CHAPTER 11
INTERNATIONAL STRATEGY AND ORGANIZATION
LEARNING OBJECTIVES:
11.1 Explain the company analysis techniques that precede strategy selection.
11.2 Describe the various strategies that companies use to reach their goals.
11.3 Outline the key issues behind the selection of organizational structure.
11.4 Describe the various international organizational structures and types of work
teams.
CHAPTER OUTLINE:
Introduction
Company Analysis
Company Mission and Goals
Types of Mission Statements
Core Competency and Value-Creation
Unique Abilities of Companies
Value-Chain Analysis
Primary Activities
Support Activities
National and International Business Environments
Strategy Formulation
Two International Strategies
Multinational Strategy
Global Strategy
Corporate-Level Strategies
Growth Strategy
Retrenchment Strategy
Stability Strategy
Combination Strategy
Business-Level Strategies
Low-Cost Leadership Strategy
Differentiation Strategy
Focus Strategy
Department-Level Strategies
Primary and Support Activities
Issues of Organizational Structure
Centralization versus Decentralization
When to Centralize
When to Decentralize
Participative Management and Accountability
Coordination and Flexibility
Structure and Coordination
Copyright © 2019 Pearson Education, Inc.
Structure and Flexibility
Types of Organizational Structure
International Division Structure
International Area Structure
Global Product Structure
Global Matrix Structure
Work Teams
Self-Managed Teams
Cross-Functional Teams
Global Teams
A Final Word
A comprehensive set of specially designed PowerPoint slides is available for use with Chapter 11.
These slides and the lecture outline below form a completely integrated package that simplifies the
teaching of this chapter’s material.
Lecture Outline
I. INTRODUCTION
Planning is the process of identifying and selecting an organization’s objectives and deciding
how the organization will achieve those objectives. Strategy is the set of planned actions taken
by managers to meet company objectives. Developing an effective strategy requires a clear
definition of objectives (or goals) and a plan to achieve them.
An analysis of capabilities and strengths identifies what a company does better than the
competition. Assessing the competitive environment, the national, and the international
business environments are part of the analysis.
A well-defined strategy coordinates divisions and departments to reach company-wide
goals effectively and efficiently. A clear, appropriate strategy focuses on the activities
performed best to avoid mediocre performance or total failure.
II. COMPANY ANALYSIS
Firms must determine what products to produce, where to produce them, and where and how to
market them. Whether a site for operations or potential market, each international location has a
rich mixture of cultural, political, legal, and economic traditions and processes. All these factors
add to the complexity of planning and strategy (See Figure 11.1).
A. Company Mission and Goals
Mission statement: written statement of why a company exists and what it plans to
accomplish (e.g., supply the highest level of service in a market segment).
1. Types of mission statements
a. Mission statements often describe how a company’s operations affect
stakeholders—all parties, ranging from suppliers and employees to
stockholders and consumers, affected by a company’s activities.
b. The mission statement of an international business depends on the type of
business, the stakeholders, and the most important aspect of the business
for goal achievement. Companies must be sensitive to the needs of
stakeholders in different nations.
c. Stockholders’ needs for financial returns must be balanced against the
public interest in countries where production is located.
d. Managers must define global objectives. High-level objectives are stated
in general terms, “to be the largest global company in each industry in
which we compete.” Business-unit objectives are more specific, “To
increase the nutritious portion of our products 50 percent by 2024.”
Department-level objectives often carry numerical performance targets,
“to increase global market share by 5 percent in each of the next three
years.”
B. Core Competency and Value-Creation
Before managers formulate strategies, they analyze the company, industry, and the
national business environment(s). They should examine industries and nations targeted
for potential future entry. Analysis helps managers discover core competency and
abilities, and the activities that create customer value.
1. Unique abilities of companies
a. Core competency: an ability of a company that competitors find
extremely difficult or impossible to equal. Refers to multiple skills
coordinated to form a single technological outcome.
b. Skills are learned through on-the-job training and personal experience,
whereas core competencies develop over a long period and are difficult
to teach.
2. Value-chain analysis
Value-chain analysis is the process of dividing a company’s activities into
primary and support activities and identifying those that create value for
customers. Primary activities include inbound and outbound logistics,
manufacturing, marketing and sales, and customer service. Support activities
include firm infrastructure, human resource management, technology
development, and procurement. Each activity is a source of strength or weakness
for a company (See Figure 11.2).
a. Primary activities
When analyzing primary activities, managers look for areas in which the
company can increase customer value.
b. Support activities
Support activities assist in performing primary activities. A sophisticated
infrastructure improves internal communication and supports
organizational culture and each primary activity.
3. National and international business environments
a. National differences in language, religious beliefs, customs, traditions,
and climate complicate strategy formulation.
b. Manufacturing processes must sometimes be adapted to the supply of
local workers, local customs, traditions, and practices.
c. Differences in political and legal systems complicate international
strategies.
d. Different national economies complicate strategy formulation and it can
also affect the location in which a company chooses to perform an
activity.
III. STRATEGY FORMULATION
Strengths and capabilities of international companies and environmental forces play a role in
strategy.
A. Two International Strategies
1. Multinational strategy
a. Adapts products and marketing strategies in each national market to suit
local preferences.
b. Benefit: monitor buyer preferences in each local market and respond
quickly and effectively to new buyer preferences. Drawback: cannot
exploit scale economies in product development, manufacturing, or
marketing.
c. Not suited to industries in which price competitiveness is a key to
success.
2. Global strategy
a. Offers the same products using the same marketing strategy in all
markets.
b. Firms take advantage of scale and location economies by
producing entire inventories or components in a few optimal locations.
They perform product R&D in one or a few locations and design
promotional campaigns and advertising strategies at headquarters.
c. Benefit: cost savings from standardized products and marketing;
lessons learned in a market are shared.
d. Drawback: yet a firm employing this strategy may overlook
differences in buyer preferences. Only simple modifications in features.
Competitors can step in and satisfy unmet local needs creating a niche
market.
B. Corporate-Level Strategies
Companies in more than one business must formulate a corporate-level strategy by
identifying the markets and industries in which to operate. Overall objectives for
different business units are developed and the role of each unit in reaching those
objectives is determined.
1. Growth strategy
a. A growth strategy is designed to increase the scale or scope of a
corporation’s operations. Scale refers to the size of a corporation’s
activities; scope to the kinds of activities it performs.
b. Organic growth relies on internally generated growth.
c. Other methods of growth are mergers and acquisitions, joint
ventures, and strategic alliances. Partners in pursuing these include
competitors, suppliers, and buyers; firms join competitors to reduce
competition, expand product lines, or expand geographically.
2. Retrenchment strategy
a. Reduces the scale or scope of a corporation’s businesses. Corporations
cut back the scale of operations when economic conditions worsen or
competition increases by closing factories with unused capacity and
laying-off employees. Corporations reduce the scope of activities by
selling unprofitable business units.
3. Stability strategy
a. Guards against change and used to avoid either growth or
retrenchment.
b. Corporations have met objectives, are satisfied with
accomplishments, and see no opportunities or threats.
4. Combination strategy
a. Mixes growth, retrenchment, and stability strategies across a
corporation’s business units.
b. Common because rarely do international corporations follow
identical strategies in each business unit.
C. Business-Level Strategies
A company may need only one strategy for its one line of business where others may
need many strategies. Key to an effective business-level strategy is a general
competitive strategy in the marketplace.
1. Low-cost leadership strategy
a. Exploits economies of scale to have the lowest cost structure of
any competitor in an industry.
b. Companies have a myriad of cost including: administrative costs
and the costs of its various primary activities, including marketing,
advertising, and distribution.
c. Low-cost leadership is based on efficient production in large
quantities guards against attack by competitors because of the large start-
up costs.
d. A negative aspect of the low-cost leadership strategy is low
customer loyalty—buyers will purchase from the low-cost leader if
everything else is equal. A low-cost leadership strategy works best with
mass-marketed products aimed at price-sensitive buyers.
2. Differentiation strategy
a. Company designs products to be perceived as unique.
b. Tends to force a company into a lower-market-share position
because it involves the perception of exclusivity or meeting the needs of
a certain group.
c. Companies develop loyal customer bases to offset smaller market
shares and higher costs of producing and marketing a unique product.
d. Products can be differentiated on the basis of quality, brand
image, and product design. Special features differentiate goods and
services in the minds of consumers. Manufacturers combine
differentiation factors in formulating their strategies.
3. Focus strategy
a. Company focuses on the needs of a narrowly defined market
segment by being the low-cost leader, by differentiating its product, or
both.
b. Competition forces more products to be distinguished by price,
quality, or design. Greater product range leads to refinement of market
segments.
c. Some firms serve the needs of one ethnic or racial group, whereas
others focus on a single geographic area.
D. Department-Level Strategies
Achieving corporate and business-level objectives depends on effective departmental
strategies that focus on activities that transform resources into products. Department-
level strategies rely on capabilities—primary and support activities that create value for
customers.
1. Primary and support activities
a. Each department creates customer value through lower costs or
differentiated products.
b. For primary activities, manufacturing strategies cut production
costs and improve product quality; marketing strategies promote
differences in products; and efficient logistics result in cost savings.
c. Support activities create customer value (e.g., R&D identifies
market segments with unsatisfied needs and designs products to meet
them).
IV. ISSUES OF ORGANIZATIONAL STRUCTURE
Organizational structure is the way in which a company divides its activities among separate
units and coordinates activities among those units. An appropriate organizational structure for a
firm’s strategic plans will help it achieve its goals.
A. Centralization versus Decentralization
Centralized decision making occurs at a high level in one location such as headquarters.
Decentralized decision making occurs at lower levels, such as in international
subsidiaries.
Managers cannot get involved in every hiring decision or task assignment, but
overall corporate strategy cannot be delegated to subsidiaries because only top
management has the appropriate perspective.
Companies rarely centralize or decentralize all decision making, but seek the
approach that creates the greatest efficiency and effectiveness. International companies
may centralize decision making in certain geographic markets, but decentralize it in
others.
1. When to centralize
a. Centralization helps coordinate international subsidiaries; it is important
when one subsidiary’s output is another’s input.
b. Companies maintain strong central control over financial resources by
channeling all subsidiary profits back to the parent for redistribution to
subsidiaries.
c. Other companies centrally design policies, procedures, and standards to
stimulate a single global organizational culture.
2. When to decentralize
a. Decentralized decision making is beneficial when fast changing business
environments require local responsiveness.
b. Because subsidiary managers are in contact with local culture, politics,
laws, and economies, decentralized decisions result in products suited to
the needs and preferences of local buyers.
c. Delayed response and misinterpreted events result in lost orders, stalled
production, and weakened competitiveness.
d. Participative management and accountability
i. Decentralization fosters participative management practices.
Employee morale is higher if subsidiary managers and
subordinates are involved in decisions.
ii. If delegated to subsidiaries, decisions about production,
promotion, distribution, and pricing can generate greater
commitment from managers and workers.
iii. Decentralization improves personal accountability. When local
managers are rewarded (or punished) for their decisions, they
invest more effort in making and executing them.
B. Coordination and Flexibility
Key questions: What is the most efficient way to link divisions? Who should coordinate
the divisions? How should the company process and deliver information? How should it
use corrective measures?
1. Structure and coordination
a. Companies need structure to define responsibility and chains of
command—lines of authority that run from top management to each
employee and specify internal reporting relationships.
b. Companies need structures to bind areas requiring cooperation, such as
linking R&D and manufacturing to avoid product designs that complicate
manufacturing.
2. Structure and flexibility
a. Organizational structure is not permanent, but is modified to suit changes
within a company and in its external environment.
b. Changes in strategy and in the business environment force modifications
in organizational structure; some countries are characterized by rapidly
shifting business environments.
V. TYPES OF ORGANIZATIONAL STRUCTURE
Four organizational structures are common for most international companies.
A. International Division Structure (See Figure 11.4)
1. An international division with its own manager keeps domestic and international
activities separate. A general manager for each nation in which a company
operates then controls product manufacturing and marketing within that market.
2. Concentrates international expertise in one division where the manager becomes
a specialist in foreign exchange, exporting, and so on. Firm reduces costs,
increases efficiency, and prevents international activities from disrupting home
operations.
3. Potential problems with this structure are: (1) poor coordination between the
international division and the rest of the company can hurt performance; and (2)
destructive rivalries may arise between different country managers within the
division.
B. International Area Structure (See Figure 11.5)
1. Organizes a company’s global operations into countries or regions. The more
countries in which a company operates, the greater the likelihood it will organize
into regions, not countries.
2. Each geographic division operates as a self-contained unit, with decision making
decentralized to country or regional managers.
3. Useful structure when there are vast cultural, political, or economic differences
among nations or regions.
4. By controlling activities in their environments, general managers become experts
on the unique needs of their buyers. But because units act independently,
resources may overlap, and cross-fertilization of knowledge across units can be
limited.
C. Global Product Structure (See Figure 11.6)
1. Divides worldwide operations according to a company’s product areas. Suitable
when a firm has a diverse set of products.
2. Because the primary focus is on the product, domestic and international
managers for each product division must coordinate their activities so they do
not conflict.
D. Global Matrix Structure (See Figure 11.7)
1. Splits the chain of command between product and area divisions. Each manager
reports to two bosses—the president of the product division and the president of
the geographic area.
2. Brings together geographic area managers and product area managers in joint
decision making.
3. Bringing specialists together creates a team-type organization. Increases local
responsiveness, reduces costs, coordinates worldwide operations, and can
increase coordination while improving agility and local responsiveness.
4. Two major shortcomings: (1) The matrix form can be quite cumbersome as the
need for complex coordination tends to make decision making time consuming
and slows the reaction time. (2) Individual responsibility and accountability are
blurred in the matrix organization structure; because of shared responsibility,
managers may attribute poor performance to the other manager.
E. Work Teams
Work teams can be useful in improving responsiveness by cutting across functional
boundaries (between production and marketing) that slow decision making in an
organization. Work teams coordinate their efforts to arrive at solutions and implement
corrective action.
1. Self-managed teams
a. Employees from a single department accept responsibilities of former
supervisors. In production settings, self-managed teams reduce the need
for direct supervisors and increase productivity, product quality,
customer satisfaction, employee morale, and company loyalty.
b. Quality-improvement teams are the most common type of self-managed
team in many manufacturing companies because they reduce production
waste and cut costs.
c. Cultural differences can cause resistance to the concept of self-
management and the use of teams. Experts suggest that international
managers use caution when implementing teams (See Chapter 2).
d. Certain cultures are less individualistic and more collectivist; some
harbor greater respect for differences in status. In cultures in which
people are hard-working, teams will be productive if given greater
autonomy.
2. Cross-functional teams
a. Composed of employees who work at similar levels in different
functional departments. Such teams can help improve interdepartmental
coordination and help boost product quality.
b. Break down interdepartmental barriers and reorganize operations around
processes, not functional departments.
3. Global teams
a. Group of top managers from both headquarters and subsidiaries who
meet to develop solutions to company-wide problems.
b. Large distances between team members, lengthy travel times to meetings,
and the inconvenience of working across several time zones can hamper
global teams.
VI. A FINAL WORD
Managers have the important and complicated task of formulating international strategies at the
levels of the corporation, business unit, and department. International managers must identify
the company’s mission and goals. Managers often analyze the company’s operations by
performing a value-chain analysis. This process lets managers identify and implement strategies
suited to a company’s unique capabilities. The strategies managers select then determine a
firm’s organizational structure. Business environments can affect managers’ strategy and
structure decisions, including whether to alter their products (standardization or adaptation),
where to locate facilities (centralized or decentralized production), and what type of decision
making to implement (centralized or decentralized decision making).