○ For example: Time to travel 200 km in North America will be 2 hours whereas in India it will take more than 6 hours due to conditions of road. Dunning’s Eclectic Theory ● Ownership advantage: (competitive advantage) ○ Required to overcome the disadvantage of competing in a foreign market against local firms ● Locational advantage: factors that make a host country an attractive location for carrying out a particular activity locally (e.g. manufacturing, design…) as opposed to supplying the host country from the home country. ○ availability of cheap labour / highly skilled labour, cheap raw materials, large market size, low political risk ● Internalisation advantage: when it is more efficient to transfer the ownership advantage through internal units than through independent firms. >>>> For FDI, all three advantages need to be present ORGANISATIONAL STRUCTURE ❏ Location of decision-making responsibilities within the structure (vertical differentiation) ❏ Centralisation versus decentralisation ❏ Formal division of the organisation into subunits e.g. product or area divisions (horizontal differentiation) ❏ Establishment of integrating mechanisms including cross-functional teams and or pan-regional committees The purpose of structure ➔ to establish lines of authority and chain of command ➔ to establish division of labor ➔ to enable control, coordination and integration ➔ to establish accountability and delegate responsibility ➔ to facilitate communication ➔ to establish rules and regulations GLOBAL STRATEGY ⇒ Product structure to allow for scale economies and knowledge sharing among units worldwide for a given product line ★ Each product division is responsible for producing and marketing a specific group of products worldwide. ★ Firm develops expertise with specific products on a global basis, ensuring scale economies and knowledge
LISA YANG IBUS20002 Business in the Global Economy sharing among units worldwide for a given product line. ★ However, can result in duplicating the firm’s support functions in each product division. ★ Potential for excessive focus on products and too little on developing the firm’s markets. MULTIDOMESTIC STRATEGY ⇒ Geographic division structure ★ Management and control decentralized to individual geographic regions ○ Managers are responsible for operations within their region ★ Often used by firms that market relatively standardized products across entire regions or groups of countries ★ Results in greater responsiveness to customer needs and wants in each market, providing a good balance between global integration and local adaptation ★ However, managers’ orientation is more regional than global, which affects development and management of products ⇒ global economies of scale may suffer TRANSNATIONAL STRATEGY ⇒ Global matrix structure ★ Blends the geographic area and product structures ★ Simultaneously leverages the benefits of global strategy and responsiveness to local needs. ★ Emphasizes interorganizational learning and knowledge sharing among the firm’s units worldwide. ★ However, the dual reporting chain of command means employees may receive contradictory instructions from multiple managers, which can lead to conflicts. ★ Managing many subsidiaries or products, or operations in many foreign markets, is complex.
- Marketing, LISA YANG