Mibo intro, internat. feb 21 2011

Prof. Dr. L. KarstenR.De Vries M.ScA. Visscher M.Sc. (coordinator)

IntroductionFebr 21, 2011

MIBO

How about you ???Where are you from????

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Focus of the course

› Focus in MIBO is mainly on the execution of e.g an internationalization strategy , on the operational management of an international business.

› However , the boundaries between strategy and its execution are fuzzy.

› Most strategies fail because of bad execution.

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MIBO perspectives

• Internationalization as a process• Institutions , management style , culture• Resource based view , market based view• Global integration – local responsiveness

• Special subject : Energy industry

• See Nestor for related lectures, assignments , tutorials

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Exam

• Written exam April 12•20-25 multiple choice questions•3-4 open questions•Exam-relevant: • Gooderham&Nordhaug ch. 1-9• Virtual reader• Lectures (incl guest lectures)

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Tutorials

• At the 1st tutorial , you will be forming teams •5 teams per group, 3-5 persons each•min. 2 nationalities per team

• Teams •Will make the essay•Will summarize and present articles

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Essay

• Assignment of essay : see Nestor –assignment button. Domain : Energy industry.

• Essay is important subject in tutorials , see Nestor

• Hand-in draft essay May 13• Hand-in final essay June 10• Written by teams of 3-5

•Teams self-enrolled•At least two nationalities

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Article Summaries&Presentations

› Per team specified in Nestor (button tutorials )

› Your view and comment on Article is most important part• What did you learn, what’s new about it• Do you agree with the used method• Are the conclusions well founded• What is relevance to the subject , relation with other course

material

› Good performance in this can give you bonus point on the essay

› Copying of Article abstract in the summary or the presentation results in a zero bonus

Grading

• Final grade is 50 % of written exam grade (original value) and 50 % of essay grade

• Essay grade can be enhanced by tutorial bonus

• To pass , EACH has to be 5.5 or more• Resit of exam July 12

• Check all dates in Nestor!

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04/12/23MIBO Internationalization

Theories

International growth of a family business

04/12/23MIBO Internationalization

Theories

International growth of a family business (70% of shares family-owned)

1947 Start by E. Persson , in Sweden1948 Export to Norway1967 Export to Danmark1976 Great Britain1980 Switzerland , Germany

2000 USA

2010 Asia

04/12/23MIBO Internationalization

Theories

Results 2009:• Sales SEK 100 billion*)• Net profit SEK 16.4 billion….not bad for a family business……

--2000 stores• 54000 employees• 90% of sales in Europe (Germany : 25%)

*) 1 SEK = 0.11 Euro

MIBO Internationalization Theories

Internationalization of MNC’s : the processUppsala model (Johanson/Vahlne 1977)• Evolutionary process , uncertainty

avoiding• Learning by doing , accumulation of know-

how• Next step dependant upon current position

•Geographical•Knowledge/market/experience….•“path-dependent process”

04/12/23MIBO Internationalization

Theories

Management discretion

› Some MNC’s do not fit the Uppsala path› By making explicit decisions to do otherwise• Born Globals• Out-of-the-box decisions by

•Stellar Geniuses , or•Reckless Gamblers,depending on the outcome………

04/12/23MIBO Internationalization

Theories

“Born Globals”

Contrary to the stepwise “Uppsala process”, a new breed of (small ) businesses has emerged, who are going global from day one.

Internationalization usually based on relations network of entrepreneur/ owner, these days also Social Media Networks (Linked in, Xing……) are used.

04/12/23MIBO Internationalization

Theories

Not Uppsala , but out of the box: Dow Chemical› Manufacturer of base- and petrochemicals› Till 1960 thoroughly USA based : only 8% of

sales outside US (exports)› 1961: established a big site in Terneuzen ,

NL› In 1970 already 30% of sales outside US› Currently biggest chemical company after

BASF , sales 60 billion $

04/12/23MIBO Internationalization

Theories

Out of the box : Daimler Benz› Till mid 90-ties mainly active in Europe with Mercedes

brand , although some plants in other continents› Bought Chrysler in 1998 for $ 38 billion: Daimler

Chrysler • “truly global reach”• “Mercedes quality & Chrysler low cost

manufacturing”• “entry for MB into US market and Chrysler in EU”

Analysts , economists , consultants etc. were excited

Some notorious pessimists pointed at significant differences in corporate traditions and national culture………

04/12/23MIBO Internationalization

Theories

Daimler-Chrysler or Daimler vs. Chrysler?

Back in the box : Daimler Benz› In 2007 Chrysler was sold to a private equity group

with a donation of 800 million $› After several years of big losses› Synergy benefits of marketing , manufacturing etc.

did not materialize

Quote “These two cultures were bound to collide…”Analysts , economists , consultants etc. :“We told you

so…”

04/12/23MIBO Internationalization

Theories

› Ford's Mission Statement › Our Vision

To become the world's leading consumer company for automotive products and services.

› Our Mission

We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world.

04/12/23MIBO Internationalization

Theories

Degree of internationalization› Rugman/Verbeke investigation(2004)› 365 of Fortune-500 MNC’s• Based on sales figures• Truly global if sales in all triadregions(Asia ,

Americas , Europe) >20% of total• And no single region >50% of total MNC

sales

Finding : Only 9 out of 365 MNC’s truly global

04/12/23MIBO Internationalization

Theories

Degree of internationalization› 320 MNC’s home oriented (>50% in home region)

• Wal-Mart, GM, Ford , GE, Mitsubishi, VW,Siemens………

› 25 MNC’s bi-regional (>20% in two regions)• BP, Toyota , Nissan , Unilever, Motorola……

› 11 MNC’s host oriented (>50% in non-home regions)• Daimler-Chrysler,ING, Ahold, Honda……

› 9 MNC’s global • IBM, Sony, Philips,Nokia,Intel,Canon,Coca –Cola,

Flextronics , LVMH

04/12/23MIBO Internationalization

Theories

04/12/23MIBO Internationalization

Theories

A question to you….

› Looking at the above findings re degree of internationalization , this seems to :a: Confirm the Uppsala modelb: Confirm that some firms stepped “out of

the box”c: Both of above d: Confirm , that there is no relation with

internationalization theories

Degree of internationalization› Comments on Rugman/Verbeke

• Cut-off percentages rather arbitrary• No weight of country taken into account , e.g. USA is as much a

“home country” as Montenegro

However , new research with more elaborate measurement , has confirmed the finding:

Most MNC’s are operating in their home-region markets : Asia , America , Europe (C.G.Asmussen ,JIBS 2009)

So , the truly global MNC is still a rarity…….

International flavour› Harzing/Sorge : To what extent is MNC’s

organizational style and structure dependent upon country of origin?

• Convergence : universal model• Divergence : different models dependant

on home country , industry ….

04/12/23MIBO Internationalization

Theories

International flavourMeasured by › Structure

• Degree of local responsiveness• Interdependence HQ-subsidiary

› Style• Central/decentral decision making• Personal control mechanisms• Formal control procedures

04/12/23MIBO Internationalization

Theories

International flavour

Harzing /Sorge findings: › Country of origin has a strong impact on style

and (little bit less ) on structure› Even between MNC’s of various EU-countries

large differences

04/12/23MIBO Internationalization

Theories

A question to you….› Considering the above theory about international

flavour , which quote is the most appropriate :a)”MNC’s operating in divergent cultures have a

multicultural management style”b)”MNC’s are international companies with national

operations”c)”MNC’s are national companies with international

operations”d)”In global firms like MNC’s , the home country is

irrelevant”

Break

Quo Vadis : global, local or both ? | 33

Case Story : Business Unit Deco

› Part of Akzo Nobel› Architectural paints for profs and DIY› Europe wide : 17 countries , 15 sites› Sales approx. Euro 1.2 billion › 7000 employees› Comprehensive organization with commerce,

manufacturing , R&D and supporting› Sales mainly to wholesalers and DIY chains

Deco business challenges

› Local differences in brands ,properties , prof/DIY relations, but:• Global need for lower solvent

content ,better durability , ease-of-use • Increased international specialization in

manufacturing plants • International concepts , colour trends

Paint brands in e.g. Akzo Nobel Belgium

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Business Unit organization till 2000 | 37

Sales,

marketing

Production

R&D

Sales,

marketing

Production

R&D

Sales,

marketing

Production

R&D

MNC organization structures(Nohria&Ghoshal p183. G&N p 45-55)

Localization low

Localization high

Organizational Integration high

STRUCTURAL UNIFORMITY (global prod.div)

DIFFERENTIATED NETWORK (transnational)

OrganizationalIntegration low

AD HOC (internat. div.)

DIFFERENTIATED FIT (multi-domestic)

Organization till 2000………

› Clear authority , strong profit control› Excellent local responsivenessBut:› sBU managers were local “Barons “› Cooperation via R&D , manufacturing projects

difficult due to local priorities› International diffusion of concepts slow :”not-

invented-here syndrome”

From 2000: Pan-European organization

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BU-MT

Sales, marketin

g

Production R&D

Staff

Germany

Belgium

Netherlands

Waterbased

Solventbased

Woodprotection

Cologne

Vilvoorde

Rotterdam

Country coordinators

Fin./Adm.

Germany

Belgium

Neth.

MNC organization structures(Nohria&Ghoshal p183 , G&N p 45-55)

Localization low

Localization high

Organizational Integration high

STRUCTURAL UNIFORMITY

DIFFERENTIATED NETWORK

OrganizationalIntegration low

AD HOC

DIFFERENTIATED FIT

Results

› Positive :• Better diffusion of concepts , products• Overall production costs decreased

Negative :• Delivery service deteriorated • Financial control fragmented• Upward delegation of operational problems-

integration only on BU level• Financial performance declined significantly

Imagine……

› You were the BU manager in control of this business , what would you do?????

Options……

a) Introduce a Matrix organization b) Centralize logistics management (resp for delivery

service) on European scale in one unit in HQc) Introduce clusters of operating units on regional

scale d) Fire the Financial Manager and appoint one , who

is more assertive in his/her controle) Improve intra-organizational competenciesf) …………………………………

BoM decision 2006: back to prior organization!!

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Analysis: flaws of the organization structure

› Local needs were not met with local authority: Country coordinators were toothless

› Optimization within functions , at the cost of cooperation between functions (“silo thinking”)

› More global integration was reached at the detriment of local responsiveness, instead of keeping the latter , and adding more of the first.

MNC organization structures(Nohria&Ghoshal p183, G&N p 45-55)

Localization low

Localization high

Organizational Integration high

STRUCTURAL UNIFORMITY

DIFFERENTIATED NETWORK

OrganizationalIntegration low

AD HOC

DIFFERENTIATED FIT

Differentiated network: Transnational

› There is no straightforward organizational solution for the differentiated network • Matrix organization : case ABB, G&N p. 64 etc.

› Transnational is a concept comprising of:• Organizational set-up• Employee attitudes• Processes and decision making ruleswhich strikes the right balance in the

glocalization dilemma (and resolves the power struggles)

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1.Possible organizational set-up : RHQ | 49

International management

board

RHQ Americas

RHQ Asia-Pac.

RHQ Europe

Located at HQ

Organizational set up : Regional Head Quarters

› RHQ report to board of BU Managers› Profit responsible for all products in their regions› Operational control of local units*) in their regions› Strategy, R&D , marketing strategy at BU level

*) local units may be organized functional , geographical or both.

Paik,Sohn (2004) : Striking a balance beteeen global integration and local responsiveness etc.

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2.Employee attitudes› Needed: Managers , who can hold responsibilities

over and above their formal positions› Example :Country manager• Coordinates , but does not manage businesses in

host country• Manages local HR, legal , finance functions• Has certain responsibilties at RHQ or HQ level,e.g.

• Management development• Global projects, etc.

(Ghislanzoni et al (2008): The multilocal challenge)

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Back to the Akzo Nobel case: what would have improved the Pan-European structure

› Functional organization OK , but only in limited areas with regional bosses : RHQ structure

› Country coordinators OK , but with added authority in overall business functions

› Business Proces management to be empowered , especially on primary process

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If only they would have followed a MIBO course………..

Finito!