Internationalisation : Goals

Internationalisation is about going beyond the home base to foreign countries in multiple ways.When companies intend to internationalise , they are broadly guided by 3 primary goals mentioned below. (Ref : Transnational Management [5th edition ] by Bartlett , Ghoshal & Beamish ) (A) Global efficiency : This is about achieving cost economies and revenue maximization through global integration and response to customer needs in varied markets.Companies need to achieve Global integration through deciding on the critical decision of locating their value adding activities , critical components of their value chain. This can call for centralization or decentralization of the value adding activities , introduction of standardized products or customized products , and relevant strategies.Companies achieve Global efficiency through scale economies and scope economies.Scale economies relate to benefits which arise as a result of world wide reach , span and coverage . Scope economies relate to benefits which arise out of capabilities to produce as per world wide requirements. (B) Multinational flexibility : This refers to the ability of an organization to address the challenges & opportunities which surface as a result of the dynamic nature of the macro & micro environments.In the context of multinational flexibility , companies need to address 4 primary risks which are macro economic risks , political risks , competitive risks and resource risks respectively.Macro economic risks relate to risks of exchange rate fluctuations , inflation , interest rates and accordingly. Political risks relate to issues like , relationships between governments, threat of sanctions , and accordingly . Competitive threats relate to risks in the micro environment with regards to competitor strategies .Resource risks relate to risks of availability & access to critical resources like raw materials , labour , capital and technology. (C) World wide learning : This is about gaining insight of the multiple countries with respect to the key business environment , key business stakeholders , varied technology platforms , ways of doing business and accordingly. It is about utilizing the insight for further strengthening of operations in each country.It is about cross application of business insights for overall benefit of the world wide network.This learning can be a key competitive advantage for a company and companies should endeavour to invest in this learning . In the pursuit of internationalization , 4 options exist for a multi national enterprise (MNE) which are mentioned below. Each of the 4 options has been explained in detail in the forthcoming sections. (A) Global strategy (B) Multi domestic strategy (C) Transnational strategy (D) International strategy

Internationalisation Strategies : Options

Internationalisation Strategies

World wide integration

High

Global Strategy

Transnational Strategy

Low

International Strategy

Multi Domestic Strategy

Low

High

Need of a country specific customised response (Developed on the model proposed by Richard Lynch in Corporate Strategy)

MNE Pursuing a Global Strategy :

In a global strategy , standardized products are offered in each of the countries in which the company operates in , and relevant value adding activities are concentrated in a limited set of locations. The fundamental aspect of a global strategy is that through this kind of a strategy , a standardized product exists for each of the countries in which the company operates in.Global strategy is pursued when there exists acceptance of a standardized product in each of the countries in which the company plans to operate in , and there does not exist the need of a customized product for each of the countries in which the company plans to operate in. Consequently as a result of the highlighted situation , the company develops a centralized Global manufacturing base , which produces standardized products for each of the countries in which the company operates in.Product standardization as a natural consequence brings the standardization in supply chain.The fundamental presence of product standardazation being there , standardization can be pursued in all the other relevant aspects of the business , for example , marketing , advertising , distribution structure . When a company pursues standardization in all the relevant aspects of the business , in each of the countries in which it operates in , it truly pursues a global strategy. Some of the significant attributes which are associated with a truly global strategy , are mentioned below : Acceptance of a standardized product in each of the countries in which the company operates in. Non existence of the need of a customized product in each of the countries in which the company operates in. Globally centralized manufacturing base and supply chain. Standardized marketing , distribution and branding programmes for each of the countries in which the company operates in. Standardized business policies in each of the countries in which the company operates in . High levels of investment in technology & R&D. High levels of investment in marketing & branding. Economies of scale in production & sourcing. Need of a Global brand image. Some examples of companies which pursue a global strategy are Airbus , Boeing , Embraer, Rolls Royce Cars , Gucci , Bombardier Transportation , Alstom Transportation , Kawasaki Rail Car, BAE Systems . The possible organization structure which a global strategy can have , is mentioned below.

Global Strategy : Organisation Structure

Corporate Level

Global Supply Chain

Global Production Base

Global Sales & Marketing

Country A Sales & Marketing

Country B Sales & Marketing

Country C Sales & Marketing

Country D Sales & Marketing

Country E Sales & Marketing

(Not adapted from any source) (Not adapted from any source)

MNE Pursuing a Multi Domestic Strategy

Multi domestic strategy is that kind of strategy in which an organization customizes its response to the country specific needs.The idea of the strategy stems from the existence of the need of a country specific customized product . Progressing in the direction of the need of a country specific product , the dimension of customizing other relevant aspects of the business to a country specific requirements have been incorporated , and in the process the full idea and understanding of a multi domestic strategy has emerged. In a truly multi domestic strategy , besides product customization , marketing , advertising , branding , distribution and R& D are also customized to the countrys needs.So, multi domestic strategy is that kind of strategy in which a company customizes its response to the existing country specific requirements. Offering of a customized product puts a lot of emphasis on the establishment of a full scale value chain for the respective subsidiary in the country.Very naturally , companies pursuing a multi domestic strategy , establish an exclusive manufacturing base and supply chain base to support customization of the product as per countrys needs. Such companies have tailor made marketing , advertising and branding programmes for the respective country. The automotive industry in particular pursues a multi domestic strategy in general . General Motors Opel was a customized response for Germany , Honda has introduced varied variants of Accord & Civic in multiple countries .Reid & Taylor , a premium suits brand , offers customized suitings in countries in which it operates.Van Heuson , an American brand for mens wear , also customizes its products in the countries in which it operates. In the banking industry , HSBC , Citi Bank and ABN Amro have customized branding programmes for each of the countries in which they operate in.Mc Donalds faces a lot of pressure to customize its offerings to lacal tastes and expectations. Hilton Towers & Intercontinnental offer country tailored experience to its customers world wide. An example of the organization structure which a company pursuing multi domestic strategy shall have , is mentioned below.The diagram is illustrative in nature and details for each country have not been included because of space constraint.

Multi Domestic Strategy : Organisation Structure (Area Structure)

CEO

Continent A

Continent B

Country A Subsidiary

Country B Subsidiary

Country C Subsidiary

Country D Subsidiary

Country E Subsidiary

Country F Subsidiary

Supply chain

Production

Sales & Marketing

Supply chain

Production

Sales & Marketing

(Adapted from International Business (4th edition) : Rugman & Collinson)

MNE Pursuing a Transnational Strategy [Global aswell as Local]

A transnational strategy is that kind of strategy in which there exists the presence of country specific customization aswell as standardization. It is these transnational MNEs that aim at being Global aswell as local.These transnational companies strive to strike a balance in between the extent to which they should standardize and the extent to which they should pursue country specific customization.Such strategies are pursued with the objective of achieving global efficiency , multi national flexibility and world wide learning.An MNE pusuing a transnational strategy , has the following 3 key attributes. (Ref : Transnational Management [5th edition ] by Bartlett , Ghoshal & Beamish ) (A) Multidimensional perspectives : This is about national subsidiary management , Global business management and Worldwide functional management. National subsidiary management relates to addressal of country specific needs.This customization has to be translated into a competitive advantage for the sake of sustainability of the world wide network.From this perspective companies need to fundamentally understand and respond to a countrys tastes , preferences , culture , heritage value , beliefs and systems.Global business management is about competitive intelligence and competition. Transnational companies need to defend themselves persistently from mature players , new entrants and accordingly.World wide functional management is about dispersion of attained knowledge across countries so as to strengthen operations in each country of operation.The entire network of subsidiaries should benefit from this world wide learning. This attribute is about cross border application of best practices.Transnational companies aim at a participative framework in which the corporate parent and respective subsidiaries play a sharing role. (B) Distributed interdependent capabilities : This attribute is about the culture of a transnational company to recognize the merit in resourcefulness of a particular country , and in the process the making of the respective country the world wide supply source , centre of excellence.Transnational companies exhibit the culture in which technological advancements and innovations in countries surrounding the centre of excellence , get incorporated in the centre of excellence.So in an MNE pursuing a transnational strategy , a country in the network has the opportunity of getting recognized as a Global champion / Global souce of supply / Global centre of excellence , fostering also exchange of ideas and capabilities in between the countries in the network.So a transnational company attempts to be unique in nature. (C) Flexible integrative process : This attribute is about the co existence of centralization , formalization and socialization. Centralisation refers to the right of the corporate parent to take decisions as per its own discretion. Formalisation is about delegated tasks and responsibilities of subsidiaries. Socialisation is about collaborative participation of each subsidiary in the entire multi national network , for fostering exchange of ideas and capabilities across borders. As mentioned , these transnational companies strive to strike a balance in between the extent to which they should pursue standardization and the extent to which they should pursue country specific customization.Besides this , such transnational companies strike to achieve a balance in between the extent to which their value adding activities should be centralized or decentralized.Balance is achieved by such companies through weighing the benefits of economies of scale and economies of scope against country specific localization.Some of the world wide pressures which prompt companies to be Global aswell as local are mentioned below : Existence of varied customer preferences , needs and expectations world wide. Existence of varied forms of competition and competitors world wide. Existence of product categories in different stages of product life cycle world wide. Existence of rich resources in certain parts of world while existence of poor resources in certain parts of the world. Existence of protectionist measures for domestic businesses in certain countries and existence of delicensing in certain countries. Existence of cost diseconomies with respect to establishment of full value chain in each country of operation. Existence of high hetrogeneity in customer needs world wide with respect to a particular product.

A perfect example of a company pursuing a transnational strategy could be with respect to a manufacturing company whose products require customization to country specific needs , however its supply chain and manufacturing base are still centrally located.In this relevant scenario , the existing supply chain base of the company caters to the world wide variation in product components .The manufacturing base of the company either has dedicated production lines for each country specific product variant or else on an established production line all the multiple product variants are sequentially manufactured. There could be several factors which shall decide on the establishment of the supply chain and manufacturing base. Some of the significant factors could be availability of economical labour ,availability of skilled workforce, high technology concentration and availability in the given area, proximity and good connectivity with all forms of transportation of the finished products to multiple locations world wide,tax advantages and accordingly.

Need for being Global aswell as local has led to the development of the matrix organization structure.Fundamentally , a matrix organization structure emerges when the strategy of an organization involves multiple basis , as we find the presence of standardization aswell as customization in the case of transnational strategies.A matrix organization structure still emerges when close cooperation is required in between groups and divisions. For example, Royal Dutch Shell needs to take decisions pertaining to its oil,gas and chemical products aswell as the countries like U.K. , Germany and USA where it operates in.Such situations necessitate the creation of roles being accountable to both product dimension and area dimension.Such dual responsibility based organization structures are called matrix organization structures.The dual dimensions can be any , depending on the relevant situation. The merits and demerits of a matrix organization structure are mentioned below. Merits: Demerits: The organization structure develops complexity and difficulty in attaining consensus because of dual reporting structure. The organization structure tends to have the roles getting ill defined. The organization structure gives scope for conflict & tension because of multiple reporting. The organization structure addresses the need of close coordination where decision making might face conflcts. The organization structure has adaptability to specific strategic requirements. The organization structure aims at replacing bureaucracy with discussion based decision making. The organization structure aims at increasing managerial involvement.

Fords Global matrix structure of 1995 has been highlighted below as an example .

Automotive Strategy Office

Alligned Objectives

Fords Global Matrix Structure : 1995

Ford Automotive Office
Alligned Objectives

Product Development

Functions

Europe :
Small FWD Vehicle

USA :
Large FWD Vehicle

USA :
RWD Car Vehicle

USA:
Personal use truck vehicle

USA :
Commercial truck vehicle

Manufacturing
Vehicle operations Powertrain operations Component operations

Sales & Marketing

W/W sales & marketing operations Regional sales & marketing operations Customer communications & satisfaction group

Production & Purchasing

(Adapted from Corporate Strategy by Richard Lynch)

Collecting the Differences in Between Global , Multidomestic , Transnational & International MNEs
Having had described a Global MNE , Multidomestic MNE , Transnational MNE & International MNE in the preceeding sections , the differences in between them have been collectively highlighted below.

Organisation Configuration Models

Decentralised Federation : MultiDomestic Strategy Coordinated Federation : International Strategy

Centralised Federation : Global Strategy

Integrated Network : Transnational Strategy

(Adapted from Transnational Management [5th edition]: Bartlett , Ghoshal & Beamish)

Basis for critical understanding of the configuration models: The box in the centre of a model represents the corporate parent. The 6 boxes spread across the central box in a model represent world wide subsidiaries. Shading in a box shows where does concentration of power with respect to management of world wide subsidiaries lie. With respect to the lines connecting a corporate parent with the world wide subsidiaries , a complete line is representative of full control being exercised by the corporate parent over the world wide subsidiaries . A dotted line in representative of less than full control being exercised by the corporate parent over the world wide subsidiaries. The more are the spaces in the dotted lines , more is the extent to which the corporate parent does not exercise full control over the world wide subsidiaries. With respect to lines interconnecting the subsidiaries , those depict sharing of ideas in between the subsidiaries.

Summary of Differences :

(Ref : Transnational Management [5th edition ] by Bartlett , Ghoshal & Beamish ) Multi Domestic MNE Product configuration Supply chain configuration Country specific customization Country specific Global MNE Standardized Product Transnational MNE Country Specific customization Dispersed , interdependent and specialized Dispersed , interdependent and specialized Dispersed , interdependent and specialized Developing Global efficiency , flexibility and worldwide learning capability simultaneously International MNE Standardized Product

Single source of supply for the entire network Single source of manufacturing for the entire network Dispersed across countries under Global reporting Building cost advantages through centralized , Global scale operations

Core competencies centralized , others decentralized Core competencies centralized , others decentralized Core competencies centralized , others decentralized Exploiting parent company knowledge and capabilities through worldwide diffusion and adaptation

Manufacturing configuration

Country specific

Marketing configuration

Country specific

Strategic orientation

Building flexibility for responding to national differences through strong , resourceful and entrepreneurial national operations Decentralized and nationally self sufficient

Configuration of assets & capabilities

Centralized and Globally scaled

Dispersed , interdependent and specialized

Sources of core competencies centralized , others decentralized Shared Held in a participative & collaborative manner Not present

Decision making Control over subsidiaries

Decentralized Loosely held

Centralized Tightly held

Shared Held in a participative & collaborative manner Present

Exchange of ideas within the subsidiary network Key strategic capability

Not Present

Not present

Country specific customization

Standardization

Global efficiency , flexibility & worldwide learning Worldwide collaboration and exchange of ideas within the network Knowledge collaborated and exchanged in between countries

Worldwide transfer of home country innovations Adapting & leveraging parent company competencies Knowledge developed at the centre and transferred to other countries

Role of overseas operations

Sensing & exploiting local opportunities

Implementing parent company strategies

Development & diffusion of knowledge

Knowledge developed and retained within each country

Knowledge held with the corporate parent

Consulting Companies : Organisation Structure

Given the nature of the consulting business , consulting companies are ideally suited to the adoption of a multi domestic organization structure or a transnational organization structure.This is so because consulting needs of clients differ world wide. The consulting needs of a client in USA can be very different to the consulting needs of a client in U.K.Because of this variation , there is a natural reason for consulting companies to customize their consulting service in each country of operation.However , consulting companies can include the dimension of standardization aswell , maintaining country specific customization of their service.Such a strategy shall get classified as a transnational strategy because of presence of standardization aswell as country specific customization in the service offering of the company.Standardisation can get introduced trough development of a Global support centre , whose function is to develop Global research databases which can be valuable sources of information for the consulting practice of each country.Today world leaders in the strategy consulting industry , Mckinsey & Co , Boston Consulting Group (BCG) , Bain & Co , adopt a transnational structure resulting from their transnational strategies.Mckinsey & Co has 90 offices world wide and has also instituted its Mckinsey Global Institute.BCG has 68 offices world wide spread across 3 regions , Americas , Europe & Middle East , Asia Pacific.Bain & Co has 36 offices world wide. Strategy consulting companies for example are organized within each world wide subsidiary across select capabilities. These capabilities have the breadth of coverage of a range of select industries .For example , Mckinsey & Company has the following functional practices & industry practices. (Ref : www.mckinsey.com)

Functional Practice
Business Technology Office Corporate Finance Marketing & Sales Operations Organization Strategy

Industry Practice
Automotive & Assembly Chemicals Consumer Packaged Goods Electric Power & Natural Gas Financial Services High Tech Media & Entertainment Metals & Mining Non Profit Payor / Provider Petroleum Pharmaceuticals & Medical Products Private Equity Pulp & Paper Retail Telecommunications Travel & Logistics

For consulting companies having a multi domestic structure as a result of the pursuit of a multi domestic strategy , the structure has been highlighted below.The structure is only illustrative in nature and does not include details for each country because of space constraint.

Consulting Company : Organisation Structure (Multi Domestic Perspective)

CEO

Country A Subsidiary

Country B Division

Marketing & Business Development

Consulting Delivery (Operations)

Marketing & Business Development

Consulting Delivery (Operations)

(Not adapted from any source : Simplified demonstration)

For consulting companies having a transnational structure as a result of the pursuit of a transnational strategy , the structure has been highlighted below.The structure is only illustrative in nature and does not include details for each country because of space constraint.

Consulting Company : Organisation Structure (Transnational Perspective)

CEO

Country A Subsidiary

Country B Subsidiary

Marketing & Business Development

Consulting Delivery (Operations)

Global Support Centre

Marketing & Business Development

Consulting Delivery (Operations)

(Not adapted from any source : Simplified demonstration)

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References & Bibliography

Transnatiional Management : Text Cases , and Readings in Cross Border Management: ( 5th edition ) Cristopher Bartlett , Sumantra Ghoshal & Paul Beamish Bartlett , C.A. and Ghoshal (1987) : Managing Across Borders;New Strategic Requirements : Sloan Management Review (Summer) (pages 7 to 17) Bartlett , C.A. and Ghoshal (1987) : Matrix Management : Not a Structure , a Frame of Mind : Harvard Business Review (July August) (pages 138 to 146) Bartlett , C.A. and Ghoshal (1993) : Beyond the M Form : Towards a Managerial Theory of the Firm : Strategic Management Journal (pages 23 to 46) Porter M.E. (1990) : The Competitive Advantage of Nations : Harvard Business Review : (Summmer) (pages 7 to 17) Mc Dougall , P . and Oviatt , B.M. (1994) : Towards a Theory of International New Ventures : Journal of International Business Studies (pages 45 to 64) Rugman , A (2003) : Regional Strategy and the Demise of Globalization: Journal of International Management : (pages 409 to 417) International Business : (4th edition) : Alan M Rugman & Simon Collinson Strategic Management : Gregory Dess & Alex Miller Corporate Strategy : Richard Lynch Strategic Management : Hoskisson , Hit & Ireland Exploring Corporate Strategy : Gerry Johnson, Kevan Scholes & Richard Whittington Strategic Marketing Management : Richard M.S.Wilson & Colin Giligan Mckinsey & Company : www.mckinsey.com Boston Consulting Group : www.bcg.com Bain & Company : www.bain.com AT Kearney : www.atkearney.com Booz Allen & Hamilton : www.boozallen.com

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