CHAPTER 2:

The firm: a method to organize activities.

SME: a small and medium-sized enterprise

A firm’s strategy: the actions that managers take to attain the goals of the firm.

Enterprise valuation:

+ Profitability: : the rate of return that the firm makes on its invested capital (ROI)

calculated by dividing the net profits of the firm by total invested capital.

 Reduce costs (the cost of producing) + Add value and raise prices (can
charge for competitive pressure)

+ Profit growth: the percentage increase in net profits over time

 Sale more in existing markets + Enter new markets

 Higher profitability and a higher rate of profit growth will increase the value of
an enterprise and the returns garnered by its owners, the shareholders.

Value Creation = the way to increase the profitability of a firm by creating more value

+ The amount of value = the quality that consumers perceive in its products - its costs
of production

+ The more value customers place on a firm’s products, the higher the price the firm
can charge for those products

BUT the price that gets charged tends to be slightly less than the value placed on the
product by many customers, WHY?

 The firm is competing with other firms

 Impossible to segment the market, the firm can charge each customer a price
which reflects a specific customer’s assessment of the value of a product (a
customer’s reservation price).
 The customer captures some of that value called a consumer surplus. (KH thu
được 1 số giá trị gọi là thặng dư người tiêu dùng)
Consumer surplus is as “value for the money”.

The consumer surplus is determined by:

 The intensity of competitive pressure in the

marketplace
 The lower the intensity of competitive
pressure
 The higher the price charged relative to V
 The higher the firm’s profit per unit sold, the
greater its profitability, all else being equal

Value Creation according to Michael Porter: A firm can create value for its customers,
has high profits and attaining a competitive advantage (core competencies) in an
industry in 2 ways:

+ A low-cost strategy (lowering production costs)

+ A differentiation strategy (increasing the attractiveness of a product by adding value

to product)

STRATEGIC POSITIONING

In order to maximize its profitability, a firm should :

1. Be explicit about its choice of strategic emphasis with regard to value creation
(differentiation) and low cost / Pick a viable position on the efficiency frontier
that is viable in the sense that there is enough demand to support that choice
2. Configure its internal operations such as MKT, HR,… to support that strategic
emphasis.
3. Make sure that the firm has the right organization structure in place to execute
its strategy.
 The strategy, operations, and organization of the firm must all be consistent with
each other if it is to attain a competitive advantage and garner superior profitability.
Increasing profits through intenational expansion:

1. Expand the market:

 Sell in international market.
2. Realize location economies:
 Choosing a country where have factors are most conducive to the
performance of value creation activity.
 Locating a value creation activity in the optimal location => achieve low cost
strategy and differentiation strategy
3. Realize greater cost economies from experience effects:
 Experience curve: systematic reductions in production cost over the life of a
products.
 2 things explain this: learning effects and economies of scale (trong giấy)
4. Earn a greater return (trong giấy)

Cost pressures & Pressures for local responsiveness (trong giấy)

1. Cost pressures
2. Pressures for local responsiveness:
a. Differences in Customer Tastes and Preferences
 A multinational’s products and marketing message have to be customized to
appeal to the tastes and preferences of local customers.
 Creating pressure to delegate production and marketing responsibilities and
functions to a firm’s overseas subsidiaries.
b. Differences in Infrastructure and Traditional Practices
 Creating a need to customize products accordingly
 Requiring the delegation of manufacturing and production functions to
foreign subsidiaries
c. Differences in Distribution Channels

Require the delegation of marketing functions to national subsidiaries.

d. Host-Government Demands
 Economic and political demands imposed by host-country governments
 Threats of protectionism, economic nationalism, and local content rules
dictate (buộc) that international businesses manufacture locally.

CHAPTER 3:
Organizational architecture: the totality of a firm’s organization.

The different elements of a firm’s organizational architecture must be internally

consistent. The organizational architecture and the strategy of the firm must be
consistent. The strategy, organizational architecture, and competitive environment
must all be consistent.

Including:

(1) Organizational structure:

 The formal division of the organization into subunits => specialize labour
efficient
 The location of decision- making responsibilities within that structure
 The establishment of integrating mechanisms to coordinate the activities of
subunits.
 3 dimensions: Vertical differentiation/Horizontal differentiation/Integrating
mechanisms
 Vertical differentiation: A firm’s vertical differentiation determines where
in its hierarchy the decision-making power is concentrated.
Arguments for Centralization:
 Can facilitate coordination and integration of operations
 Ensure that decisions are consistent with organizational objectives
 Concentrating power and authority in 1 individual or management
team => give top-level managers bring about needed major
organizational changes
 Can avoid the duplication of activities that occurs when similar
activities are carried on by various subunits
Arguments for Decentralization:
 Gives top management time to focus on critical issues by delegating
more routine issues to lower-level managers
 Willing to give more to their jobs (cống hiến) when they have a greater
degree of individual freedom and control over their work
 Permits greater flexibility, more rapid response to environmental
changes
 Result in better decisions
 Increase control
 The firms should centralize some decisions and decentralize others,
depending on the type of decision and the firm’s strategy.

Decisions regarding overall firm strategy, major financial expenditures,

financial objectives, and legal issues are typically centralized at the firm’s
headquarters.
 Operating decisions, MKT, R&D, and HRM,… => decentralized depend on
the firm’s strategy

Firms pursuing: ?

Global standardization strategy: The head office must make the decisions
about where to locate departments. The globally dispersed web of value
creation activities that facilitate a global strategy must be coordinated =>
creating pressures for centralizing some operating decisions.

Localization strategy: Creating strong pressures for decentralizing

operating decisions to foreign subsidiaries.

International strategy: maintain centralized control over their core

competencies & decentralize operating decisions to foreign subsidiaries

Transnational strategy: Operating decisions are relatively centralized,

while others are relatively decentralized => requires a high degree of
decentralization

 Horizontal Differentiation: The Design of Structure: how the firm decides

to divide itself into subunits
Functional structure: The organization is split into functions reflecting
the firm’s value creation activities. These functions are typically
coordinated and controlled by top management => Decision making
tends to be centralized
If the firm significantly diversifies its product offering, which takes the
firm into different business areas lead to:
 Difficult to coordinate and control when different business areas
are managed within the framework of a functional structure
  Difficult to identify the profitability of each distinct business area
 Difficult to run a functional department, such as production or
marketing
 Firms should switch to a product divisional structure:
 Each division is responsible for a distinct product line (business
area). Each product division is set up as a self-contained (khép kín),
largely autonomous (tự trị) entity with its own functions.
 The responsibility for operating decisions is typically decentralized
to product divisions and their performance.
 Headquarters is responsible for the overall strategic development
of the firm and for the financial control of the various divisions.

The International Division: When firms initially expand abroad, they

often group all their international activities into an international
division. Regardless of the firm’s domestic structure (e.g. based on
product provisions), its international division tends to be organized on
geography.
Problems:
 The heads of foreign subsidiaries are not given as much voice in the
organization as the heads of domestic functions or divisions
 Lack of coordination between domestic and foreign operations, which
are isolated from each other in separate parts of the structural
hierarchy.
Results:
 Inhibiting (hạn chế) the worldwide introduction of new products
 The transfer of core competencies between domestic and foreign
operations
 The consolidation (hợp nhất) of global production at key locations so as
to realize location and experience curve economies.
To abandon International division, two initial choices are adopted:
 A worldwide product divisional structure for diversified firms that have
domestic product divisions
 A worldwide area structure for undiversified firms whose domestic
structures are based on functions

Worldwide Area Structure: The world is divided into geographic areas

(a low degree of diversification). Each area is a self-contained, largely
autonomous entity.
 Operations authority and strategic decisions are decentralized ><
overall strategic direction of the firm and financial control are
centralized.
 Facilitates local responsiveness.
 Encourages fragmentation of the organization into highly autonomous
entities => difficult to transfer core competencies and skills between
areas and to realize location and experience curve economies.

Worldwide Product Divisional Structure: suitable for:

 Firms that are reasonably diversified and originally had domestic
structures based on product divisions.
 The headquarters retains responsibility for the overall strategic
development and financial control of the firm.
 Advantages:
 Providing an organizational context => enhances the consolidation of
value creation activities at key locations necessary for realizing location
and experience curve economies.
 Facilitating the transfer of core competencies within a division’s
worldwide operations and the simultaneous worldwide introduction of
new products
Disadvantage:
 The limited voice of area or country managers since they are seen as
dependent on product division managers  a lack of local
responsiveness.
 Global Matrix Structure: Responsibility for operating decisions relevant
to a particular product should be shared by the product division and
the various areas of the firm. This dual decision-making responsibility
should enable the firm to simultaneously achieve its particular
objectives.
 In practice, the matrix often is clumsy and bureaucratic => difficult to
respond quickly to market shift/innovation.
 The dual-hierarchy structure can lead to conflict and permanent power
struggles between the areas and the product divisions, catching many
managers in the middle  it is difficult to identify reponsibility in this
structure.
 Integrating Mechanisms:
 Impediments of coordination:
 Managers of the various subunits have different orientations, partly because
they have different tasks => inhibiting communication between the managers
 Differences in subunits’ orientations also arise from their differing goals
 leading to conflict.
 Differences in subunit orientation are often reinforced (củng cố) in
multinationals by the separations of time zone, distance, and nationality
between managers of the subunits.

Formal Integrating Mechanisms: the more coordination, the more

flexibility of formal integrating mechanism. 4 factors below are arrange in
the order of the increasing complexity:
1. Direct contact between subunit managers (the simplest)
 Managers of the various subunits simply contact each other whenever
they have a common concern.
 Direct contact may not be effective if the managers have different
orientations that act to impede (cản trở) coordination.

2. Liaison roles (more complex)

 Coordination can be improved by giving a person in each subunit
responsibility for coordinating with another subunit on a regular basis.
 the people involved establish a permanent relationship.

3. Temporary or permanent teams (more complex)

 Using temporary or permanent teams composed of individuals from
the subunits that need to achieve coordination.
 They typically coordinate product development and introduction, but
they are useful when any aspect of operations or strategy requires the
cooperation of two or more subunits.

4. A matrix structure (the highest integrating mechanism)

 Facilitate maximum integration among subunits. The most common
matrix in multinational firms is based on geographic areas and
worldwide product divisions
 achieving a high level of integration
 pay close attention to both local responsiveness and location/
experience curve economies.
 In some multinationals, the matrix is more complex , structuring the
firm into geographic areas, worldwide product divisions, and functions,
all of which report directly to headquarters  facilitates the transfer of
competencies existing in functions from division to division and from
area to area.
 Tend to be bureaucratic, inflexible, and have more conflict than
expected coordination  It needs to be flexible and to be supported by
informal integrating mechanisms.

Informal Integrating Mechanism: Knowledge Networks

Knowledge networks are supported by an organizational culture that
values teamwork and cross-unit cooperation. It is a netwwork for
transmitting information in an organization => not based on formal
organizational structure, but on informal contacts between managers &
distributed information systems
  Information systems: Using their distributed computer and
telecommunications information systems to provide the foundation for
informal knowledge networks.
 Management development policies: Strategy is that rotating managers
through various subunits to build their own informal network and use
management education programs to bring managers of subunits
together in 1 location so they can become acquainted (làm quen)
Problems: Knowledge networks by themselves may not be sufficient to
achieve coordination if sub-unit managers persist in pursuing subgoals that
are different with companywide goals.
Solutions: have a strong organizational culture that promotes teamwork
and cooperation => managers is willing and able to put the benefit of the
whole firm above the benefit of his own subunit.

(2) Control systems and incentives

 Control systems are the metrics used to measure the performance of

subunits and make judgments about how well managers are running those
subunits. 4 four main types of control systems:
Personal Controls: Control achieved by personal contact with
subordinates.
Used to structure the relationships between managers at different levels
in multinational enterprises. It is suitable for small firms where it is seen in
the direct supervision of subordinates’ actions.
Bureaucratic control: is control achieved through a system of rules and
procedures that directs the actions of subunits. The most important
bureaucratic controls in subunits are budgets and capital spending rules.
Budgets are essentially a set of rules for allocating a firm’s financial
resources. Headquaters use budgets to influence the behavior of subunits
through encourage the growth of certain subunits and restrict the growth
of others by manipulating (thao túng) their budgets.
 Output control: involves setting goals for subunits to achieve and
expressing those goals in terms of relatively objective performance metrics
such as profitability, productivity, growth, market share, and quality. The
performance of subunit managers is then judged by their ability to achieve
the goals. If goals are met, subunit managers will be reward/if not, top
managers will normally interfere to find out the reason and take
appropriate corrective action.
 control is achieved by comparing actual performance against targets
and intervening selectively to take corrective action.
Advantage:
- Subordinators (staff, subunits) understand clearly the requirements of
their jobs/functions => feel confident, more satisfied
- Companies can control the activities of their employees, subunits to align
the company’s objectives with staff’s behaviors
- Easy to control your performance metrics are good
Disadvantage:
- Difficult to design a system of performance metrics
- Bad performance metrics cause bad consequences
- Focus in final results, not process => cause risks and long term bad
behaviors/consequences
- Need to change overtime
Cultural contro:l exists when employees “buy into” the norms and value
systems of the firm. Employees tend to control their own behavior, which
reduces the need for direct supervision.

 Incentives are the devices used to reward appropriate managerial behavior.

Incentives are very closely tied to performance metrics used for output
controls. Many employees receive incentives in the form of annual bonus pay.
- The type of incentive often varies depending on the employees and their
tasks
 The incentive scheme for an individual employee is linked to an output
target that he or she has some control over and can influence.
- The successful execution of strategy often requires significant cooperation
between managers in different subunits
  Seniors managers of the country subsidiaries and globalproduct
divisions can be rewarded according to the profitability of the entire
firm.
- Incentive systems have to be adjusted to account for national differences
in institutions and culture.
- Managers need to carefully think through exactly what behavior certain
incentives encourage.

(3) Processes

Processes are the manner in which decisions are made and work is performed
within the organization.

- It is a flowchart, which illustrates the various steps and decision points

involved in performing work  Efficient and effective processes can lower
the costs of value creation and add additional value to a product.
- Many processes cut across functions, or divisions, and require cooperation
between individuals in different subunits  performing processes
effectively often requires the establishment of formal integrating
mechanisms and incentives for cross-unit cooperation.
2 basic remarks
- Many processes cut across organizational boundaries, including several
different subunits, across national boundaries.
- Valuable new processes might lead to a competitive advantage can be
developed anywhere within the organization’s global network of
operations.

(4) Organizational culture

Organization culture refers to the norms and value systems that are shared among
the employees of an organization => profound impact on how a firm performs.

Values are abstract ideas about what a group believes to be good, right, and
desirable.

Norms mean the social rules and guidelines that prescribe appropriate behavior in
particular situations.
 Values and norms express themselves as the behavior patterns or style of an
organization that new employees are automatically encouraged to follow by
their fellow employees.
Creating and Maintaining Organizational Culture: Organization’s culture comes
from several sources:
- Founders or important leaders can have a profound (sâu sắc) impact on an
organization’s culture, often imprinting (ghi dấu ấn) their own values on
the culture.
- The broader social culture of the nation where the firm was founded has
significant operations.
- The history of the enterprise, which over time may come to shape the
values of the organization.
Culture is maintained by a variety of mechanisms:
- Hiring and promotional practices of the organization: to recruit people
whose values are consistent with those of the company.
- Reward strategies: be linked to a company’s values, which further
reinforces cultural norms.
- Socialization processes: such as training programs that educate employees
in the core values of the organization (formal) and friendly advice from
peers or bosses or may be implicit (ẩn ý) in the actions of peers and
superiors toward new employees (informal)
- Communication strategy: to devote a lot of attention to framing their key
values in corporate mission statements, communicating them often to
employees, and using them to guide difficult decisions.
Organizational Culture and Performance:
- In a strong culture, almost all managers share a relatively consistent set of
values and norms that have a clear impact on the way work is performed.
- New employees adopt these values very quickly, and employees who do
not fit in with the core values tend to leave.
- Firms with a strong culture are normally seen by outsiders as having a
certain style or way of doing things.

- Problems:

 A culture can be strong but bad.

 A strong culture might be beneficial at one point, leading to high
performance, but inappropriate at another time.
 (5) People:

 The employees of the organization

 The strategy used to recruit, compensate, and retain those individuals
 The type of people that they are in terms of their skills, values, and
orientation

Pressure for changes in organization:

(1) The trend toward globalization (declining barriers to cross-border trade and
investment) has led to a change in the nature of the competitive environment.

(2) Increased cost pressures --> try to apply economic benefits associated with location
and experience curve economies and with the transfer of competencies and skills within
the organization.

(3) Required local responsiveness.

 To survive in this emerging competitive environment, multinationals must change

not only their strategy but also their architecture so that it matches strategy in
discriminating (phân biệt) ways.

 The basic principles for successful organizational change can be summarized as

follows:

(1) Unfreeze the organization through shock therapy (Giải phóng tổ chức thông
qua liệu pháp sốc).

(2) Move the organization to a new state (trạng thái) through proactive (chủ
động) change in the architecture.

(3) Refreeze the organization in its new state (Đóng băng lại tổ chức ở trạng thái
mới).

Chapter 4:
WHICH MARKETS TO ENTRY?
Have some factors affect the choice of entry mode:
o transport costs
 o trade barriers
o political risks
o economic risks
o costs
o firm strategy

 The optimal mode varies by situation. The choice of foreign markets will
depend on their long run profit potential .
 Favorable market >< Less desirable market
o Political stable >< politically unstable
o Free market systems >< mixed or command economies
o Relatively low in flation rates
o have low public sector debt >< excessive levels of borrowing

 Markets are also more attractive when the product in question is not
widely available and satisfies an unmet need.
WHEN AND WHY FIRM ENTER A FOREIGN MARKET?
 Once attractive markets are identified, the firm must consider the timing of
entry.
o Entry is early when the firm enters a foreign market before other foreign
firms
o Entry is late when the firm enters the market after firms have already
established themselves in the market
 First mover advantages – the reason why entering early
o The ability to pre-empt rivals by establishing a strong brand name
o Ability to build up sales volume and ride down the experience curve
ahead of rivals and gain a cost advantage over later entrants
o To create switching costs that tie customers into products or services
making it difficult for later entrants to win business
 On What Scale Should A Firm Enter Foreign Markets?
o Firms that enter a market on a significant scale
- Make a strategic commitment to the market. The decision has a
long term impact and is difficult to reverse.
- May cause rivals to rethink market entry
- May lead to indigenous (bản địa) competitive response

o Small-scale entry has the advantage of allowing a firm to

- learn about a foreign market
- limiting the firm’s exposure to that market

 THERE IS NO “RIGHT” DECISIONS WHEN ANSWER 2 QUESTIONS ABOVE – JUST

DECISIONS THAT ARE ASSOCIATED WITH DIFFERENT LEVELS OF RISK AND
REWARD.
 HOW CAN FIRMS ENTER FOREIGN MARKET?

Entry
Advantages Disadvantages
Mode

 Ability to realize location and

 High transport costs
experience curve economies
 Trade barriers
Exporting  Increased speed and
 Problems with local marketing
flexibility of engaging target
agents
markets

 Ability to earn returns from  Creation of efficient

Turnkey process technology skills in competitors
Contracts contries where FDI is  Lack of long-term market
restricted presence

 Lack of control over technology

 Low development costs and
 Inability to realize location and
risks
Licsensing experience curve economies
 Moderate involvement and
 Inability to engage in global
commitment
strategic coordination

 Low development costs and

risks  Lack of control over quality
Franchising  Possible circumvention of  Inability to engage in global
import barriers strategic coordination
 Strong sales potential

Joint  Access to local partner’s  Lack of control over technology

Ventures knowledge  Inability to engage in global
 Shared development costs strategic coordination
and risks
  Political acceptable
 Inability to realize location and
 Typically no ownership
experience economies
restrictions

 Protection of techonology  High costs and risks

Wholly
 Ability to engage in global  Need for more human and
owned
strategic coordination nonhuman resources;
subsidiarie
 Ability to realize location interaction and integration with
s
and experience economies local employees

 The optimal entry mode depends on the nature of a firm’s core competencies

 When competitive advantage is based on proprietary technological know-how

=> avoid licensing and joint ventures unless the technological advantage is only
transitory (nhất thời) or can be established as the dominant design
 Joint-
(1) Technological Know- venture A wholly owned
Licensing
How arrangement subsidiary
s

A firm’s competitive advantage

(its core competence) is based on
control over proprietary No No Yes
technological know-how (a high-
tech firm).

A firm perceives its technological

advantage to be only transitory,
when it expects rapid imitation of Yes - -
its core technology by
competitors.

 When competitive advantage is based on management know-how.

The risk of losing control over the management skills is not high, and the benefits
from getting greater use of brand names is significant

 When pressure for cost reductions is high, firms pursue some combination of
exporting and wholly owned subsidiaries

o allows the firm to achieve location and scale economies and retain some
control over product manufacturing and distribution
o firms pursuing global standardization or transnational strategies prefer wholly
owned subsidiaries
GREENFIELD & ACQUISITION
The choice depends on the situation confronting the firm:

1. A greenfield strategy - build a subsidiary from the ground up

 better when the firm needs to transfer organizationally embedded

competencies, skills, routines, and culture.

2. An acquisition strategy – acquire an existing company

 better when there are well-established competitors or global competitors
interested in expanding
 The volume of cross-border (xuyên biên giới) acquisitions has been rising