Chapter 5
Global strategy and organizational challenge
Dr.Youzhen Zhao
FDU
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Main Contents

Globalization and corporate strategy

Organizational structure of MNCs
Dr.Youzhen Zhao
FDU
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Profiting from global expansion:
types of competitive pressures

Pressures for cost reduction
(eg. Global tire industry over the last decade)

Pressures for local responsiveness
--differences in customer tastes and preferences
--differences in natural environment, infrastructure and
traditional practices
--differences in distribution channels
--host-government demands
Dr.Youzhen Zhao
FDU
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Integration versus
national responsiveness


Integration/Globalization: The production and
distribution of products and services of a
homogeneous type and quality on a worldwide
basis.
National responsiveness: The ability of MNCs
to understand different customer tastes in
segmented regional markets and to respond to
different national standards and regulations
imposed by autonomous governments and
agencies
Dr.Youzhen Zhao
FDU
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Integration versus national responsiveness
The vertical axis
measures the need
for globalization,
frequently called
“economic
integration”
The horizontal axis measures the need for
corporations to be nationally responsive
Dr.Youzhen Zhao
FDU
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
Quadrant 1:




The need for integration is high and the need for awareness of
sovereignty is low
This focus on economies of scale leads to competitive strategies that are
based on price competition
Companies selling microcomputers frequently operate in this quadrant.
Quadrant 2:



The need for both integration and national responsiveness is low
Both the potential to obtain economies of scale and the benefits of being
sensitive to sovereignty are of little value
MNCs selling inexpensive toys that are undifferentiated fall into this
quadrant.
Dr.Youzhen Zhao
FDU
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
Quadrant 3:





The needs for integration and national responsiveness are
both high
A strong need for integration in production, along with
higher requirements for regional adaptations in marketing
Many successful “transnational” MNCs operate in quadrant 3
Auto firms fall into this quadrant.
Quadrant 4:



The need for national responsiveness is high but the
integration concern is low
Niche companies adapt products to satisfy the high demands
of sovereignty and to ignore economies of scale since
integration is not very important
Companies selling food products and designer clothes use
this approach.
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FDU
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Four basic international business strategies
Global
strategy
Transnational
strategy
Multidomestic
strategy
International
strategy
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FDU
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The advantage and disadvantage of
the four strategies
Dr.Youzhen Zhao
FDU
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Basic Organizational Structure

Early organization structures
---Department of exporting
---Autonomous subsidiary structure




International division structure
Global structural arrangement
--- global product division
--- global area division
--- global functional division
Global matrix structure
Transnational Network structures
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FDU
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An export department structure
CEO
VP Marketing
VP Production
VP Personnel
VP Finance
head of export
export marketing staff
administration
distribution
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overseas representatives
FDU
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Use of overseas subsidiaries
CEO
VP Marketing
VP Production
VP Personnel
VP Finance
Independent overseas
subsidiary
UK
HK
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Germany
FDU
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International division structure
CEO
VP Production
VP Marketing
Domestic division A Domestic division B
Country 1
Country 2
VP Personnel
VP Finance
International division
Country 3
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Country 4
FDU
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A global product divisional structure
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FDU
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A global area structure
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FDU
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A global functional structure
CEO
Production
domestic production
Product A
Product B
Product C
Marketing
Finance
foreign production
Product A
Product B
Product C
domestic marketing
Product A
Product B
Product C
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FDU
foreign marketing
Product A
Product B
Product C
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A global matrix structure
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FDU
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The international structural stages model
( John Stopford & Louis Wells)
High
Low
Foreign
product
diversity
Global
product
division
International
division
Global matrix
Low
High
Global area
division
foreign sales as a percentage of total sale
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FDU
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Transnational network structure
--an organization design which helps MNCs to take
advantage of global economics of scale while also
being responsive to local customer demands
--relies on a network arrangement to link the various
worldwide subsidiaries
--usually consists of three components:
Dispersed subunits;
Specialized operations;
Interdependent relationships
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FDU
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