Excerpt
3
Table of contents
List of Abbreviations ...4
List of Tables...5
List of Figures ...6
1.
International Strategies...7
1.1
Introduction ...7
1.2
International Strategy (or Home Replication Strategy)...7
1.3
Multinational Strategy (or Localization Strategy)...8
1.4
Global Strategy (or Global Standards Strategy)...9
1.5
Transnational Strategy...10
1.6
Microsoft's Strategy ...14
2.
Transnational Strategy
Environmental Requirements and
Implementation Challenges ...17
2.1
Local Differentiation vs. Global Integration ...17
2.1.1
Forces for Global Integration ...18
2.1.2
Forces for Local Responsiveness ...19
2.2
The Case of ITT...21
2.3
Challenges when Implementing a Transnational Strategy ...22
3.
Joint Ventures in China ...25
3.1
Introduction ...25
3.2
International Joint Ventures (IJVs) ...25
3.3
Challenges for setting up International Strategic Alliances in China ...26
3.3.1
Where to link the Value Chain ...27
3.3.2
Partner Selection...27
3.3.3
Choosing the Type of Joint Venture ...28
3.3.4
Public Regulations for Joint Ventures...29
3.3.5
Cultural Differences...30
3.3.6
Negotiating the Agreement...31
3.3.7
Alliance Structure ...32
3.3.8
Organizational Design ...32
3.3.9
Managing the Alliance ...33
4.
References ...35
4
List of Abbreviations
Cf.
Confer (compare)
CJV
Contractual Joint Venture
e.g.
Exempli gratia (for example)
EJV
Equity Joint Venture
GDP
Gross Domestic Product
HQ
headquarter
IJV
International Joint Venture
IR
Integration-Responsiveness
JV
Joint Venture
LTD
Limited
MNE
Multinational Enterprise
MS
Microsoft
R&D
Research and Development
U.S.
United States
WTO
World Trade Organization
5
List of Tables
Table 1: Characteristics of International Strategy Types...13
Table 2: Building and Managing the Transnational ...23
Table 3: Advantages and Disadvantages of IJVs...26
Table 4: Critical factors for choosing the right partner corporation in China...28
Table 5: Key differences between Chinese and western cultures...30
6
List of Figures
Figure 1: Multinational strategies and structures: The integration-responsiveness
framework ...17
Figure 2: Structuring Alliances to Reduce Opportunism ...32
7
1. International Strategies
1.1
Introduction
Multinational companies
1
face a fundamental strategic dilemma when competing
internationally: the global-local dilemma. On one hand, there are pressures to
respond to the unique needs of the markets per country or region. On the other,
there are efficiency pressures that encourage companies to deemphasize local
differences and to conduct business similarly throughout the world.
2
The
orientation of an organization or the individual industrial sector can already
determine a certain strategy. Some industries are already internationally oriented,
whilst others are rather domestic.
3
Bartlett and Ghoshal developed a framework
with four basic strategic approaches which companies can integrate to respond
to forces for global integration, local responsiveness, or both.
4
Within this
chapter, a theoretical understanding for these strategies should be formed. To
deliver a practical example, Microsoft will be analyzed for its strategic approach
based on publicly available information. It is necessary to say that the framework
is ideal and very few companies fit precisely into any one category.
5
There have
also been several interpretations of these strategies from other authors, but as
the Bartlett/Ghoshal typology is most commonly used and has been very
influential in literature it will form the basis for the further explanations.
6
The
Integrative-Responsiveness-Grid will be explained in chapter two of this
assignment.
1.2
International Strategy (or Home Replication Strategy)
Companies implement an international strategy when they leverage core
competencies from their parent country around the globe. Thus, the international
strategy emphasizes replicating home-country-based competencies which
requires foreign units to operate activities that are configured and coordinated by
1
Within the further explanations the term Multinational Enterprise or Multinational Company will
be used to describe a firm which outside its home-country. That does not necessarily mean it is
applying a Multinational Strategy.
2
Cf. Cullen and Parboteeah (2014, p. 216)
3
Cf. Radebaugh, Daniels, and Sullivan (2014, pp. 503509); Deresky (2016, pp. 312313)
4
Cf. Bartlett and Beamish (2013); Bartlett and Ghoshal (2002)
5
Cf. Mead and Andrews (2009, p. 315)
6
Cf. Morschett, Schramm-Klein, and Zentes (2015, p. 33); Kutschker and Schmid (2011,
pp. 297298)
8
the HQ. The basic assumption is that the organizational structure of the parent
company is superior to those of the subsidiaries, thus it should be replicated
abroad. Ultimate control resides with executives within the home-country, given
their reasoning that they best understand the company's core competencies.
Testing of new ideas will be fulfilled in the home market. Goods and services will
first be introduced in the domestic market and at a later stage into foreign
markets. Especially companies with a strong brand name and high reputation can
succeed with this strategy. It transfers core competencies to units in foreign
markets where rivals lack a competitive alternative. It works well when industry
conditions do not demand high degrees of global integration or local
responsiveness, and the company's business practices set market standards, or
most of the firm's customers are in its home market. Unaltered expansion of these
competitive advantages to foreign markets incurs moderate operational costs, yet
earns high profits. The approach is particularly straightforward and usually the
first strategy adopted, when firms venture abroad. However, the headquarters'
one-way view from the home-country to the rest of the world may misread
opportunities and threats in foreign markets. Centralizing a company's value
chain within the home country often weakens configuration efficiency and
coordination flexibility. An international strategy might safe costs in the first steps
of a company's internationalization process but potentially leads to misinterpret
local circumstances in foreign markets. An unexpectedly enterprising competitor
may disrupt the foreign industry structure and take over a market.
7
1.3
Multinational Strategy (or Localization Strategy)
The assumption that cultural differences are best factored in if the enterprise
relies on market-specific expertise and an extended presence in the diverse
countries forms the basis of the multinational strategy. Companies that face high
pressure for local responsiveness and low need for global integration tend to
apply this strategy. Usually unique local cultural, legal-political, and/or economic
conditions spur the MNE to adapt its value activities. Basically, the firm's value-
chain design follows the lead of foreign operations instead of the headquarters'.
7
Cf. Radebaugh et al. (2014, pp. 509511); Peng and Meyer (2016, pp. 423424); Bartlett and
Beamish (2013, p. 113); de Kluyver (2010, pp. 213217); Trompenaars and Hampden-Turner
(2012, pp. 229230)
9
The company differentiates products to respond to foreign differences. Local
affiliates are considered as competent domestic actors in their respective country.
They enjoy a high degree of freedom with respect to their actions and are given
a large amount of autonomy. A reduced need for central support to manage local
activities as well as a greater sensitivity for local preferences are key advantages
of this approach. Localizing the value chain also reduces risks of damaging the
company's local reputation or losing money due to increased exchange-rates.
While the MNE's affiliates adopt the value-chain to local preferences, they still
can take advantage of the parent's global operations - local competitors lack of
this support. The multinational strategy results in management, design,
production, and marketing activities within each subsidiary and therefore raises
costs. The MNE basically operates "mini-me" units around the world. Different
product designs require different materials, smaller markets make for shorter
production runs, different channel structures call for dissimilar distribution
formats, and divergent technology platforms complicate information exchange.
As allocating authority to local decision makers can create powerful subsidiaries,
which may on any given configuration or coordination matter opt not to follow
headquarters' policy and instead maintaining that their situation warrants a
different approach. HQ must resort to persuasion instead of command. The
difficulty of this task escalates as the number of subsidiaries rises. All of this
makes the multinational strategy impractical in cost-sensitive situations and
requires many resources for coordination capabilities.
8
1.4
Global Strategy (or Global Standards Strategy)
By applying a global strategy, the same product with little variation (if any) is
offered on different markets, without consideration of regional differences in
customer habits. The main difference to an international strategy is that the global
strategy views the world as a single marketplace. In contrast, a company applying
an international strategy would mainly target customer needs of its home market.
Hence, the global approach targets universal needs or wants that support selling
standardized products worldwide and emphasizes volume, cost minimization,
and efficiency. It assumes that consumer preferences in different countries are
8
Cf. Radebaugh et al. (2014, pp. 510512); Peng and Meyer (2016, pp. 424425); Bartlett and
Beamish (2013, p. 113); de Kluyver (2010, pp. 213217)
10
highly similar, if not identical. If there are differences, consumers will sacrifice
them to buy a high-quality, low-priced substitute. Researchers state that the
integration of global markets, e.g. institutional developments to reduce trade
frictions and investment restrictions, further promotes this development.
Ultimately, consumers' disposition to discount nationalism girds the global
strategy. Usually industries with high demand for global integration and low
pressure for local responsiveness adapt the global approach. It strictly centralizes
transactions of the enterprise and its subsidiaries, country-specific conditions are
excluded from consideration. Efficiency standards push the MNE to achieve cost
leadership in its industry, if not, it must be competitive with the industry's
pacesetter. This requires to aggressively exploit location economies to maximize
scale effects. Using resources for anything other than improving efficiency would
negatively affect competitiveness. The supreme advantage of this strategy is
leveraging economies of scale. Configuring and coordinating activities to capture
scale effects drives the global efficiencies needed to compete with like-minded
rivals and to convince consumers to forsake national preference for global
products. Single-minded focus on improving efficiency also clarifies decision-
making: if any ambiguity occurs within the strategic analysis, global integration
trumps local differentiation - always. However, using a single approach for a
global market is operationally risky: Change of all sorts is an intrinsic feature of
international business. A disruptive innovation turns the single-minded focus of a
globally tuned value chain into a maladapted delusion. The global strategy
reduces learning opportunities by given the dominance of a global standard. It
also requires increased coordination to regulate a global matrix of inputs and
outputs.
9
1.5
Transnational Strategy
Especially MNEs that force a high pressure for both, local responsiveness and
global integration need to configure a different type of value chain. These
companies need to deal with an environment of interconnected consumers,
industries, and markets. They must exploit location economies while also
applying coordination methods that leverage core competencies, and reconcile a
9
Cf. Radebaugh et al. (2014, pp. 510513); Peng and Meyer (2016, pp. 424426); Bartlett and
Beamish (2013, p. 113); de Kluyver (2010, pp. 213217)
Comments