International Strategy and Organization ( Part I )

1. International Strategy and Organization(Part I) Josef Windsperger Professor of Organization and Management Center of Business Studies

2. Lecturer: Josef Windsperger E-mail:josef.windsperger@univie.ac.at Homepage: www.univie.ac.at/IM Phone: 00431-4277-38180

3. Content Part I 1 MNC as Global Network: Existence and Evolution 1.1 Product Life Cycle Theory 1.2 Transaction Cost Theory 1.3 Eclectic Theory 1.4 Network Approach 2 Culture, Strategy and Organization of the MNC 2.1 Country and Organization Culture of the MNC 2.2 Strategy and Organization Design of the MNC

4. Content Part II 3 Management of Networks of the MNC 3.1 International Licensing 3.2 International Strategic Alliances, Joint Ventures and Consortia 3.3 International Franchising-Networks 3.4 Networks and M&As 3.5 Internationalization through Countertrade 3.6 International Clusters 3.7 Networks versus Hierarchies of the MNC of the Future 4 Market Entry Decision of the MNC

5. 1 MNC als Global Network 1.1 Product Life Cycle Theory Vernon (1966): Extension of the product life cycle view to explain the internationalization of the firm.

6. Product Life Cycle

8. 1.2 Transaction Cost Theory Transaction costs = • costs of using the price mechanism (Coase 1937) Search costs Information costs Costs of decision making Negotiation costs Planning period: Ex ante costs

9. Transaction Costs Monitoring or control costs Contract execution costs Adjustement costs Contract execution period: Ex post costs

10. Transaction Cost Theory O. E. Williamson (1975) Atmosphere Bounded Rationality Uncertainty/Complexity ‚Information Impactedness‘ Opportunism Transaction Specifity

11. Market and Hierarchy CC Organizational costs (Setup-costs) Transaction costs Degree of organization

12. Quasi-Rents, Specific Investments and Hold-up g BA A B g AB D g AC C g BD B‘s profit with A: gBA A‘s profit with B: gAB A‘s quasi-rent: QRAB = (gAB – gAC) B‘s quasi-rent: QRBA = (gBA – gBD) HOLD-UP Potential of B (HB) Quasi-rent of A (QRBA) =

13. Transaction Cost Theory of the MNC - David Teece

14. 1.3 Dunning‘s Eclectic Theory • Definition: • Eclectic Theory offers a framework to identify firm specific and industry specific characteristics, referring to ownership, location and internalization advantages (OLI).

16. Eclectic Theory

17. 1.4 Network Approach • Internationalization Process • current position in the international market • level of internationalization of the other firms • Four internationalization situations: • The early starter • The late starter • The lonely international • The international among others

18. Degree of internationalization of the market Degree of the Internation- alization of the firm

19. 2 Culture, Strategy and Organization of MNC2.1 Country and Organization Culture • “Culture is the collective programming of the mind.”Geert Hofstede

21. Hofstede Individualism/collectivism Masculinity/femininity Uncertainty avoidance Power distance

22. Power Distance beschreibt The extent to which people tollerate unequal distribution of power in economy and society. Individualism beschreibt The degree of integration of individuals in groups Individualism: Individual values, individual responsibility, goal orientation Collectivism: Group values, loyal behaviour, common responsibility

24. Masculinity beschreibt How strong are masculin values (for instance achievement, success, money) compared to feminin values (security, life quality, social contact)? Uncertainty Avoidance beschreibt How tolerant are the people concerning new and unstructured situations? high UA: Many Rules, regulations and legal norms to minimize risk

25. Model of Hofstede

29. Country Comparison

30. Uncertainty Avoidance • Family or tribe (Asiatic) • Centralized decision making • Loyal, personal relationships • Social control (clan control) low • Village market (nordic) • Decentralized, flexible • Coordination through personal and informal communication Formalization • Well-oiled machine • (Germanic) • Decentralized decision • making • Strong role of experts • Coordination through rules • and routines • Traditional bureaucracy • „Pyramid of people“ (Latin) • Centralized decision making • -Central personal coordination • Informal relationships high Power distance low high Hierarchy

31. Trompenaars‘ Cultural Model Decentralization Fulfillment-oriented culture INCUBATOR Project-oriented culture GUIDED MISSILE Person Task FAMILY Power-oriented culture EIFFEL TOWER Rule-oriented culture Centralization

32. Family Culture • Power-oriented culture • Diffuse relationships • Status is ascribed (parent figures) • People are seen like family members • Father makes the changes • Management by subjectives

33. Eiffel Tower Culture • Role-oriented culture • Specific relationships • Status is ascribed to superior roles • Rationally thinking • People are seen like human ressources • Change through rules and procedures • Management by job description • Everything is planned, structured

34. Guided Missile Culture • Project-oriented culture • Egalitarian and task-oriented • Specific relationships • Problem centered way of thinking • People are seen as experts • Management by objectives

35. Incubator Culture • Self-fulfilment oriented culture • Diffuse relationships • Thinking is process-oriented and creative • People are seen as co-creators • Management by enthusiasm

37. 2.2 Strategy und Organization design of the MNC2.2.1 Strategies of the MNC What is a competitive advantage? Sustainable cost and/or revenue advantages compared to the best competitor Ressources Capabilities Strategy Industry structure

38. Strategic ApproachesPorter‘s Model Competitive advantage through low costs and differentiation monopolistic Rents Low-cost, differentiation and focus strategy

39. Resource-Based Theory (Barney, Grant) 1. Identify and classify the firm‘s resources Resources 2. Identify the firm‘s capabilities 5. Identify resource gaps which need to be filled Invest in replenishing, augmenting and upgrading the firm‘s resource base Capabilities 3. Appraise the rent-generating potential of resources and capabilities Competitive Advantage Strategic Rents 4. Select a strategy which best exploits the firm‘s resources and capabilities relative to external opportunities. Strategy

40. II. International Strategies: Perlmutter Ethnocentric Strategy Polycentric Strategy Geocentric Strategy Regiocentric Strategy

41. Perlmutter‘s Model

42. Bartlett/Ghoshal-Model high Trans-national Strategy Global Strategy Cost pressures Multi-national Strategy International Strategy low high low Pressure for local responsiveness

43. HK UK Chile USA India Japan Mexico • International strategy • create value by transferring valuable skills and products to foreign markets • differentiated products developed at home and transferred to other markets • sources of core competencies (e.g. R&D) centralized, others decentralized

44. HK UK Chile USA India Japan Mexico • Multidomestic/multinational strategy • decentralized and nationally self-sufficient • exploiting local opportunities • value creation activities (production, marketing and R&D) in each major national market

45. HK UK Chile USA India Japan Mexico • Global strategy • focus on profitability • prefer a low-cost-strategy • standardized products, aggressive pricing • do not customize their products • implementing parent company strategy

46. HK Chile UK USA Japan India Mexico • Transnational strategy • transfer of skills from the home company to the foreign subsidiaries and vice versa • knowledge developed jointly and shared worldwide, “global learning” • interdependent and specialized

47. Yip‘s Model: A Framework for Analyzing ‚Globalization‘ Locus of decision making power on corporate, business, functional strategy issues Actual product Characteristics

48. 2.2.2 Strategy and Organisation Design Chandler (1962): „Structure follows Strategy“ Matrix structure Product-/geographic Structure Functional Structur Differentiation strategy Low-cost strategy

49. Bartlett/Ghoshal-Model ‚Structure follows Strategy‘ Transna-tional Structure Trans-national Strategy Global Product Structure Global Strategy Matrix Structure Multi-national Strategy International Strategy Interna-tional Division Multidivi-sional Structure

50. International Division