IBSE: BUSS 5034

Topic 8
Strategizing, Structuring, and Learning

Dr Sunil Savur

University of South Australia Australia’s University of Enterprise

University of South Australia
Australia’s University of Enterprise
Health & safety

• Maintain social distancing (1.5 m) during face to face classes all the time

• Use the hand sanitiser station before entering and after exiting from the
classroom

• Use appropriate PPE (masks, gloves) where social distancing is not

possible

• Follow instructions provided by your lecturer/tutor

• Do not attend classes if you are unwell and contact the lecturer/tutor and
course coordinator
 Something to think about…..
• Consider the large international fast-food companies like McDonalds, Wendy’s,
Kentucky Fried Chicken and Dunkin Donuts and some of their international offerings at
https://www.buzzfeed.com/hannahloewentheil/heres-what-your-favorite-fast-food-chains-serve
https://blog.cheapism.com/fast-food-served-abroad/

• How can multinational enterprises (MNEs) strategically manage growth around the world so th
successful both locally and internationally?

• How can they learn country tastes, global trends, and market transitions?

• How can they improve the odds for better innovations?

University of South Australia

Australia’s University of Enterprise
 Ultrasound machines
developed in US and
Japan:
$100,000 to $350,000

Flopped in China, reasons:

- Price tag
- No considerations for needs &
wants of local customers
e.g. machines must go to
patients
- Scaling down – not an option

2002, GE in China
• Combined a laptop with good enough imaging for $30,000
• 2008 – innovated with a $15,000 machine
• Sold worldwide

Other innovations
• In India: $1000 handheld
ECG machine
• In Czech: half-cost aircraft
engines for small planes
GE’s mental map of the world changed:
FROM (in 2000):
- Focused on
* US, Europe, Japan
* Rest of the world
TO (in 2010):
- Focused on
* People-rich (China, India)
* Resource-rich (M-East, Australia, Brazil, Canada)
* Rest of the world (US, Europe, Japan)
• How can MNEs like GE strategically manage growth around the
world to be successful both locally and internationally?

• How can they learn country tastes, global trends and market
transitions?

• How can they improve the odds for better innovation?

Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning objectives
• Understand the four configurations of MN strategies, and
structures in an integration-responsive framework

• Apply the Strategy Tripod to strategy, structure, and innovation

• Challenges associated with learning, innovation, and knowledge

management

• Debates and extensions

• The Savvy Strategist

University of South Australia
Australia’s University of Enterprise
 Multinational Strategies
• Pressures for cost reductions and local responsiveness
• Integration-responsiveness framework
• Local responsiveness
• Four strategic choices for MNEs
• Home replication strategy emphasizes the international replication of home country-
based competencies
• Localization (multidomestic) strategy is an extension of the home replication strategy
focusing on a number of foreign countries/regions, each regarded as a stand-alone local
market worthy of significant attention and adaptation
• Global standardization strategy develops and distributes standardized products worldwide
• Transnational strategy aims to capture “the best of both worlds” by endeavoring to be
both cost efficient and locally responsive Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
Multinational Strategies and Structures

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia
Australia’s University of Enterprise
 Multinational Strategies and Structures:
Four Organizational Structures
• Four organizational structures that are appropriate
for the four strategic choices
➢ International division – set up when firms initially expand
abroad
➢ Geographical area – organizes MNE according to
different geographical areas
➢ Global product division – assigns global responsibilities to
each product division
➢ Global matrix – coordinates responsibilities between
product divisions and geographic areas

Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 1. International Division Structure at
Starbucks –
suitable for Home Replication strategy

Sources Adapted from (1) www.cogmap.com and (2) www.starbucks.com. Headquartered in Seattle, Starbucks is a leading international coffee and
coffeehouse company.
Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 1. International Division Structure
• Typically set up when firms initially expand abroad, often when engaging in a
home replication strategy

• Problems

• Foreign subsidiary managers in the international division are not given

sufficient voice relative to the heads of domestic divisions

• The “silo” effect: International division activities are not coordinated with the
rest of the firm, which focuses on domestic activities

• Firms often phase out this structure after their initial overseas expansion
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 2. Geographic Area Structure
at Avon Products –
suitable for Localisation strategy

Source Adapted from avoncompany.com. Headquartered in New York, Avon Products, Inc. is the company behind numerous “Avon ladies” around
the world.

Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 2. Geographic Area Structure
• Organizes the MNE according to different geographic areas (countries and
regions)

• Is the most appropriate for a localization strategy

• Its ability to facilitate local responsiveness is both a strength and a weakness

• Problems

• While being locally responsive can be a virtue, it may also encourage the
fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms”
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Global Product Division Structure at
Airbus Group –
suitable for Global Standardisation strategy

Source Adapted from www.airbusgroup.com. Between 2000 and 2014, Airbus Group was known as the European Aeronautic Defence and Space Company (EADS).
Headquartered in Toulouse, France, Airbus Group is the largest commercial aircraft maker and the largest defense contractor in Europe.

Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 3. Global Product Division Structure
• Supports a global strategy in treating each product division as a stand-alone
entity with full worldwide—as opposed to domestic—responsibilities for its
activities

• Facilitates attention to pressures for cost efficiencies in allowing for

consolidation on a worldwide (or regional) basis and reduction of inefficient
duplication in multiple countries

• Problems

• It is the opposite of the geographic area structure: Little local responsiveness

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 A Hypothetical Global
Matrix Structure –
suitable for Transnational strategy

Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 4. Global Matrix Structure
• Is often used to alleviate the disadvantages associated with both geographic
area and global product division structures

• Is intended to support the goals of the transnational strategy—in practice, it is

often difficult to deliver

• Problems

• May add layers of management, slow down decision speed, and increase
costs while not showing significant performance improvement

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
Reciprocal relationship between MN Strategy &
Structure

• Strategy usually drives structure

• The relationship is not one way

• Neither strategy nor structure are static

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
• Industry characteristics Industry-Based Considerations
• Industrial products firms – Favor global product divisions

• Consumer goods firms – Favor geographic areas

• Porter’s forces

• Interfirm rivalry increasingly focuses on learning and innovation

• Need to heighten entry barriers: Behind some recent moves to phase out
multidomestic strategy and to erect world-scale facilities to deter entrants

• Bargaining power of suppliers and buyers: They also have to internationalize

if the focal MNE goes overseas
Adapted from Peng MW 2022, Global Strategy, Cengage

• MNE R&D often generates competing substitute products

University of South Australia

Australia’s University of Enterprise
• Value Resource-Based Considerations
• Does any new structure (such as matrix) really add value?
• Does innovation really add value? Not always!
• Rarity
• When all rivals adopt a “global strategy,” it is not rare
• Imitability
• It is easier to imitate formal structure. But how to imitate an elusive, informal matrix
which is a “philosophy”?
• Organization
• Some MNEs are better able to take advantage of complex organizational structures
Adapted from Peng MW 2022, Global Strategy, Cengage
such as matrix than others

University of South Australia

Australia’s University of Enterprise
• Formal and informal external institutions
Institution-Based Considerations
• Formal Institutions

• Externally, MNEs, are subject to the formal institutional frameworks of various home- and host-
country governments

• Host-country governments often encourage or coerce MNEs into undertaking certain activities

• Informal Institutions

• Strategists weigh the informal backlash against activities which result in domestic job losses

• Formal and informal internal institutions

• Formal organizational charts do not necessarily reveal the informal rules of the game

• Choices for the head of a subsidiary: (1) a home-country national, (2) a host-country national, or (3) a
third country national Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Knowledge Management in MNEs
• Knowledge management can be defined as the structures, processes, and
systems that actively develop, leverage, and transfer knowledge.

• Knowledge management is considered by some writers the defining feature of

MNEs

• Explicit knowledge (e.g., a driving manual): Captured by IT

• Tacit knowledge (e.g., knowledge about how to drive)

• Its acquisition and transfer require hands-on experience

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Global Research and Development
• A crucial arena for knowledge management

• Driven by the intensification of competition for innovation

• Provides a vehicle for access to, or extract benefits from, a foreign country’s
local talents and expertise

• The resource-based view: A fundamental source for competitive advantage

is being different (the assumption of heterogeneity)

• Decentralized R&D work performed by different locations and teams

around the world means that there will be persistent heterogeneity
Adapted from Peng MW 2022, Global Strategy, Cengage
(differences) in the solutions generated

University of South Australia

Australia’s University of Enterprise
 Problems and Solutions in Knowledge Management
• For large firms, there are diminishing returns for R&D. A new model, called “open
innovation,” is emerging. This model relies on more collaborative research
among various internal units and with external organizations

• In knowledge retention, the problem of employee turnover may lead to

knowledge leakage

• Global virtual teams, which do not meet face to face, may have communication
and relationship barriers

• The “not invented here” syndrome causes some managers to resist accepting
ideas from other units Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Problems and Solutions in Knowledge Management

• As solutions to combat these problems, corporate headquarters can

manipulate the formal rules of the game through individual and organizational
incentives as well as investing in tacit knowledge

• MNEs often must rely on a great deal of informal integrating mechanisms

• Some try to develop informal social capital

• Overall, the micro, informal interpersonal relationships among managers of

various units may create a micro-macro link
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
Debates and extensions

• Headquarters control versus subsidiary initiative

• Customer-Focused Dimensions versus integration,

responsiveness, and learning

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 The Savvy Strategist
• Consider four implications

• Understand the evolution of your industry in order to come up with the right
strategy-structure configurations

• Managers need to actively develop learning and innovation capabilities to

leverage multinational presence

• Mastering the external rules of the game governing MNEs and home/host
country environments is a must

• Managers need to understand and be prepared to change the internal rules

of the game governing MNE management
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise