© Devinney, 2008

Managing the Global CorporationManaging the Global Corporation

Timothy Devinney

Australian Graduate School of Management

© Devinney, 2008

The Context and Complexity of The Context and Complexity of InternationalizationInternationalization

© Devinney, 2008

The Complexity of International ManagementThe Complexity of International Management

Local Economic Conditions

Intl Economic Conditions

Local Cultural /Sociodemographic

Conditions

Local Political Environment

Local Economic Conditions

Local Cultural /Sociodemographic

Conditions

Local Political Environment

FirmStrategic

Disposition

FirmStrategic

Disposition

Orgn CulturalOrgn HistoryTechnology

Orgn StructureDistn of BusinessProduct Structr

Orgn CulturalOrgn HistoryTechnology

Orgn StructureDistn of BusinessProduct Structr

© Devinney, 2008

The International MindsetThe International Mindset

How does this complexity change your viewOf the notion of ‘a’ strategy?

Of the operational details of developing such a strategy?

Of the operational details of implementing a strategy?

© Devinney, 2008

Why Do Companies Invest ‘Overseas’?Why Do Companies Invest ‘Overseas’?

Seeking greater operational efficiencyCommunication with:

Operations, customers, suppliers, competitors or R&D

Proximity to:Operations, customers, suppliers, competitors or R&D

Seeking new marketsProactive vs reactive

Direct vs indirect

Seeking new resourcesPhysical vs intangible

© Devinney, 2008

Does it Make Sense?Does it Make Sense?The Liability of ForeignnessThe Liability of Foreignness

Business Characteristics (What we do)

Mar

ket C

hara

cter

isti

cs

(Wha

t the

y w

ant)

Zone of death

Firm

Centric P

ath

Market Centric Path

We do what markets want even thought they are increasingly distant from our

strengths

We do w

hat we do even

thought they are increasingly distant from

w

hat the markets dem

and

Distance from Home

Ris

k A

djus

ted

Mar

gin

The Liability of Foreignness

We do what we can’t do for people who don’t want what we can’t do

Why does this happen?

© Devinney, 2008

The Liability of Foreignness in RealityThe Liability of Foreignness in Reality

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How Do You Go International?How Do You Go International?

Export

Make or buy?

Fast or slow?

Partner or no?

…..

There is no “free lunch”: Each has a cost and benefit

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What are the Pitfalls?What are the Pitfalls?

Spent too much, got too little (Tesco)

Partner from hell (Danone)

Arrested for bribery (Siemens)

…..

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Tim’s 3-Steps to Success InternationalizationTim’s 3-Steps to Success Internationalization

Do “something” well

Move that “something” from point A to point B

Make money on that “something” at point B

CEOs

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Applying The Rules (Globalizing Cement)Applying The Rules (Globalizing Cement)

Cemex built a dominant position in Mexico based on:

Technological/Cost excellence

Protection of IP

Integration of capacity acquired via M&A

It leveraged this position by purchasing marginal producers at scale

Then utilized its M&A integration capabilities to transfer its technological and managerial systems

             

© Devinney, 2008

Thinking about an International StrategyThinking about an International Strategy

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Levels of ‘Strategy’Levels of ‘Strategy’

Global

Subsidiary/Market

Product

Customer

© Devinney, 2008

Economicsof

Production

“Global is

Better”

Economicsof

Production

“Global is

Better”

Economicsof

Adaptation

“Local is Better”

Economicsof

Adaptation

“Local is Better”

PUSH PULL

Conflicting Globalization Pressures: Conflicting Globalization Pressures: How to React?How to React?

© Devinney, 2008

Dimensions of International Organisation Dimensions of International Organisation StructureStructure

Local ResponsivenessHigh

Low

Glo

bal

In

tegr

atio

n High

TransactionalCompleteness

High

Diversity of sources, type

and uses increase

Becomes more proprietary and

protectible

Economies of scale and scope increase the sources and applications and efficiency in use

Source: Adapted from Devinney, Midgley & Venaik

The extent towhich the markets are

efficient; i.e., markets > firms

The extent towhich the markets are

efficient; i.e., markets > firms

Strategic Decision:Own, Rent or Buy

Strategic Decision:Centralization/

Adaptation

© Devinney, 2008

The Fundamental ProblemThe Fundamental Problem

Potentially, each component of the value chain will have different underlying pressures (GI, LR, TC) facing it:

In each product/marketAt each value chain link in each product/marketAcross products/markets

This implies that these fundamental pressures will create a complex organizational pressure to “mix and match”

Local Responsiveness

High

Low

Glo

bal

In

tegr

atio

n

High

TransactionalCompleteness

High

Local Responsiveness

High

Low

Glo

bal

In

tegr

atio

n

High

TransactionalCompleteness

High

Market 1

Market 2

Market 4

Market 3

© Devinney, 2008

The Complexity of Value Chain Positioning The Complexity of Value Chain Positioning in International Competitionin International Competition

Firms face environments with different pressures (G,L)

These are dependent on location choice

These can be endogenousAffected by prior firm choices

Firm Strategy can be decomposed

Tasks (G,L) Value chain activities (VCA)

VCA (G,L) Strategic Position (C,A)

Example: Pharmaceuticals

Pressures for Local Differentiation

Pressures for G

lobal Integration

Structural Choice (Adaptation)

Structure C

hoice (Centralization)

Finance

ComponentManufacturing

After SalesService

Compounding& Packaging

Marketing & Sales

R&D

ClinicalTests

GovernmentRelations

Procurement

Biological Technology

Local Regulatory Demands

Clinical Trial Mgt

© Devinney, 2008

Carrefour & WalmartCarrefour & WalmartCarrefour and Walmart are facing some similar pressures and realities but many are different due to different histories

Pressures are a function of location

This has led to differential structural choices across the value chain by both firms

Structure is a function of past choices and future expectations

Strategic disposition (administrative heritage)

Pressures for Local Differentiation

Pressures for G

lobal Integration

Structural Choice (Adaptation)

Structure C

hoice (Centralization)

WM (Supply)

WM (Design)

Procurement Technology

Local Retail Demand (EU)

CF (Supply)

CF (Design)

CF (Mktg)

WM (Mktg)Local Retail Demand (US)

Supplier Fragmentation

© Devinney, 2008

How Should the Global Value Chain be How Should the Global Value Chain be Organized? Value Chain DisintermediationOrganized? Value Chain Disintermediation

HQ

Market 1: Own Everything

HQ

Market 2: Own Contiguous Parts

HQ

Market 3: Own Non-Contiguous Parts

HQ

Market 4: Own Structure Not Parts

HQ

ETC ……

© Devinney, 2008

The Key Organizational Question isThe Key Organizational Question is

How can competitiveness be enhanced by: Worldwide or regional integration of all scale-sensitivity activities?Decentralization of locally differentiated tasks with management accountability?Close coordination of local activities which have cross-market implications?

Simultaneously!Three rules should apply

Centralize “scale-sensitive” activities whenever possibleCentralize control over those activities which are the source of the firm’s competitive advantage, wherever locatedSet up as many cross-business or cross-country interactions as possible and feasible

Trade off between simplicity and complexity

© Devinney, 2008

Strategy/Management at the Subsidiary Level:Strategy/Management at the Subsidiary Level:Operationalization at the Market LevelOperationalization at the Market Level

© Devinney, 2008

A Country Operation’s Strategic Role?A Country Operation’s Strategic Role?

Stand Alone ValueSize of market and growth rate

Competitive environment

Price levels

Favorable cost structure

Tax rates

Macroeconomic conditions

Political risk

Synergy ValueShared activities with other businesses

Shares upstream/downstream capacity (e.g., raw material production, final assembly or distribution)

Proximity to other markets

Strategic Market Value Home market of global customers Home market of global

competitors Significant market for global

competitors Major source of industry

innovation Home of most demanding

customers Prestige value

© Devinney, 2008

Loc

al C

omp

eten

ce

Importance of Local Market

Hig

hL

ow

HighLow

Source: Bartlett & Ghoshal

The Roles for Country/Regional OrganisationsThe Roles for Country/Regional Organisations

ContributorContributor Strategic Leader

Strategic Leader

Black HoleBlack Hole ImplementorImplementor

© Devinney, 2008

Inte

rnal

Com

pet

itiv

enes

s

External Competitive Intensity

Hig

hL

ow

HighLow

Source: Birkinshaw & Hood

Setting the Environmental ConditionsSetting the Environmental Conditions

Firm Driven

Firm Driven DualDual

BenignBenign MarketDriven

MarketDriven

© Devinney, 2008

A Few Final WordsA Few Final Words

© Devinney, 2008

Is There a Thing Called International Is There a Thing Called International Strategy?Strategy?

The short answer is NO! Intl strategy is strategy in a more complex environment

Rather on one set of economic environments you have many– Big implications for financing, marketing, accounting

Rather than one set of cultural environments you have many– Big implications for marketing and human resources

Rather than one set of political environments you have many– Big implications for all aspects of business subject to political

riskIntl strategy is strategy with more complex managerial choices

Organisational form is more complex and requires an interaction between more players both inside and outside the firm

– Trade-offs between centralized and decentralized models of organizational design have never been solved

– Alliances, licensing/franchising, FDI, exporting and a plethora of mixtures of this are always on the table

© Devinney, 2008

Managerial ResponsesManagerial Responses

Essence of international operations is:The expansion of managerial control (expertise and knowledge)

The simultaneous Exploitation of existing advantage

Exploration for future advantage

The development of distinctive MNE competences

The ability to exploit internal and external networks

System-wide optimization

© Devinney, 2008

Managerial & Organizational Factors Leading Managerial & Organizational Factors Leading to International Successto International Success

The firm sees itself as a MNE led by a TMT that is comfortable on the world stage Develop integrated strategies that are costly and difficult to duplicate Understand that innovation is a global Operate as if the world was one market Have systems that keep them abreast of political/environment developmentsAre well managed—stick close to customers, run a lean organisation, and encourage autonomy and entrepreneurial activity

MNEs must be able to accommodate their natural disadvantage, the cost of managing far flung operations

© Devinney, 2008

How Do You Become a Successful MNC?How Do You Become a Successful MNC?

Short answer is no one really knows how to do it. We do know, however, to what it is related:

More successful MNCs have a greater percentage of intangible assets

More successful MNCs establish a dominant organisational culture that allows it to be less effected organisationally

More successful MNCs are better at disaggregating their value chains