Strategy and organisation in the international firm

Essentials for global success

Strategy, Organisational structure, Organisational processes, Organisational culture, Visionary leadership
Global integration is “the coordination of the firm’s value chain activities across multiple countries to achieve worldwide efficiency, synergy and cross fertilization to take advantage of similarities between countries”. (Cavusgil et al., 2020).
Local responsiveness refers to “managing the firm’s value chain activities and addressing diverse opportunities and risks on a country by country basis”. (Cavusgil et al., 2020).

Integration-responsiveness framework

Pressure for global integration along the top
Pressure for local responsiveness along the bottom
Global integration need to: Seek cost reduction through scale economies, Captilise on converging consumer trends and universal needs, conduct global sourcing, monitor and respond to global competitors.
Local responsiveness need to: Adjust to cultural differences, cater to local customer needs, leverage national endowments such as local talent.

Integration-responsiveness framework purpose

Highlights the balance that firms seek to achieve between two basic strategic needs: To integrate value chain activities globally, and to create products and practices responsive to local market needs.
The main goal of firms that emphasize global integration is to maximize the efficiency of their value chain activities, on a worldwide scale.
The main goal of firms that emphasize local responsiveness is to maximize sales and market share by being highly responsive to local needs.

Strategy

Strategy is the direction and scope of an organisation over a long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations. Johnson et al (2007).
“The goal of competitive strategy for a business is to find a position in the industry where the company can best defend itself against these competitive forces or can influence them in its favour”. (Porter, 1980).

Corporate level strategy

Concerned with the overall scope of an organisation.
Which business/industry should the organisation enter or exit?
Growth strategy - Strategy designed to increase the scale (size of activities) or scope (kinds of activities) of a corporation’s operations.
Retrenchment strategy - Strategy designed to reduce the scale or scope of a corporation’s businesses.
Stability strategy - Strategy designed to guard against change and used by corporations to avoid either growth or retrenchment.
Combination strategy - Strategy designed to mix growth, retrenchment, and stability strategies across a corporation’s business units.

Ansoff’s product/market growth matrix

Framework for organisational growth
Market penetration - existing products/services and existing markets, involves extreme rivalry, legal constraints.
Market development - new markets and existing products/services, involves new users and geographies.
New products and services - new products, existing markets, involves new resources and capabilities, product management risk.
Conglomerate diversification - new markets and products/services, involves market development and new products and services.

Business level strategies

Low-cost leadership strategy - Strategy in which a company exploits economies of scale to have the lowest cost structure of any competitor in its industry (e.g. Lidl).
Differentiation strategy - Strategy in which a company designs its products to be perceived as unique by buyers throughout its industry (e.g. Waitrose).
Focus strategy - Strategy in which a company focuses on serving the needs of a narrowly defined market segment à by being the low-cost leader – cost focus (e.g. Tesco’s own label), à by differentiating its product – differentiation focus (e.g. delicatessens), à or both – hybrid strategy.
Porters (1985) generic strategies for creating competitive advantage.

Strategies for international firm

Home replication strategy - Design products for the domestic market and sporadically sells abroad to boost sales and extend product life cycle (e.g. small companies).
Multinational (multi-domestic) strategy - adapting products and their marketing strategies in each national market to suit local preferences (e.g. Nestle).
Global strategy - Offering the same products using the same marketing strategy in all national markets (e.g. Samsung).
Transitional strategy - Organising production, marketing and other value-chain activities on a global scale but still being responsive to local needs (e.g. Ikea).

Strategy is always influenced by external factors

It is through the analysis of environments, that external factors related to firms’ competitive advantage and success can be determined (Myers, Droge & Cheung, 2007). Therefore, firms’ ability to enhance their international competitiveness is intrinsically linked to their comprehension of the external factors that can influence their strategy and subsequent performance.

National and international business environments

Language, Religious beliefs, Customs, Traditions, Climate, Political and legal systems, Economic systems, Determinant of location.

Managers set international strategies

Allocate scarce resources and configure value-adding activities on a worldwide scale.
Participate in major markets.
Implement valuable partnerships abroad.
Engage in competitive moves in response to foreign rivals
Managers ultimately devise strategies that develop and ensure the firm’s competitive advantages.

Strategy has been associated with success

Marks and Spencers - M&S ditched international expansion plans to focus on food.
WH Smith continue with moving away from high streets and go with travel concessions.

Visionary leadership

Examples - Richard Branson, Elon Musk, Steve Jobs
What they have in common:
International mindset and cosmopolitan values: Openness to, and awareness of, diversity across cultures.
Willingness to commit resources: Financial, human, and other resources.
Strategic vision: Articulating what the firm wants to be in the future and how it will get there.
Willingness to invest in human assets: Emphasizing the use of foreign nationals, promoting multi-country careers, and training to develop international “supermanagers”.

Organisational Structure

“The reporting relationships inside the firm, “the boxes and lines” that specify the linkages among people, functions, and processes, allowing the firm to carry out its operations.” Cavusgil et al. (2017).
“Organisational structure can contribute to the development of competitive strategies that aim to satisfy customers’ needs better than competitors, and hence improve firm performance”. Edelman et al. (2005).

Centralised and decentralised

Way in which a company divides its activities among separate units and coordinates activities among those units.
How much decision-making should the firm retain at headquarters and how much it should delegate to foreign subsidiaries and affiliates (suppliers, and other partners worldwide)?
Centralisation: coordination is paramount, financial control and cost savings.
Decentralisation: Improves local responsiveness, increases accountability.

Issues for organisational structure

Structure and coordination - Design an appropriate organizational structure.
Defines areas of responsibility and chains of command.
Structure and Flexibility - Organizational structure is often modified to suit changes.

International division

Separates domestic and international activities by creating a separate international division with its own manager.
Concentrates international expertise in one division where the manager becomes a specialist in activities such as foreign exchange, exporting, and so forth.
It can help a firm reduce costs and increase efficiency while preventing international activities from disrupting domestic operations.
Potential problems include poor coordination between the international division and the rest of the company, and destructive rivalries between country managers within the international division.

International area

Organizes a company’s global operations into countries or regions. Each geographic division operates as a self-contained unit, with decision making decentralized to country or regional managers.
This structure works well when a business operates in countries with vastly different cultural, political, and economic characteristics. General managers, then, become experts on the unique needs of local customers.
A drawback is that units acting independently may cause resources to overlap and impair cross-fertilization of knowledge across units.

Global product structure

The global product structure divides worldwide operations according to a company’s product areas.
It is well-suited to a company that sells a diverse set of products.
But with the primary focus on the product, domestic and international managers in each product division, must coordinate their activities so they do not conflict.

Global matrix structure

Splits the chain of command between product and area divisions.
Each manager reports to two bosses who share decision making.
Bringing specialists together can create a team-type organization, increase local responsiveness, reduce costs, coordinate worldwide operations, and increase coordination.
Drawbacks include slow decision making and reaction time due to the need for coordination, and fuzzy accountability due to shared responsibility.

How can businesses improve responsiveness and effectiveness

Self-managed team - Team in which the employees from a single department take on the responsibilities of their former supervisors.
Cross-functional team - Team composed of employees who work at similar levels in different functional departments.
Global team - Team of top managers from both headquarters and international subsidiaries who meet to develop solutions to company-wide problems.
An increasingly popular method among international companies is the implementation of work teams to accomplish goals and solve problems.

Most experienced global firms have

Encourage local managers to identify with broad objectives of the firm.
Visit subsidiaries periodically to instill corporate values and priorities.
Rotate employees within the corporate network, to promote development of a global perspective.
Encourage country managers to interact and share experiences with each other through regional and global meetings.
Provide incentives and penalties to promote compliance with headquarters’ goals.

Organisational culture

The pattern of shared values, behavioural norms, systems, policies and procedures that employers learn and adopt.” Source: Cavusgil et al. (2017).
Example: Hyundai – organisational culture emphasizes product quality.
Management should seek to build a global organizational culture - Key to a successful international marketing strategy.
“In the field of strategy, discussions on the relationship between organisational structure and strategy usually indicate that structure follows strategy (Chandler, 1962) or that structure is dependent upon strategy”.

Firms with a global organisational culture

Value and promote a global perspective in all major initiatives.
Value international competence and cross-cultural skills among their employees.
Adopt a single corporate language for business communication.
Promote interdependency between headquarters and subsidiaries.
Subscribe to appropriate ethical standards.

Strategy vs structure

Organisational structure influences the strategic decision making process (Fredrickson, 1986; Hall & Saias, 1980).
Complex structures impose constraints on strategy (Miller et al. 1988).

The contingency theory viewpoint

“which is an organisational theory, holds the view that there is no best way to organise a corporation to lead a company, or to make decisions. Instead, the optimal course of action is contingent (dependent) upon the internal and external situation”.