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Chapter 6

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Shawn Komar

BU398 Chapter 6 – Designing Organizations for the International Environment Week 6 Entering the Global Arena -The world is becoming a unified global field; today’s companies must think global or get left behind -Extraordinary advancements in communications, technology, and transportation have created a new, highly competitive landscape -Products can be made and sold anywhere in the world -No company is isolated from global influence Motivations for Global Expansion -Economic, technological, and competitive forces have combined to push many companies from a domestic to a global focus -In some industries, being successful now means succeeding on a global scale Economies of Scale -Building a global presence expands an organization’s scale of operations, enabling it to realize economies of scale -Economies of scale also enable companies to obtain volume discounts from suppliers, lowering the organization’s cost of production Economies of Scope -Scope refers to the number and variety of products and services a company offers, as well as the number and variety of regions, countries, and markets it serves -Having a presence in multiple countries provides marketing power and synergy compared to the same size firm that has present in fewer countries Low-Cost Production Factors -Obtain raw materials and other resources at the lowest possible cost -Many companies also turn to other countries as a source of cheap labour -Other organizations have gone international in search of lower costs of capital, sources of cheap energy, reduced government restrictions, or other factors than lower the company’s total production costs -Companies can locate facilities wherever it makes the most economic sense in terms of needed employee education and skill levels, labour and raw materials costs, and other production factors Stages of International Development -Managers have to consciously adopt a strategy for global development and growth -Four stages of international evolution: Domestic, International, Multinational, Global -Domestic stage – the first stage of international development in which a company is domestically oriented while managers are aware of the global environment -International stage – the second stage of international development, in which the company takes exports seriously and begins to think multidomestically -Multidomestic – company that deals with competitive issues in each country independent of other countries -Multinational stage – the stage of international development in which a company has marketing and production facilities in many countries and more than one-third of its sales outside its home country -Global stage – the stage of international development in which the company transcends any one country Global Expansion through International Strategic Alliances -One of the most popular ways companies get involved in international operations is through international strategic alliances -Typical alliances include licensing, joint ventures, and consortia BU398 Chapter 6 – Designing Organizations for the International Environment Week 6 -Joint venture – separate entity created with two or more active firms as sponsors -Companies often seek joint ventures to take advantage of a partner’s knowledge of local markets, achieve production cost savings through economies of scale, share complementary technological strengths, or distribute new products and services through another country’s distribution channels -Another increasingly popular approach is for companies to become involved in consortia, groups of independent companies – including suppliers, customers, and even competitors – that join together to share skills, resources, costs, and access to one another’s markets -A type of consortium, the global virtual organization, is increasingly being used and offers a promising approach to meeting worldwide competition -A company may be involved in multiple alliances at any one time Designing Structure to Fit Global Strategy Model for Global vs. Local Opportunities -When organizations venture into the international domain, managers strive to formulate a coherent global strategy that will provide synergy among worldwide operations for the purpose of achieving common organizational goals -The globalization strategy means that product design, manufacturing, and marketing strategy are standardized throughout the world -Other companies in recent years have also begun shifting away from a strict globalization strategy – economic and social changes, including a backlash against huge global corporations, have prompted customers to be less interested in global brands and more in favour of products that have a local feel -A multidomestic strategy means that competition in each country is handled independently of competition in other countries -Thus, a multidomestic strategy would encourage product design, assembly, and marketing tailored to the specific needs of each country -Companies can be characterized by whether their product and service lines have potential for globalization, which means advantages through worldwide standardization -Some companies have products and services appropriate for a multidomestic strategy, which means local-country advantages through differentiation and customization to meet local needs -In many instances, companies will need to respond to both global and local opportunities simultaneously, in which case the global matrix structure can be used International Division -The international division of a company is divided according to geographical interests -The international division has its own hierarchy to handle business in various countries, selling the products and services created by the domestic divisions, opening subsidiary plants, and in general moving the organization into more sophisticated international operations -Firms typically start with an international department and, depending on their strategy, later use product or geographical division structures Global Product Structure -In a global product structure, the product divisions take responsibility for global operations in their specific product areas -One of the most commonly used structures through which managers attempt to achieve global goals because it provides a fairly straightforward way to effectively manage a variety of businesses and products around the world -Managers in each product division can focus on organizing international operations as they see fit and directing employees’ energy toward their own division’s unique set of global problems or opportunities -Each division’s manager is responsible for planning, organizing, and controlling all functions for the production and distribution of its products for any market around the world BU398 Chapter 6 – Designing Organizations for the International Environment Week 6 -Works best when the company has opportunities for worldwide production and sale of standard products for all markets Global Geographical Structure -Divides the world into geographical regions, with each geographical division reporting to the CEO -Each division has full control of functional activities within its geographical area -Ex. Local managers have the authority to tinker with a product’s flavouring -Companies that use this type of structure have typically been those with mature product lines and stable technologies -Many manufacturing firms are emphasizing the ability to customer their products to meet specific needs, which requires a greater emphasis on local and regional responsiveness -All organizations are compelled by current environmental and competitive challenges to develop closer relationships with customers, which may lead companies to shift from product- based to geographical-based structures Global Matrix Structure -Works best when pressure for decision making balances the interests of both product standardization and geographical localization -Many international firms apply this in which two or more different structures or elements of different structures are used Building Global Capabilities -Managers taking their companies international face a tremendous challenge in how to capitalize on the incredible opportunities that global expansion present The Global Organizational Challenge -Organizations have to accept an extremely high level of environmental complexity in the international domain and address the many differences that occur among countries -Environmental complexity an country variations require greater organizational differentiation -Organizations must find ways to effectively achieve coordination and collaboration among far- flung units and facilitate the development and transfer of organizational knowledge and innovation for global learning Increased Complexity and Differentiation -Companies have to create a structure to operate in numerous countries that differ in economic development, language, political systems and government regulation, cultural norms and values, and infrastructure such as transportation and communication facilities -A growing number
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