local needs Marketing, production and finance can be coordinated on a productby-product global basis Duplication of facilities and staff personnel within divisions Division manager may pursue currently attractive geographic prospects and neglect others with long-term potential Division managers my spend too much time tapping local rather than international markets
See example next slide

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Global Product Division

Home-office departments Production Operating divisions Product Division A S. America Product Division B Africa Product Division C Europe Product Division D Australia
Great Britain France Germany Italy Netherlands

Chief Executive Officer Marketing Finance

(Partial Organization Chart) Human Resources Product Division E Far East

Production

Marketing

Finance

Human Resources

Adapted from Figure 95: A Global Product Division Structure

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Global Area Division

Global area division

A structure under which global operations are organized on a geographic rather than a product basis

International operations are put on the same level as domestic operations Global division managers are responsible for all business operations in their designated geographic area Often used by firms in mature businesses with narrow product lines By manufacturing in a region, the firm is able to reduce cost per unit and price competitively Difficult to reconcile a product emphasis with a geographic orientation New R&D efforts often ignored because divisions are selling in mature market
See example next slide

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Global Area Division

(Partial Organization Chart) Chief Executive Officer Home-office departments Production Operating divisions North America South America Europe Asia Great Britain France Germany Italy Netherlands
Adapted from Figure 96: a Global Area Division Structure

Marketing

Finance

Human Resources

Africa

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Global Functional Division

Global functional division

A structure that organizes worldwide operations primarily based on function and secondarily on product

Approach not used except by extractive companies such as oil and mining firms Favored only by firms that need tight, centralized coordination and control of integrated production processes and firms involved in transporting products and raw materials between geographic areas Emphasizes functional expertise, centralized control, and relatively lean managerial staff Coordination of manufacturing and marketing often is difficult Managing multiple product lines can be very challenging because of the separation of production and marketing into different departments
See example next slide

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Global Functional Division

(Partial Organization Chart) Chief Executive Officer

Production

Marketing

Finance

Domestic Production Product A Product B Product C Product D

Foreign Production Product A Product B Product C Product D

Domestic Production Product A Product B Product C Product D

Foreign Production Product A Product B Product C Product D

Adapted from Figure 97: a Global Functional Structure

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Mixed Organization Structures

Mixed organization structures

A structure that is a combination of a global product, area, or functional arrangement

Allows the organization to create the specific type of design that best meets its needs As the matrix designs complexity increases, coordinating the personnel and getting everyone to work toward common goals often become difficult Too many groups go their own way

See example next slide

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Mixed Organization Structures

(Partial Organization Chart) Chief Executive Officer Home-office departments Production Operating divisions North America Industrial Goods Marketing Finance Human Resources

Europe

Manager, Industrial Goods North America

Manager, Industrial Goods Europe

Adapted from Figure 98: A Multinational Matrix Structure

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Transnational Network Structures

Transnational network structures

A multinational structural arrangement that combines elements of function, product, and geographic designs, while relying on a network arrangement to link worldwide subsidiaries

At the center of the transnational network structure are nodes, which are units charged with coordinating product, functional, and geographic information Different product line units and geographical area units have different structures depending on what is best for their particular operations
See example next slide

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Transnational Network Structures

Adapted from Figure 99: The Network Structure of N.V. Philips

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Control Mechanisms

Adapted from Table 9-2: Control Mechanisms Used in Select Multinational Organization Structures

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Nontraditional Organizational Arrangements

Organizational arrangements from mergers and

acquisitions Organizational arrangements from joint ventures and strategic alliances

Organizational arrangements from Keiretsus

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Asian and Western Management Features

ORGANIZATION

BASIC VALUES

MANAGEMENT STYLE

ACTION

Adapted from Figure 9-10: A Comparison of Asian and Western Management Features

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Electronic Network Form of Organization

Electronic freelancers

Individuals who work on a project for a company, usually via the Internet, and move on to other employment when the assignment is done (http://elance.com) Temporary companies Serve a particular, short-term purpose and then go on to other assignments Outsourcing function (can be delivered online) Electronic network is a version of the matrix design Many of the people in the structure are temporary, contingent employees, never see each other and communicate exclusively in an electronic environment

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Organizing for Product Integration

Cross-functional coordination
Six organizational mechanisms used by Toyota 1. Mutual adjustments 2. Direct, technically-skilled supervisors 3. Integrative leadership 4. Technical training is provided in-house, and people are rotated within only one for most, if not all, of their careers 5. Complex forms and bureaucratic procedures 6. Design standards are maintained by the people who are doing the work and are continually changed to meet new design demands

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Changing Role of Information Technology in Organizing

Adapted from Table 93: Contrasting Approaches to Using Information Technology: Western and Japanese Views

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Organizational Characteristics of MNCs

Formalization
Specialization Centralization

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Organizational Characteristics of MNCs

Adapted from Table 94: Organizational Characteristics of U.S. and Japanese Firms in Taiwan

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Organizational Characteristics of MNCs

Adapted from Table 95: Internal vs. External Networks

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Organizational Characteristics of MNCs

Adapted from Table 96: Managers Influence in U.S. and Japanese Firms in Taiwan

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Cases
Australia (p. 290)
Getting in on the ground floor (p. 291) Reliance (p. 350)