LEARNING OBJECTIVES

LEARNING OBJECTIVESAfter studying this chapter, you should be able to:

1. Articulate the relationship between multinational strategy and structure

2. Understand how institutions and resources affect structure, learning, and innovation

3. Outline the challenges associated with learning, innovation, and knowledge management

4. Participate in two leading debates on multinational structure, learning, and innovation

5. Draw implications for action

Chapter 13

Strategy and Structure

PRESSURES FOR COST REDUCTIONSAND LOCAL RESPONSIVENESS

integration-responsiveness framework - means by which MNEs primarily confront two sets of pressures: cost reductions local responsiveness

local responsiveness - unique consumer preferences and host country demands on cost reductions

STRATEGIC CHOICEShome replication strategy – emphasizes international replication of home country-based competencies such as production scales, distribution efficiencies, and brand powerlocalization (multidomestic) strategy – focuses on a number of foreign countries/regions, each of which is regarded as a stand-alone “local” market worthy of significant attention and adaptationglobal standardization strategy - relies on development and distribution of standardized products worldwide to reap maximum benefits from low-cost advantages

STRATEGIC CHOICEScenter of excellence - MNE subsidiary explicitly recognized as a source of important capabilities, with the intention that these capabilities be leveraged by and/or disseminated to other subsidiariesworldwide (or global) mandate - charter to be responsible for one MNE function throughout the worldtransnational strategy - attempt by an MNE tobe cost efficient and locally responsive

ORGANIZATIONAL STRUCTURESinternational division - typically set up when firms initially expand abroad, often engaging in a home replication strategygeographic area structure - organizing according to different geographic areas (countries and regions)country or regional manager - business leader of a specific geographic area or regionglobal product division - treats each productdivision as a stand-alone entity with full worldwide—as opposed to domestic—responsibilities

FORMAL AND INFORMAL EXTERNAL INSTITUTIONSformal institutional frameworks erected by various home and host country governments:to protect domestic employment, the British government taxes British MNEs’ foreign earnings at a higher rate than their domestic earningspolitical reasons discourage or ban MNEs from structuring certain operations in “sensitive” countrieshost country governments often attract, encourage, or coerce MNEs into undertaking activities that they may otherwise abdicate

FORMAL AND INFORMAL EXTERNAL INSTITUTIONS

informal institutional frameworks erected by various home and host country governments:managers contemplating such moves have to weigh the vocal backlash against such activities that often result in domestic job lossessourcing decisions are guided by the informal norm of reciprocity, i.e. one country’s suppliers are involved with Boeing, airlines based in that country are more likely to buy Boeing aircraft

Formal and Informal INTERNAL InstitutionsMNEs are governed internally by various formal and informal rules of the game:systems of evaluation, reward, and punishment in place based on formal ruleshome country national as the head of a subsidiary (such as an American for a subsidiary of a US-headquartered MNE in India)host country national (such as an Indian for the same subsidiary)third country national (such as an Australian for the same subsidiary)

Formal and informal INTERNAL Institutions

Staffing approaches may reflect strategic differences:home country nationals, especially long-time employees of the same MNE at home, are more likely to have developed a better understanding of the informal workings of the firmappointing host and third country nationals is indicative of an MNEs’ preference for a localization strategyformal internal rules on how the MNE is governed may reflect conscientious strategic choicesinformal internal rules are often taken for granted and are deeply embedded in administrative heritages, thus making them difficult to change

RESOURCE BASED CONSIDERATIONSVRIO framework

value - does the new structure (such as matrix) adds concrete value? innovation – crucial difference between an innovator and a profitable innovator

rarity - to improve global coordination, many MNEs spend millions to equip themselves with enterprise resource planning (ERP) packages

imitability - formal structures are easier to observe and imitate than informal structuresorganization - building an informal, flexible, invisible

matrix) is more likely to outperform rivals

KNOWLEDGE MANAGMENTexplicit knowledge - codifiable (that is, can be written down and transferred with little loss of its richness)tacit knowledge - noncodifiable and its acquisition and transfer require hands-on practiceR&D - an especially crucial arena for knowledge managementglobal virtual teams - do not meet face to face to transfer knowledgedecentralized R&D - performed by different locations and teams around the world virtually guarantees persistent heterogeneity in the solutions generated

KNOWLEDGE MANAGEMENT PROBLEMS AND SOLUTIONSmany MNEs prefer to invent everything internally“open innovation” relies on more collaborative research among various internal units, external firms, and university labs“not invented here” syndrome - causes some managers to resist accepting ideas from other unitslimited absorptive capacity - ability to recognize value of new information, assimilate, and apply it

KNOWLEDGE MANAGEMENT PROBLEMS AND SOLUTIONS

social capital - informal benefits individualsand organizations derive from their social structures and networksmicro-macro link - informal interpersonal relationships (micro) among managers of different units that may greatly facilitate intersubsidiary cooperation (macro) among various units

CORPORATE CONTROLS vs. SUBSIDIARY INITIATIVESSubsidiaries are not necessarily at the receiving end of commands from headquarters - some subsidiaries may be in full compliance, others may pay lip service, and still others may simply refuse to adopt, citing local differences.

Some subsidiaries may actively pursue their own subsidiary-level strategies and agendas.

From the perspective of corporate headquarters, it is hard to distinguish between good-faith subsidiary initiative and opportunistic “empire building.”

Customer-Focused Dimensions vs. Integration, Responsiveness, and Learning

Juggling the three dimensions of integration, responsiveness, and learning has often made the global matrix structure so complex that it is unworkable. However, instead of simplifying, many MNEs have added new dimensions that make their structure more complex. Often, new customer-focused dimensions of structure are placed on top of an existing structure, resulting in a four- or five-dimension matrix.So what is the solution when confronting the value-added potential of customer-focused dimensions and their associated complexity and cost?