International Strategy

International Strategies and Structure

Group EAllan McGavinFanny ThamMatthias Schmid

Uppsala, 08.03.2007

Managing the Multinational Corporation

Structure of Presentation

Matthias Bartlett & Ghoshal‘s global, multidomestic and transnational firm Comparison with Perlmutter‘s types of MNC (EPG perspective)

Allan Definition of Administrative Heritage Pros and cons of Administrative Heritage

Fanny Comparison of Embedded Multinational w/ other typologies Theoretical contributions of the Embedded MNC concept

Discussion

HQ

Subsidiary Subsidiary

Subsidiary Subsidiary

The Global Firm

Global firm – Efficient, but lack Local responsiveness

Main task: Be efficient Main advantage: earn cost advantages through

centralized scale operations

Vertical top-down flows subsidiary as receiving unit Information flow HQ - subsidiary and its related problem Need for more national responsiveness

Example: Kao

HQ

Subsidiary Subsidiary

Subsidiary Subsidiary

The Multidomestic Firm

Multidomestic firm – Responsive to the environment, but Costly

Subsidiaries much more autonomous Main task / advantage: natural fit to the environment

Example: washing machine business, Philips

Related problems:

cost issues

lack of sharing information (isolation)

HQ

SubsidiarySubsidiary

Subsidiary Subsidiary

The Transnational Firm

Transnational firm – Responsive and Efficient, but Costly and hard to Coordinate

Interdependence with other units The role of the subsidiary depends upon its position within the

network of organizational units Main task: interaction between units Main advantage: high integration, shared decision-making Related problems:

amount of information

QUESTION: how to store the information and how to distribute it?

Ethnocentric firm –

Home Standards applied Similarities to the global firm existent

Ethnocentrism: strong top-down commands high control by HQ home standards

Difference: focus of the two perspectives

Polycentric firm – Local Standards applied

Similarities to the multidomestic firm existent

Polycentrism: power in the polycentric view rest with the subsidiaries authority and decision making low in HQ loosely coupled

Difference: communication between subsidiaries (confederation-like)

Geocentric firm – (Global) Firm Standards applied

Similarities to the transnational firm existent

Geocentrism: high information flows (both vertical and horizontal) increasing in complexity strong interdependence

Administrative Heritage - Definition

Definition:

term given to conceptualize: the organizational structure distribution of managerial responsibilities set of ongoing business relationships

that have all developed over the entire life of the organization

Administrative Heritage – The Double-Edged Sword

Can serve as a key competitive advantage Can also pose great obstacle as it resists change Prevents the realignment or broadening of strategies

Related factors: Mission / philosophy Appropriateness of culture (home country, social

systems) Internationalization history of a firm Emulation of competitors

A.H. – Mission & Philosophy

Harold Geneen & ITT Subsidiary autonomy Traditions give stability, guidance Stubborn habits Increased need for global integration…

A.H. – Culture

Kao Face-to-face group decision making Tight control Industry shift towards decentralization…

A.H. – Era of Development

Philips WWII Decentralized Push to centralize embitters subsidiaries

A.H. – Emulation of Competitors

Philips & Matsushita Mutual admiration Attempt to copy other‘s style Mutual initial failure Later realization of A.H. importance

Centralized Decentralized

Administrative Heritage – Conclusion

Need to leverage and build on your existing administrative heritage instead of abandoning it

Adoption of new practices, not an abandonment of your company’s key competencies

Be proud of your heritage!

The Embedded Subsidiary – The Subsidiary’s Conflicting role

The Subsidiary’s conflicting role:

Corporate Context

Business Network

The Embedded Subsidiary – Ethnocentric perspective dominates the Global and International firm

Instructions and information flows from the head quaters to the subsidiaries

The corporate context is most important for the opertations of the subsidiaries

HQ

Subsidiary Subsidiary

Subsidiary Subsidiary

The Global Firm

HQ

Subsidiary Subsidiary

Subsidiary Subsidiary

The International Firm

The Embedded Subsidiary – The Polycentric perspective dominates the Multidomestic firm

Loosely coupled entities, with no or little communication

Surrounding busienss network has a greater influence on the subsidiary’s operations

HQ

Subsidiary Subsidiary

Subsidiary Subsidiary

The Multidomestic Firm

The Embedded Subsidiary – The Geocentric perspective dominates the Transnational firm

Aims to balance the influence of all actors to best achieve the MNC’s goals

Both the corporate context and surrounding business network is important for the subsidiary

HQ

SubsidiarySubsidiary

Subsidiary Subsidiary

The Transnational Firm

The Embedded Multinational – Emphazises that the MNC exists in an open environment

The Conficting role of the Subsidiary (business network and corporate context)

Helps us: to understand different roles within the MNC why some subsidiaries are more influnential

Questions (1)

What do you feel are some of the ways for a MNC to change without sacrificing its administrative heritage?

Consider the case of a transnational corporation. How should you store information and how should it be distributed?

Questions (2)

What do you think are the main obstacles of the transformation from ethnocentrism via polycentrism to geocentrism?

The case of Aspa emphasizes the importance of choosing your acquisitions carefully. What do you feel are the main issues in deciding which companies to buy?

Questions (3)

How would a MNC handle a unit that is reluctant to participate in the transnational network?

Is it possible to create a ”perfect” transnational firm?

THANKS FOR YOUR ATTENTION

Allan, Fanny, Matthias