MAN 4633 – MNC STRATEGY
COMPANY PROFILE GROUP PROJECT GUIDELINES
- GENERAL INSTRUCTIONS:
- Each group must select an MNE from the Fortune 500 list, but NOT one that is in the top 100.
- Prepare a 7-8 page narrative report as detailed in Section II. The page count excludes the cover page, reference list, pictures, and graphs.
- REPORT CONTENT:
- Company Overview:
- The company’s history
- Its product(s)
- Chapter 1:
- What was(were) the company’s motivation(s) to internationalize?
- What market entry method did it use?
- How would you classify the company’s evolutionary stage of internationalization (i.e., its mentality)? Why?
- Chapters 2 and 3:
Of the types of industries mentioned in Chapter 2 (i.e., global, international, multinational, transnational), which would you say best describes the company? Why? Be sure to use the types of strategies described in Chapter 3 to support your answer.
- Chapter 4:
What type of organizational model would you say is used by the company? Why?
- Chapter 5:
What type of innovation model would you say is used by the company? Why?
- Chapter 6:
Briefly describe any strategic alliances if applicable. Would you consider them to be “traditional” alliances, or are they “modern forms” of alliances?
- Chapter 7:
Using the categories discussed in Chap 7 (i.e., global business manager, worldwide functional manager, geographic subsidiary manager, top level corporate manager), classify some of the management personnel in the organization.
- Chapter 8:
Describe the company’s relationship with outside entities such as NGOs, host governments, etc. How would you classify these relationships, according to the categories covered in Chapter 8? Cite examples.
Although not the norm for conducting research, you are to use only Internet sources, along with the notes and the textbook. All websites used MUST be in English and MUST be those of reputable organizations and companies.
HINT: After going to the Fortune website, a good place to continue your search is your company’s website. Also, use the textbook as a source.
- The report must be double-spaced, using a Times New Roman, 12-point font.
- Be sure to include a title page, listing the names of each group member, along with the name of the company being analyzed.
- Be sure to cite your sources (in-text) and in a reference list, preferably using APA format.
Below I have attached the chapters summaries which the professor wants us to use when answering the questions.
MOTIVATIONS TO INTERNATIONALIZE(continued)
NOTE: Prior to the 1980s, the product life cycle(PLC) theory could explain much of a company’s motivation to internationalize.
(i.e. motivations post-1980s)
- Foreign operations no longer seen as only strategic and organizational “appendages” to domestic operations
- Factors influencing a company’s motivation to internationalize (i.e. why overseas operations became more important):
- Increasing scale economies, R&D investments, and a shortened PLC.
- The MNE’s global scanning and learning capabilities – alternatives regarding labor, technology, etc.
iii. Increased competitive positioning allowing cross-subsidization of markets
Note: Cross-subsidization of markets – using profits of a subsidiary in one market to subsidize an unprofitable subsidiary in another.
MEANS OF INTERNATIONALIZATION
Examines the requirements and processes of going international (i.e. how)
- Domestic Firms vs. MNEs (advantages/disadvantages)
- Advantages of domestic firms
- Know national culture, structure of industry, etc
- Have existing relationships with suppliers, customers, regulators
- Advantages of MNEs
- Likely has advanced technology
- Scale economies (in R&D, production, etc)
NOTE: Above listed advantages of MNEs does not mean they will enter the market through their own offshore operations.
Prerequisites for Becoming an MNE (3 conditions)
- Must have motivation to invest overseas
- Prerequisites for Becoming an MNE (continued)
- Must have strategic competencies/ownership-specific advantages (see advantages above)
- Must have internal organizational capabilities
- Process of Internationalization
- The Learning Process of foreign market entry (1977)
- Firm makes initial commitment of resources
- Gains knowledge of local mkt, customers, etc
iii. Improved ability to evaluate current operations and opportunities
- Able to make additional investments thus increasing effectiveness
- Other market entry processes:
- Purchasing existing facilities/firms
- Subcontracting to others (e.g. licensing)
iii. Increasing commitment (from exporting, to joint ventures, to FDI (See Fig 1-2).
EVOLVING MENTALITY: INTERNATIONAL to TRANSNATIONAL
Four evolutionary stages (mentalities) of internationalization:
- International Mentality
- Overseas operations seen as “outposts.”
- Heavily influenced by the PLC
- Multinational Mentality
- Overseas operations increase in importance as sales/profits increase.
- Products/technology modified to suit specific foreign mkt.
- Global Mentality
- Reduce inefficiency in multinational mentality by producing for a “world market”
- Assumes national tastes are somewhat similar
- Requires increase levels of coordination
- Transnational Mentality
- Emerged due to the need to be locally responsive while developing global products
- Expanding Spiral of Globalization (continued)
- Internal restructuring
- Done by firms lacking external forces for change
- Firms go global to take advantage of economies of scale (e.g. automobiles)
iii. Achieved by use of rationalized production, streamlined/standardized products
Global Competitors as Change Agents
- “Global Chess”
- Defined as: A competitive strategy where a firm’s worldwide operations are managed as interdependent units using a coordinated global strategy.
- Use of cross-border subsidization is common
FORCES FOR LOCAL DIFFERENTIATION AND RESPONSIVENESS
- Management’s strategic task: How to sense (identify), respond to, and/or exploit differences in environments.
- Current trend: Global companies now recognizing importance of being “local”
- Factors driving current trend towards localization:
- Cultural differences – nationality still plays important role
- Government demands – especially those of host governments
- “Positives” of MNE/Host Government relationship:
- MNE seen as source of funds, technology, expertise
- Host government seen as key to access local markets and resources
- Government demands (continued)
- “Negatives” of MNE/Host Government relationship:
- Host government belief that MNE operations result in:
- Social disruption – relocation from rural to urban areas
- Rising consumerism
- Rejection of indigenous values
- Breakdown of traditional community structures
- Large MNEs seen as political threat to small local governments
iii. Conflicting objectives of MNE vs. Host government
- MNEs main objectives:
- Unrestricted access to global markets and resources
- Freedom to integrate operations across national borders
- The right to coordinate and control all operations.
- HOST GOVERNMENT main objectives:
- Competitive economic development (using “national champion” or flagship companies).
- Growing Pressures for Localization
- Customers are moving away from global homogenized products to more “local” ones.
- Cost of centralized production involves more than just freight costs. Administrative costs are also significant.
- FORCES FOR WORLDWIDE INNOVATION AND LEARNING
- Successful MNEs must have ability to harness access to worldwide knowledge to develop innovative products
- Impact of Worldwide Innovation and Learning
- Companies forced to globalize to amortize R&D costs/investments
- Voluntary transfer of technologies through
- Licensing (to raise funds)
- Cross-licensing (to acquire technology)
iii. Strategic alliances (to maintain competitive advantage)
- Domestic market may no longer be source of most sophisticated consumer need and advanced technology
- Innovation driven by increased importance of global industrial standards – companies setting new standards/platforms for products have competitive advantage.
- RESPONDING TO DIVERSE FORCES SIMULTANEOUSLY
- Global, Multinational, and International industries
- Global Industries
- Defined as: Industries historically driven by economic forces that require scale economics to remain competitive
- Economic factors more important than environmental factors.
iii. Use of a global strategy
- Evidenced by:
- Homogenization of national markets
- Centralized, scale-intensive manufacturing and R&D
- Worldwide exports of standardized global products
- e.g. Consumer electronics up to mid-late 1980’s
- Multinational Industries
- Defined as: Industries in which localizing forces of national, cultural, social and political differences dominate development of industry characteristics.
- Differences in culture etc., require differentiated products/strategies on country-by-country basis.
- Multinational Industries (continued)
iii. Use of multinational strategies which respond to local market sensitivities.
- e.g. food production
- International Industries
- Defined as: Industries in which technological forces are dominant and the need to develop and diffuse innovations is critical to the firm’s competitive position.
- Competition driven by ability to develop and harness new technology
iii. Use of international strategy – new products developed at home using new technology then distributed to worldwide affiliates.
- “Center of Gravity” – the set of environmental forces that have most significant impact on firm’s strategic tasks.
- Post 1980’s – industries no longer impacted by a single set of environmental forces. Now facing multiple sets of forces of equivalent importance (e.g. must meet scale economies while satisfying local tastes).
- Transnational industries
- Defined as: Industries in which companies respond effectively to all diverse and conflicting forces at the same time to manage efficiency, responsiveness and innovation.
- No longer able to compete on basis of one dominant capability.
iii. Responsiveness using local, tailor-made products in each overseas market no longer feasible.
- Global customers demand sensitivity simultaneously with lower costs and high quality of global products.
- Types of risks in multinational environment (due to diversity and volatility) (continued)
- Political Risks – due to actions by national governments.
iii. Competitive Risks – caused by competitors’ reactions to the MNEs activities.
- Resource Risk – availability of raw materials, capital, management talent, etc.
NOTE: Risks vary over time and from country to country.
- Worldwide Learning
- Diversity of Environments –
- A key asset of the MNE
- Allows opportunities for greater learning due to exposure outside its domestic market.
- THE MEANS OF ACHIEVING WORLDWIDE COMPETITIVE ADVANTAGE
- National Differences
Firms should exploit:
- Differences in costs in input markets due to country-by-country differences in factor endowments (i.e. labor, material, capital)
- Differences in output markets due to consumer tastes, government regulations, effectiveness of promotion strategies, etc.
- Scale Economies
- Gaining advantage through high-volume production.
- Benefits may be dynamic and will be affected by the learning effect
- Scope Economies
- Cost of the joint production, development, or distribution of 2 or more products can be less that producing/developing/distributing them separately
- Scope Economies (continued)
- Shared investments across same or different value chains.
- e.g. using a common distribution channel
- TYPES OF STRATEGIES (4 types) (refer to Table 3-3)
- International Strategy
- Strategic Orientation/Defined as: Exploitation of domestically-developed innovations in overseas markets
- Focus on: Use of innovations
- Uses all three means (national differences, scale economies, scope economies).
- Was common among many US MNEs
- Multinational Strategy
- Strategic Orientation/Defined as: Using primarily one means (i.e. national differences) to achieve strategic goals.
- Focus on: Product differentiation
- Polycentric strategy
- Subsidiaries in each country are primarily self-sufficient
- Used by many European firms
- Global Strategy
- Strategic Orientation/Defined as: Developing global efficiency by using all 3 means to achieve best cost and quality positions for the firm’s products
- Focus on: best-cost position
- Use of centralized global-scale operations
- TYPES OF STRATEGIES (4 types) (continued)
- Global Strategy (continued)
- Requires high level inter-country shipments (e.g. of parts and supplies)
- Transnational Strategy
- Strategic Orientation/Defined as: Simultaneous use of all 3 strategies above (international, multinational, global) to achieve competitive advantage.
- All aspects (costs, revenues, innovation etc) managed simultaneously.
- Use of both centralized and decentralized processes as needed.
- Use of excentralization (a/k/a flexible specialization) – i.e. locating a centralized activity offshore.
- STRATEGIC TASKS – Tasks/challenges facing companies to maintain or achieve worldwide competitive advantage
- Defending Worldwide Dominance
- Faced by established, major worldwide players
- Aim: defend dominance while seeking new sources of competitive advantage
- Challenge Global Leaders
- Faced by smaller firms that seek worldwide competitiveness
- Aim: tackle industry leaders using internal and external sources (e.g. product development, satisfying certain niches, etc.)
- Protecting Domestic Niches
- Faced by companies focused on their national markets due to unwillingness or inability to expand overseas.
- Aim: Protect their national markets from global (outside) competitors.
- STRATEGIC TASKS (continued)
- Protecting Domestic Niches (continued)
- Methods used:
- Use of nationalism
- Seek government assistance (e.g. “national champion”)
iii. Join forces with other global firms
- ADMINISTRATIVE HERITAGE
- Concept: An organization’s ability and willingness to change is influenced by its history and embedded management culture
- Types of Organizational Models
- Decentralized Federation
- Uses a multinational strategy
- Typically European MNEs
- Products and marketing strategies modified to suit individual country market needs
- Subsidiaries operate independently of each other
- Knowledge diffusion: developed and retained in each foreign subsidiary
- Coordinated Federation
- Uses an international strategy
- Typically US MNEs
- Foreign subsidiaries free to modify products, etc but dependent on parent company for new products, ideas, etc
- Ethnocentric management attitude
- Knowledge diffusion: developed at parent (center) and transferred overseas
- Centralized Hub
- Uses a global strategy
- Typically Japanese MNEs
- Centralized control over quality, product development and manufacturing
- Knowledge diffusion: developed and retained at center.
- THE TRANSNATIONAL ORGANIZATION – Organizational Characteristics
Transnational organization should have:
- Multidimensional Perspective, including
- Strong national subsidiary management – to keep up with changing local tastes, etc.
- Global business management – to keep up with global competitors
- Worldwide functional management – for effective use and transfer of corporate knowledge and expertise.
- Distributed, Interdependent Capabilities
- Centralization of expertise is not critical.
- Subsidiaries allowed to become company’s source of expertise
- Flexible Integrative Process
- Flexibility needed to quickly adapt decision-making roles to changes in product, local tastes, etc.
- MOTIVATIONS DRIVING FORMATION OF STRATEGIC ALLIANCES (continued)
- Industry convergence – several high-tech industries are beginning to overlap due to complexity of technological skill set needed to compete and survive in the industry (e.g. HDTV)
- Economies of scale and reduction of risk –
- Partners can pool resources to increase economies of scale
- Partners and share and leverage specific strengths of each other
iii. Sharing different and complementary resources can reduce cost of duplication.
- Alliances as alternative to mergers – create alliances when political, legal or regulatory constraints prohibit mergers (e.g. code-sharing in airline industry when foreign ownership is prohibited)
- RISKS AND COSTS OF COLLABORATION
- Risks of Competitive Collaboration:
- Asymmetrical benefits – one may use partnership to gain competitive edge over the other (e.g. one partner learns skills from the other but is reluctant to share its own).
- Control of investments – one partner keeps control over key investments (e.g. in product development, marketing, manufacturing). Other partner becomes dependent.
- Risk of “learning by doing” – one partner uses knowledge gained from the alliance to compete against the other partner. (i.e. risk of strengthening a competitor)
- Risk of takeover – fear that alliance may result in the acquisition of one partner by the other.
- Cost of Strategic and Organizational Complexity
- Risk and rewards of collaboration become more complex because they must be shared (i.e. allocated) between partners
BUILDING AND MANAGING COLLABORATIVE VENTURES
- Challenges of Building Cooperative Ventures
- General challenges include
- Strategic and environmental disparities among partners – individual partners may have opposing strategic objectives
- Lack of common experience and perception base – may have different administrative heritages, different organizational cultures
iii. Difficulties in inter-firm communications – e.g. due to different languages, culture
- Conflicts of interest and priorities – regarding objectives.
- Personal differences among managers – due to management teams from different cultural/national backgrounds
- Pre-alliance Challenges
Challenges faced by firms prior to joining forces with a partner.
- Analyzing the partner’s strategic and organizational capabilities – often difficult due to lack of adequate information.
- Escalation of commitment – managers involved in planning alliance reluctant to back out.
Solution: operational managers responsible for implementation involved in planning.
iii. Defining scope of alliance – problem overstating the scope of the partnership.
Scope more difficult to define due to:
- Complicated cross-ownership of equity
- Need for cross-functional coordination
- Number and scope of joint activities
- BUILDING AND MANAGING COLLABORATIVE VENTURE (continued)
- Challenges of Managing Cooperative Ventures
- Managing the boundary –
- Setting organizational boundary structures to separate the alliance from the partners’ operations. May use:
- Separate legal entity
- One or both partners given operational control
- Joint committees.
- Choice of boundary structure depends on scope. Higher level of interdependent tasks needs structure with more decision-making integration (likely through separate entity).
- Managing knowledge flows
i.Need to exploit knowledge generated by the partnership
- Each needs to protect internal knowledge it does not want to share with the other partner (i.e. appropriability theory).
- Set up effective governance structure –
- To provide proper strategic direction.
- “Distributive” equality (i.e. win-lose) in negotiations/governance not necessarily desirable (may lead to ineffectiveness). Use “integrative” equality based on relevant task/expertiseinstead.
MNEs’ RESPONSES TO NEEDS OF DEVELOPING WORLD
Four categories of responses (postures):
- The Exploitive MNE –
- “Takes advantage of disadvantage”
- Primary motivation for internalization – to seek low costs of production (especially labor)
- Takes advantage of:
- Low labor rates
- Poor working conditions (e.g. long work weeks)
iii. Weak legal climate (e.g. lack of, or poor enforcement of workers’ rights)
- Poor living standards
- Based on Milton Friedman’s view of managerial capitalism (i.e. stockholder is the only legitimate stakeholder)
- May resort to illegal tactics (especially in 1970s)
- Likely have adversarial relationship with NGOs.
- Rare today (especially due to media exposure)
- The Transactional MNE:
- Has non-oppressive relationship with governments of emerging markets.
- Does not pursue profits at all cost
- Willing to make changes to products to suit local market if changes will result in higher market share/profits (e.g. McDonald’s, KFC)
- Relationship with NGOs based more on “monitoring and challenging” than on “confrontation and accusation”
The Responsive MNE
- Increase in awareness of “sustainability”
- Makes conscious commitment to be a “corporate citizen”
- More sensitive to needs of stakeholders in developing countries
- Sees market in “Bottom of the Pyramid”
The Transformative MNE
- Takes initiative to solve root causes of problems in developing markets (e.g. illiteracy, hunger)
- Often done through foundations created by founder (e.g. Bill Gates)
- Will develop products to satisfy needs of developing nations even if it is not profitable (e.g. Nokia)
- Works in partnership with NGOs (NGOs are better at implementing social development program