Chapter Eight Global Strategy and Organization * * Chapter ObjectivesLearn about the integration- responsiveness frameworkDistinctive MNE strategies emerging from the frameworkOrganizational arrangements associated with the MNE strategiesUnderstanding how to build a transnational MNE * * Opening Case – IKEA’s Global StrategyIKEA’s operations encompass 35 nations, 240 stores, 100000 employees, 20 franchises, 2,000 suppliersIKEA’s strategyoffers Scandinavian design quality furniture at low prices. 90 percent of the product line is standardized around the world, the product development, purchasing, and warehousing are consolidated at its headquarters in Sweden. target segment is families with limited income and limited living space IKEA’s Organizationhas an informal corporate culture, with few titlesstores maintain direct contact with IKEA headquarters for speedy decision making and easy globalization. Managers rely on a consensus building approach, and readily share their knowledge and skills with coworkers. * * The Role of Strategy in International ContextThree Objectives (Bartlett and Ghoshal)Efficiency: achieving cost leadership. Flexibility: developing responsiveness to the diversity and volatility of different country environments. Learning: the ability to learn from international exposure and leverage learning on a worldwide basis. MNEs find it challenging to achieve all three objectivesThe US firms have excelled in achieving efficiency via scale economies and standardized products, building on the large domestic market base. The European firms have succeeded by being locally responsive, building on the diversity of the European nations. The East Asian firms have succeeded by tapping international learning from and across various nations, and leveraging that worldwide. * * The Integration- Responsiveness FrameworkGlobal integration: coordination of the MNE’s value chain activities across nations to achieve worldwide efficiency, synergy, and cross-fertilization. focus is on convergent customer needs, competitive environments, functional imperatives, and operating systems across nations. strategic decisions are made on a global basis, to avoid the costs of adapting to local situations.Local responsiveness:flexibility towards country-specific situations, needs, and opportunities. focus is on adaptation, accommodation, and adjustment to country-specific customer needs, competitive environment, functional imperatives, technological capabilities, and operating systems. strategic decisions made on a local basis, to assure entrepreneurial flexibility and cultural responsiveness. * * Global business strategies Home replication Strategy Global Strategy Transnational Strategy Multi-local Strategy High High Low Low Pressures for Local Responsiveness Pressures for Global Integration/ Cost Reduction * Globalization Drivers in an Industry (George Yip, 2003)Market Drivers: Consumer li ...

1. Chapter Eight
Global Strategy and Organization
*
*
Chapter ObjectivesLearn about the integration- responsiveness
frameworkDistinctive MNE strategies emerging from the
frameworkOrganizational arrangements associated with the
MNE strategiesUnderstanding how to build a transnational MNE
*
*
Opening Case –
IKEA’s Global StrategyIKEA’s operations encompass 35
nations, 240 stores, 100000 employees, 20 franchises, 2,000
suppliersIKEA’s strategyoffers Scandinavian design quality
furniture at low prices. 90 percent of the product line is
standardized around the world, the product development,

2. purchasing, and warehousing are consolidated at its
headquarters in Sweden. target segment is families with limited
income and limited living space IKEA’s Organizationhas an
informal corporate culture, with few titlesstores maintain direct
contact with IKEA headquarters for speedy decision making and
easy globalization. Managers rely on a consensus building
approach, and readily share their knowledge and skills with
coworkers.
*
*
The Role of Strategy in International ContextThree Objectives
(Bartlett and Ghoshal)Efficiency: achieving cost leadership.
Flexibility: developing responsiveness to the diversity and
volatility of different country environments. Learning: the
ability to learn from international exposure and leverage
learning on a worldwide basis. MNEs find it challenging to
achieve all three objectivesThe US firms have excelled in
achieving efficiency via scale economies and standardized
products, building on the large domestic market base. The
European firms have succeeded by being locally responsive,
building on the diversity of the European nations. The East
Asian firms have succeeded by tapping international learning
from and across various nations, and leveraging that worldwide.
*
*

3. The Integration- Responsiveness FrameworkGlobal integration:
coordination of the MNE’s value chain activities across nations
to achieve worldwide efficiency, synergy, and cross-
fertilization. focus is on convergent customer needs,
competitive environments, functional imperatives, and operating
systems across nations. strategic decisions are made on a
global basis, to avoid the costs of adapting to local
situations.Local responsiveness:flexibility towards country-
specific situations, needs, and opportunities. focus is on
adaptation, accommodation, and adjustment to country-specific
customer needs, competitive environment, functional
imperatives, technological capabilities, and operating systems.
strategic decisions made on a local basis, to assure
entrepreneurial flexibility and cultural responsiveness.
*
*
Global business strategies
Home replication
Strategy
Global
Strategy
Transnational
Strategy
Multi-local

4. Strategy
High
High
Low
Low
Pressures for
Local Responsiveness
Pressures for
Global Integration/
Cost Reduction
*
Globalization Drivers in an Industry (George Yip, 2003)Market
Drivers: Consumer lifestyles around the world are converging –
global media, global advertising, global brands, MNEs as
global customers, and rising middle classCost Drivers:
Opportunities for cost-effectiveness through global coordination
are increasing, - emerging markets with low cost productive
capability; funding and quickly recovering the cost of
technological innovations; revolution in IT, communication,
travel, & transportation systems; and global financial markets.
Competitive Drivers: Need for a coordinated response to
competitors is increasing – rise in the global value chains in
different industries, emerging market MNEs, international
collaborations and FDI, web-based “born global” MNEs, and the
MNEs having coordinated global strategies.Government
Drivers: Governments are reducing tariff and non-tariff barriers,
adopting open market systems, encouraging their firms to
participate globally, and supporting world trade institutions,

5. such as the World Trade Organization.
*
*
Customer
Drivers
Competitive
Drivers
Government
Drivers
Cost
Drivers
Trade policies – tariff/non-tariff
barriers
Trading blocs
Global technical standards
Regulations – labor laws, role of govt
as producer and consumer
Common customer needs
Global customers
Global channels
Transferable marketing know-how
and global brands
Global competitors
Global alliances and
multiple battlegrounds
Competitors leveraging
global position (i.e. cross
subsidizing.

6. Location of strategic resources
Differences in country costs
Potential for economies of
scale, innovation, flexibility
Cost of shipping (value/bulk)
Evaluating the Strength of Globalization Drivers in an Inbdustry
Industry
globalization
potential
*
Strategic Levers for Conforming to Globalization Drivers (Yip,
2003)Market participation: stronger participation in larger
markets, and in markets where needs are similar to those around
the world.Functional strategies: standardized or similar
functional strategies across nations. E.g. in marketing, there is
standardization or similarity across nations in product/ service,
promotion, pricing, channels of distribution, and positioning.
Value-chain configuration: the entire value-added chain – from
research to production to after-sales services – is broken up and
each activity may be conducted in a different country
Competitive strategy: competitive moves in individual markets
as part of a global competitive strategy.
drive for localization. Importantly, these localization elements
of strategy offer opportunities for new learning and for the out-
of-box approaches for dramatic cost reduction and efficiencies.

7. *
*
Distinctive MNE StrategiesHome replication strategy: When
drive for global integration is low & drive for local
responsiveness is low. the MNEs who are early in the
internationalization process. view international business as
secondary to their domestic business - to generate incremental
revenues for the products designed with domestic customers in
mind. Multi-local strategy: When drive for global integration
is low, but for local responsiveness is high. emphasize
differences among national markets, and delegate autonomy for
local decision-making to each country manager. products,
business practices, and functional strategies are adapted to each
nation, and vary across nations.
*
*
Distinctive MNE StrategiesGlobal strategy: When drive for
global integration is high, but for local responsiveness is
low.Grant worldwide responsibilities or mandates to various
product or business managers. Upstream functions, such as
R&D, IT, and manufacturing, are centralized in the HQ or in the
centers of excellence worldwide Emphasis is on worldwide
efficiency and on cross-national learning and cross-fertilization

8. of the knowledge base. To address local needs, the focus is on
adapting the worldwide products, policies, and strategies, with
limited local autonomy.
*
Distinctive MNE StrategiesTransnational strategy: When drive
for global integration is high and for local responsiveness is
also high.standardize across nations where feasible Some
value chain activities on a global scale, based on the regional
comparative advantages / global centers of excellence.
Standardize some functional strategies, e.g. some core products
or positioning. Global knowledge sharing and learning, shared
global corporate cultureadapt locally where
appropriateDuplicate some value chain activities to experiment
and to cater to the emergent and distinct local needs and
opportunities. Local managers have some autonomy to develop
local competitive tactics, and adopt local functional
strategies.may be complemented with a regional approachmay
also involve shared responsibility of subsidiaries and
headquarters
*
Organizational Arrangements for the Various MNE Strategies
Export Department or International Division: Early
internationalizers set up a separate export department to oversee
international logistics, marketing and sales, and any special
requirements, such as labeling language on products. As the
firm begins other modes of global participation, such as
licensing and small-scale FDI, a separate International Division
created– staffed with international experts Geographic Area
Division: Often favored by the firms that rely on the
differentiation business strategy, based on branding and/or

9. R&D, in industries with long product life cycles, as in
pharmaceutical, food, automotive, cosmetic, and beverage.
Within each region, the subsidiaries communicate well with
each other; but across regions, the communications occurs
through regional heads.
*
*
Organizational Arrangements for the Various MNE Strategies
Global Product Division: Often favored by firms that rely on the
cost leadership or state-of-the-art technology focus
strategyEach product division operates as a centralized profit
center to achieve greater economies of scale and to leverage
product knowledge and technology across borders. All major
functions, such as R&D and marketing, within each product
division. Global Functional DivisionFavored by firms that
require high level of functional expertise.May face challenges
in managing diversity across nations or across products.
*
Organizational Arrangements for the Various MNE Strategies
Worldwide Matrix: blend the geographic, product, and
functional expertise. The area or country heads are situated
locally, and strive to build knowledge about and responsiveness
to local culture and environment. The product heads are
situated in different centers of excellence, and have worldwide
mandates. The functional heads are often based at the
worldwide Headquarters, and strive to coordinate functional
knowledge and best practices. Individual managers often have

10. dual reporting relationships – a primary one and a secondary
one, based on the corporate priorities and the national
environments.
another, they are being challenged to adopt strategies and
structures achieve all three objectives – efficiency, flexibility,
and learning. For instance,Unilever, like most other European
MNEs, used a multi-local strategy with Geographical Area
divisions focused on local responsiveness and flexibility
objectiveP&G, like most other American MNEs, pursued a
global strategy with Global Product divisions focused on global
integration and efficiency objectives. In the late 1990s, P&G’s
sales were roughly similar to that of Unilever, but it employed
only half of 230,000 employees that Unilever had.
*
*
Building a Transnational FirmTransnational LeadershipPromote
global mindset, i.e. openness to and awareness of diversity of
cultures. Articulate global strategic vision, i.e. the future of
the MNE and how it will get there. Show willingness to
commit resources to achieve the global strategic visionInvest in
human assets capable of operating globally, and in local
communitiesTransnational Organizational CultureEmphasize
global competence and cross-cultural skillsPromote global
exchange and communication between the HQ and the
subsidiaries Have sustainable business orientation, to serve the
planet, people, and prosperityAlign their practices with the
locally as well as globally endorsed values.Transnational
Organizational Processesmobilize people of different expertise
and nations into teams who work virtually or otherwise for

11. global mandatesenable various nations to share and learn from
each otherpromote global careers and talent
development.Appreciate, recognize, protect, develop, exploit
and share the unique knowledge bases of different regions.
*
*
Global Organization FactorsORGANIZATION STRUCTURE
PEOPLE
CULTURE
ABILITY TO DEVELOP AND IMPLEMENT GLOBAL
STRATEGY
MANAGEMENT PROCESSES
ORGANIZATION STRUCTURE
*
ORGANIZATION
STRUCTURE
MANAGEMENT
PROCESSES
CULTURE
PEOPLE
ABILITY TO DEVELOP
AND IMPLEMENT
GLOBAL STRATEGY
ELEMENTS OF GLOBAL ORGANIZATION

12. Centralized global authority
No international division
Strong business dimension
Use of foreign nationals
Multicountry careers
Frequent travel
Statements and actions
of leaders
Global identity
Commitment to worldwide
(vs.) domestic employment
Interdependence (vs. autonomy)
of businesses
Global strategy information
system
Cross-country coordination
Global strategic planning
Global budgeting
Global performance review
and compensation
Source: George Yip (1995), Total Global Strategy.
*