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Day 07

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Jorge Pachas
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Global Business Strategy

Chapter 9 Entry Strategies and Organizational Structures


Entry Strategies and Ownership Structures

• There are a number of common entry strategies and


ownership structures in international operations.
• Wholly owned subsidiaries.
• Mergers and acquisitions.
• Alliances and joint ventures.
• Licensing agreements.
• Franchising.
• Basic export and import operations.

2
Export/Import

• Exporting and importing often are the only available


choices for small and new firms wanting to go
international.
• The firm can hire an export management company.
• Or the firm can handle things themselves by creating its
own export department.
• An MNC could be stuck with a distributor, even if things
do not work out well.
• When importing, MNC’s source products from a wide
range of suppliers worldwide.

3
Wholly Owned Subsidiary

• Increasing in risk and involvement, a wholly owned


subsidiary is an overseas operation that is totally owned
and controlled by an MNC.
• The primary reason is a desire for total control and the belief
that managerial efficiency will be better without outside
partners.
• Due to the sole ownership, profits can be higher, with clearer
communications and shared visions.
• However, they face high risk with such a large investment in
one area and are not very efficient when entering multiple
countries or markets.
• Furthermore, host countries often feel that the MNC is trying
to gain economic control with local operations while not
including local partners.
• Another drawback is that home-country unions sometimes
oppose the creation of foreign subsidiaries.
4
Mergers/Acquisitions

• In recent years, a growing number of multinationals have


acquired (fully or in part) their subsidiaries through
mergers/acquisitions.
• Purchasing a majority interest in another company is an
expedient way to expand.
• In 2018, forty-three percent of all merger and acquisition
deals were cross-border.
• Cultural differences and time constraints are the two most
pervasive barriers.
• Transition costs also pose a problem in the post merger
environment.

5
Alliances and Joint Ventures

• An alliance is a cooperative relationship among two or more


firms.
• A joint venture (JV) is an agreement in which two or more
partners own/control a business.
• A nonequity venture is one group providing a service for
another.
• An equity joint venture involves a financial investment.
• Most MNC’s are more interested in their control rather than
profits.
• Local partners feel the same way, which can result in
problems.

6
Licensing

• A license is an agreement that allows one party to use


an industrial property right in exchange for payment to
the owning party.

• The licensor allows the licensee to use a patent, a


trademark, or proprietary information in exchange for a
fee based on sales.
• Licensing is used under a number of common
conditions.
– Product in mature stage, strong competition, and declining
profits.
– When foreign governments require a local partner.
– Small firms that resource or invest heavily in R&D.

7
Franchising

• A franchise occurs when the franchisor allows the franchisee


to operate an enterprise using its trademark, logo, product
line, and methods of operation in return for a fee.

• The concept is very adaptable to the international arena and


can be highly profitable, with some minor adjustments for the
local market.
• Franchise agreements typically require payment of a fee up
front and then a percentage of the revenues.
• In return, the franchisor provides assistance and supplies.
• Franchising can be beneficial to both groups.

8
The Organization Challenge

• A number of MNC’s have recently been rethinking their


organizational approaches to international operations.
• An excellent illustration of worldwide reorganizing is Coca-
Cola, which now delegates a great deal of authority for
operations to the local level.
– Designed to increase the ability of worldwide divisions to respond
to their local markets while growing revenue internationally.
– In 2018 alone, over 500 new localized beverage products were
introduced by Coke’s regional divisions.

9
Initial Division Structure

• Many firms make their initial entry into international markets


by setting up a subsidiary or by exporting locally produced
goods or services.
• A subsidiary handles finance-related business or other
operations that require an on-site presence from the start.
• Many services have begun exporting their expertise.
• An export arrangement is a common first choice among
manufacturing firms, especially those with technologically
advanced products.
• If overseas sales continue to increase, local governments
often exert pressure for setting up on-site manufacturing
operations.

10
Figure 9-2: Use of Subsidiaries during the Early Stage
of Internationalization
• Each subsidiary is responsible for operations within its
geographic area.

• Access the text alternative for these i


mages

11
Global Structural Arrangements

• Global structural arrangements differ from


international division structure because the former
focuses on expansion and integration among
international operations.
• Global structures come in three common types:
– product,
– area,
– and functional.

12
Figure 9-4: A Global Product Division Structure
• The global product division is a structural arrangement in which domestic
divisions are given worldwide responsibility for product groups.

• Access the text alternative for these i


mages

13
The Emergence of the Network Organizational Forms

• Over the last few years there has been a major increase in
the number of “electronic freelancers.”
• In the United States, a third of the workforce is freelancers.
• This is a new type of electronic network organization—“a
temporary company”—that serves a particular, short-term
purpose and disbands.
• Many multinationals are beginning to rely increasingly on
electronic freelancers (e-lancers, for short) to perform key
tasks for them.

14
Organizational Characteristics of MNC’s

• Although MNC’s have similar organizational


structures, they do not all operate in the same way.
• Factors that help explain the differences include
overall strategy, employee attitudes, and local
conditions.
• Of particular significance to this discussion are the
organizational characteristics of formalization,
specialization, and centralization.

15
Organizational Characteristics

• Formalization is the use of defined structures and systems in


decision making, communicating, and controlling.
• Centralization is a management system in which important
decisions are made at the top.
– Many U.S. firms tend toward decentralization, pushing decision making
down the line and getting the lower-level personnel involved.
– This hands-off approach promotes creativity, entrepreneurial effort, and
personal responsibility.
– In order to prevent operations from spinning out of control, the company
exercises very tight financial discipline.

• Specialization is the assigning of individuals to specific, well-


defined tasks.

16
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