International Strategy and Organization

Strategy refers to a plan for interacting with the competitive environment
to achieve organizational goals (Daft, 1995). Although organizational goals
vary, it could be argued that increasing
the value for shareholders and other
stakeholders is among the primary goals
of any organization.

Managers aim to increase profitability by developing strategies that add value to products and services that, in return, enable the organization to increase profit margins. Managers may also pursue strategies that focus on selling more products and services in the existing markets, or they pursue entering new markets in order to achieve increased profitability. Expanding the operations to an international level could contribute to the current profitability while increasing the rate of profit growth.

Efficiency refers to how an organization utilizes its resources while achieving its goals. If organizational resources are wasted or kept idle, then it could be said that efficiency is low. It is important to note that organizational resources do not only refer to the resources related to production. Other resources, such as human resources, monetary resources, and capital resources, are among other resources that should not be wasted or kept idle in order to achieve organizational and managerial efficiency.

Flexibility is an essential factor for all businesses regardless of their size and field of operations. It could be argued that it is among the strategic priorities, along with cost, quality, and innovation. It helps organizations achieve competitive advantage. Strategic flexibility refers to an organization’s ability to respond to uncertainties by adjusting its objectives with the support of its superior knowledge and capabilities.

By reducing market-related uncertainties and exerting influence on customer expectations, businesses could have more strategic options and adopt a more proactive competitive approach.

Similarly, businesses with highly flexible production systems would be most likely to have resource-oriented flexibility. Such businesses can adapt to changing market conditions faster than their competitors.

Exploratory learning refers to the learning of product and process development skills that are entirelynew to the current experiences of the firm. Search, variation, risk-taking, experimentation, play, flexibility, discovery, and innovation are among the keywords in exploratory learning activities.

Exploitative learning refers to learning from the knowledge and skills that are familiar with the organizations’ current experiences. Refinement, choice, production, efficiency, selection, implementation, and execution are among the keywords in exploitative learning activities.

According to the matrix, organizations could achieve competitive advantage through market penetration, market development, product development, and diversification.

According to the market penetration strategy, businesses aim to increase their sales without abandoning their existing product-market strategies. Among these strategies are increasing the sales to the existing customer base or finding new customers for the existing products and services.

In market development strategies, businesses modify the characteristics of their products and services. By doing so, modified products and services enable the organization to enter new markets. For example, an aircraft manufacturer that manufactures passenger aircrafts modifies its aircraft to carry air cargo that, in return, enables the manufacturer to sell its aircraft to logistics companies.

According to the product development strategy,  businesses keep operating in their existing markets while developing new products and services. Businesses pursuing the product development strategy aim to offer the existing customers new products and services. Adding new specifications to the products or making radical changes in the design of a product are examples of product development strategies.

The diversification strategy is generally known as the riskiest strategy in the matrix. This is because, according to diversification strategy, businesses change both their product mix and their markets (Ansoff, 1957: 114). Simultaneous changes in the market and product mix cause this strategy to be known as risky. One of the main factors that determine the level of risk is how far the business departs from the existing products and markets.

The focus of the cost leadership strategy is to reduce the costs of the business while maintaining quality. This strategy requires the business to achieve costs lower than its competitors. By doing so, businesses aim to achieve a competitive advantage by seizing the opportunities introduced by the low costs. Maintaining quality while lowering the costs is an essential issue in cost leadership strategy, which requires increased efficiency, tight cost control, and cost minimization in different functional areas.

Differentiation strategy focuses on innovation and superior value creation instead of cost control. Businesses pursuing a differentiation strategy strive to achieve a competitive advantage in the market by offering unique and superior products and services. The main goal of this strategy is to offer inimitable and unique products and services which, in return, lead to customer loyalty. Thus, businesses that pursue this strategy could have a unique and superior position in the market. Businesses also are more more likely to have better flexibility in setting the prices for their products and services.

Focusing strategy refers to selecting a particularbuyer group or niche market as the basis for competition rather than the whole market or industry. It is important to note that there are two substrategies of the focusing strategy, namely focused cost leadership strategy and focused differentiation strategy. Although both sub-strategies focus on a specific market, their approaches are entirely different. In the focused cost leadership strategy, the organization competes through prices and costs in a specific market. Businesses pursuing this strategy strive to achieve a competitive advantage by selling their products and services at a relatively lower price level in a specific market. On the other hand, businesses pursuing a focused differentiation strategy strives to achieve a competitive advantage by offering unique and inimitable products and services to a specific market.

Michael Porter suggests (Porter, 1986: 17) that international competitive conditions vary radically from one industry to another because industries vary in a broad spectrum based on whether they have a domestic or international identity.

Domestic businesses pursue strategies based on one single country. Thus, all primary and support activities in the value chain are performed in one single country. On the other hand, an international business adopts a global perspective in performing all of its activities. Regardless of the industry, businesses could follow different international strategies.

1. Recognizing the changes in the field of strategy

2. Recognizing the effects of globalization

3. Recognizing the importance of timely response

4. Recognizing the importance of innovation

Traditional View                    ->                      Emerging View

Strategy as fit with resources  -> Strategy as stretch and leverage

Strategy as positioning in existing industry space -> Strategy as creating new industry space

Strategy as top management activity -> Strategy as total organizational process

Strategy as an analytical exercise -> Strategy as an analytical and organizational exercise

Strategy as extrapolating the past->  Strategy as creating the future

The international division structure centralizes all international operations. All country managers are managed by the international division manager, who, along with other Product Group Managers answers to the CEO.

 First, it reduces the CEO’s burden of the direct operation of overseas subsidiaries and domestic operations. Second, it creates a management team that prioritizes overseas operations. All information, authority, and decision making related to foreign efforts are channeled to this division, so there is one central clearing point for international activities.

But a dysfunctional rivalry may emerge between domestic and international operations. Furthermore, failure in the successful planning of the distribution of resources between domestic and international operations may lead to severe problem

Organizations with diverse products and services prefer product structure. Many international businesses use global product structure. Products and product groups are central to this organizational structure. All international operations are also organized around these products and product groups. Organizations that adopted a global product structure may also have regional experts. Thus, they can determine the region-specific needs more accurately and respond to these needs faster. Feedback obtained from different countries would be channeled into the process of determining better product strategies. Following the global product structure, each product group can make their own operational decisions, evaluate investment opportunities, and market-relevant products and services.

One advantage of the global product structure is that there is strong coordination between functional areas that supports product groups. Furthermore, market and customer needs are better understood since this structure focuses on products and customer groups. On the other hand, there are some disadvantages of the global product structure some of which include the duplication of functions in different product groups, more employment, and higher costs.

Global area structure is a commonly preferred organizational structure by international businesses. When businesses operate in different geographical areas with different specifications, the global area structure offers a few advantages for international businesses. In this structure, businesses are organized around countries or country groups

The most important advantage of this structure is that businesses can quickly respond to diversified regional needs and expectations. Furthermore, this structure enables an organization to seize opportunities offered by different geographical areas. The hierarchical structure is open and clear. Businesses can gather region-specific knowledge, and this knowledge can be used for obtaining a competitive advantage.

But coordination problems are among these disadvantages. Different geographical areas may start operating as independent divisions, which, in turn, causes coordination problems within the organization. The main reason for such a disadvantage is that some regional or country managers may subordinate overall organizational goals to their own regional goals. The duplication of functions in each geographical area is another disadvantage of the global area structure.

According to this structure, businesses are organized around the main
functions performed by the business. For example, such an organizational structure may have departments such as marketing, finance, production, and R&D. It is important to note that these departments and functions vary from one organization to another. 

The most important advantage of this structure is that it is a simple and lean structure. Thus, it is much easier to establish a robust coordination mechanism in global functional structures. It also supports and enhances specialization within the organization. It allows an easier and more effective career planning for the employees.

On the other hand, when departments act independently, there appear functional barriers which, in turn, reduce the coordination within the organization. The subordination of organizational goals to departmental goals may lead to this problem. When such a problem occurs, organizations may find it hard to achieve organizational goals.

A matrix structure is a hybrid organizational design option that blends two organizational responsibilities, such as functional structure and product structure or regional structure and product structure . For example, if the structure is a combination of regional and functional structures, then the structure is developed to combine the geographic support for - global integration and the one for local responsiveness; also it can be used to utilize personnel skills and experience shared across functional and divisional structures.

The matrix structure enables an organization to focus on its capabilities and experiences and share its resources between its divisions, which, in turn, leads to efficient use of organizational resources. Especially when the environmental conditions call for specialization, innovation, and meeting regional needs, the matrix structure could be an excellent organizational design option.

On the other hand, it may lead to problems in authority. The dual authority that is inherent in the matrix structure may cause problems for both employees and supervisors since subordinates report to two supervisors in the structure. When not appropriately managed, the matrix structure is prone to communication problems. Finally, the matrix structure is a costly structure. Offering constant training to the employees and supervisors, and establishing an effective communication system are the essential for a strong structure.