Appunti International Business & Management

HQ

The subsidiaries are wholly-owned by the company. All the companies outside the border are not

legally owned by the HQ. They can be alliances or joint venture.

But from a managerial point of view they could be considered as subsidiaries.

The new role of subisdiaries

The new role of subsidiaries (transnational)

Relevance of the local market

low high

A competent national

Country organization subsidiary that may

Competences STRATEGIC

with a distinctive be serving as a

CONTRIBUTOR

high STRATEGIC

competence LEADER

partner in developing

Subsidiary LEADER

and implementing

CONTRIBUTOR strategy

Most entities hold this The international BLACK HOLE

role. It provides company has a low

BLACK HOLE

EXECUTOR

critical mass competence country

low organization, or none

EXECUTOR at all

Antonio Majocchi - International Business and Management, Academic Year 2016-2017 16

27

The model classifies the tasks that are given to subsidiaries in a transnational model.

Executor: I don’t allocate important activities in these subsidiaries, they just execute.

• Black Hole: here you have to invest.

• Contributor and Strategic Leader are called centers of excellences

• Strategic leader: sometimes they can be defined as an HQ, but with one critical difference: the

• strategic leader has leadership only if the HQ gives this responsibility to it.

Contributor: i.e. Starbucks locates subsidiaries in Ireland even if it’s not a big market because

• they pay low taxes.

With this model you avoid:

duplication, as in multidomestic because you don’t duplicate each activity for every country

• inefficiency, because here you can achieve economies of scale

•

Subsidiaries are able to make local business development decisions within the global framework.

Subsidiaries can take a leading role with regard to specific functions/business or areas.

Control in transnationals

Control evolves in transn. corporation and became a very complex function. i.e R&D not only has

short-term objectives (product development) but also medium and long term ones (patents/

research projects). Even aspects which cannot be expressed strictly in quantitative terms are

considered.

Concentration & Decentralisation

Location is becoming a crucial factor in MNCs corporate strategy. Area with specific chracteristics

and attractive features attract more FDIs.

ES. industrial districts (London for finance, Silicon Valley for software etc.).

Location of cars components

Location of cars components producers

producers Praha, Warsaw, Bratislava and Budapest are

producers of components for Germany automotive

industry, because of lower costs and higher level of

productivity.

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

If transaction costs are lower, I avoid to externalize and vice versa. It’s a make or buy decision.

Transaction costs higher—> make

transaction costs lower—> buy 28

Concentration / Décentralisation

We can have:

one company making all the activities and then selling in different markets—> concentration

• different processes entirely done in different places and then sold in different markets—> cross-

• border production

Strenght of these options:

huge economies of scale

• production process for every single market—> parallel production. Here I can not achieve

• economies of scale that are balanced with lower transportation costs because I sell in the same

country in which I produce. 22

The Complexity of a MNC Network

The complexity of a MNC network

Company G

(Country G) Company C

WOS B (Country C)

(Country B)

Company H

(Distributor WOS A WOS C

for Country H) (Country A) (Country C) Joint Venture K

(Marketing/Sales

for Country K)

HQ

Company J Partial

(System Supplier Ownership

from Country J) WOS F WOS D

(Country F) (Country D) Company K

(Country K)

WOS E

HQ = Headquarters (Country E)

Contract

WOS = Wholly-owned Subsidiary Mfg. Partial

Ownership

= Intra-organisational Network Company L

(Country L)

Joint Venture L

Company M (Manufacturing in Partial

(Country M) Country L) Ownership

Source: Adapted from Schmid/Kutschker 2003, p. 165.

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

Different options to split production processes

single-product case

• - world market factory: one model is produced in one factory world wide

- parallel production (split by product volume): same product is (fully) produced at different sites

- cross-border production processes: different production stages (of the same product)are carried

out at different sites.

Multi-product case

• - in addition: split by product type

Basic Types of International

Basic types of International Production Configuration

Production Configuration

Cross-border production II

Parallel Production Host country A

Host country B

De-

centralization Host country C

Home country

Number of

production

locations Host country A

Host country B

Concentration Host country C

Home country

World Market Factory Cross-border production I

no yes Production Steps

International Splitting

of Production Process Sales

Antonio Majocchi - International Business and Management, Academic Year 2016-2017 29

Guardare su quaderno esempio gear boxes

We must consider the real labour cost, so not just the cost but the cost compared to the time in

which employees can produce.

Productivity: AV / unit cost

AV = added value

Av = sales - COGS

Comparing Production Locations in

Mexico and China

Comparing Production Locations in Mexico and China

simflexgroup.com

www.

Source: 2010.

Comparing Production Locations in

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

Mexico and China

2010.

www.simflexgroup.com,

Source: Antonio Majocchi - International Business and Management, Academic Year 2016-2017

30

entralised, Parallel Production &

Fragmented Production

Centralised, Parallel Production & Fragmented Production

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

Market selection

The market selection process depends on the kind of investment

resource seeking

• market seeking

• efficiency seeking

• strategic assets seeking

•

Efficiency seeking investment: investments which are targeted to lower the cost (i.e. concentrate

production to achieve ec. of scales)

IT D

2000 4000

100 400

2000/100 = 20 4000/400 = 10

Looking only at AV cost of labour, it would be better to produce in Italy, but if we go deeply at the

end the AV cost per unit is lower in Deutschland.

31

Localisation drivers

cost differentials: location decisions depend on gross labour cost but also (and foremost) on

• labour productivity

Clustering

• Asset-seeking: intangibles like knowledge is a main driver

•

Labor cost: Renault Logan

Markets

•

Labor cost: Renault Logan

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

Labour costs: the false story

Labour costs: the false story Labour costs & productivity

Labour costs & productivity

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

The real cost of labour

The real cost of labour 32

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

Part 5: Strategic Control in MNCs

Control refers to the general function of overseeing business unit performance.

Typically the corporate development function oversees strategy and the controllers (financial

function) budget and measure short-term financial performance.

Direct control: codified control

Control

Indirect control: social control. There is no need for the boss to speak

Different categories of control

Different categories of control

Personal/Cultural Impersonal/Burocratic Output control: I just want to produce an

•

output, I don’t care how

Personal Burocratic

Direct/ centralised Burocratic formalised control: set a list

•

formalised

explicit control of rules to be followed (i.e. a procedure to

control achieve a goal)

Personal centralised control: it’s

•

Control by powerful in small organization, but you

Output

Indirect/ Socialisation cannot apply it to MNCs

implicit Control

and Network

Source: Harzing

Antonio Majocchi - International Business and Management, Academic Year 2016-2017

MNCs use the first two, but is not enough, so they use also control by socialization.

It combines a lot of relatively diverse mechanisms:

Socialisation: instrument to ensure that employees share organizational values and goals

• Informal, lateral exchange of information: mutual adjustment, informal communication

• Formalised cross-departmental relations: temporarily formalized devices such as task forces,

• cross-functional teams…

Performance measurement

The organization’s measurement system strongly affects the behaviors of managers and

employees. However, as the experience of Multidomestic firms showed, relying only of financial

performance measurements is a too limited approach

The Balanced Scorecard (BSC)

The BSC is a strategic planning and management system that is used to align business activities

to the strategy of the organization, improve internal and external communications, and monitor

organization performance against strategic goals.

The BSC includes financial measures but also operational measures on customer satisfaction,

internal processes and the firm’s innovation activities.

BSC and strategy

The BSC is not just a list of performance indicators but provides executives with a comprehensive

framework that translate company’s vision and strategy into a coherent set of performance

measures.

Therefore, managers should first define the company’s goal and then define the measurement and

the goals. 33

The Strategy process

The strategy process Given the firm’s strategy for each

perspectives firm defines:

n the goals

•

s measures

• targets

•

egy for actions

•

pectives

defines

als

asures

gets

ions

tonio Majocchi - International Business and Management, Academic Year 2016-2017

The implementation

Bsc Metrics allow the managers to know how well their business is running

The financial perspective indicates wheter or not the firm’s strategy and implementation is

• contributing to bottom-li