MODULE 3

MODULE 3GLOBAL BUSINESS STRATEGIC MANAGEMENTStructural design of MNEs Strategic planning Strategic considerations- NationalVS Global competitiveness.INTRODUCTIONOrganizational structure gives the framework or lines of communication, authority, responsibility and accountability. Organizational structure specifies the firms reporting relationships, procedures, controls and authority and decision processes. It is a critical component of effective strategy implementation process. For Multinational Enterprises(MNEs) deciding the organization structure is very important because it cannot be the same for all units and at the same time cannot be just one design for all. Whatever the design, it must be organic enough to adapt to situations. While it is becoming true that form must follow function, there are some traditional/ classical organizational structures that are followed; besides new structures are experimented with. Multinational Enterprises(MNEs) are having wide options, for different geo-locations may suit/dictate different structures. Structural designs are important for MNEs for they affect synergies, cost, control, responsiveness, competitive strength, etc. companies change structures to gain more and mitigate disadvantages.1.What are the factors affecting structural design of MNCs?MNCS STRUCTURAL DESIGNA multinational company is an organisation doing business in more than one country. There are certain steps in designing organisational structure. The analysis of factors include1.external environment2.overall aims and purpose of enterprise3.objectives of the company4.relationship from point of communication5.job structure6.management style2.What are the different structural design of MNCs? StructureStructure of organisation can be divided as 1.functional organisationsThis type of structure reflects the different functions present within organisations. Thus the marketing, finance, sales, production, research and HR specialties each have their own sub organisation which is (usually) represented at board level.

2.geographical organisationsAs organisations expand particularly when they develop their operations across national boundaries it is common to observe an organisational structure which reflects this. Geographical organisational structures work best when local decision-making is required to tailor the product or service to a regional market. For example, a brewery company expanding into an overseas market would have to take local tastes into account. 3.organisation by productThere are many examples of structures which reflect the product line(s) or services which the organisation offers. For example, a passenger transport company may be organised into bus services, coach tours and package holiday products, each with their own dedicated operations

4.Organisation by customer/marketExamples exist of organisations in which the structure most closely reflects the markets in which they operate. For example, some organisations rely heavily on a small number of important customers who account for most or all of their business. Automotive component manufacturers often organise themselves in this way, with perhaps a dedicated production area, or even a separate plant which produces only for Toyota, another for BMW, another for Tata etc

matrix structureA matrix structure is one which sets out to reconcile the competing demands of customers and the need for a strong bureaucratic and efficient functional presence. This type of structure is commonly observed in organisations which are highly project-based for example, civil engineering companies. A matrix organizational structure combines the efficiency of the functionally organized company with the flexibility of extensive local operations. Foreign workers report to local managers for questions about their work, while they report to the head office for all other functions. The home organization retains control of disciplinary matters, pay and promotions, while the employees carry out the work according to local requirements. This is a suitable organizational form for smaller companies active in only one or two foreign markets, but it is mainly used by larger corporations who have extensive foreign operations.

Matrix structures work best in project-based environments, such as engineering and construction, where each project runs for a long period. Each team involved can concentrate their energies upon their designated project, drawing across the range of central services as needed. The major drawback of the matrix design is that everyone appears to have two bosses, which can (and frequently does) lead to role conflict and tensions.

3.What are the 2 options for designing organisational structure of MNCs?Options for Designing of Organisations structure of MNCs

1. Vertical/ Tall Organisations: Vertical/tall organisations refer to increase in the length of the organisation's hierarchy chain of command. The hierarchical chain of command represents the company's authority - accountability relationship between superiors and subordinates. Authority and responsibility flow from the top to the bottom through all the levels of the hierarchy. Accountability flows from the lowest level to the highest level. Employees at each level should report to their superior, who in turn should report to his boss. Thus, the activities are reported to the top. Authority is more centralized in tall organisation.

2.Horizontal/FlatorganisationsHorizontal/flat organisations refer to an increase in breadth of an organizations structure. The increasing bio-professionalization and multi-professionalization and wide acceptance for empowerment allowed even the large business firms to reduce the number of hierarchical levels of their organisations. Consequently, large sized firms also started adopting horizontal/f1at organization by de- layering.

In fact, this structure is well suited for the small size business firms.Authority is more decentralized in relatively flat structures. Manager with broad span of control must grant more authority to his subordinates. Decisions are more likely to be made by the employees who are at the helm of affairs and more familiar with the situations and ground realities. Organizational activities are mostly performed informally. Professional managers are treated as real professionalisms.

STRATEGIC MANAGEMENT IN IB/STRATEGIC PLANNING

International Strategic Management is a planning process of developing international strategy in the direction of achieving strategic-fit between the organizations competence & resources and the global environment under which it tends to operate. It is an ongoing process that adhere an organization to compete in an international scenario. International Strategic Management (ISM) is an ongoing management planning process aimed at developing strategies to allow an organization to expand abroad and compete internationally. Strategic planning is used in the process of developing a particular international strategy. An organization must be able to determine what products or services they intend to sell, where and how the organization will make these products or services, where they will sell them, and how the organization will acquire the necessary resources for these tasks. Even more importantly an organization must have a strategy on how it expects to outperform its competitors.

difference between domestic and international strategic management1.Human Resource StrategiesHR strategies include management strategies, employee recruitment and legal issues. Domestically one organizational structure can be set up and followed by all future locations in the same manner. In an international setting foreign outsourcing becomes HRs major concern, managing many different organizational management structures and diverse employee recruitment. 2.Mission StatementThe mission statement is a short two to three sentences that clearly explains the companys goals, products and mission. In a domestic market this statement can be more specific, focusing on the problems and/or concerns of the local populations. When a company is operating internationally this statement must take into consideration the values, beliefs and concerns of all international populations that the company operates within or must be regionalized.3.Financial PlanningWhen creating a financial plan in a domestic market one must consider the cost of operations, cost of new facilities and the profit margin within the area of operations. This is all expanded in an international market..4.Product ManufacturingA domestic business strategy for product manufacturing involves a company finding the most cost-effective vendors within its own borders.. A global business strategy, on the other hand, casts a wider net. International businesses can tap into cheap labor markets in China and India, gain significant cost savings as a result of cheaper global markets.4.MarketingA domestic business plan focuses on how to tap into local demographics and how to appeal to their tastes and preferences. A global business's strategy incorporates many of these same plans, but it must modify its products to fit the cultural preferences of its global audience. 5.What is the need for strategic management1.Increasingly diversified operations in a continuously changing international environment.2.More resources, more places to allocate them3.Increased complexity of business

6.What are the different approaches to strategic planning?APPROCHES TO STRATEGIC PLANNINGThere are 4 different approaches to strategic planning1. Economic Imperative2. Administrative Coordination3. Political Imperative 4.Quality Imperative1. Economic imperative a)Economic imperative focused MNCs employ a worldwide strategy based on cost leadership, differentiation, and segmentationb)They often sell products for which a large portion of value is added in the upstream .2.political imperativeMNCs using the political imperative approach to strategic planning are country responsive; their approach is designed to protect local market niches.use a country-centered or multidomestic strategy.3.Quality imperative Implementation of management practices designed to make quality improvement an ongoing process4) Administrative Coordination ImperativeMany large MNCs work to combine all 4 of the approaches to strategic planning

8.What are the elements of strategic planning? What are the steps in strategic planning? . Step 1.Carry out an environmental scanThis helps provide an understanding of how the organization relates to its external environment and internal environment.The scan usually includes an external component -identifying and assessing opportunities and threats in the external environment -and an internal component -- assessing organizational strengths and Internal environmental assessment means physical resources and personnel competencies. Step 2: Analysis company strengths & weaknesses for international growth.Next step is the company's capabilities of further international growth. A central issue will be the analysis of the competitive advantage of company..Step 3: Analysis of competitorswhen company is facing competitors, who might compete at a national, regional and/or globallevel. These competitors must be identified and their product lines, strengths and weaknessesanalysed. From the internationally operating competitors information must be gathered as to howthey have penetrated into other foreign markets. Examining the five forces that determine industry competitivenessbuyerssupplierspotential new entrants to the industrythe availability of substitute goods and services _ rivalry among the competitorsStep 3: Selection of target marketsThe selection of target markets starts with a quick preliminary screening of all countries in theworld, using readily available basic information on general demand factors for your products andmacro-economic and demographic data. This screening will result in a number of prospectivetarget countries, for which the market potential will be roughly estimated.Specific market parameters and requirements, tuned to your products or services will be includedas factors for evaluation and decision-making.Step 5: Selection of entry modesFor each selected target market the optimal entry mode will be selected, based on the followingcriteria: expected financial return in relation to cost financial and marketing risk desired degree of management controlStep 6: Marketing/business plan per selected foreign marketWhen the main issues of the international business strategy have been decided upon, detailedmarketing and business plans must be drafted, which will be executed in the various selectedforeign markets.Step 7: Adjustment of the existing organisationImplementation of the desired international business strategy might have consequences for the company's present organisation. The establishment of foreign assembly and manufacturing operations might have consequences for the international product sourcing and vendor relations.Most probably the capacity of the international management staff must be expanded. Internal andexternal financial funds must be located. Mergers and acquisition - A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.Distinction between Mergers and AcquisitionsAlthough they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler - Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.

Countertrade - means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money. A monetary valuation can however be used in counter trade for accounting purposes. In dealings between sovereign states, the term bilateral trade is used. OR "Any transaction involving exchange of goods or service for something of equal value."Types of countertradeThere are five main variants of countertrade: Barter: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment. Switch trading: Practice in which one company sells to another its obligation to make a purchase in a given country. Counter purchase: Sale of goods and services to one company in other country by a company that promises to make a future purchase of a specific product from the same company in that country. STRATEGIC CONSIDERATION Expanding internationally can launch a business to the next level, or it can derail operations entirely. It's not always obvious what the correct strategy for foreign expansion is, but there are some things executives should consider before starting operations in another country.1.Issues on franchising When a country is opening a franchise in other country there should be certain points to be considered. There are some form of franchise-specific regulation. It include Where they exist, register the franchise, conduct market studies, prepare country-specific disclosure documents that differ from the home country form of disclosure, taking a fee, and/or include certain mandatory provisions in, or omit certain prohibited provisions from, the franchise agreement. Compliance with these laws is an extremely important consideration, but not the only consideration, when expanding internationally. In addition to the franchise-specific laws, a number of other key issues must be addressed for a successful international launch.2.Issues on trade markA critical first step is ensuring that the companys principal trademarks are available for use in the countries targeted for expansion. Trademark regimes differ. A country may be a first to use jurisdiction (like the U.S.), where trademark rights are established through use of a mark, or a first to file jurisdiction (like China), where use is not required in order to file for registration. Trademark piracy in first to file countries, where others may register a companys mark and hold it hostage in exchange for payment, is not uncommon. To preserve expansion opportunities an international trademark strategy should be developed early, using available international protocols to reduce costs and administrative burdens.3.Local market adaptionUnderstanding how the companys brand translates locally is also critically important. In order to succeed outside home country it may be necessary to adapt the companys trademark and other characteristics of its brand to the local language and local tastes. A full understanding of how best to adapt the brand to local tastes may come only after identifying the right local partner to act as the in-country master franchisee or developer. The ideal will have an in-depth understanding of the local market, as well as the capital, infrastructure and expertise to develop the home companys brand in the target country. Each side should carefully conduct all appropriate business and legal due diligence to ensure the maximum opportunity for success.5.Negotiation with local partyOnce a local partner has been selected, the parties negotiations must cover a variety of issues. On the business side, the parties must consider, among other things, the level of support to be provided by the home country franchisor, the development schedule to be undertaken by the master franchisee/developer, the establishment and operation of the supply chain, and of course, what fees are appropriate given the parties respective contributions. Among the most difficult issues are those relating to the unwinding of the relationship following expiration of the agreements or an event of default resulting in termination. 6.Legal problems Critical legal points to be addressed include currency exchange issues, possible governmental restrictions on payments, and applicable withholding taxes . Dispute resolution mechanisms may need to be modified .Applicable competition laws may require reassessment and modification of territorial provisions.NATIONAL V/S GLOBAL COMPETITIVENESSThe issue of international competitiveness of the national economy and its improvement has presented a part of development policies for decades. It has been intensified on international level by multilateral trade liberalization, steady growth of international trade, acceleration of technical progress, and by the progress of new industrialized countries. The intensification of international competition should increase its importance. The international competitiveness can be defined as "a country's capability for most rational use of resources in accord to the international specialization and trade in such way that results, as a final goal, in growth of living standard and domestic product (so that growth should be founded on real basis but not on external indebtedness). A competitiveness comprises the capability for achieving high level of productivity on national level, upgrading of human capital, effective use of capital and other factors of production.Competitiveness is the relative strength that one needs to win in competition against rivals. Country competitiveness is the extent to which a country is capable of generating more wealth than its competitors do in world markets. It measures and compares the effectiveness of countries in providing firms with an environment that sustains the domestic and international competitiveness of those firmsWe define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be reached by an economy. In other words, a more competitive economy is one that is likely to grow faster over time. There are 12 Pillars of Competitiveness or there are 12 major determinants of countrys competitiveness.1: InstitutionsThe institutional environment is determined by the legal and administrative framework within which individuals, firms, and governments interact to generate wealth. The importance of a sound and fair institutional environment has become very important for investment decisions and the organization of production .The role of institutions goes beyond the legal framework. Government attitudes toward markets and freedoms and the efficiency of its operations are also very important: In addition, the proper management of public finances is critical for ensuring trust in the national business environment. private institutions are also an important element in the process of creating wealth. 2: InfrastructureExtensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor in determining the location of economic activity and the kinds of activities or sectors that can develop within a country. Well-developed infrastructure reduces the effect of distance between regions, integrating the national market and connecting it at low cost to markets in other countries and regions. Effective modes of transportincluding quality roads, railroads, ports, and air transportenable entrepreneurs to get their goods and services to market in a secure and timely manner and facilitate the movement of workers to the most suitable jobs3: Macroeconomic environmentThe stability of the macroeconomic environment is important for business and, therefore, is significant for the overall competitiveness of a country. the economy cannot grow in a sustainable manner unless the macro environment is stable. 4: Health and primary educationA healthy workforce is vital to a countrys competitiveness and productivity. Workers who are ill cannot function to their potential and will be less productive. Poor health leads to significant costs to business, as sick workers are often absent or operate at lower levels of efficiency. In addition to health, this pillar takes into account the quantity and quality of the basic education received by the population, which is increasingly important in todays economy. 5: Higher education and trainingQuality higher education and training is crucial for economies that want to move up the value chain beyond simple production processes and products. In particular, todays globalizing economy requires countries to nurture pools of well-educated workers who are able to perform complex tasks and adapt rapidly to their changing environment and the evolving needs of the production system..6: Goods market efficiencyCountries with efficient goods markets are well positioned to produce the right mix of products and services given their particular supply-and-demand conditions, as well as to ensure that these goods can be most effectively traded in the economy. Healthy market competition, both domestic and foreign, is important in driving market efficiency7: Labor market efficiencyThe efficiency and flexibility of the labor market are critical for ensuring that workers are allocated to their most effective use in the economy and provided with incentives to give their best effort in their jobs. Labor markets must therefore have the flexibility to shift workers from one economic activity to another rapidly and at low cost, and to allow for wage fluctuations without much social disruption.8: Financial market developmentThe financial and economic crisis has highlighted the central role of a sound and well-functioning financial sector for economic activities. An efficient financial sector allocates the resources saved by a nations citizens, as well as those entering the economy from abroad, to their most productive uses. Business investment is also critical to productivity. Therefore economies require sophisticated financial markets that can make capital available for private-sector investment from such sources as loans from a sound banking sector, well-regulated securities exchanges, venture capital, and other financial products. 9: Technological readiness -In todays globalized world, technology is increasingly essential for firms to compete and prosper. The technological readiness pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries, with specific emphasis on its capacity to fully leverage information and communication technologies (ICTs) in daily activities and production processes for increased efficiency and enabling innovation for competitiveness.10: Market sizeThe size of the market affects productivity since large markets allow firms to exploit economies of scale. Traditionally, the markets available to firms have been constrained by national borders. In the era of globalization, international markets have become a substitute for domestic markets, especially for small countries. 11: Business sophisticationThere is no doubt that sophisticated business practices are conducive to higher efficiency in the production of goods and services. Business sophistication concerns two elements that are intricately linked: the quality of a countrys overall business networks and the quality of individual firms operations and strategies. The quality of a countrys business networks and supporting industries, as measured by the quantity and quality of local suppliers and the extent of their interaction, is important for a variety of reasons..12: InnovationInnovation can emerge from new technological and non-technological knowledge.. Innovation is particularly important for economies as they approach the frontiers of knowledge, and the possibility of generating more value by merely integrating and adapting exogenous technologies tends to disappear.INDIAS COMPETITIVENESS IN ATTRACTING FDIForeign Direct Investment (FDI) plays a very important role in the development of the nation. It is very much vital in the case of underdeveloped and developing countries. A typical characteristic of the developing and underdeveloped economies is the fact that these economies do not have the needed level of savings and income in order to meet the required level of investment needed to sustain the growth of the economy. In such cases, foreign direct investment plays an important role of bridging the gap between the available resources or funds and the required resources or funds.It is helpful for enhancing competitiveness of the domestic economy.In India, FDI is considered as a developmental tool, which helps in achieving self reliance in various sectors and in overall development of the economy. India after liberalizing and globalizing the economy to the outside world in 1991, there was a massive increase in the flow of foreign direct investment.But India can achieve more FDIS if certain problems are solved.PROBLEMS FOR LOW FDI FLOW TO INDIAIndia, the largest democratic country with the second largest population in the world, with rule of law and a highly educated English speaking work force, the country is considered asa safe haven for foreign investors. Yet, India seems to be suffering from a host of selfimposed restrictions and problems regarding opening its markets completely too global investors by implementing full scale economic reforms. Some of the major impediments for Indias poor performance in the area of FDI are: political instability, poor infrastructure, confusing tax and tariff policies, entrenched corruption and governmental regulation.the major reasons behind low FDI in India are1.LACK OF ADEQUATE INFRASTRUCTUREThis bottleneck in the form of poor infrastructure discourages foreign investors in investing in India. Indias age old and biggest infrastructure problem is the supply of electricity. Power cuts are considered as a common problem and many industries are forced to close their business. 2.STRINGENT LABOR LAWSLarge firms in India are not allowed to retrench or layoff any workers, or close down the unit without the permission of the state government. Trade Unions extort huge sums from companies through over generous voluntary retirement schemes. 3.CORRUPTION:Corruption is found in nearly every public service, from defense to distribution of subsidized food to the poor people, to the generation and transmission of electric power. corruption and misuse of public office for private gain are capable of paralyzing a countrys development and diverting its precious resources from public needs of the entire nation. Corruption is against the poor people because it snatches away food from the mouths of the poor. If corruption levels in India come down to those of Scandinavian countries, Indias GDP growth will increase by 1.5 per cent and FDI will grow by 12 per cent 4.LACK OF DECISION MAKING AUTHORITY WITH THE STATE GOVERNMENTS

The reform process of liberalizing the economy is concentrated mainly in the Centre and the State Governments are not given much power. In most key infrastructure areas, the central government remains in control. Brazil, China, and Russia are examples where regional governments take the lead in pushing reforms 5.LIMITED SCALE OF EXPORT PROCESSING ZONESIndias export processing zones have lacked dynamism because of several reasons, such as their relatively limited scale; the Governments general ambivalence about attracting FDI; the unclear and changing incentive packages attached to the zones; and the power of the central government in the regulation of the zones. India which established its first Export Processing Zone (EPZ) in 1965 has failed to develop the zones when compared to China which took initiative for establishment only in 1980.6.HIGH CORPORATE TAX RATESCorporate tax rates in East Asia are generally in the range of 15 to 30 percent, compared with a rate of 48 percent for foreign companies in India. High corporate tax rate is definitely a major disincentive to foreign corporate investment in India.7.INDECISIVE GOVERNMENT AND POLITICAL INSTABILITYThere were too many anomalies on the government side during past two decades and they are still affecting the direct inflow of FDI in India such as mismanagement and oppression by the different company, which affect the image of the country and also deject the prospective investor, who are very much conscious about safety and constant return on their investment.SUGGESTIONS FOR INCREASED FLOW OF FDI INTO THE COUNTRY 1.FLEXIBLE LABOUR LAWS NEEDEDChina gets maximum FDI in the manufacturing sector, which has helped the country become the manufacturing hub of the world. In India the manufacturing sector can grow if infrastructure facilities are improved and labour reforms take place. The country should take initiatives to adopt more flexible labour laws. 2.RE LOOK AT SECTORAL CAPSThough the Government has hiked the sectoral cap for FDI over the years, it is time to revisit issues pertaining to limits in such sectors as coal mining, insurance, real estate, and retail trade, apart from the small scale sector. There is need to improve SEZs in terms of their size, road and port connectivity, assured power supply and decentralized decision3.GEOGRAPHICAL DISPARITIES OF FDI SHOULD BE REMOVEDThe issues of geographical disparities of FDI in India need to address on priority. Many states are making serious efforts to simplify regulations for setting up and operating the industrial units. However, efforts by many state governments are still not encouraging Even the state like West Bengal which was once called Manchester of India attracts only 1.2% of FDI inflow in the country. 4.PROMOTE GREENFIELD PROJECTS:Indias volume of FDI has increased largely due to Merger and Acquisitions (M&As) rather than large Greenfields projects. M&As not necessarily imply infusion of new capital into a country if it is through reinvested earnings and intra company loans. Business friendly environment must be created on priority to attract large Greenfields projects. 5.DEVELOP DEBT MARKET:India has a well developed equity market but does not have a well developed debt market. Steps should be taken to improve the depth and liquidity of debt market as many companies may prefer leveraged investment rather than investing their own cash. Therefore it is said that countries with well developed financial markets tend to benefits significantly from FDI inflows.6.EDUCATION SECTOR SHOULD BE OPENED TO FDIIndia has a huge pool of working population. However, due to poor quality primary education and higher education, there is still an acute shortage of talent. FDI in Education Sector is lesser than one percent. 7.STRENGTHEN RESEARCH AND DEVELOPMENT IN THE COUNTRYIndia should consciously work towards attracting greater FDI into R&D as a means of strengthening the countrys technological prowess and competitiveness.