Business Reading

[masterof_none]

In the free time, it's fun to read lots of things about business.
Let's assign a reading every week, and we can discuss about what we've read.

For starting, let's read this article:
http://hbswk.hbs.edu/item.jhtml?id=4222&t=globalization

[chenchow]

Thanks masterof_none for this wonderful article... I am in the process of writing a paper about headquarters and subsidiaries relationship, and this would be an added asset for me. I am taking a class on Strategic Management of Multinational Companies and some of the issues discussed here about the role of subsidiaries ring some bells within me.

Perhaps I could share a bit basic knowledge on this aspect, in particular on the headquarters view point. There are 4 structures HQ are set up. Global, international, multidomestic and transnational.

Basically this is measured in terms of the local responsiveness vs global integration, which resonates with the theme of this article of thinking global, acting local.

Typically a new MNC starts with international structure, where typically they would try to merely copy exactly what they are doing in their host country to other countries. Basically, there isn't much adaptation in terms of local adaptation, as well as lacking in global integration, which would boost the economies of scale and worldwide learning and innovation.
That is typically the starting stage.

Some companies, for instance, Philips, start their company worldwide by trying to adapt to the local market as much as possible. Hence, the advantage is that many people in those local market would have thought that Philip is their local company. This is also the approach that Nestle is doing. With that they are able to win the hearts of the consumers, however, they typically fail, in particular in the early stage, on utilizing the economies of scale to minimize their cost. This is called multidomestic structure.

The third structure is what typically done by Japanese companies. When they go abroad, what they have done is that they have embarked on serious integration in process, which brings their cost to a very low level. This means that they would have a higher margin than competitors while selling at a lower rate compared to their competitors. This is called Global Structure.

And the fourth structure, which would be a more ideal one would be transnational structure, where company would be able to maintain their global integration, while being responsive to the local economy. The company that I had learned in my class was ABB Relay, but I think a good example would be McDonalds. McD is in all over the world. And they have managed to get a very low cost, by selling pretty much the same product, which gives them large economy of scales. However, to be adaptable to local market, McD has done a lot of adaptation, like halal food in Malaysia, no beef in India, selling beer in some European countries etc...

Enjoy the article~!