IB 300 EXAM #3 MATERIAL

organizational structure

The way an organization formally arranges its domestic and international units and activities, and the relationships among these components

organizational design

A process that determines how a company should be organized to ensure its worldwide business activities are integrated in an efficient and effective manner

Why do Companies do Business Abroad?

• Access to larger markets

• Diversification of clients and markets

• Lower dependence form the domestic market

• Increase possibilities to benefit from transfer and allocation of resources

• Access to foreign local markets

• Easier access to international capital and labor markets

• Better access to sources of raw materials

International strategy

A plan that guides the way firms make choices about developing and deploying scarce resources to achieve their international objectives.

To be effective, this must be consistent across all functions within the company and the company’s competitive environment (external consistency)

Competitive Advantage

Ability of a company to achieve and maintain a unique and valuable competitive position both within a nation and globally, generating higher rates of profit than its competitors.

Plan

A logical or orderly sequence of steps, procedures, or actions for accomplishing an objective.

Strategic planning

The process by which an organization determines where it is going in the future, how it will get there, and how it will assess whether and to what extent it has achieved its goals.

Provides a way to identify opportunities and threats

Gives decision makers a common understanding of business, strategy, assumptions, and direction.

Time Horizon

Short (e.g., operational goals), medium (e.g., setup strategic partnership), and long-term (e.g., develop a new business line) plans. The definition of time varies across industries. E.g., in energy companies, long term often means more than 20 years; in technology companies long term might be 3 years.

Level in the Organization

Each organizational level will have its own plans

Top-down

Begins at highest level and continues downward. Corporate HQs provide guidance/guidelines to the rest of the organization. E.g., mission, vision statements.

Bottom-Up

Begins at lowest level and continues updward. The operational levels inform top management about what they expect to do, and these become the firm’s goals. E.g. local subsidiary informs HQs about their sales expectations for the next 6 months.

Iterative

The repetition of bottom-up or top-down process until all differences have been reconciled. E.g. HQs and local subsidiaries work together to increase company’s sales/innovate, etc.

Value chain

The set of interlinked activities that add value to the final product or service

It assesses where, and to what extent value is added to the final product or service.

1. Who are the company’s target customers?

2. What value does the company want to deliver to these customers?

3. How will this customer value be created?

Mission statement

Defines the organization’s purpose and scope

Vision statement

Describes the desired future position if organization can acquire the necessary competencies and successfully implement strategy.

Values statement

A clear, concise description of the fundamental values, beliefs, and priorities expected of the organization’s members.

Global Strategic Planning Process

1. Analyze domestic, international, and foreign environment

2. Analyze corporate controllable variables

3. Define the corporate mission, vision, and values statements

4. Set corporate objectives

5. Quantify the objectives

6. Formulate competitive strategies

7. Prepare tactical plans

Objectives

Direct the firm’s course of action, maintain it within the boundaries of the stated mission, and ensure its continuing existence

Competitive strategies

Action plans that help organizations reach their objectives.

Companies competing internationally face two opposing goals:

1. To reduce costs: e.g., how to lower per-unit costs to be competitive in international markets?

2. To adapt to local markets: e.g., does the product need to be modified to meet local demands, cultural preferences, etc.?

Step 5: Cost and adaptation pressures…

• Global strategy = High pressure to reduce costs, low pressure for local adaptation

• Home replication strategy = Low pressure to reduce costs, low pressure for local adaptation

• Regional strategy = In-between pressure to reduce costs and pressure for local adaptation

• Transnational strategy = High pressure to reduce costs, high pressure for local adaptation.

• Multidomestic strategy = Low pressure to reduce costs, high pressure for local adaptation.

Global strategy

• High pressure to reduce costs

• Low pressure for local adaptation

Home replication strategy

• Low pressure to reduce costs

• Low pressure for local adaptation

Regional strategy

• In-between for pressure to reduce costs and pressure for local adaptation

Transnational strategy

• High pressure to reduce costs

• High pressure for local adaptation

Multidomestic strategy

• Low pressure to reduce costs

• High pressure for local adaptation

Home replication strategy

Centralizes product development functions in home country

Multidomestic strategy

Effective when pressure to adapt products or services for local markets is strong

Global strategy

Works when a company faces strong pressures for cost reduction and limited pressure to adapt to local markets

Transnational strategy

Effective when pressures for both cost reduction and local adaptation

Changes over time

As the company changes size, adapts, redesigns, or innovates to meet external pressures, evolving customer needs and demands, etc.

Closely aligned

with the IC’s strategic planning process

Main issues to consider when designing an IC structure:

(1) What departments do we need, to take advantage of the efficiencies gained from the specialization of labor?

(2) How to best coordinate efforts among departments to meet the firm’s overall objectives?

Elements to consider when designing the structure of an IC

• Product and technical expertise

• Geographic expertise

• Customer expertise

• Functional expertise

International divison structure

• International division is at the same level as the domestic division responsible for all international operations

• One single division responsible for all international operations

• Difficult to manage and coordinate as volume of sales and product diversity increases

Worldwide Product Division

• The domestic division is given responsibility for the global product line and staff operations

• Product divisions are responsible for global product operations, including production and sales

• Each product division has regional experts

• Management and coordination is done at product level (strategic business units)

International division —> Global product division

• Better able to develop competitive strategies to deal with increasing global competition

• Reduce production costs by promoting product standardization and/or manufacturing rationalization

• Efficient allocation of resources across the board and promote technology transfer among global offices

Geographic region structure

• Geographic area managers responsible for all regional activities and report directly to CEO

• Simplifies task of directing worldwide operations–every country under control of someone in contact with headquarters

• Popular with companies that manufacture diverse or stable technological content

Global functional structure

• Few international companies are organized by function at the top level.

• Functional form may be used by companies with narrow and highly integrated product mix such as oil refining companies and aircraft manufacturers

Hybrid organizational structure

• Use a mixture of organizational forms at the top level

• Often the result of regionally organized company introducing a new and different product line that management believes is best handled by a worldwide product division.

Regiona-product matrix organization

• An organizational structure composed of one or more superimposed organizational structures to mesh product, regional, functional, and other expertise

• Disadvantages of the matrix form and its multiple reporting relationships have kept most worldwide companies from adpoting it

True

True or False?

Most ICs combine elements of different structures to meet the dynamic conditions of the global environment.

Holacracy

A system for managing a company where there are no assigned roles and employees have the flexibility to take on various tasks and move between teams freely.

Subsidiaries

Companies controlled by other companies (known as parent companies) through ownership of enough voting stock to elect a majority of the voting members or the company’s board of directors

• Wholly-owned: Parent company has 200% ownership

Affiliates

Companies controlled by other companies, but less-than-majority owners may exercise control by a variety of means, both those involving stock ownership and those involving non-ownership mechanisms.

Wholly-owned subsidiary decisions depend on

• The degree of standardization of the company’s products and equipment

• The competence of subsidiary management, and HQs reliance on it

• The size and age of IB and how long it has conducted global operations

• HQs’ commitment to the subsidiary

• The subsidiary’s relationship and demand for power

In most cases, some decisions are made by the HQs, other decisions are made at the subsidiary level, and some other decisions are made cooperatively

JVs and subsidiaries less than majority owned decisions

Loss of freedom and flexibility

Strategies to exercise some form of control in cases of limited or no ownership (less than 50% of the voting stock or no voting stock):

• A management contract

• Retaining control of finances

• Retaining control of technology

• Putting people from the IC in important executive positions

Global Mindset

A set of ideas and attitudes that combines an openness to and an awareness of diversity across markets and cultures with a propensity and ability to synthesize across this diversity.

Intellectual Intelligence

• Business acumen

• Strategic thinking

• Ability to synthesize complex data

• Global industry knowledge

Global Emotional Intelligence

• Self-awareness

• Cross-cultural understanding

• Ability to adjust behavior and expectations

• Cross-cultural effectiveness

Leaders

• Innovate

• Develop

• Challenge the status quo

• Have a long-range perspective

• Ask “what?” and “why?”

• Originate

• Inspire

Managers

• Administrate

• Maintain

• Accept it

• Have a short-term perspective

• Ask “how?” and “when?”

• Imitate

• Control

Leadership

The behaviors and processes required for organizing a group of people in order to achieve a common purpose or goal

Global Leadership vs. Domestic Leadership

Four overlapping dimensions of complexity:

1. Multiplicity (of issues to deal with)

2. Interdependence (between all domestic and international activities within the IC)

3. Ambiguity (more information needed, less clarity and certainty)

4. Dynamism (constantly changing environment)

Six Leadership Styles (Project GLOBE)

1. Performance-oriented

2. Team-oriented

3. Participative

4. Humane

5. Autonomous

6. Self-protective

Performance-oriented

High-standards, decisiveness, innovation, vision, and core values

Team-oriented

Pride, loyalty, collaboration, team building, and common purpose

Participative

Input from others in decision making, delegation, equality

Humane

Compassion, generosity, patience, support, collective well-being

Autonomous

Independent, individualistic, self-centered

Self-protective

Procedural, status-conscious, face-saving, safety, security

Competencies required for effective global leadership

1. See difference

2. Make connections

3. Adjust

4. Integrate and lead change

5. Localize

See differences

Self-awareness of cultural norms and leadership styles

Make connections

Build relationships to get things done

Adjust

Adapt quickly to unfamiliar situations and behaviors

Integrate and lead change

Combine local and global practices

Localize

Develop and empower local talent

Roles global leaders need to take

Mintzberg’s global leadership roles:

• Monitor

• Spokesperson

• Liaison

• Leader

• Negotator

• Innovator

• Decision maker

• Change agent

Level 5: System Skills

Pyramid Model of Global Leadership (Level : “_____ ____”)

• Make ethical decisions

• Influence stakeholders

• Lead change - Span boundaries

• Architecting - Build community

Level 4: Interpersonal Skills

Pyramid Model of Global Leadership (Level : “_____ ____”)

• Mindful communication

• Create and build trust

• Multicultural learning

Level 3: Attitude and Orientations

Pyramid Model of Global Leadership (Level : “_____ ____”)

• Global mind-set

• Cognitive Complexity

• Cosmopolitanism

Level 2: Threshold Traits

Pyramid Model of Global Leadership (Level : “_____ ____”)

• Integrity

• Humanity

• Inquisitiveness

• Resilience

Level 1: Global Knowledge

Pyramid Model of Global Leadership (Level : “_____ ____”)

Lowest level of the pyramid

Responsibilities of an international human resource manager

Formulation of policies and procedures for:

• Estimation of workforce needs

• Recruitment and selection

• Training and development

• Motivation

• Compensation

• Employment termination

Main challenges faced by international companies:

1. Attracting and retaining talent

2. Developing talent in the firm

3. Managing performance

4. Creating leadership teams

5. Making decisions

Factors impacting the global supply and demand of talent

• Size of the workforce

• Aging of populations

• Urbanization of the workforce

• Immigrant labor

• Guest worker

• Labor unions

Labor Mobility

1. Brain Drain

2. Reverse Brain Drain

Brain Drain

Loss by a country of its most intelligent and best-educated people

Reverse Brain Drain

Occurs with the return home of highly skilled immigrants who have contributed in their adopted country

Labor Union

An organization of workers, formed to advance the interest of its members

Collective Bargaining

The process in which a union represents the interests of workers bargaining in negotiations with management

Ethnocentric

A policy of hiring and promoting based on the parent company’s home-country frame of reference (Home Replication strategy)

Polycentric

A policy of hiring and promoting based on the specific local context in which the subsidiary operates (Multidomestic strategy)

Regiocentric

A policy of hiring and promoting based on the specific regional context in which the subsidiary operates (Regional Strategy)

Geocentric

A policy of hiring and promoting based on ability and experience without considering race or citizenship (Transnational)

Parent-country national (PCN)

Employee who is a citizen of the nation in which the parent company is headquartered; also called home-country national

Host-country national (HCN)

Employee who is a citizen of the nation in which the subsidiary is operating, which is different from the parent company’s home nation.

Third-country national (TCN)

Employee who is a citizen of neither the parent company nation nor the host country

Ethnocentric Staffing Policy

• Companies with primarily international strategic orientation use home-country citizens (PCNs) for key posts

• Decisions made at HQ using home country’s frame of reference

• Can be expensive to use employees from home country

Polycentric Staffing Policy

• Companies with primarily multidomestic strategic orientation use local staffing (HCNs) for host-country operations

• HCNs understand local customs, culture, and language

• HCNs may require considerable training

• Can be a conflict between loyalty to host country and employer

Regiocentric Staffing Policy

• Companies with primarily regional strategic orientation use both HCNs and TCNs to meet staffing needs

• Cost savings not assured when using TCNs

Geocentric Staffing Policy

• Companies with primarily transnational strategic orientation staff using worldwide staffing pools

• Best person for job without consideration of national origin

• HRM tends to be consistent across all subsidiaries

Expatriates

Employees who are relocated to the host country from the home country or a third country.

• Typical assignment is two to five years

• Average age of expatriates is declining

• Growing proportion of expatriates are women

Culture Shock

The anxiety people often experience when they move from a culture that they are familiar with to one that is entirely different.

Reverse culture shock

Occurs when the expatriate returns home