Chapter 10

Strategizing,
Structuring,
and Learning
Around the
World
 Outline

• Multinational strategies and structures

• A comprehensive model of multinational
strategy, structure, and learning
• Worldwide learning, innovation, and knowledge
management
• Debates and extensions
• The savvy strategist
 Multinational Strategies and Structures
• Pressures for cost reductions and local
responsiveness
• Four strategic choices for MNEs
Ø Home replication strategy emphasizes the international replication
of home country-based competencies
Ø Localization (multidomestic) strategy is an extension of the home
replication strategy focusing on a number of foreign
countries/regions, each regarded as a stand-alone local market
worthy of significant attention and adaptation
Ø Global standardization strategy develops and distributes
standardized products worldwide
Ø Transnational strategy aims to capture “the best of both worlds” by
endeavoring to be both cost efficient and locally responsive
 Figure 10.1: Multinational Strategies and
Structures: The Integration-Responsive
Framework

Note In some other textbooks, “home replication” may be referred to as “international” or “export” strategy, “localization” as “multidomestic” strategy, and “global
standardization” as “global” strategy. Some of these labels are confusing, because one can argue that all four strategies here are “international” or “global,” thus resulting
in some confusion if we label one of these strategies as “international” and another as “global.” The present set of labels is more descriptive and less confusing.
 Table 10.2: Four Strategic Choices for
Multinational Enterprises

ADVANTAGES DISADVANTAGES
Home replication § Leverages home country-based advantages § Lack of local responsiveness
§ Relatively easy to implement § May result in foreign customer alienation

Localization § Maximizes local responsiveness § High costs due to duplication of efforts in

multiple countries
§ Too much local autonomy

Global § Leverages low-cost advantages § Lack of local responsiveness

§ Too much centralized control

Transnational § Cost-efficient while being locally responsive § Organizationally complex

§ Engages in global learning and diffusion § Difficult to implement

of innovations
 Multinational Strategies and Structures:
Four Organizational Structures
• Four organizational structures that are appropriate
for the four strategic choices
Ø International division – set up when firms initially expand
abroad
Ø Geographical area – organizes MNE according to
different geographical areas
Ø Global product division – assigns global responsibilities to
each product division
Ø Global matrix – coordinates responsibilities between
product divisions and geographic areas
 Figure 10.2: International Division
Structure at Starbucks

Sources Adapted from (1) [Link] and (2) [Link]. Headquartered in Seattle, Starbucks is a leading international coffee and
coffeehouse company.
 Multinational Strategies and Structures:
Organizational Structures
• International Division
Ø Typically set up when firms initially expand abroad, often
when engaging in a home replication strategy
• Problems
Ø Foreign subsidiary managers in the international division
are not given sufficient voice relative to the heads of
domestic divisions
Ø The “silo” effect: International division activities are not
coordinated with the rest of the firm, which focuses on
domestic activities
Ø Firms often phase out this structure after their initial
overseas expansion
 Figure 10.3: Geographic Area Structure
at Avon Products

Source Adapted from [Link]. Headquartered in New York, Avon Products, Inc. is the company behind numerous “Avon ladies” around
the world.
 Multinational Strategies and Structures:
Organizational Structures

• Geographic Area Structure

Ø Organizes the MNE according to different geographic
areas (countries and regions)
Ø Is the most appropriate for a localization strategy
Ø Its ability to facilitate local responsiveness is both a
strength and a weakness
• Problems
Ø While being locally responsive can be a virtue, it may
also encourage the fragmentation of the MNE into
highly autonomous, hard-to-control “fiefdoms”
 Figure 10.4: Global Product Division
Structure at Airbus Group

Source Adapted from [Link]. Between 2000 and 2014, Airbus Group was known as the European Aeronautic Defence and Space Company (EADS).
Headquartered in Toulouse, France, Airbus Group is the largest commercial aircraft maker and the largest defense contractor in Europe.
 Multinational Strategies and Structures:
Organizational Structures
• Global Product Division Structure
Ø Supports a global strategy in treating each product
division as a stand-alone entity with full worldwide—as
opposed to domestic—responsibilities for its activities
Ø Facilitates attention to pressures for cost efficiencies in
allowing for consolidation on a worldwide (or regional)
basis and reduction of inefficient duplication in multiple
countries
• Problems
Ø It is the opposite of the geographic area structure:
Little local responsiveness
Figure 10.5: A Hypothetical Global
Matrix Structure
 Multinational Strategies and Structures:
Organizational Structures
• Global Matrix
Ø Is often used to alleviate the disadvantages
associated with both geographic area and global
product division structures
Ø Is intended to support the goals of the transnational
strategy—in practice, it is often difficult to deliver
• Problems
Ø May add layers of management, slow down decision
speed, and increase costs while not showing
significant performance improvement
Figure 10.6: A
Comprehensive
Model of
Multinational
Strategy,
Structure,
and Learning
 Industry-Based Considerations

• Industry characteristics
Ø Industrial products firms – Favor global product divisions
Ø Consumer goods firms – Favor geographic areas

• Porter’s forces
Ø Interfirm rivalry increasingly focuses on learning and
innovation
Ø Need to heighten entry barriers: Behind some recent
moves to phase out multidomestic strategy and to erect
world-scale facilities to deter entrants
Ø Bargaining power of suppliers and buyers: They also have
to internationalize if the focal MNE goes overseas
Ø MNE R&D often generates competing substitute products
 Resource-Based Considerations

• Value
Ø Does any new structure (such as matrix) really add value?
Ø Does innovation really add value? Not always!
• Rarity
Ø When all rivals adopt a “global strategy,” it is not rare
• Imitability
Ø It is easier to imitate formal structure. But how to imitate
an elusive, informal matrix which is a “philosophy”?
• Organization
Ø Some MNEs are better able to take advantage of complex
organizational structures such as matrix than others
 Institution-Based Considerations
• Formal and informal external institutions
Ø Formal Institutions
v Externally, MNEs, are subject to the formal institutional frameworks
of various home- and host-country governments
v Host-country governments often encourage or coerce MNEs into
undertaking certain activities
Ø Informal Institutions
v Strategists weigh the informal backlash against activities which
result in domestic job losses

• Formal and informal internal institutions

Ø Formal organizational charts do not necessarily reveal the
informal rules of the game
Ø Choices for the head of a subsidiary: (1) a home-country
national, (2) a host-country national, or (3) a third country
national
 Worldwide Learning, Innovation
and Knowledge Management:
Knowledge Management in MNEs

• Knowledge management can be defined as the

structures, processes, and systems that actively
develop, leverage, and transfer knowledge.
• Knowledge management is considered by some
writers the defining feature of MNEs
Ø Explicit knowledge (e.g., a driving manual): Captured
by IT
Ø Tacit knowledge (e.g., knowledge about how to drive)
v Its acquisition and transfer require hands-on experience
 Table 10.3: Knowledge Management in
Four Types of Multinational Enterprises
GLOBAL
STRATEGY HOME REPLICATION LOCALIZATION STANDARDIZATION TRANSNATIONAL

Examples Apple, Baidu, Carrefour, Heinz, Johnson & Canon, Caterpillar, Haier, GE, Häagen –Dazs, IBM,
Google, Harley Davidson, Johnson, KFC, HP, Huawei, LVMH, Otis, Kikkoman, Panasonic,
Kraft, P&G, Starbucks, McDonald’s, Nestlé, Texas Instruments, Tarta, Zara
Wal-Mart Pfizer, Unilever Toyota

Interdependence Moderate Low Moderate High

Role of foreign Adapting and leveraging Sensing and exploiting Implementing parent Differentiated contributions
subsidiaries parent company local opportunities company initiatives by subsidiaries to
competencies integrate worldwide
operations

Development and Knowledge developed Knowledge developed Knowledge mostly Knowledge developed
diffusion of at the center and and retained within developed and retained jointly and shared
knowledge transferred to each subsidiary at the center and key Worldwide
subsidiaries locations

Flow of Extensive flow of Limited flow of Extensive flow of Extensive flow of

knowledge knowledge and knowledge and people knowledge and people knowledge and people in
people from in both directions (to and from the center and key multiple directions
headquarters to from the center) locations to subsidiaries
subsidiaries

Sources Adapted from (1) C. Bartlett & S. Ghoshal, 1989, Managing Across Borders: The Transnational Solution (p. 65), Boston: Harvard Business School Press; (2)
T. Kostova & K. Roth, 2003, Social capital in multinational corporations and a micro-macro model of its formation (p. 299), Academy of Management Review, 28 (2):
297–317.
 Worldwide Learning, Innovation
and Knowledge Management:
Globalizing Research and Development

• A crucial arena for knowledge management

Ø Driven by the intensification of competition for
innovation
Ø Provides a vehicle for access to, or extract benefits
from, a foreign country’s local talents and expertise
Ø The resource-based view: A fundamental source for
competitive advantage is being different (the
assumption of heterogeneity)
v Decentralized R&D work performed by different locations and
teams around the world means that there will be persistent
heterogeneity (differences) in the solutions generated
 Table 10.4: Problems in Knowledge
Management

ELEMENTS OF KNOWLEDGE MANAGEMENT COMMON PROBLEMS

Knowledge acquisition Failure to share and integrate external knowledge

Knowledge retention Employee turnover and knowledge leakage
Knowledge outflow “How does it help me?” syndrome and “knowledge is power”
mentality
Knowledge transmission Inappropriate channels
Knowledge inflow “Not invented here” syndrome and absorptive capacity

Source Adapted from A. Gupta & V. Govindarajan, 2004, Global Strategy and Organization (p. 109), New York: Wiley.
 Problems and Solutions in
Knowledge Management
• For large firms, there are diminishing returns for R&D.
A new model, called “open innovation,” is emerging.
This model relies on more collaborative research
among various internal units and with external
organizations
• In knowledge retention, the problem of employee
turnover may lead to knowledge leakage
• Global virtual teams, which do not meet face to face,
may have communication and relationship barriers
• The “not invented here” syndrome causes some
managers to resist accepting ideas from other units
 Problems and Solutions in
Knowledge Management (continued)
• As solutions to combat these problems, corporate
headquarters can manipulate the formal rules of the
game through individual and organizational
incentives as well as investing in tacit knowledge
• MNEs often must rely on a great deal of informal
integrating mechanisms
• Some try to develop informal social capital
• Overall, the micro, informal interpersonal
relationships among managers of various units may
create a micro-macro link
 Debates and Extensions

• One multinational versus many national

companies
• Central controls versus subsidiary initiatives
Ø Subsidiaries may be in full compliance of commands,
pay lip service to commands, or ignore them
Ø Some subsidiary-level strategies may contribute to
entrepreneurship (or empire building)
 Debates and Extensions
• Customer-focused dimensions versus
integration, responsiveness, and learning
Ø Two primary customer-focused dimensions
v Global account structure to supply customers across various
countries
v Solutions-based structure is often used

Ø One recommendation is to simplify both product and

geographic scope to add the customer-focused
dimensions
 The Savvy Strategist

• Consider four implications

Ø Understand the evolution of your industry in order to
come up with the right strategy-structure
configurations
Ø Managers need to actively develop learning and
innovation capabilities to leverage multinational
presence
Ø Mastering the external rules of the game governing
MNEs and home/host country environments is a must
Ø Managers need to understand and be prepared to
change the internal rules of the game governing MNE
management