[MUSIC] With this video, return to Organizational Design for International Businesses. In other words, how should a business structure itself to best meet the needs of international markets, its external organization, and its overall objectives and goals? International firms will have differing needs for internal integration and external market responsiveness. This will depend on their individual objectives in the industries in which they participate. Some companies do not need to internally integrate International Operations into a closely knit organizational structure. Others will want tight organizational integration in order to develop new foreign markets in a coordinated fashion, promote economies of scale, share expertise between internal subsidiaries, standardized products across national boundaries. Or develop international brands known Worldwide, among many other reasons. On the other dimension, firms may have differing needs for external responsiveness to local markets. Some firms that sell standard a commodity product may have little need for this responsiveness relative to their relatively static markets. But in contrast, those firms that serve rapidly evolving markets and customers will need to be quickly responsive to changes. These changes may include adapting to products to local market, localising marketing and sales, developing local relationships, adapting to political constraints, and adapting to economic environments. Integration and responsiveness are two independent dimensions of international business. Putting integration on one axis and responsiveness on the other, we develop a matrix of international organizational strategies as shown here. Companies with both a low need for integration in a low need for responsiveness are called international companies. Those with a low need for integration in a high need for responsiveness are called global companies. Companies with a high need for integration but alone need for responsiveness are called domestic companies. In companies with a high need for both integration and responsiveness are called transnational companies. Let's look at each of these strategies in more detail. Affirm pursuing an international strategy has little need for integration and little need for market responsiveness. The objectives of firms with an international strategy may be to efficiently serve export markets, keep decision making at headquarters, retain most operations at headquarters. And to focus on exporting goods to international customers. Typical industries n the following international strategy are agricultural producers, such as grain produce, sugar and wine. Mineral exporters such as steel, aluminum, iron ore in petroleum. Commodity exporters such as timber, lumber, paper and cardboard and other exporters of chemicals, machinery and specialized equipment. A typical organizational structure for international companies is the hub and spoke design shown here, for the central officers make most important decisions with little or no input from his foreign offices or subsidiaries. Companies with global strategies have a greater need for internal integration, but little need for market responsiveness. Their strategic objectives maybe to standardize product's, maximize efficiencies, reduce costs, remain highly centralized, and to allow foreign offices to implement headquarter decisions. Typical industries using a global strategy include pharmaceutical companies, commercial aircraft, consumer electronics, international banking and semiconductors. A typical organizational structure for global companies is an integrated hub and spoke as shown here, where there is some level of coordination between foreign offices. Companies using multi domestic strategies have little need for internal integration, but a greater need for market responsiveness. The strategic objectives of multi domestic companies maybe to meet the needs of local markets customize and tailor products for local customers and allow subsidiaries to operate with relative autonomy. Typical industries using multi domestic strategies include advertising, apparel, accounting, retail banking and fast food and beverage. Typical organizational structures for multi domestic companies are as the decentralized hub and spoke shown here. Companies pursuing a transnational strategy desire both high organizational integration combined with high market responsiveness. The strategic objectives of transnational firms are to maximize local responsiveness, benefit from global integration. Create economies of scale, flexibly in locally adapt local marketing and sales, exchange knowledge and expertise throughout the organization, and create subsidiaries that are centers of Excellence. Typical industries that benefit from transnational strategies, a corporate banking, telecommunications, financial services, e-commerce and software, among others. Typical organization structure for a transnational organization is a highly connected hub and spoke network shown here. This busy table compares to four international business organizational strategies on a dozen characteristics. In general, international strategies are simple and straightforward is shown in the column to the left. In contrast, transnational companies shown on the right column have complex characteristics, such as highly network structure, global centers of excellence, and high levels of subsidiary independence. Multi domestic and global strategies are in the middle. Take a moment to pause the video and study the differences between these four organizations. It certainly is not the case that organizational strategies are static and unchanging. Instead, they constantly change as a firm grows, matures and evolves, so will the organizational structures of its international operations. For example, an early stage international company could evolve to a global structure as its subsidiaries evolved to share market information and perhaps inventories. From there, it might evolve from global to transnational structures, as the integration between the subsidiaries in the Home Office become stronger. A mutually supportive. Conversely, an international company could evolve to multi domestic organization to provide greater responsiveness to foreign markets. And then, to transnational organization as it integrates its foreign operations. I suppose that international company could evolve directly to transnational structure, but that would take a very complex and difficult organizational transformation, so probably, unlikely. In summary, we can identify two critical strategic dimensions on which international firms operate. These are integration and responsiveness. From these two dimensions, we can identify four organizational strategies for international businesses. In international strategy with low internal integration and low external market responsiveness. A global strategy with high integration and low responsiveness, a multinational strategy with low integration and high responsiveness, and transnational strategy with both high integration and high responsiveness. The strategy theorem is, strategies are important because they define how firm will interact with its foreign markets, which internal influence the competitiveness of its internal operations. In the next video, we will further explore the various organizational structures that affirm can adopt, given its individual organizational strategy. See you there.
