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                        Global Strategies for MNCs

                        Christopher A. Bartlett & Sumantra Ghoshal

                         
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                        Bartlett and Ghoshal (1991) identified four distinct types of multinational corporations (MNCs), which are depicted in the image at the end of this article. These four types can be seen to illustrate, which strategic outlook MNCs have towards managing their subsidiaries, and how these MNCs balance the potential needs of global integration and global differentiation. Each MNC should ideally choose the strategic model that satisfies the needs of the environment, and chose the strategic model that will secure global competitiveness.

                         

                        The choice of a specific strategic model should be made through an evaluation of, which forces pushes the MNC towards global integration, global differentiation or both. The strategic choice should ideally fit the pressures of the environment, where MNCs should try to build the strategic capabilities wanted by e.g. consumers.

                         

                        To evaluate these forces and pressures for either global integration or differentiation, MNCs could evaluate their business with the forces found in the I-R framework (Integration - Responsiveness framework) put forward by Prahalad and Doz (1987). (See table below)

                        This framework tries to give managers hints to, which factors might push the MNC towards greater responsiveness and differentiation of e.g. products or services, and hints to which forces may push the MNC towards greater integration of the MNC. Pressures for global integration could e.g. signal the importance of economies of scale, uniform product offerings, uniform shopping offerings etc.

                         

                        Environmental pressures for local responsiveness and for global integration

                        Pressures for global integration

                        Pressures for local responsiveness

                        For strategic coordination

                        For operating integration

                        Importance of multinational customers

                        Scale economies

                        Differences in customer needs/tastes

                        Importance of multinational competitors

                        Pressure for cost reductions

                        Need for substitutes

                        Investment intensity

                        Homogeneous needs/tastes

                        Market distribution structures

                        Technology intensity

                        Host government demands

                        Adapted from Prahalad and Doz (1987)

                         

                         

                        Bartlett and Ghoshal (1991) added a third force to this framework: "forces for world-wide innovation". This force can be seen as the pressure a MNC faces in levering the dispersed capabilities for innovation within the MNC. 

                         

                        MNCs that do not need innovation from its foreign companies or subsidiaries to be competitive, will most likely not be as inclined to allow autonomous decision-making and innovation in its subsidiaries. Innovation will oftentimes solely be developed at home, where this innovation and knowledge is sought dispersed to the subsidiaries and companies around the world.

                         

                        However, MNCs that require local innovation to remain competitive, will most likely demonstrate a greater deal of autonomous decision-making in its subsidiaries and companies. New ideas, innovation and knowledge are sought developed within each individual subsidiary, or likewise sought dispersed to the entire network of the MNC.

                         

                         

                        Below, each strategic model will be elaborated further, where the design of the MNC in each strategic model will be shortly described.

                         

                        Multidomestic (Low pressure for integration - high pressure for differentiation)

                        This strategy is based on responsiveness to local market demands. The structure of the MNC will be a portfolio of rather autonomous national companies containing their entire value chain. The innovation and knowledge developed at these national companies will most likely stay there, and will most likely not be dispersed to other companies within the MNC.

                         

                        International (Low pressure for integration - low pressure for differentiation)

                        This strategy is based on home country expertise. The majority of the value chain will be maintained at the headquarter. The control of technologies used for e.g. production and general management systems will be structured and developed at home. The development of knowledge and innovation will stream from the home organization to the subsidiaries.

                         

                        Global (High pressure for integration - low pressure for differentiation)

                        This strategy is heavily based on scale economies. The subsidiaries of the MNC are rather weak and a full value chain will only exist at home. The subsidiaries are tightly coupled to the home organization, and are heavily dependent on resources and know-how from the home organization. Innovation and development will be created at home, and later diffused to remaining subsidiaries.

                         

                        Transnational (High pressure for integration - High pressure for differentiation)

                        This strategy tries to maximize both responsiveness and integration, where knowledge and innovation is sought developed and dispersed within the entire network. The MNC is regarded as a network, and each subsidiary is given responsibility compared to its capabilities and strategic mission. The MNC is controlled by the movement of people within the MNC that may facilitate the mutual development and dispersion of innovation and knowledge.

                         

                        Therefore, each MNC should chose the strategic model that fits to the environmental pressures it faces, so that it will remain competitive.

                         

                        However, Bartlett and Ghoshal posits that many MNCs will have to adopt the transnational strategy, because the competitive forces of almost every industry is increasing, due, in part, to the intense globalization occurred during the last decades. Many modern MNCs will therefore, most likely, need to choose a transnational strategy, because many MNCs must master both the art of cost reduction and local differentiation to maintain its competitive edge.

                         
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                        Date Created: 2009-08-16
                        Posted by: Admin
                         
                         
                        Global Strategies for MNCs
                         

                        Related resources:

                        What is Michael Porter's 5 forces?
                        Internationalization of Multinational Corporations?
                        What is the Balanced Scorecard??
                        What is the PESTEL Framework?
                        What is the BCG Matrix?
                        What is Michael Porter's Diamond Model?
                        Reference(s)
                         
                        Managing Across Borders: The Transnational Solution
                        Bartlett, Christopher E. & Ghoshal, Sumantra; (1991); Harvard Business School Press
                        The Multinational Mission: Balancing Local Demands and Global Vision
                        Prahalad, C.K. & Doz, Y.; (1987); (New York: The Free Press)
                        Keywords:

                        Online MBA, Online MBA Courses, Christopher A. Bartlett & Sumantra Ghoshal, Global Strategies, Multidomestic, International, Global, Transnational, MNC, Business Strategy

                         






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