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
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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
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
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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.”
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
a. Primary activities
When analyzing primary activities, managers look for areas
in which the company can increase customer value.
b. Support activities
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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.
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.
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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
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
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.
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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
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
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
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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.
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
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.
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
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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
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
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.
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units act independently, resources may overlap, and cross–
fertilization of knowledge across units can be limited.
C. Global Product Structure (See Figure 11.6)
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.
2. Brings together geographic area managers and product area
managers in joint decision making.
3. Bringing specialists together creates a team-type organization.
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
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A: A vital issue for top managers is determining the degree to which decision
making in the organization will be centralized or decentralized. Centralized
decision making is the degree to which decision making is centralized at a high
level in one location such as headquarters. Decentralized decision making is the
degree to which decisions are made at lower levels, such as in international
subsidiaries.
3. Q: What is the benefit of decentralized decision making in an organization?
Quick Study 4
1. Q: What type of organizational structure tends to concentrate all international
expertise in one division?
2. Q: An organizational structure that divides worldwide operations according to a
firm’s product areas is called what?
3. Q: What do we call a group of employees who work at similar levels in different
departments?
A: A cross-functional team is one that is composed of employees who work at
Ethical Challenge
You are the CEO of a multinational corporation that operates in more than 100 nations
worldwide. Recent changes in the global economy are redrawing many geographical and
political borders. The growing interdependence of socially, politically, economically, and
legally diverse countries is causing firms to revise operating policies and strategies. You
are personally involved in developing a code of ethics for your firm that reflects today’s
legal and moral atmosphere. You want your firm’s code to be effective across all markets
in which it operates.
11-5 Given the complexity of the issues involved, what sort of policy do you think is
appropriate for a firm involved in dissimilar nations?
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foreign countries, business practices that would not be appropriate domestically
and perhaps illegal are often a normal part of doing business (i.e. gift giving
practices, bribery, kickbacks, etc.). There are two approaches that can be taken:
(a) operate internationally with policies and procedures it has developed at home,
or it can adopt its own practices in each foreign country where it operates or (b)
establish different policies and procedures for business ethics in foreign countries.
In order to for one universal ethical code, the business probably would have to
make it vague or state the compliance with local customers is allowed. The code
should address areas of ambiguity that workers may come across in their daily
activities.
11-6 Do you think that it is possible to create a uniform code of ethics that is
applicable to any business operating in any culture? What issues should such a
code address?
A: Many CEOs wrestle with the idea of adapting their firm’s code of ethics to
Teaming Up
Two groups of four students each will debate the merits of adopting either a
multinational or global strategy (each side will advocate one strategy). After the first
student from each side has spoken, the second student will question the opposing side’s
arguments, looking for holes and inconsistencies. The third student will attempt to
answer these arguments. The fourth student will present a summary of each side’s
arguments. Finally, the class will vote to determine which team has offered the more
compelling argument.
A: Students should be sure to support their arguments with features of each of the two
Practicing International Management Case
IKEA’s Global Strategy
11-9 Q: When company founder Kamprad decided to expand into China his decision
was not based on market research but, rather, on his own intuition. How well is
IKEA doing in China? Did Kamprad’s decision pay off?
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China, the company balances the implementation of its global policies and the
need for greater localization. IKEA has improved its responsiveness to the needs
of the China market regarding its corporate culture, structure, and strategy.
11-10 Q: Relying on topics covered in this chapter, would you classify IKEA’s approach
as one of standardization or adaptation in markets around the world? Explain.
A: IKEA has standardized its brand image and main marketing concept worldwide. It has