Ib2 Grpb L3 International Sequential Advantages - Yin Qunyao

Inter na ti onal sequent ial adv ant ages and netw or k fl exi bi lity Bruce Kogut

Presented by: Yin Qunyao

Introductio n  The establishment of internationally dispersed assets generates subsequent advantages through the co-ordination of the individual subsidiaries.  International networks is understood not only by the formation of dispersed subsidiaries, but also by the convergence in technical capabilities across countries.  Multinationality can be a source of advantage.

Overvie w How firm builds advantages in the process of its development from the initial investment to network co-ordination. Four sources of advantage paired with four derived strategies.( Economies of scale, Economies of scope, Learning, Multinational dispersion.) Organizational evolution

Economi es of Sca le, national segmentatio n, and inter nati onal aggregatio n  A strategic issue is the balance between sharing costs across segments and dedicating investment to a specific segment.  Scale economies are exploited not through simple standardization of product design, manufacturing, and advertising, but through a segmentation of national markets.

Economi es of Sca le, national segmentatio n, and inter nati onal aggregatio n  Development of AE-1 Camera provides a good example of international aggregation backed by the economies of scale.  Through the international aggregation of these segments, sufficient scale economies were realized to justify the high fixed costs of investment dedicated to the AE-1.

Economi es of sco pe and product l ine br oad ing and upgradi ng  Economies of scope can often serve in the interests of a global strategy.  Information on one regional product market can be used to benefit another market.  Because of these shared benefits, market penetration by foreign firms is frequently characterized by a strategy of product line broadening.  A common Japanese policy of product line upgrading.

Economi es of sco pe and product l ine br oad ening and upgradi ng  Economies of scope can be seen not only in terms of static joint economies, but also as affecting the costs of sequential product entries.  Honda motors example. Its remarkable success in the US was built up through the sequential entry of upgraded products over time and the strong pull of the Honda name.

Learni ng a nd inf ormation updati ng  It represents the transfer of organizational practices and know-how across the firm.( managerial skills or innovations)  Multinational cooperation accumulates significant information on the covariance of demand characteristics among countries.

Learni ng a nd inf ormation updati ng  Without learning and information updating of the estimated covariance structure among countries, the existence of international marketing firms appears inexplicable.  Proctor and Gamble example. It illustrate how sensitive learning and information updating within corporation are to the organizational infrastructure.  Effective use of knowledge required the delegation of marketing responsibilities to country managers on a flexible assignment basis.

Mu ltinatio nal d ispers io n : comparative a dva nta ge and opera tin g F lexibility

 Multinationality provides a unique benefit in the form of the possibility to gain from uncertainty.  Its capability to respond to country variance, whether source of the variance be exchange rate movements, tax and financial distortations, competitors’ overseas positioning, or new innovations.

Mu ltinatio nal d ispers io n : comparative a dva nta ge and opera tin g F lexibility

 General Motors example.  One advantage of the multinational corporation is the shifting of production between countries.  GE stressing local production for local sales.

Sequenti al strateg y a nd organi za ti onal e voluti on Background  The process of moving from a domestic to an international firm is often accompanied by structural change.  The international structures designed for the transfer of home advantages to oversea markets are not necessarily suited for competing on network coordination.  The persistence of traditional organizational structures impaired the creation of multinational flexibility.  The organizational capability of the multinational corporation to exploit the inherent sequential advantage is impaired by relatively inert structures and mgt systems.

Sequenti al strateg y a nd organi za ti onal e voluti on Background  Organizationally, this evolution implies that the multinational corporation reaps further incremental value by moving from a dyadic relationship with its subsidiaries to the profitable mgt of its international network.  The internal hierarchy of the corporation is replaced by balance interdependence, heterarchy. (moving from a hierarchical control to a more co-operative relationship between headquarters and subsidiaries.)

Se quentia l str ategy a nd organiza tio nal evolutio n ---- - D upli catio n a nd d iffe rentiatio n  To achieve sequential advantages through network co-ordination, two structural properties of duplication and differentiation are necessary.  Duplication is to achieve gains through the arbitrage of factor, product, and technological markets.  Duplication of resources is the organizational requisite to exploiting operating flexibility.  The transfer of innovations across countries necessitates the duplication of R & D efforts.

Se quentia l str ategy a nd organiza tio nal evolutio n ---- - D upli catio n a nd d iffe rentiatio n  Differentiation permits the utilization of the variation in subsidiary and national resources for the benefit of the wider network.  Differentiation of tasks among subsidiaries which may stem simply from the acquisition of foreign companies.  Differentiation may also reflect the allocation of different capabilities to national subsidiaries, reflect national variations.  By differentiation of tasks, subsidiaries are assigned world-wide responsibilities for selected product development, manufacturing, or marketing.

Se quentia l str ategy a nd organiza tio nal evolutio n ---- -- Intern ational competence and integr sys tem

ative

Conflicts: • Global geographic or product line structures cannot eradicate the trade-off between the benefits of utilizing subsidiaries’ knowledge of the local environment and the costs of acquiring and the information in product development and delivery.

Se quentia l str ategy a nd organiza tio nal evolutio n ---- -- Intern ational competence and integr sys tem

ative

Solution:  Structural solutions can be augmented by designing integrative systems to permit the coordination of network activities.  Through lateral communication across borders and an enhancement of the functional authority of production managers that co-ordination is achieved.  Through integrative operating systems, the international competence of the corporation is functionally developed.

Co nclu si ons  The effective utilization of a coordinated network requires a reciprocal but asymmetrical dependence between headquarters and subsidiaries.  Both the management of operating flexibility and the corporate development of the option value inherent in multinational resources require a strong and activist role for headquarters and the creation of integrative operating systems.

Co nclu si ons  A central source of advantage lies in the cumulative experience of operating dispersed multinational resources.  The economic potential is already at hand, the strategic question is whether the organizational support can be effectively designed and implemented.