Global Strategies and Business Organization

Four main global strategies form the basis for global firms’ organizational structure. These are domestic exporter, multinational, franchiser, and trans­national. Each of these strategies is pursued with a specific business organi­zational structure (see Table 15.3). For simplicity’s sake, we describe three kinds of organizational structure or governance: centralized (in the home country), decentralized (to local foreign units), and coordinated (all units participate as equals). Other types of governance patterns can be observed in specific companies (e.g., authoritarian dominance by one unit, a confed­eracy of equals, a federal structure balancing power among strategic units, and so forth).

The domestic exporter strategy is characterized by heavy centralization of corporate activities in the home country of origin. Nearly all international com­panies begin this way, and some move on to other forms. Production, finance/ accounting, sales/marketing, human resources, and strategic management are set up to optimize resources in the home country. International sales are some­times dispersed using agency agreements or subsidiaries, but even here, foreign marketing relies on the domestic home base for marketing themes and strate­gies. Caterpillar Corporation and other heavy capital-equipment manufacturers fall into this category of firm.

The multinational strategy concentrates financial management and control out of a central home base while decentralizing production, sales, and market­ing operations to units in other countries. The products and services on sale in different countries are adapted to suit local market conditions. The organiza­tion becomes a far-flung confederation of production and marketing facilities in different countries. Many financial service firms, along with a host of manufac­turers, such as General Motors and Intel, fit this pattern.

Franchisers are an interesting mix of old and new. On the one hand, the product is created, designed, financed, and initially produced in the home country but for product-specific reasons must rely heavily on foreign person­nel for further production, marketing, and human resources. Food franchisers such as McDonald’s and KFC fit this pattern. McDonald’s created a new form of fast-food chain in the United States and continues to rely largely on the United States for inspiration of new products, strategic management, and financing. Nevertheless, because the product must be produced locally—it is perishable— extensive coordination and dispersal of production, local marketing, and local recruitment of personnel are required.

Generally, foreign franchisees are clones of the mother country units, but fully coordinated worldwide production that could optimize factors of produc­tion is not possible. For instance, potatoes and beef can generally not be bought where they are cheapest on world markets but must be produced reasonably close to the area of consumption.

Transnational firms are the stateless, truly globally managed firms that may represent a larger part of international business in the future. Transnational firms have no single national headquarters but instead have many regional head­quarters and perhaps a world headquarters. In a transnational strategy, nearly all the value-adding activities are managed from a global perspective without reference to national borders, optimizing sources of supply and demand wher­ever they appear, and taking advantage of any local competitive advantages. Transnational firms take the globe, not the home country, as their management frame of reference. The governance of these firms has been likened to a federal structure in which there is a strong central management core of decision mak­ing but considerable dispersal of power and financial muscle throughout the global divisions. Few companies have actually attained transnational status.

Information technology and improvements in global telecommunications are giving international firms more flexibility to shape their global strategies. Protectionism and a need to serve local markets better encourage companies to disperse production facilities and at least become multinational. At the same time, the drive to achieve economies of scale and take advantage of short-term local advantage moves transnationals toward a global management perspective and a concentration of power and authority. Hence, there are forces of decentral­ization and dispersal as well as forces of centralization and global coordination.

Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16^th edition.