International Business Strategies in Action
010 Global Strategies and the Multinational Corporation
Patterns of internationalisation Internationalisation occurs through trade, and direct investment Patterns of industry internationalisation include sheltered, trading, and global and multi-domestic industries Competitive advantage depends on the firms’ internal resources and capabilities, and the national environment Global industries gain competitive advantage by combining business strategy with the pattern of a country’s comparative advantage International location of production Many companies find it necessary to separate their production and sale areas Factors determining the location of production include the availability of national resources, firm’s competitive advantages, tradability and political considerations Different countries have different advantages at different stages of the value chain, hence the need to have different production locations Cost, availability and quality of resources and capabilities determine off-shoring decisions Entering the foreign market Foreign market entry is through transactions or direct investment Market entry through transaction happens by exporting or licensing while market entry through direct investment can happen through joint ventures or wholly owned subsidiaries. Market entry depends on whether the firm’s competitive advantage is specific to the firm or the country, product tradability and the barriers that exist in trade, availability of resources and capabilities, the transaction costs, and the ability of a firm to appropriate its returns Multinational strategy Global integration National differentiation Global firms take advantage of the economies of scale provided in manufacturing, product development, and marketing Global firms have high quality products and use their resources to compete strategically National integration is necessary to suit the local conditions, and it makes the products more appealing
1. What factors should Sharp Corporation take into consideration when deciding where to locate its LCD production?
CostSharp has to consider the cost it will incur in setting up the company and running it, and how this will affect its profitabilityGovernment incentives or penaltiesSome governments have trade barriers while others offer incentives to encourage job growthTradabilityIt is expensive to transport the LCD products, and Sharp has to consider this, when determining the production locationFirm specific competitive advantagesSharp’s competitive advantage is based on its internal capabilities and resources, especially in its new factory and close proximity to its resourcesAvailability of national resourcesLCD requires high technical knowledge and expertise
2. What are the advantages and disadvantages of changing its ‘make in Japan, sell overseas’ strategy?
It will be able to save on costs through economies of scale It will capitalize on national resources of other countries It will enhance the quality of its products as it learns from the expertise of different people It will compete strategically by lowering prices and cross-subsidization It will have to spend money in localising the products to make them have a greater appeal The company might not experience any level of government support, and may incur other logistic expenses The company will lose the proximity of its suppliers It will spend money transporting different supplies or trying to find local suppliers
3. If Sharp decides to relocate some of its production, what alternative approaches to entry into new countries are available to it?
Transactions: the company could decide to export the manufactured products directly to other markets or use long-term contracts. Licensing would ensure that the company faces less risk in expansion, but the company will risk losing control of its property and it risks facing more competitors Direct investment: the company can decide to form a joint venture. It would have to share information concerning its technology with another company in the country. The other company will assist it in different ways, including dealing with the government regulations. The firm could also decide to have a wholly owned subsidiary
4. What are the potential costs and benefits of engaging in joint ventures with Chinese electronics manufacturers?
Highest growth for the firm’s product was in China, and the venture could ensure that the firm continues to realise the growth Firm will be able to take advantage of the market knowledge of the Chinese company The firm will benefit from the distribution network of its partner The firm does not have to worry about the legalities or other logistics involved The Chinese company has the desire to access the firm’s knowledge and technology, and this would mean losing a significant part of its intellectual property The firms risk to conflict with each other as they may not agree on sharing the contributions or returns The firms may end up competing against each other
1. Commentary on Task B
It is crucial for companies to consider the factors involved in determining their location. The decision made is a long term one, and not easily reversible. The company has to make heavy investments and making the wrong decision would be a loss to the company. The cost of location is vital, as it ultimately determines whether one can afford the location (Rao, 2007). The company has to consider the costs involved in purchasing, renting, or leasing the location in question. In addition, the company has to calculate other costs involved, such as paying employees in a specific location. Employees in different countries ask for different modes of payment, and the company has to consider this factor. Foreign companies incur other expenses, as they have to deal with different restrictions and regulations such as trade barriers. These costs can be high depending on the government or the product that the company imports
In some cases, governments want to encourage the setup of specific enterprises in the country, and offer different incentives such as low taxes. In other cases, governments are more severe in their regulations, and some of the conditions may seem like penalties depending on the type of business. For instance, environmental concerns in some countries have compelled some governments to establish strict environmental regulations, especially concerning pollution and damping, and companies have to consider this before finalising their decisions. The availability of national resources in a country determines whether a company will set up in a location. Some products require high levels of technical expertise, and this will require a highly skilled and knowledgeable workforce. The company should consider firm specific advantages as this can help it to reduce costs. If the company has invested heavily in its resources, in terms of the factory and the workforce, then it should reconsider its decision to relocate.
Companies have realized the importance of becoming global, and they have taken measures to this effect. The internationalisation of different companies has made it possible for companies to become global. Locating the production, assembly, distribution, and retail centres in different countries have ensured that companies find ready markets in those areas. Companies are able to reduce costs through economies of scale in different processes including production, manufacturing, distribution, and marketing. They are able to standardise and replicate goods, and this leads to cost reduction. Global companies are able to compete strategically compared to national companies. They are able to take advantage of their position in the market place, as well as their vast resources to ensure increased sales and revenues, better marketing and price reduction of their products.
Using different countries for different processes in production benefits the company, as it is able to learn from the technical expertise of people in the specific countries. Sharing of knowledge as well as taking advantage of the national resources available makes it possible for companies to gain a competitive advantage. On the other hand, taking a global strategy without considering the local appeal will not benefit the company. Some people might feel that they do not relate well to the product. They may not be pleased with the way a product looks or feels especially if the manufacturer has not made any effort to localize the product. People want something that they can relate to, and this will involve making some changes in design so that the products can have a local appeal.
The type of market entry modes which the companies choose depends on the cost, commitment, risk and returns, and control that the company wants to have of the product. Companies that choose to export their products or use contract agreements show low levels of commitment to the foreign markets compared to companies which choose joint ventures or wholly owned subsidiaries (Peng, 2010). Firms choosing strategic alliance seek to benefit from the knowledge of the local firms and benefit from other capabilities. Local companies that agree to form joint ventures are often looking to expand their knowledge and benefit commercially by accessing the technology of the foreign firm, or benefiting from its brand name. The local and foreign firms benefit from each other. Forming alliances enabled firms to economise on the investments (Grant and Jordan, 2012).
The power differentials that exist between the different firms may make a firm feel shorthanded during the negotiation process. The dependence of the firm on a particular resource is critical when forming alliances because it can give the other firm an upper hand (Segal-Horn and Faulkner, 2010). Companies opting for joint ventures usually aim to get different benefits including sharing of risks, ensuring that they conform to the government regulations, and joint product development. Joint ventures are profitable when the company can benefit from market power and technical expertise and national resources available for the partners. However, mistrust among the partner companies can be a hindrance, especially since joint ventures involve the sharing of knowledge.
Joint ventures involve the transfer of technologies and management knowledge. Some governments have strict regulations, which discourage the entry of foreign companies. Some of them do this to encourage job creation in their respective countries, avoid worker exploitation, and encourage the sharing of knowledge by the foreign companies. Many companies choose to export their products to foreign markets as it often involves little risk. The firms do not have to share their knowledge and expertise with others, and they only have to worry about the marketing expenses and other legalities. Exporters have to have adequate knowledge of their markets so that they can know the type of products to export and at what price they need to do so. They also need to be aware of the government regulations concerning exports.
Licensing involves technology transfer as the firm offers the expertise and knowledge it has on its production process. Companies that decide to offer licenses and other contractual agreements risk facing competition from their business partners. Joint ventures can lead to rivalry as the firm’s partners use the technology they have received to compete with the firm’s products in the market. If this happens, the firm risk losing a significant market share in the country it intended to operate. Although the Chinese firm is asking Sharp for the older generation LCD technology, the firm could use this technology to develop a new form of technology, which will compete with Sharp for part of the market share.
The Chinese firm would benefit since it would be using the technology in its own country, and it understands the methods it would use to get a larger market share. Firms choosing joint ventures risk losing control of different aspects such as the development of its technology and the marketing of its products. Firms that decide to offer licenses benefit since they do not have to pay tariffs in the foreign markets or conduct marketing research. In addition, the firm saves money since it does not have to use much capital and it takes less time to enter into the market compared to other modes of market entry. Firms that choose to offer licenses have to ensure that they negotiate the contract well to ensure that their partners will not copy their technology (Ranchhod and Marandi, 2007)
2. Reflective Commentary
This assignment has given me insight concerning different aspects of internationalisation. I have acquired knowledge that I believe will be essential to my career. The real life cases given in the examples make the reading more worthwhile, and I have related to the different elements discussed. With the reality of globalisation, it has become imperative for business people to know the essentials, and the discussion concerning foreign market entry, patterns of internationalisation, as well as international location of production have provided much information that is essential to my career. Companies should not just be concerned about the cost of off-shoring their products, but they should also be concerned with other factors such as resources and capabilities available in the region where they want to locate their production sites. Some of the countries may provide cheap labour, but they might not have the technical expertise required. This is a major factor in determining the success or failure of a product in a foreign market. However, despite the main benefits of globalisation, the information provided on national differentiation has made me cautious and increasingly aware concerning the necessity of localising the products to enhance their appeal, even if the products are meant for the global customer.
I would give myself 80 points as I believe I have done the assignment well, and I have fulfilled the demands required. I have shown that I have understood the topic thoroughly, by applying the knowledge I have gained to the case presented. I have presented a balanced argument, by examining the positive and negative views of different issues. The sources I have used have gone towards enhancing my knowledge, as I have made sure that I have used resources with the relevant information. I have written with great accuracy, taking every care to avoid any instances of grammatical mistakes and any errors that might occur
011 Realising strategy-designing and redesigning Cisco
Organisational design and structureBasic organisational forms using hierarchical structures include functional, multidivisional, and matrix structures Alternative organisational forms with less emphasis on hierarchies include adhocracies, team-based and product based organisations, and networks Features of alternative organisational forms include focus on coordination, use of mutual adjustment as a prerequisite for coordination, and taking on multiple roles in an organization Management systemsManagement systems provide the mechanisms necessary for communication, decision making and control, which are essential in achieving coordination and cooperation in organizations Important management systems include information, strategic planning, financial planning and control, and human resource management systems Organisational cultureOrganisational culture refers to the different cultural patterns in an informal organization People in strong organizational cultures share and hold the important values and attitudes whereas people in a weak culture have different views and values, and they interpret signals differently
1. Why has Cisco chosen to change its organisational structure on such a frequent basis?
Organisational structuresReason for the structure and why it failed/Multi-divisionalThe company diversified its products as the market matured The company succeeded because it was able to identify and fulfil the needs of its customers FunctionalThe company wanted to save on costs by taking advantage of economies of scale and standardisation, and sharing of knowledge Structure failed because of lack of cooperation between different functions and lack of awareness of the consumers needs MatrixManagement decided to use this structure when other structures failed, since it would capitalize on the benefits of the different structures used Complexity in the communication systems and reporting network led to failure of the system
2. What are the advantages and disadvantages of the different organisational structures Cisco has adopted over time?
AdvantagesDisadvantagesFunctional structures: Enables the reduction of costs through sharing of facilities and exploitation of scale economies Promotes learning and capability building through sharing of knowledge There is a clear line of authority, and the employees know whom to report to in case there is a problem There is less cooperation among different functional lines, and less coordination of activities Does not encourage decentralised decision making More time required to make decisions Do not adapt easily to change Multidivisional structures: Encourages decentralised decision making Leads to more profit for the company Failure of one product does not affect the entire organisation Able to identify and satisfy the consumers needs Organisations risk duplicating roles in different divisions Interdivisional competition may affect the company negatively Does not encourage the sharing of knowledge among different divisions Matrix: Capitalizes on the benefits of functional and product management Teams take advantage of the expertise of different individuals Much efficient use of resources More focus on the customer (Gido and Clements, 2012) Leads to power struggles because of dual management Complexity in management leads to confusion in the communication network (Gido and Clements, 2012) Conflicting loyalties can lead to division Time consuming
1. Commentary on Task B
Functional structures depend on the division of labour, as it involves grouping people with specific specialties together. Most of the companies that use this structure are small to medium range. Functional structure is most suitable in organisations which produce few similar items in few locations, and serve one type of customer. Cisco identified different functions, including research and development, marketing, and engineering. The company failed when it implemented this structure, as it had already diversified its products. Although the company had a function line that dealt with customer service, it failed to identify the needs of the customers as it proceeded to standardise its products, in an industry that was constantly evolving and developing new products to suit the customers needs. This form of structure is especially beneficial to the workers in specific departments, as it allows them to specialise in their area of work and they gain more skills in the process.
The members of specific functions work together, and this enables them to share knowledge as well as coordinate activities within their specific departments. The company’s decision to use this structure contributed to increased efficiency. The members of different functional lines within organizations do not coordinate, and it is hard for the management to integrate different activities and functions. As each of the members focus on the goals of their function, there is less cooperation and communication with the different departments, and this leads to inefficiencies (Harris, 2005).
This type of structure discourages innovation, as it limits communication among members of different specialties. The company takes more time in making decisions and responding to problems. As it focuses on standardisation, it tends to lose focus on what the customers want. More focus on the function line may lead to lose of focus on the organizational objectives. Cisco formed different sub-units, and there was less cooperation as each of the sub-units began focusing on its own needs. On the other hand, the company does not have to worry about duplicating roles, and there is a clear line of command. Many organizations have realized the importance of decentralisation. Therefore, even though they are using the functional structure, they will establish measures to ensure that different people in the organizations participate in the decision making process and that they are able to access the management more easily.
Companies that have diversified their product line or the ones that operate in wide geographical regions find it necessary to use the divisional structures. The management can decide to group products based on their similarities. Cisco developed its product portfolio when it explored new markets and developed more products. All the processes, services, and other activities that relate to that specific product are under one division. Each division is a profit centre, and there is more pressure on the management of different divisions to succeed. This has often led to more profitability of the company, as the managers strive to outperform each other. Cisco performed well financially when it focused on different divisions. This type of structure encourages independence in different divisions and decision making are decentralised. There is more focus on meeting the customers’ needs, and there is more control of resources (Gido and Clements, 2012). Cisco was able to identify three customer segments when using this form of structure, and it sought to satisfy the small and large businesses, as well as the telecom operators.
The divisions share some of the facilities within the organization, and this enables the organization to save on costs (Harris, 2005). It encourages quicker decision making and problem solving. The overall management makes strategic decisions affecting the entire organization, and it also monitors the different divisions to ensure that they are reaching their targets. Such structures encourage creativity and innovation, as they diversify into different product areas. A disadvantage of this type of structure is that the different divisions can develop unhealthy competition against each other, as they each seek to attain the set targets. This can have a negative effect on the unity of the organization, as it can lead to little cooperation. In addition, this type of structure introduces more hierarchy levels, as each division has a head, and this adds more expenses to the organization.
Organizations using this type of structure ensure that all the divisions have their own resources, and this makes this type of structure more expensive. The success of the individual divisions and the overall organization mostly depends on the ability of the person heading the division. Some of the divisions may be successful while others may fail, and this will affect the entire organization. However, depending on the top management, the failure of one product does not necessarily lead to the failure of the entire organization. Hence some products may fail in the market, but the company brand remains successful. Individual divisions are able to take advantage of the company brand in such organizations, and this can benefit the organization by increasing the sales of the products associated with the specific brand. Organizations use the system that is best suited to enable it to fulfil its objectives. Many organizations find it necessary to change the structures to suit their needs and to reduce the disadvantages. Therefore, organizations with a multidivisional structure will implement measures to ensure that the top management maintains some form of control, and that they have set achievable goals for different divisions.
Organisations choosing to use matrix structures do so in challenging situations, especially when they require collaboration of different processes. It involves dual authority, and the different managers in the organisation have to trust each other, and understand each others actions. There have to be frequent communication in the organisation, as this will help in avoiding the conflicts that may occur (Daft et al., 2010). Matrix structures combine different structures by either function or products. Some matrix structures lean towards product structures while others lean toward function structures. Organizations handling multiple projects or those dealing with complex projects find this form of structure most suitable. These structures have both benefits of functional and divisional structures.
This structure enables the organization to utilise the organization’s resources more effectively, and it enables different members to share knowledge with each other. This enables the organization to reduce its costs, without compromising on the quality of the products. Different members work together to accomplish different tasks. The structure enables organizations to specialise, and this enhances knowledge among the members. Cisco’s system of using committees benefited the company, as it was able to come up with innovative and creative ideas, and it was able to make decisions and solve problems more quickly. However, this type of structure tends to be complicated. Employees report to different managers, and this means that the organization may take more time to make decisions. Cisco developed a system where it introduced a committee system. The system was complex as it introduced the concept of councils, working groups, and board, and the members of these system had other roles as managers under different capacities in the organization. There was conflicting interests because of the multiple roles.
This structure tends to be time consuming as it involves meeting frequently and finding time to resolve the conflicts that may occur (Daft et al., 2010). Organizations intending to use this type of structure have to specify the roles and tasks of all the members. All employees should know whom they report to, and the information they give to specific people (Gido and Clements, 2012). Even though companies may choose a particular organizational structure, many of them are flexible enough to accommodate the specific needs of their organization. As such, two different organizations might have diverse matrix structures. Organizations find the need to reduce the complexity of the matrix structure, and they will have different communication structures, and they will define the roles and responsibilities of all the people in the organization clearly.
2. Reflective Commentary
Doing this assignment gave me much insight concerning the different structures within an organization. I was able to identify how an organizational structure contributes to decision making within an organization, and how it can determine the success or failure of an organization. More hierarchy in an organization means that a larger number of people will have to be consulted before making a decision. On the other hand, it also means that employees know the formal structure, and who to consult in case there is a problem. Despite the different structures that organizations choose to use, many organizations will change the structures according to their needs and requirements (Gillespie et al. 2010). The assignment will assist me in my career, as I hope to become an influential person someday. I hope to occupy a position where I can make a change and where I can contribute to decision making. Learning this topic, and focusing on the different structures when doing this assignment has enhanced my understanding, and I now know that I do not have to abide by the rules strictly. I understand the importance of being flexible in decision making, and being prepared for changes so that I can use the most appropriate structure
I would give myself 90 points because I believe that I have answered the questions appropriately. I have written excellently, and I have ensured that I site all the sources I have used for the assignment. I have exhibited my problem solving skills, by being able to respond to the problems presented; using the theoretical knowledge I have learned. This also shows my thorough and clear understanding of the subject. I have demonstrated my presentation skills as I have presented an original paper that shows free thought on the issue through the presentation of a balanced argument.
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