Published on December 4, 2011
INTEGRATION – RESPONSIVENESS FRAMEWORK: INTEGRATION – RESPONSIVENESS FRAMEWORK Presented To :- Dr. Archana Singh Presented By :- Ajay Ahuja (10/MBA/06) Ajit Kumar (10/MBA/07) Amandeep kaur (10/MBA/08) Anant Sharma (10/MBA/09) CASE: CASE Select two large multinational enterprises, one consumer-oriented and one industrial. Then discuss the pressures for local responsiveness and global integration faced by each firm. Which experiences the greater pull toward local responsiveness? Why? Which faces a greater need for global standardization? Why? PowerPoint Presentation: Integration-Responsiveness Framework The Integration-Responsiveness Framework summarizes two basic strategic needs: To integrate value chain activities globally. To create products and processes that are responsive to local market needs. The discussion about the pressures on the firm of achieving global integration and local responsiveness is known as integration-responsiveness (IR) framework. Global Integration: Global Integration Global integration refers to coordination of the firm’s value-chain activities across countries to achieve worldwide efficiency, synergy, and cross-fertilization in order to take maximum advantage of similarities across countries. Two primary factors behind pressures for global integration are : The globalization of markets The efficiency gains of standardization. The resulting economies of scale translate to : Lower prices Higher quality standardized goods More homogenization of consumer demand 5 Objectives of Global Integration: Objectives of Global Integration Global integration seeks economic efficiency on a worldwide scale, promoting learning and cross-fertilization within the global network, and reducing redundancy. Headquarters personnel justify global integration by citing converging demand patterns, spread of global brands, diffusion of uniform technology, availability of pan-regional media, and the need to monitor competitors on a global basis. Companies in such industries such as aircraft manufacturing, credit cards, and pharmaceuticals are more likely to emphasize global integration. 6 Pressures for Global Integration: Pressures for Global Integration For Strategic Coordination Uniform service to global customers (Importance of multinational customers) Global competitors (Importance of multinational competitors) Investment Intensity (Capitalize on converging consumer trends and universal needs) Availability of media that reaches customers in multiple markets For Operating Integration Economies of Scale Pressure for cost reductions Global sourcing of raw materials, components, energy, and labor Homogeneous needs/tastes Technology Intensity 7 Local Responsiveness: Local Responsiveness Local responsiveness refers to meeting the specific needs of buyers in individual countries. It requires a firm to adapt to customer needs, the competitive environment, and the distribution structure. Companies in such industries as food and beverages, retailing, and book publishing are likely to be responsive to local differences. 8 Pressures for Local Responsiveness: Pressures for Local Responsiveness Unique resources and capabilities available to the firm. Diversity of local customer needs. Differences in distribution channels. Local competition Cultural differences. Host government requirements and regulations. 9 The Four Strategies Emerging from the IR Framework: The Four Strategies Emerging from the IR Framework Home replication strategy Multi-domestic strategy Global strategy Transnational strategy 10 PowerPoint Presentation: 11 Home Replication Strategy (Export Strategy or International Strategy): Home Replication Strategy (Export Strategy or International Strategy) The firm views international business as separate from, and secondary to, its domestic business. Such a firm may view international business as an opportunity to generate incremental sales for domestic product lines. Products are designed with domestic customers in mind, and international business is sought as a way of extending the product lifecycle and replicating its home market success. The firm expects little knowledge flows from foreign operations. 12 Multi-Domestic Strategy (Multi-Local Strategy): Multi-Domestic Strategy (Multi-Local Strategy) Headquarters delegates considerable autonomy to each country manager allowing him/her to operate independently and pursue local responsiveness. With this strategy, managers recognize and emphasize differences among national markets. Country managers tend to be highly independent entrepreneurs, often nationals of the host country. They function independently and have little incentive to share knowledge and experiences with managers elsewhere. Products and services are carefully adapted to suit the unique needs of each country. 13 Advantages of Multi-Domestic Strategies: Advantages of Multi-Domestic Strategies If the foreign subsidiary includes a factory, locally produced goods and products can be better adapted to local markets. The approach places minimal pressure on headquarters staff because management of country operations is delegated to individual managers in each country. Firms with limited international experience often find multi-domestic strategy an easy option as they can delegate many tasks to their country managers (or foreign distributors, franchisees, or licensees, where they are used). 14 Disadvantages of Multi-Domestic Strategy: Disadvantages of Multi-Domestic Strategy The firm’s foreign managers tend to develop strategic vision, culture, and processes that differ substantially from those of headquarters. Managers have little incentive to share knowledge and experience with those in other countries, leading to duplication of activities and reduced economies of scale. Limited information sharing also reduces the possibility of developing knowledge-based competitive advantage. Competition may escalate among the subsidiaries for the firm’s resources because subsidiary managers do not share a common corporate vision. It leads to inefficient manufacturing, redundant operations, a proliferation of products designed to meet local needs, and generally higher costs of international operations than other strategies . 15 Global Strategy: Global Strategy With global strategy, the headquarters seeks substantial control over its country operations in an effort to minimize redundancy, and achieve maximum efficiency, learning, and integration worldwide. In the extreme case, global strategy asks why not make ‘the same thing, the same way, everywhere? It favors greater central coordination and control than multi-domestic strategy, with various product or business managers having worldwide responsibility. Activities such as R&D and manufacturing are centralized at headquarters, and management tends to view the world as one large marketplace. 16 Advantages of Global Strategy: Advantages of Global Strategy Global strategy provides management with a greater capability to respond to worldwide opportunities. Increases opportunities for cross-national learning and cross-fertilization of the firm’s knowledge base among all the subsidiaries. Creates economies of scale, which results in lower operational costs. Can also improve the quality of products and processes - primarily by simplifying manufacturing and other processes. High-quality products promote global brand recognition and give rise to customer preference and efficient international marketing programs. 17 Limitations of Global Strategy: Limitations of Global Strategy It is challenging for management, particularly in highly centralized organizations, to closely coordinate the activities of a large number of widely-dispersed international operations. The firm must maintain ongoing communication between headquarters and the subsidiaries, as well as among the subsidiaries. When carried to an extreme, global strategy results in a loss of responsiveness and flexibility in local markets. Local managers who are stripped of autonomy over their country operations may become demoralized, and lose their entrepreneurial spirit. 18 Transnational Strategy: A Tug of War: Transnational Strategy: A Tug of War A coordinated approach to internationalization in which the firm strives to be more responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning. Transnational strategy combines the major advantages of multi-domestic and global strategies, while minimizing their disadvantages. Transnational strategy implies a flexible approach: standardize where feasible; adapt where appropriate. 19 What Transnational Strategy Implies: What Transnational Strategy Implies Exploiting scale economies by sourcing from a reduced set of global suppliers; concentrating the production of offerings in relatively few locations where competitive advantage can be maximized. Organizing production, marketing, and other value-chain activities on a global scale. Optimizing local responsiveness and flexibility. Facilitating global learning and knowledge transfer. Coordinating competitive moves - how the firm deals with its competitors, on a global, integrated basis. 20 Difficulty of Implementing Transnational Strategy: Difficulty of Implementing Transnational Strategy In the long run, almost all firms find that they need to include some elements of localized decision-making. Few people in Japan want to buy a computer that includes an English-language keyboard. While Dell can apply a mostly global strategy to Japan, it must incorporate some multi-domestic elements as well. Even Coca-Cola, varies its ingredients slightly in different markets. While consumers in the U.S. prefer a sweeter Coca-Cola, the Chinese want less sugar. 21 Relative Contributions of the Headquarters and the Subsidiary: Relative Contributions of the Headquarters and the Subsidiary Generally, the larger the financial outlay or the riskier the anticipated result, the more involved headquarters will be in the decision. E.g., decisions on developing new products or entering new markets tend to be centralized to headquarters. The choice between headquarters and subsidiary involvement in decision-making is also a function of the nature of the product, the nature of competitors’ operations, and the size and strategic importance of foreign operations. No firm can centralize all its operations. Retaining some local autonomy is desirable. Companies need to effectively balance the benefits of centralization and local autonomy. The old phrase, ‘think globally, act locally’, is an oversimplification of the true complexities of today's global competition; ‘think globally and locally, act appropriately’ better describes the reality of the marketplace. 22 Selection of MNE’s: Selection of MNE’s Consumer oriented: Unilever (FMCG) Industrial oriented: BASF (Badische Anilin- und Soda-Fabrik , chemical Company) Consumer oriented: Unilever (FMCG): Consumer oriented: Unilever (FMCG) A British-Dutch MNC that owns many of the world's Consumer Product Brands in foods, beverages, Cleaning agents and Personal Care Products. Founded 1930. Area served Worldwide PowerPoint Presentation: Top 25 brands = almost 75% of Unilever’s sales*. * As at end 2010 Big global brands PowerPoint Presentation: Fast facts - 2010 163,000 employees at the end of the year 20 nationalities among our top tier managers More than 170 countries in which our products are sold 264 manufacturing sites worldwide €891 million invested in R&D worldwide €89 million invested in community programmes worldwide Scale and geographic reach: Scale and geographic reach The Americas €13 billion turnover 4.2% underlying sales growth 32.3% of group turnover AAC €15 billion turnover 7.7% underlying sales growth 37.4% of group turnover Western Europe €12 billion turnover -1.9% underlying sales growth 30.3% of group turnover 2010 turnover €39.8 billion PowerPoint Presentation: Unilever’s deep roots in local cultures and markets around the world give it a strong relationship with consumers and are the foundation for its future growth. Unilever will bring its wealth of knowledge and international expertise to the service of local consumers – a truly multi-local multinational. Its long-term success requires a total commitment to exceptional standards of performance and productivity , to working together effectively, and to a willingness to embrace new ideas and learn continuously. To succeed also requires, it believe, the highest standards of corporate behaviour towards everyone it work with, the communities ittouch, and the environment on which it have an impact. This is its road to sustainable, profitable growth, creating long-term value for its shareholders, its people, and its business partners. corporate purpose of Unilever Industrial oriented: BASF: Industrial oriented: BASF The largest chemical company in the world and is headquartered in Germany. It comprises subsidiaries and Joint Ventures in more than 80 countries and operates six integrated production sites and 390 other production sites in Europe , Asia , Australia , Africa , Americas. Founded in 1865. 6 business segments contain 15 divisions which bear the operational responsibility and manage our 73 global and regional business units. The divisions develop strategies for our 86 strategic business units and are organized according to sectors or products. q’s of case: q’s of case Which experiences the greater pull toward local responsiveness? Why? Consumer oriented – Unilever Demand of diff. products for diff. needs of diff consumers Cultural difference Multi-Domestic Strategy q’s of case: q’s of case Which faces a greater need for global standardization? Why? Industrial oriented – BASF the same thing, the same way, everywhere. Same products is used across the globe Standardization of products is highly desired for performance Globalization Strategy Thank you !!: Thank you !! Happy prep leaves !! Best of luck for exams!!