Global Business Strategy

Chapter 6: Organizational Cultures and

Diversity
Chapter 7: Cross-Cultural Comunication and Negotiation
Part Two: The Role of
Culture

Chapter 6:
Organizational
Cultures and Diversity
• International
Management: Culture,
Strategy, and Behavior
• Twelfth Edition
• Jonathan P. Doh, Fred
Luthans, Ajai S. Gaur

• © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Strategic Management

• Strategic management is the process of

determining an organization's basic mission and
long-term objectives and then implementing a plan
of action for pursuing this mission and attaining
these objectives.
• Always remember: strategies require
– Well defined goals (or objectives)
– Need for measuring success or failure
– Time frame
– Resources

3
Strategic Management

• In most companies, the top management team

sets strategy.
• Now companies are realizing how imperative all
levels of management are to the entire process.
• As companies go international, strategic processes
take on added dimensions.
• It is important to remember that all stages of
organizational change incorporate levels of
strategy from planning to implementation.

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Benefits of Strategic Planning

• Many M N C’s are convinced strategic planning is critical

to their success.
• Efforts are conducted both at the home office and in the
subsidiaries.
• Despite obvious benefits, there is no definitive evidence
that strategic planning in the international arena always
results in higher profitability, especially when M N C’s
try to use home strategies across cultures.
• One study found planning intensity was an important
variable in determining performance.
• Companies with a high percentage of total sales in
overseas markets did best with a high intensity planning
process and poorly with a low-intensity process.

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Approaches to Formulating and Implementing
Strategy

• Four common approaches.

• Focusing on the economic imperative.
• Addressing the political imperative.
• Emphasizing the quality imperative.
• Implementing an administrative coordination
strategy.

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Economic Imperative

• M N C’s that focus on the economic imperative

employ a worldwide strategy based on cost
leadership, differentiation, and segmentation.

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Economic Imperative

• Products have a large portion of value added in the

upstream in the industry’s value chain.
• Industries include automobiles, chemicals, heavy
electrical systems, motorcycles, steel.
• Products are homogeneous and require no
alteration to fit the needs of the country.
– Management uses a worldwide strategy consistent on a
country-to-country basis.
• Also used when the product is a generic good and
does not need a brand or support service.

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Political Imperative

• The political imperative approach to strategic

planning is country-responsive; the approach is
designed to protect local market niches.
• Used when products sold have a large portion of their
value added in the downstream activities of the value
chain.
• Industries such as insurance and consumer packaged
goods.

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Political Imperative

• A good example of a country-centered strategy is

provided by Thums Up, a local drink that Coca-Cola
bought from an Indian bottler in 1993.
• Coca-Cola planned to push their products over Thums
Up when it returned to India—local buyers were
uninterested, and Coke relented.
• In 2018, Coke launched an energy drink variant called
Thums Up Charged, leading to strong sales growth.

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Quality Imperative

• A quality imperative takes two interdependent

paths.
• A change in attitudes and a raising of expectation
for service quality.
• Management practices designed to make quality
improvement ongoing.
• Commonly called total quality management, or
simply TQM.

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Quality Imperative

• TQM covers the full gamut, from strategy

formulation to implementation.
• Quality is operationalized by meeting/exceeding
customer expectations.
– Customers are both internal and external.
• Strategy is formulated at the top and diffused
throughout the firm.
• TQM techniques include inspection and statistical
quality control, but also HR techniques, such as
self-managing teams and empowerment.
• M N C’s must continually revise their strategies and
make renewed commitment to the quality
imperative.
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Administrative Coordination

• Administrative coordination involves strategic

formulation and implementation in which decisions
are based on the merits of the individual situation
rather than a predetermined strategy.

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Administrative Coordination

• When Walmart expanded into Latin America, they

faced local tastes and stiff competition.
• Timely deliveries were difficult.
• Suppliers could not produce products to Walmart’s
specifications.
• They had to adapt to the culture.

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Global and Regional Strategies

• Global integration is • National

the responsiveness
production/distribution acknowledges consumer
of homogeneous tastes in regional
markets, and adheres to
quality products and
national standards and
services worldwide.
regulations.
• Growing acceptance of
• When designing/building
standardized yet cars, international
increasingly manufacturers carefully
customized goods such tailor their offerings in
as automobiles and the American market.
computers. • National responsiveness
also relates to the need
to adapt tools and
techniques for managing 15
Figure 8-1: Global Integration vs. National
Responsiveness

• global • an integrated
strategy strategy emphasizing
based on both global
price integration and local
competition responsiveness

• combining low • a differentiated

demand for strategy emphasizing
integration and local adaptation
responsiveness

• Source: Bartlett, Christopher A., and Sumantra Ghoshal. Managing Across Borders:
The Transnational Solution. Cambridge, MA: Harvard Business School Press, 1998.

• Access the text alternative for these i

mages

16
Summary and Implications of the Four Basic
Strategies

• The appropriateness of each strategy depends on

pressures for cost reduction and local responsiveness in
each country served.
• Firms pursuing an international strategy have valuable
core and face minimal pressures for local
responsiveness and cost reductions.
• Firms should pursue a multidomestic strategy when
there is high pressure for local responsiveness and low
pressure for cost reduction.
• Firms experiencing high cost pressures should use a
global strategy to reap economies of scale in
production, distribution, and marketing.
• A transnational strategy should be pursued when there
are high cost pressures and high demands for local 17
Environmental Scanning

• Environmental scanning attempts to forecast

trends in external changes in areas where the firm
is currently doing business or considering locating.
• One of the most important foci is the industry or
the market.
• Monitoring technology trends keeps a company
modern and innovative.
• Regulatory environments change, shifting laws or
regulatory guidelines.

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Environmental Scanning

• Appropriate observation of the social environment

can help the company.
• The political environment can impact how a
company runs operations.
• After obtaining the information, M N C’s go through
the analyzing process that gives rise to the
discovery of risks and opportunities.
• Managers communicate the results and form
strategies to take advantage of opportunities.

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Internal Resource Analysis

• An internal resource analysis is a microeconomic

aspect of activity.
• It helps the firm evaluate its current resources and
capabilities to better assess its strengths and
weaknesses.
• The primary thrust of this analysis is to match
external opportunities with internal capabilities.
• Key success factors (KFS) are factors necessary
for a firm to effectively compete in a market niche.

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Goal Setting for Strategy Formulation

• Specific goals for the strategic plan come out of

external scanning and internal analysis.
• Profitability goals.
• Marketing goals.
• Operations goals.
• Finance goals.
• Human resource goals.
• These goals serve as an umbrella beneath
which the subsidiaries operate.
Goal Setting for Strategy Formulation

• Profitability and marketing goals dominate the

strategic plans of today's M N C’s.
• M N C’s need higher profitability from their
overseas operations.
• They are both more externally environmentally
responsive.
• Once the strategic goals are set, the M N C
develops specific operational goals and
controls.
• Home-offices set parameters, and overseas
affiliates operate within those guidelines.
Strategy Implementation

• Strategy implementation refers to the process

of providing goods and services in accord with a
plan of action.
• Quite often, this plan will have an overall
philosophy or series of guidelines that direct the
process.

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Strategy Implementation

• International management must consider three

general areas in strategy implementation.:
• First, the MNC must decide where to locate
operations.
• Second, the MNC must carry out entry and
ownership strategies.
• Finally, management must implement functional
strategies in areas such as marketing,
production, and finance.

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Location Considerations—The Country

• M N C’s invest in highly industrialized countries and

annual investments have been increasing
substantially.
• These countries offer the largest market for goods
and services.
• Another consideration in choosing a country is the
amount of government control and restrictions on
foreign investment.
• M N C’s examine specific benefits offered by host
countries.
• Benefits are weighed against any disincentives or
performance requirements that must be met by the
M N C.
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Locale Issues

• Once the M N C has selected the country in which

to locate, the firm must choose the specific locale.
• Many countries attempt to lure M N C’s to specific
locales by offering special financial packages.
• Another common consideration is the nature of the
workforce.
• Still another consideration is the cost of doing
business.
• Some M N C’s opt for spreading the risk with many
small locations rather than one or two large ones.
• Manufacturing is a good example.

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Frontier Markets

• Pre-emerging, frontier markets are a unique subset of

emerging economies.
• Most emerging markets are financially linked to the
economies of more developed counterparts.
• But frontier markets are less correlated to the ups and
downs of the global economy.
• These markets offer potentially high rewards, but with
high risk.
• Commonly cited frontier markets are located in Africa
and Asia.
• Business initiatives in frontier markets require careful
strategic considerations.
• One approach is to joint-venture with a local company
for the cultural knowledge.
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Combining Country and Firm-Specific Factors in
International Strategy

• International management scholars have developed a simple

framework that builds upon the integration-responsiveness
framework.
• It helps managers understand the interaction between
attractiveness of a location and the firm’s strengths that can
• be
Theleveraged
first set in
of that location.
factors are C S A s, or country-specific
advantages.
• These can be based on natural resources, labor forces,
or less tangible factors including education and skills.
• The second set of factors are F S A s or firm-specific
advantages.
• Unique capabilities proprietary to the organization.
• Can be based on product or process technology,
marketing or distributional skills, or managerial know-
how.
28
Figure 8-2: The CSA-FSA Matrix

• firms tend to • firms generally can

emphasize cost choose either the
leadership, likely to cost or differentiation
be resource-based strategies, or
and/or mature perhaps combine
them because of the
strength of both their
C S A s and F S A s

• represent less- • are generally

efficient firms with differentiated firms
few intrinsic C S A s with strong F S A s in
or F S A s marketing and
customization

• Source: Rugman, Alan M., and Jonathan P. Doh. Multinationals and Development.
New Haven, CT: Yale University Press, 2008.

• Access the text alternative for these i

mages

29
Strategies for Emerging Markets

• Foreign direct investment (FDI) flows measure increased

integration and business activity between developed and
emerging economies.
• FDI grew from $23.7 billion in 1990 to a projected $671 billion
in 2018.
• Significant economies are associated with first-mover
positioning, but at substantial risk.
• There are 7 billion plus potential customers around the world
who have been mostly ignored by international business, who
serve the elite.
• Base of the pyramid (B O P) strategies identify, target,
adapt, and respond to needs among the lowest income
consumer segments.
– Collaboration and alliances with nonprofit nongovernmental
organizations (N G O’s) can jump-start market entry in B O P
markets. 30
Entrepreneurial Strategy and New Ventures

• International entrepreneurship is a combination of

innovative, proactive, and risk-seeking behavior that
crosses national borders and is intended to create value
in organizations.
• Despite new access, there remain limitations.
• Another dimension is the increasing number of
international new ventures.
• Born-global firms engage in significant international
activity a short time after being established.
• Global orientation, market conditions, and an innovative
culture are important factors.
• Born-international firms export products close to
markets, and revenues contribute 25 percent or less of
total revenues.
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