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Chapter 9- International Management
Terms in this set (55)
- Wholly Owned Subsidiary
- Alliances and Joint Ventures
only available choices for small and new firms wanting to go international
Exporting/Importing Strategy Advantages
Permits easy access to oversea markets
Permits larger firms to begin international expansion with minimum investment and minimum risk
Strategy usually transitional in nature
Wholly Owned Subsidiary
an overseas operation is totally owned and controlled by an MNC.
MNCs using wholly owned subsidiary
want total control and believe that managerial efficiency is better without outside partners
Wholly owned subsidiary concerns
Some host countries worry that the MNC could drive out local enterprises
Home country unions sometimes view foreign subsidiaries as an attempt to "export jobs"
Alternatives to wholly owned subsidiary
MNCs opt for a merger, alliance, or joint venture rather than a wholly owned subsidiary
Mergers and acquisitions
are the cross-border purchase or exchange of equity involving two or more companies.
Merger and acquisition CONS
-Cultural differences and time constraints are the 2 most pervasive barriers.
-Once a merger/acquisition occurs, it may be difficult to clearly communicate new goals to subsidiary.
-Transition costs also pose a problem in the post-merger environment.
Merger and acquisition awareness
Managers need to be wary of complications and attempt to move forward by enhancing communication and operational efficiency.
Any type of cooperative relationship among different firms.
Some are temporary, some more permanent.
International Joint Venture (IJV)
Agreement under which two or more partners from different countries own or control a business.
Types of Alliances and Ventures
1. Nonequity ventures
2. Equity joint ventures
Advantages of alliances and joint ventures
-Improvement of efficiency
- Access to knowledge
- Mitigating political factors
- Overcoming collusion or restriction in competition
Strategic Alliance Recommendations
- Know their partner well before alliance is formed
- Expect differences in alliance objectoves among potential partners in different coountries
- Realize that having desired resource profiles does not guarantee that they are complementary to the firm's resources
- Be sensitive to alliance partner needs
- After identifying the best partner, work on developing a relationship of trust.
An agreement that allows one party to use an industrial property right in exchange for payment to the other party.
Reasons for Licensing
-Licensor less expensively enters foreign market; licensee adds a product to its line.
-The licensee may avoid entry costs by licensing to a firm already there.
-Licensor usually is a small firm lacking financial and managerial resources.
Research and Development
-Likely licensors: companies spending large amounts on R&D
-Likely licensees: companies spending little on R&D
An arrangement in which one party (the franchisor) permits another (the franchisee) to operate an enterprise using its trademark, logo, product line, and method of operation in return for a fee
Examples- fast food, hotel industry
Advantage of Franchising
-With minor adjustments for the local market, this can result in highly profitable international business.
-The franchisor gets a new stream of income and the franchisee gets a proven concept and products or services that can quickly be brought to market.
Initial Division Structure
- Export Arrangement
- On-site manufacturing operations
Common among manufacturing firms, especially those with technologically advanced products
On-site manufacturing operations
In response to local governments when sales increase
Helps to reduce transportation costs
Common for finance-related businesses or other operations that require onsite presence from the start
Early Stage of Internationalization
(Home Office Departments) - CEO
Production, Marketing, Human Resources, Finance
(Overseas Subidiaries)- VP International Operations
France, Argentina, Australia, Japan, Egypt
International division structure
Structural arrangement that handles all international operations out of a division created for this purpose.
Advantages of International division structure
- Assures international focus receives top management attention
- Unified approach to international operations
- Often adopted by firms still in developmental states of international business operations
Disadvantages of International division structure
-Separates domestic from international managers
- May find it difficult to think and act strategically, or to allocate resources on a global basis
Types of global structures
1. Global Product Division
2. Global Area Division
3. Global Functional Division
Global Product Division
Structural arrangement in which domestic divisions are given worldwide responsibility for product groups.
Advantages of Global Product Division
- Global product divisions operate as profit centers
- Provides a direct line of communication from customer
- Helps R&D to work on development of products that serve the world customer
- Permits managers to gain expertise in technical and marketing aspects of products
Disadvantages of Global Product Division
- Duplication of facilities and staff personnel within divisions
- Division manager may pursue currently attractive geographic prospects and neglect others with long-term potential
- Division managers may spend too much time tapping local rather than international markets
Global area division
Structure under which global operations organized on geographic basis rather than a product basis.
Advantages of Global area division
- International operations put on same level as domestic operations
- Global division mangers are responsible for all business operations in designated geographic area
- Often used by firms in mature businesses with narrow product lines
- Firm is able to reduce cost per unit and price competitively by manufacturing in a region
Disadvantages of Global area division
Difficult to reconcile a product emphasis with geographic orientation
New R&D efforts often ignored because divisions are selling in mature market
Global functional division
Structure that organizes worldwide operations primarily based on function and secondarily on product.
(Approach used mainly by extractive companies such as oil and mining)
Advantages of Global functional division
-Emphasizes functional expertise
-Relatively lean managerial staff
Disadvantages of Global functional division
-Coordination of manufacturing and marketing often difficult
-Managing multiple product lines can be very challenging because of separation of production and marketing into different departments.
-Only the CEO can be held accountable for the profits.
Mixed Organizational Structure
Structure is a combination of global product, area, or functional arrangements.
Advantages of Mixed Organizational Structure
Allows the organization to create the specific type of design that best meets its needs
Disadvantages of Mixed Organizational Structure
-As matrix design's complexity increases, coordinating personnel and getting everyone to work toward common goals often become difficult.
-Too many groups go their own way.
Transnational network structure
-A multinational structural arrangement combining elements of function, product, geographic design, while relying on network arrangement to link worldwide subsidiaries.
-At center of the transnational network structures are nodes, which are units charged with coordinating product, functional, and geographic information.
-Different product line units and geographic area units have different structures depending on what is best for their particular operation.
Nontraditional Organizational Arrangements
-Organizational arrangements from mergers, acquisitions, joint ventures, and strategic alliances
-These organizational arrangements do not use traditional hierarchical structures and cannot be shown graphically
-Main objective: Help the partners address and effectively meld their different values, management styles, action orientation, and organization preferences
Nontraditional Organizational Arrangements
Outsourcing function (can be delivered online)
Electronic network is a version of the matrix design
Individuals who work on a project for a company, usually via the Internet, and move on to other employment when the assignment is done
Serve a particular, short-term purpose and then go on to other assignments
Many of the people in the structure are temporary contingent employees, never see each other and communicate exclusively in an electronic environment
Organizing for Product Integration
-Recent organizing development is the emergences of designs that are tailored toward helping multinationals integrate product development into their worldwide operations
-Cross-functional coordination has been used
- Resulted in people spending less time within their functions and thus becoming less knowledgeable regarding developments that are occurring in their specialized areas.
- Often leads to product teams becoming autonomous and thus failing to integrate their overall efforts with the organization at large
Organizational Characteristics of MNCs
Use of defined structures and systems in decision making, communicating, and controlling.
Assigning individuals to specific, well-defined tasks.
Important decisions are made at the top.
Decision making is pushed down the line and lower-level personnel are involved.
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