Ib2 Grpb L3 International Sequential Advantages - Zhang Ruixian

International Sequential Advantage and Network Flexibility AUTHOR: BRUCE KOGUT PRESENTED BY ZHANG RUIXIAN

Organization Architecture and Profitability Firm’s organization including structure, control

systems, incentives, processes, culture and people A profitable firm’s strategy and architecture are

consistent Strategy, architecture an competitive environment

must fit together

Introduction of the Article FDI’s Reinvested earnings far outweigh new capital flow Overtime, international assets generates subsequent

advantages Post WW-II, transition from technology transfer and organizational knowledge to strengthen existing established subsidiaries position Multinationality can be a source of advantage Part 1. 4 sources of advantage: Economies of scale and scope, learning and operation flexibility Part 2. Organizational structure and operating system

Part 1 : Multinationality and Competitive Advantage Conflicts between standardized products and

national differentiation International strategy consists of downstream process national differentiation and upstream economies of scale and scope Subsequent advantage realised thru co-ordination of the multinational network Increasingly shift of the strategy

Economies of scale, national segmentation, and international aggregation Exhausts of economies of scale 2 important consideration:

a. importance of scale economies and short life cycle b. market segmentation instead of similar product for identical market Aggregation of demand, invest in specialized fixed assets e.g: Canon AE-1 camera

Economies of scope and production line broadening and upgrading Cost of producing two products together less than

producing individually Currency appreciation force exports to overseas to upgrade or divest product Initial entry lays the foundation for higher margin product launch E.g.: Honda Motor in US market, ACURA

Learning and information upgrading The same way as economies of scale do. Transfer of knowledge Accumulates significant information in covariance of

demand Forecast the success of sequential launch in other countries E.g.: P&G canada used for international market

Multinational dispersion Opportunity of profitable arbitrage Key strengths is capability to respond to country

variance E.g: General Motor 1) shifting product between countries 2) Multidomestic strategy 3) Transfer prices 4) Alignment of incentive system

Part 2: Sequential strategy and organizational evolution Sequential advantage depends on properties of

duplication and differentiation Traditional organization structure impaired the creation of multinational flexibility Sequential advantage impaired by relatively inert structure and management system

Heterarchy and the professional organization Organizational structure not only channel

information and delegate authority Also provides a system by which information and organization knowledge created Professional firm: loosening of formal control and lateral communication Heterarcy is a poor model unless stabilized and delineated system Local entrepreneurship: motivational incentives

Duplication and differentiation Achieve gain through arbitrage Source of exploiting operating flexibility Network management consists of subsidiaries task

differentiation Reflect the allocation of different capabilities

Internal competency and integrating system Headquarter plays as co-ordination center Facilitate emergence of global organization Design integrating systems to permit co-ordination Includes HRM, pricing rules, environment scanning,

decentralized incentives Planning and control system for exchange rate Performance Monitoring system

Conclusions Coordinated network requires reciprocal and

asymmetrical dependence between headquarter an subsidiaries Question of whether the organization structure can support the potential sequential advantages