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Entry Strategies and Organizational Structures: The Specific Objectives of This Chapter Are To
Entry Strategies and Organizational Structures: The Specific Objectives of This Chapter Are To
Organizational Structures
❖ The specific objectives of this chapter are to
1. DESCRIBE how an MNC develops and implements entry
strategies and ownership structures.
2. EXAMINE major types of entry strategies and organizational
structures.
3. ANALYZE advantages and disadvantages of each type of
organizational structure, including conditions making one
preferable to others.
4. DESCRIBE recent, nontraditional organization arrangements
coming out of mergers, joint ventures, keiretsus, and other new
designs including electronic networks and product development
structures.
5. EXPLAIN how organizational characteristics such as
formalization, specialization, and centralization influence how
the organization is structured and functions.
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Entry Strategies
❖Export/import
❖Wholly-owned subsidiary
❖Mergers/acquisitions
❖Alliances/joint ventures
❖Licensing
❖Franchising
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Entry Strategies
Export/Import
9-3
Entry Strategies
Wholly Owned Subsidiary
❖ Alliance
➢ Any type of cooperative relationship among different firms.
❖ International joint venture (IJV)
➢ Agreement under which two or more partners from different
countries own or control a business.
➢ There are two types of alliances and joint ventures
1. Nonequity ventures
2. Equity joint ventures
❖ Advantages of alliances and joint ventures include
➢ Improvement of efficiency
➢ Access to knowledge
➢ Mitigating political factors
➢ Overcoming collusion or restriction in competition
9-6
Strategic Alliance
Recommendations
❖ When forming a strategic alliance firms
should
1. Know their partner well before alliance is formed.
2. Expect differences in alliance objectives among
potential partners headquartered in different
countries.
3. Realize that having desired resource profiles
does not guarantee that they are complementary
to the firm’s resources.
4. Be sensitive to alliance partner needs.
5. After identifying the best partner, work on
developing a relationship of trust
9-7
Entry Strategies
Licensing
❖Licensing
➢ An agreement that allows one party to use an
industrial property right in exchange for payment to
the other party.
❖The licensee may avoid entry costs by
licensing to a firm already there
➢ Licensor usually is a small firm lacking financial and
managerial resources
❖Companies spending large share of revenues
of R&D are likely to be licensors
➢ Companies spending very little on R&D are more
likely to be licensees
9-8
Entry Strategies Franchising
❖Franchising
➢ An arrangement in which one party (the franchisor)
permits another (the franchisee) to operate an
enterprise using its trademark, logo, product line,
and method of operation in return for a fee.
➢ Widely used in fast-food and hotel/motel industries
❖With minor adjustments for the local market,
this can result in highly profitable international
business
➢ The franchisor gets a new stream of income and
the franchisee gets a proven concept or
product/service that can quickly be brought to
market
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Basic Organizational Structures
Initial Division Structure
❖ Subsidiary
➢ Common organizational arrangement for operations
that require an on-site presence from the start
❖ On-site manufacturing operations
➢ Set up because of the pressure by the local
governments when overseas sales increase
➢ Help reduce transportation costs
❖ Export arrangement
➢ Common first choice among manufacturing firms,
especially those with advanced products
➢ Allows firms to reduce the risk and size of
investment while testing international markets 9-10
Use of Subsidiaries During the Early
Stage of Internationalization
9-11
Basic Organizational Structures
International Division Structure
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Basic Organizational Structures
Global Structural Arrangements
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Basic Organizational Structures
Global Product Division
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A Global Product Division Structure
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Basic Organizational Structures
Global Area Division
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A Global Area Division Structure
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Basic Organizational Structures
Global Functional Division
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A Global Functional
Division Structure
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Basic Organizational Structures
Mixed Organization Structures
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A Multinational Matrix Structure
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Organizational Characteristics
of MNCs
❖Formalization
➢ Use of defined structures and systems in decision
making, communicating, and controlling.
❖Specialization
➢ Assigning individuals to specific, well-defined tasks.
➢ Horizontal specialization
➢ Vertical specialization
❖Centralization
➢ Important decisions are made at the top.
❖Decentralization
➢ Decision making is pushed down the line and
lower-level personnel are involved.
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