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COURSE: GLOBAL BUSINESS MANAGEMENT MGT610

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Title: COURSE: GLOBAL BUSINESS MANAGEMENT MGT610


1
COURSE GLOBAL BUSINESS MANAGEMENT MGT610 DR.
DIMITRIS STAVROULAKIS PROFESSOR OF HUMAN RESOURCE
MANAGEMENT DEPT OF ACCOUNTING TEI OF PIRAEUS
2
Unit 5 MNC Mentalities and Responses to
InternationalizationTrainin
g Material-Textbook (181-192, 374-382).
-Chapter 1 from Bartlett, C.A. P.W. Beamish
(2010) Transnational Management. Singapore
McGraw-Hill.-Video Hard Rock Café Global
Strategy (6.14 min).
3
Think global, act local
  • The original phrase "Think Global, Act Local"
    first appeared in the book "The Evolution of
    Cities" (1905) by Scots Planner and was later
    applied by the social activist Patrick Geddes.
  • Strategic moves are integrated and coordinated
    worldwide, aiming at building a global brand
    name.
  • Global thinking and local response utilizes a
    common strategic approach (low-cost,
    differentiation, focus), but allows
    country-to-country customization to fit local
    market conditions.
  • Marketing and distribution are adapted to fit
    local customs and cultures

4
Glocalization Think global, act local
  •  The term Glocal and the process of
    Glocalization are formed by telescoping global
    and local to make a blend. The Oxford Dictionary
    of New Words, 1991
  • Glocalization The interpenetration of global
    and local, resulting in unique outcomes in
    different geographic areas. George Ritzer
  • Refers to the development and selling of products
    or services intended for the global market, but
    adapted to suit local culture and behavior.
  • Only truly global companies can achieve
    global localisation that is, be as much of an
    insider as a local company but still accomplish
    the benefits of world- scale operations. Kenichi
    Ohmae

5
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6
Patterns of Internationalization
Figure 1.7
7
Bartlett Ghoshal 4 mentalities
  • International
  • Multinational/Multi-domestic
  • Global
  • Transnational
  • Bartlett Ghoshal indicate that there exists no
    ideal mentality. A company may operate with
    anyone, depending on its strategic position
    culture, localization pressures etc.
  • In fact, historically some MNCs (Toyota,
    Unilever) have steered through most or all of
    these mentalities.

8
International Mentality
  • The companys overseas operations are viewed by
    the HQ as distant outposts whose main role is to
    support parent company. Subs are viewed as
    appendices, operating under the same
    regulations in diverse cultural domains.
  • Many local issues are treated at the local level,
    but product development, branding, technology
    knowledge are transferred to the sub from the
    parent company (Bartlett Beamish, 2010 11-12).
  • Target countries are selected mostly according to
    their cultural proximity to the home market.
  • Key managers of Subs come from the parent country
    and are selected mostly upon their
    international experience and language efficiency.
  • Of inferior effectiveness compared to the rest
    mentalities. No longer efficient when strong
    competitors appear. By then, International MNCs
    have to improve their cost structure by shifting
    to global strategy.
  • Has been followed in the past mostly by US MNCs
    (Kraft, Pfizer, PG, GE). GE is famous (notorious
    ?) for insisting to fully assimilate its
    acquisitions within the company culture and for
    imposing always Americans on top. Despite a
    streak of acquisitions in Europe, CEO Immelt was
    obliged to admit in as speech at HBS that I
    think that we stink in Europe today (Ghemawat,
    2007).

9
Worldwide International Strategy
From Bartlett and Ghoshal, Managing across
borders, 1989
HK
UK
Chile
USA
India
Japan
Mexico
Coordinated Federation - Many key assets,
responsibilities and decisions localized except
core product design brand Administrative
Control - Centralized HQ control, formal planning
and control, tight HQ-Sub linkage International
Mentality - Management sees overseas operations
as appendages to the domestic operation
10
Multinational/Multi-domestic Mentality
  • Differences between national markets are
    addressed. The corporation modifies its
    strategies, products, processes etc in order to
    adapt to local contexts.
  • Company strategy is composed of the multiple,
    nationally-oriented strategies of subs.
    Multi-domestic mentality is indicated when
    economies of scale are not important, while
    coordination costs between HQ and subs are high.
  • Subs at the local level may become highly
    independent, assimilated to local companies of
    their host country. Sometimes they act on their
    own interests rather than conforming to the MNC
    strategy.
  • Multinational mentality is based more on
    marketing than on manufacturing efficiency.
    Factories at the local level are built more in
    order to overcome trade barriers, to establish a
    presence near strategic resources, to improve
    marketing and to exploit political relations,
    than to increase efficiency of production.
    Products of the same company made in and
    addressed to third-world countries are sometimes
    inferior to those produced in developed countries
    (Bartlett Beamish, 2010 11-12).

11
Multinational/Multi-domestic Mentality (cont)
  • Autonomy of subs may come out of control. For
    example, in the 80s Unilever retained 17 country
    subs in Europe and it took more than 4 years to
    oblige them to introduce a single new detergent
    for Europe (Peng, 2010 296).
  • Operation of independent subs is costly due to
    the duplication of activities in many countries.
    Therefore, this strategy is more appropriate in
    industries where pressures for cost reductions
    are not significant (Peng, 2010 296).
  • Followed mostly by European MNCs (ICI, Nestle,
    Unilever). Fiat has followed this approach by
    establishing loosely controlled manufacturing
    units in Yugoslavia, Spain, Poland etc. MTV in
    Western Europe only retains more than 8 channels
    in different languages.

12
Multi-Domestic MNC
From Bartlett and Ghoshal, Managing across
borders, 1989
HK
USA
Mexico
Decentralized Federation - Most key assets,
responsibilities and decisions localized Personal
Control - Informal HQ-Sub relationship, simple
financial controls Multidomestic Mentality -
Management sees overseas operations as portfolio
of independent businesses
13
Global Mentality
  • In order to retain value of their brand name,
    companies create uniform products for the whole
    world market and produce them in few highly
    efficient plants, often at the corporate center.
    Global MNCs avoid costly country adaptation
    activities. Through strong marketing support they
    attempt to reap maximum benefits through
    economies of scale and scope.
  • Global strategy means that the whole world, not
    individual national markets, is viewed as a unit
    of analysis. The underlying assumption is that
    preferences of consumers become more and more
    uniform. Therefore, a consistent marketing
    strategy dictates that consumers be supplied with
    standardized products of superior quality over
    the national varieties.
  • Already in 1983 professor Levitt had declared
    that the future belongs to companies that make
    and sell the same thing, the same way,
    everywhere.
  • The global approach requires central coordination
    and control. Manufacturing, RD, and strategic
    decisions mostly take place at the HQ (Bartlett
    Beamish, 2010 12-13).

14
Global Mentality (cont)
  • Followed mostly by Japanese MNCs (Canon, Komatsu,
    Matsushita). Before attacking fully the global
    market, Toyota used to follow this approach. For
    decades, its sales came almost exclusively from
    direct exports. The precious Toyota Production
    System (TPS) till recently was carefully nurtured
    within the Japanese domain. Semiconductors.
  • Samsung has created a most efficient distribution
    system, but production and RD are firmly located
    in Korea.
  • This strategy is indicated when cost minimization
    is of cardinal importance. Apparently it is
    inappropriate when market dictates local
    responsiveness.
  • Many host governments have imposed restrictions
    to MNCs (localist countervailing forces), often
    demanding dissemination of knowledge and
    technology - China.
  • Volatility in currency markets (Asian crisis
    Russian debt at the end of 20th century, as well
    as the ongoing crisis in the Eurozone) has
    occasionally obliged MNCs to review their global
    strategy.

15
Global MNC
From Bartlett and Ghoshal, Managing across
borders, 1989
HK
UK
Chile
USA
India
Japan
Mexico
Centralized Hub - Most strategic assets,
resources, responsibilities and decisions are
centralized Operational Control - Tight HQ
control of decisions, resources,
information Global Mentality - Management sees
overseas operations as delivery pipelines to a
unified global market
16
Approaches of Multi-domestic strategy and Global
strategy
17
Effective Global Strategy
18
Transnational Mentality
  • Transnational mentality recognizes the importance
    of flexible and responsive country-level
    operations (hence the term national in the
    title). The international dimension, upon the
    condition that competitive effectiveness is
    maintained, is also emphasized through the prefix
    trans.
  • Key activities and resources are neither
    centralized nor entirely decentralized as in the
    multinational mentality. Instead, they are
    dispersed but organized in order to achieve at
    the same time efficiency and flexibility.
    Dispersed resources are integrated into an
    interdependent network of worldwide operations.
  • For example, a MNC may consider essential to
    establish factories for labor-intensive products
    in low-wage countries (Vietnam, Mexico,
    Guatemala).
  • On the other hand, call centers are likely to be
    located in low-cost countries. If you call
    American Express, Sprint, Citibank, or IBM it is
    likely your call will be answered in India.
  • Powerful marketing sales divisions are likely
    to be founded in populous countries of high
    buying potential (Brazil, China, India). In order
    to compete Komatsu, Caterpillar was obliged to
    establish production units near its most
    important customers. Production was customized so
    as to comply with the host countries complex
    legislation and safety codes.

19
Transnational Mentality (cont)
  • RD activities are apt to be concentrated in
    highly developed regions (Silicon Valley, Tokyo,
    Baden-Wurttemberg).
  • Sony relocated to London in order to improve
    access to financial services.
  • HSBC has been called the worlds local bank for
    its ability to respond to the needs of account
    holders in diverse nations.
  • The strategy of exploiting differences between
    developed and peripheral markets has been called
    arbitrage by Prof. Ghemawat.
  • Transnational companies may trade-off activities
    at will. For example, Dell opted to have its
    final assembly of computers located in the USA
    (unlike most of its competitors and despite
    higher labor costs) because its experienced
    technicians have a better control of operations
    (Cullen, 2010 42).
  • Many MNCs follow a hybrid of transnational
    strategy, by creating more or less autonomous
    hubs in target countries. Hubs are standalone
    units purported to serve a whole region both with
    global products and locally adapted ones. E.g.
    Toyota in the 90s started creating hubs, first
    in the USA, with outstanding results.

20
Transnational MNC
From Bartlett and Ghoshal, Managing across
borders, 1989
HK
Chile
UK
USA
Japan
India
Mexico
Networked Organization - Distributed, specialized
resources and capabilities Interdependent Units -
Large flows of components, products, resources,
people, and information Transnational Mentality -
Complex process of coordination and cooperation
in an environment of shared decision making
21
The structure of Philips
22
Effective Transnationalization
  • Barbie is 55 years old
  • Sold in 130 countries
  • National adaptations
  • Physical features
  • Costumes
  • Activity sets
  • Standardized physique
  • Scaled to 62, 110 lbs.

23
McDonalds Transnational Menu
US Brazil Canada India Germany
Big Mac ? ? ? ?
French Fries ? ? ? ? ?
Coca-Cola ? ? ? ? ?
McNuggets ? ? ?
McAloo Tikki ?
McRib ?
McBier ? ?
McLobster ?
McCalebresa ?
PitaMac ?
McFarmer ?
24
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25
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26
Expanding the Boundaries of Business
.
27
Worldwide Corporate-Level Strategy
High
Scale, efficiency, coordination
Need for Global Integration
Low
Customization
Low
High
Need for Local Responsiveness
28
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29
INTERNATIONAL MULTINATIONAL GLOBAL TRANSNATIONAL
PROS Simple organization   Unbarred one-way communication flow   Facilitation of control   Exploitation of local economies Leverage of headquarters advantages Development of executives at the local level   Fast response to local market demands   Full exploitation of local markets Indicated in strong cultural domains Exploitation of know-how Facilitation of control Effective global planning Addresses a single global market through superior products Commitment to global objectives Worldwide utilization of resources Internal transfer of innovation and best practices Customized products for specific markets, global for others
CONS Insufficient feedback from subsidiaries Few oppts for global learning Ineffective international planning Slow response to local developments Low-caliber subsidiaries Inferior compared to the rest mentalities Lack of cohesion and coordination of subs Growth, RD and knowledge limited at the local level Failure to exploit experience at the local level Lack of local responsiveness  Few oppts for global learning Loss of market share if consumers shift to local products Vulnerability to local crises Implementation control problems, org. complexity Risky trade-offs between costs local responsiveness Excessive expenses time spent on communication and decision-making
30
Internationalization indicators
  • .

31
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32
Pressures for Global Integration Local
Responsiveness
Ball bearings, wheat
High
Global Integration
Cost Reduction Pressures
Cosmetics, food, household goods
Low
Low
High
Local Responsiveness Pressures
Localization Pressures due to Country Differences
in - consumer tastes/preferences -
infrastructure/practices - distribution
channels - host government needs
33
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34
International presence of selected MNCs

Sales in domestic market Percent
Sales in foreign markets Percent
Total sales Millions
Domesticmarket
Products
Company
37,031
Cell phones
Finland
Nokia
29,378
Automobiles
Germany
Audi
1,540
Audioequipment
Japan
Clarion
8,279
Computers,electronics
U.S.
Apple
2,165
Online auctions
U.S.
eBay
917
Pizza
U.S.
Papa Johns
35
Sub Roles in the MNC
.
High
  • Black Hole
  • Strategic Leader

Strategic importance of the local market
  • Implementer
  • Contributor

Low
Low
High
Resource base of the sub
S
36
Subs Roles in the MNC
  • Black Hole A rather weak unit in terms of
    specialized resources, but located in a
    strategically important market. Used by the MNC
    to maintain presence in a key market in order to
    keep abreast of new innovations or strategic
    moves by competitors. However, it reflects an
    undesirable competitive position. In the long
    run, the MNC may commit more resources , or may
    engage in acquisitions or strategic alliances in
    order to access complementary resources.
  • Implementer Concern subs with weak specialized
    resources, located in markets of lesser
    importance. However, they may become part of the
    MNCs overall success, because they may generate
    a steady stream of cash flow, and may help build
    a competitive advantage by contributing to
    company-wide scale and scope economies.
  • Strategic Leader The sub is of strategic
    importance, hence a vital source of innovations
    and good practices that are spread throughout the
    company. Aids HQ to identify strategic trends and
    to develop core competencies.
  • Contributor A highly competent sub, located in a
    less important market. This type of sub has
    typically developed new FSAs, often as the result
    of a competent host country management. Its
    specialized resource base might benefit other
    units in the MNC if HQ recognizes its potential.
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