As the globalization of the world economy and the speed up integration process the international competition is increased, the requirement for international business strategy is rising ever higher. International business strategy plays a vital role in the global economy, it not only to guide a company’s development, but also link the global economy. What is strategy? A strategy is the pattern or plan that integrates an organisation’s major goals, policies and action sequences into a cohesive whole. (Mintzburg, 1984) Those strategies established long-term objectives and provided the overall guidance for the operational decisions which are focus on the whole companies. They determine the overall direction of an enterprise and its ultimate viability in light of the predictable, the unpredictable and the unknowable changes that may occur in its most important surrounding environments. (Elizabeth, 2001) Nowadays, the global competitive environment requires organizations not only to compete in their ability to enter new markets and achieve economies of scale but also in their ability to effectively administrate knowledge flows in an information-based economy.
Additionally, in order to increase competitiveness, challenges are faced in pursuing global efficiency, local responsiveness and at the same time effective knowledge and information transfer between subsidiaries (Hill, 2011). Different strategies can be employed to achieve competitive advantages, Multinational Enterprises (MNEs) adopting international strategies seek to exploit worldwide innovations, but they lack of flexibility and efficiency preventing them from being locally responsive. Firms like Philips, approaching a multi-domestic strategy comprise high local responsiveness but experienced difficulties in exploiting knowledge transfer and competencies of all the subsidiaries (Barlett and Beamish, 2011). Global strategy was adopted by MNEs who followed high centralization and tight control on its activities from Headquarters, which prevented product adaptation to satisfy local needs being the case of Matsushita (Hill, 2011) (Figure 1). Nevertheless, to increasing the level of competitiveness is not sufficient to overcome the challenges arising in today’s global environment (Hill, 2011). By focusing only on the home environment no organization can develop a world-class knowledge and expertise to strive in a competitive market (Barlett and Beamish, 2011). Thus, MNEs most recent dilemma is to develop and diffuse knowledge, but at the same time boost innovation.
Internationalization of operations has led organizations to assume different types of strategies. For this paper our company of focus will be INTEL CORPORATION which applies the Global-Standardization strategy and the matrix organization structure and the advantages and the disadvantages of their choices which we will come to last after looking at the other types of international strategies other MNEs employ. The ways in which different firms both decide and implement strategy are related to their organizational structure. Structure determines, among other things, the organisation of decision-making, the configuration of assets and the flexibility of resource allocation in the firm. It can be a source of inertia and ‘path-dependency’, limiting the strategic options that are open to managers.
Approaches to strategy and planning in multinationals requires more effort due to more complex organizational structures and market specific factors global companies’ face. Corporate strategy must be “localized” to allow the business to respond appropriately to geographic-based opportunities and threats. Likewise, strategy development must include the involvement of the company’s foreign business leaders to help the strategy be adapted correctly to local needs. Exactly how this is done is dependent upon the type of structure the company has decided best suits the organization (e.g. matrix, product, geography, etc.). But first we look at the four types of strategies adopted by MNEs which is based on the Integration-Responsiveness Framework where strategies are determined by need for cost reduction and need for local responsiveness.
We first examine INTERNATIONAL STRATEGY, an example of this is STARBUCKS selling their product (coffee) internationally. This strategy entails levering home-based competencies and selling same product or services in both domestic markets and foreign markets which is one of its advantages. Another advantage is economies of scale since same product is been sold without any need for customization for a specific region or specific set of people, the product can be produced in large quantity. It also provide low cost implementation. Implementations can be done through exporting or licensing of products, franchising for services or licensing for trademarks. One of the risks/disadvantages of this strategy is that it’s highly affected by exchange rates which affects all imports/exports business. Also there’s no or minimal local responsiveness. With this strategy intellectual property also embedded in products/services could also be stolen. The functional organization structure or international division structure is best suited for the international strategy. The structure works well with producers of standard goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. This structure has some drawbacks; foreign subsidiary managers whose inputs is channeled through the international division are not given enough voice/power relative to heads of domestic division. Divisional organization structure is also suitable for this strategy for companies selling more than one product/services where each product/services makes up a division. LOCALIZATION strategy entails maximizing local responsiveness via a multi-domestic strategy. Consumers will perceive the MNEs to be domestic companies. An example of this strategy is NESTLE with customized product offerings in international markets. Used by MNEs to compete in host countries with large and/or lucrative but eccentric domestic markets (like Germany, Japan, Saudi Arabia) and its often used in consumer products and food industries. Main competitive advantage is differentiation. Local responsiveness is high and exposure to exchange rate risk is reduced. However, duplication of key business functions in multiple countries leads to high cost of implementation. There’s also little or economies of scale as each localized company handles its production just for its markets. Little or no learning across different regions and higher risks of intellectual property loss. GEOGRAPHIC AREA STRUCTURE is most appropriate for the localization strategy organizing the MNEs to different geographical areas (countries, regions) which will be led by a country or regional manager. Another international strategy is the GLOBAL STANDARDIZATION
strategy; which is pursuing a global division of labor based on best of class capabilities reside at the lowest cost. An example is what is practiced at LENOVO, it provides for economies of scale. Common with MNEs that are offering standardized products and services and main competitive strategy is price. The drawbacks include no local responsiveness and little or no product differentiation which. Risk of Intellectual Property loss Most ideal structure for global standardization strategy is the GLOBAL PRODUCT DIVISON STRUCTURE which is the opposite of the geographic area structure. It supports the global standardization strategy by assigning global responsibilities to each product division. This structure treats each product as a stand-alone entity with full worldwide responsibilities (as opposed to domestic responsibilities). The structure is highly responsive to pressures for cost efficiencies because it allows for consolidation on a worldwide basis and reduces inefficient duplication in multiple countries. The last international strategy is the TRANSNATIONAL strategy which is the combination of the localization strategy (high responsiveness) with the global standardization strategy (lowest cost attainable). Used by MNEs that pursue an integration strategy at the business level by simultaneously focusing on product differentiation and low cost. Advantages include economies of scale, location and learning. Disadvantages include, high risk of intellectual property loss and exchange rate exposure. The structure best suited for the transnational strategy is the GLOBAL MATRIX STRUCTURE. The structure alleviates the disadvantages of both the geographic area structure and the global product division structure. Its main advantage is the sharing and coordination and no single division is given no more priority than the other. However, decision making become slower and bureaucracy increased with the need for committees to resolve issues and conflicts and achieve coordination. And also, the structure is expensive to maintain.
Intel Corporation is an American multinational semiconductor chip maker corporation headquartered in Santa Clara, California. Intel is the world’s largest and highest valued semiconductor chip maker, based on revenue. It is the inventor of the x86 series of microprocessors, the processors found in most personal computers. Intel Corporation, founded on July 18, 1968, is a portmanteau of Integrated Electronics (the fact that “intel” is the term
for intelligence information was also quite suitable). Intel also makes motherboard chipsets, network interface controllers and integrated circuits, flash memory, graphic chips, embedded processors and other devices related to communications and computing. Founded by semiconductor pioneers Robert Noyce and Gordon Moore and widely associated with the executive leadership and vision of Andrew Grove, Intel combines advanced chip design capability with a leading-edge manufacturing capability. Though Intel was originally known primarily to engineers and technologists, its “Intel Inside” advertising campaign of the 1990s made it a household name, along with its Pentium processor. Intel was an early developer of SRAM and DRAM memory chips, and this represented the majority of its business until 1981. Although Intel created the world’s first commercial microprocessor chip in 1971, it was not until the success of the personal computer (PC) that this became its primary business. During the 1990s, Intel invested heavily in new microprocessor designs fostering the rapid growth of the computer industry. During this period Intel became the dominant supplier of microprocessors for PCs, and was known for aggressive and sometimes illegal tactics in defense of its market position, particularly against Advanced Micro Devices (AMD), as well as a struggle with Microsoft for control over the direction of the PC industry. The 2013 rankings of the world’s 100 most valuable brands published by Millward Brown Optimor showed the company’s brand value at number 61. Intel has also begun research in electrical transmission and generation. Intel has recently introduced a 3-D transistor that improves performance and energy efficiency. Intel has begun mass-producing this 3-D transistor, named the Tri-Gate transistor, with their 22 nm process, which is currently used in their 3rd generation core processors initially released on April 29, 2012. In 2011, SpectraWatt Inc., a solar cell spinoff of Intel, filed for bankruptcy under Chapter 11. Recently Intel unveiled its brand new fourth generation Intel Core processors (Haswell) in an event named Computex in Taipei. The Open Source Technology Center at Intel hosts PowerTOP and LatencyTOP, and supports other open-source projects such as Wayland, Intel Array Building Blocks, Threading Building Blocks (TBB), and Xen.
The intelligence inside your computer could very well be Intel. The company
— which holds about 80% of the market share for microprocessors that go into desktop and notebook computers, smartphones, tablets, and computer servers — is #1 in the manufacturing of semiconductors. Intel also makes embedded semiconductors for the industrial, medical, and in-vehicle infotainment markets. In 2013 the company introduced its new Haswell processor micro-architecture used to design its chips; the new technology boosts CPU performance and reduces the amount of power consumed. While most computer makers use Intel processors, PC giants Dell and Hewlett-Packard are the company’s largest customers.
Intel Corporation, the world’s largest producer of micro-processers, has a corporate level structure reﬂecting their large product groups, a so called divisional structure. In 2008 Intel was formally organized in 6 divisions: Digital Enterprise, Flash Memory, Digital Home, Mobility, Digital, Health, and Channel Platforms. The Digital Enterprise Group is the largest with 55% of consolidated net revenue in 2008, followed by the Mobility Group as second largest with 42% of net revenue. The Digital Enterprise Group has, however, shrunk from 65% in 2005 and 72% in 2004, While the Mobility Group is gaining ground (up from 29% in 2005 and 20% in 2004). These ﬁgures reﬂect the major challenges for a company like Intel with rapid technological and market-related changes, creating issues in designing the formal organization in a way that enables the company to deal with the changes and demands they face. On 27 December 2008 the company had 83,900 employees and net revenues of 37.6 Billion dollars. The research and development budget was 5.7 Billion dollars (2008) with more than 50% of sales in the Asia-Paciﬁc region (2008).
Intel’s customers range from original equipment manufacturers (OEMs) and original design manufacturers (ODMs) who make computer systems, handheld devices, and telecommunications and networking communications equipment, to PC and network communications product users who buy PC components, board-level products, networking, communications, and storage products (2006 Annual Report Intel Corporation).
Intel has its production facilities concentrated in Arizona, New Mexico, Oregon, Massachusetts, California, and Colorado, with 68% of the wafer
manufacturing (microprocessors, chipsets, NOR ﬂ ash memories and communications silicon fabrication) in the mentioned facilities. Thirty Two percent (32%) of the manufacturing is conducted at facilities in Ireland and Israel. The manufacturing organization has to continually adapt to technological changes with new generations of manufacturing process technology being launched at a rapid pace. The start-up costs for preparing a factory for a new manufacturing process technology is high, but it is believed that the beneﬁts from moving to faster micro-processes (e.g., By utilizing less space per transistor, reducing heat output from each transistor and improving power efﬁciency) outweighs the start-up costs. Manufacturing is primarily done by Intel themselves, and the use of subcontractors is limited to manufacturing board-level products and systems. Intel also follows a strategy of using multiple suppliers to reduce the dependence on a single supplier for critical materials and resources. After the manufacturing process, most components are subject to further assembly and test.
The micro-processer was invented in the late 1960s (Intel was founded in 1968) and the effectiveness of them has followed a stable pattern, known as Moore’s law. Intel’s co-founder Gordon Moore predicted already in 1965 that the number of transistors on a chip would double about every second year, a prediction that still holds up to this day. Change is thus a fact of life for Intel, and a relentless focus on research and development has been necessary to survive in this highly competitive and dynamic market. The formal structure on the corporate level is, however, only one part of the full story of Intel’s organizational structure. Below the divisional structure the company has to deal with a number of tensions and challenges in its day-to-day operations. There are, for instance, a number of tensions inherent in managing Moore’s law, and Intel needs to build a ﬂexible and boundary spanning structure that enables the company to draw on resources both internally and externally. This cannot be done in a traditional machine bureaucracy. At the same time Moore’s law forces the company to run an extremely efﬁcient production process, in order to cut the cost of producing semi-conductors. Intel is well known for its cutting-edge manufacturing processes, and a good example is the Fab 32 (a Fab is a manufacturing unit
in Intel) in Chandler, Arizona, that opened in the second half of 2007. Fab 32 was developed to introduce the 45 nm process technology, being the second factory to produce 45 nm chips. The factory is a highly automated unit with around 1,000 employees working in such positions as process, automation, yield engineers and senior manufacturing technicians. When launching these plans in 2007, Intel was already planning for the next step—to introduce the new 32 nm manufacturing technology during 2009. Paul Ottelini (the CEO of Intel) explains Intel’s manufacturing philosophy in the following way: ‘For Intel, manufacturing is a key competitive advantage that serves as the underpinning for our business and allows us to provide customers with leading-edge products in high volume’ (www.intel.com/pressroom/archive/releases/20050725corp.htm)
Once a factory is designed and operating, its formal structure and mode of operating ﬁts with the machine bureaucracy model of organizing. At the same time a unit like Fab 32 requires a high level of ﬂexibility and a high level of interaction between manufacturing, marketing, and research. Intel therefore has to incorporate seemingly conﬂicting ways of organizing in the same company and to manage the coordination issues and problems based on these different orientations. Intel uses a factory strategy called ‘Copy Exactly’ to solve the problem of getting production facilities up to speed quickly. ‘The ‘Copy Exactly’ strategy creates great ﬂexibility for Intel’s factory network. Because each fab is nearly identical, wafers can be partially completed in one fab and ﬁnished in another, yet yield at the same level as if the wafer were built in only one factory’ (www.intel.com/pressroom/archive/backgrnd/copy_exactly.htm)
The Global Standardization strategy suits INTEL CORPORATION because the disadvantages of the strategy like low local responsiveness shouldn’t really apply to a company like this as their customers or potential customers are not people but computer makers which are kind of limited in numbers. The other disadvantage of lack of differentiation of product shouldn’t also be of great importance as processors are mostly standard products so all computer makers can make use of same type of processors.
INTEL CORPORATION can however leverage on the advantages of the Global Standardization strategy