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Global Marketing

Tenth Edition

Chapter 17

Leadership, Organization, and Corporate Social Responsibility

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Learning Objectives

17.1 Identify the names and nationalities of the chief executives at five global companies discussed in the text.

17.2 Describe the different organizational structures that companies can adopt as they grow and expand globally.

17.3 Discuss the attributes of lean production and identify some of the companies that have been pioneers in this organizational form.

17.4 List some of the lessons regarding corporate social responsibility that global marketers can take away from Starbucks’ experience with Global Exchange.

Leadership (1 of 2)

“Leadership is not about hierarchy or title or status: It is about having influence and mastering change. Leadership is not about bragging rights or battles or even the accumulation of wealth; it’s about connecting and engaging at multiple levels … Leaders can no longer view strategy and execution as abstract concepts, but must realize that both elements are ultimately about people.”

-Carly Fiorina, former C E O, Hewlett-Packard

Global marketing demands exceptional leadership. The hallmark of a global company is the capacity to formulate and implement global strategies that leverage worldwide learning, respond fully to local needs and wants, and draw on the talent and energy of every member of the organization. This heroic task requires global vision and sensitivity to local needs. Overall, the leader’s challenge is to direct the efforts and creativity of everyone in the company toward a global effort that best utilizes organizational resources to exploit global opportunities.

Leadership (2 of 2)

The leader’s task is to articulate:

Intended geographical scope of activities

Beliefs

Values

Policies

It is one thing to spell out the vision and another thing entirely to secure commitment to it throughout the organization. As noted in Chapter 1, global marketing entails engaging in significant business activities outside the home country. This means exposure to different languages and cultures. In addition, global marketing involves skillful application of specific concepts, considerations, and strategies. Such endeavors may represent substantial change, especially in U.S. companies with a long tradition of domestic focus. When the “go global” initiative is greeted with skepticism, the CEO must be a change agent who prepares and motivates employees.

Top Management Nationality

“Companies are realizing that they have a portfolio of human resources worldwide, that their brightest technical person might come from Germany, or their best financial manager from England. They are starting to tap their worldwide human resources. And as they do, it will not be surprising to see non-Americans rise to the top.”

- Christopher Bartlett, Harvard Business School

The ability to speak foreign languages is one difference between managers born and raised in the United States and those born and raised elsewhere. For example, the U.S. Department of Education recently reported that 200 million Chinese children are studying English; by contrast, only 24,000 American children are studying Chinese.

Leadership and Core Competence

Executives were judged on their ability to identify, nurture, and exploit the organization’s core competencies in the 1990s as opposed to the focus on reorganization in the 1980s

Core competencies must:

Provide potential access to a wide variety of markets

Make a significant contribution to the perceived customer benefits

Be difficult to imitate

Few companies are likely to build world leadership in more than five or six fundamental competencies. In the long run, an organization will derive its global competitiveness from its ability to bring high-quality, low-cost products to market faster than its competitors. To do this, an organization must be viewed as a portfolio of competencies rather than a portfolio of businesses.

Organizing for Global Marketing (1 of 2)

The goal is to find a structure that:

Enables the company to respond to relevant market environment differences

Ensures the diffusion of corporate knowledge and experience throughout the entire system

Organizations:

Must find how to balance between autonomy & integration

Have the need for autonomy to adapt to local markets while integrating the business into a global market strategy

A key issue in global organization is how to achieve balance between autonomy and integration. Subsidiaries need autonomy to adapt to their local environment, but the business as a whole needs integration to implement global strategy.

When management at a domestic company decides to pursue international expansion, the issue of how to organize arises immediately. Who should be responsible for this expansion? Should product divisions operate independently or should an international division be established? Should individual countries’ subsidiaries report directly to the company president or should a special corporate officer be appointed to take full-time responsibility for international activities? After the firm reaches a decision about how it will organize the initial international operations, a growing company is faced with a number of reappraisal points during the development of its international business activities. Should the company abandon its international division, and, if so, which alternative structure should be adopted? Should it form an area or regional headquarters? What should be the relationships among staff executives at the corporate, regional, and subsidiary offices? Specifically, how should the company organize the marketing function? To what extent should regional and corporate marketing executives become involved in subsidiary marketing management?

Organizing for Global Marketing (2 of 2)

In global marketing there is not a single best structure

Leading-edge global competitors share one key organizational design characteristic:

Structure is flat and simple

In the 21st century, corporations will have to find new, more creative ways to organize

Must be flexible, efficient, and responsive to meet the demands of globalizing markets

Leading-edge global competitors share one key organizational design characteristic: Their corporate structure is flat and simple, rather than tall and complex. The message is clear: The world is complicated enough, so there is no need to add to the confusion with complex internal structure. Simple structures increase the speed and clarity of communication and allow organizational energy and valuable resources to concentrate on learning, rather than on controlling, monitoring, and reporting. According to David Whitwam, former CEO of Whirlpool, “You must create an organization whose people are adept at exchanging ideas, processes, and systems across borders, people who are absolutely free of the ‘not-invented-here’ syndrome, people who are constantly working together to identify the best global opportunities and the biggest global problems facing the organization.”

Recently, several authors have described new organization designs that represent responses to today’s competitive environment. These designs acknowledge the need to find more responsive and flexible structures, to flatten the organization, and to employ teams. There is the recognition of the need to develop networks, to develop stronger relationships among participants, and to exploit technology. These designs also reflect an evolution in approaches to organizational effectiveness. At the turn of the century, Frederick Taylor claimed that all managers had to see the world the same way. Then came the contingency theorists who said that effective organizations design themselves to match their conditions. These two basic theories are reflected in today’s popular management writings. As Henry Mintzberg has observed, “To Michael Porter, effectiveness resides in strategy, while to Tom Peters it is the operations that count—executing any strategy with excellence.”

Patterns of International Organizational Development

Organizations vary in:

Size

Potential of targeted global markets

Local management competence

Conflicting pressures may arise

For product and technical knowledge

Functional area expertise

Area and country knowledge

Because the constellation of pressures that shape organizations is never exactly the same, no two organizations pass through organizational stages in exactly the same way, nor do they arrive at precisely the same organizational pattern. Nevertheless, some general patterns hold. These will be discussed in the next few slides.

Figure 17-1 Functional Corporate Structure, Domestic Staff, & International Division Structure

As a company’s international business grows, the complexity of coordinating and directing this activity extends beyond the scope of a single person. Pressure is created to assemble a staff that will take responsibility for coordination and direction of the growing international activities of the organization. Eventually, this pressure leads to the creation of the international division. The executive in charge of the international division typically has a direct reporting relationship to corporate staff and thus ranks at the same level as the executives in charge of finance, marketing, operations, and other functional areas. Best Buy, Hershey, Levi Strauss, Under Armour, Walmart, and Walt Disney are some examples of companies whose structures include international divisions.

Several factors contribute to the establishment of an international division. First, top management’s commitment to global operations has increased enough to justify an organizational unit headed by a senior manager. Second, the complexity of international operations requires a single organizational unit whose management has sufficient authority to make its own determinations on important issues such as which market-entry strategy to employ. Third, an international division is frequently formed when the firm has recognized the need for internal specialists to deal with the special demands of global operations. A fourth contributing factor is management’s recognition of the importance of strategically scanning the global horizon for opportunities and aligning them with company resources rather than simply responding on an ad hoc basis to opportunities as they arise.

International Division Structure

Four factors that lead to this structure

Top management’s commitment to global operations has increased enough to justify the position

Complexity of international operations requires a single organizational unity

The firm has recognized the need for internal specialists to deal with the demands of global operations

Management recognizes the importance of proactively scanning the global horizon for opportunities and threats

Walmart, Levi Strauss, Anheuser-Busch, Best Buy, Walt Disney Company, and Hershey are some examples of companies whose structures include international divisions. When Hershey announced the creation of its international division in 2005, J.P. Bilbrey, the division’s senior vice president, noted that Hershey will no longer utilize the extension strategy of exporting its chocolate products from the United States. Instead, the company will tailor products to local markets and also manufacture locally. As Bilbrey explained, “We’re changing our business model in Asia. The product was not locally relevant and it also got there at an unattractive cost.”

Four factors contribute to the establishment of an international division. First, top management’s commitment to global operations has increased enough to justify an organizational unit headed by a senior manager. Second, the complexity of international operations requires a single organizational unit whose management has sufficient authority to make its own determination on important issues such as which market entry strategy to employ. Third, an international division is frequently formed when the firm has recognized the need for internal specialists to deal with the special demands of global operations. A fourth contributing factor is management’s recognition of the importance of strategically scanning the global horizon for opportunities and aligning them with company resources rather than simply responding on an ad hoc basis to situations as they arise.

Figure 17-2 Functional Corporate Structure, Domestic Corporate Staff, International and Area Divisions

Executives at the regional center also participate in the planning and control of each country’s operations with an eye toward applying company knowledge on a regional basis and optimally utilizing corporate resources on a regional basis. This organizational design is illustrated in Figure 17-2.

Regional management can offer a company several advantages. First, many regional managers agree that an on-the-scene regional management unit makes sense where there is a real need for coordinated, pan-regional decision making. Coordinated regional planning and control are becoming necessary as the national subsidiary continues to lose its relevance as an independent operating unit. Regional management can probably achieve the best balance of geographic, product, and functional considerations required to implement corporate objectives effectively. By shifting operations and decision making to the region, the company is better able to maintain an insider advantage. Of course, a major disadvantage of a regional center is its cost. The cost of a two-person office can be as much as $500,000 per year. The scale of regional management must also be in line with the scale of operations in a region. A regional headquarters is inappropriate if the size of the operations it manages is inadequate to cover the costs of the additional layer of management. The basic issue with regard to the regional headquarters is “Does it contribute enough to organizational effectiveness to justify its cost and the complexity of another layer of management?”

The Matrix Design (1 of 3)

Product or business, function, area, and customer know-how are simultaneously focused on the organization’s worldwide marketing objectives

Management must achieve organizational balance that brings together different perspectives and skills to accomplish organizational objectives

Professor John Hunt of the London Business School suggests four considerations regarding the matrix organizational design. First, the matrix is appropriate when the market is demanding and dynamic. Second, employees must accept higher levels of ambiguity and understand that policy manuals cannot cover every eventuality. Third, in country markets where the command-and-control model persists, it is best to overlay matrices on only small portions of the workforce. Finally, management must be able to clearly state what each axis of the matrix can and cannot do. However, this must be accomplished without creating a bureaucracy.

The Matrix Design (2 of 3)

Geographic knowledge-understanding of economic, social, political, and governmental market and competitive dimensions

Product knowledge and know-how-product managers that have a worldwide responsibility can achieve new levels of product competency

Functional competence-corporate staff with worldwide responsibility contributes toward the development of functional competence on a global basis

Knowledge of customer or industry and its needs-staff with responsibility for serving industries on a global basis assist organizations in their efforts to penetrate specific customer markets

Having established that the matrix is appropriate, management can expect the matrix to integrate four basic competencies on a worldwide basis.

Geographic Knowledge. An understanding of the basic economic, social, cultural, political, and governmental market and competitive dimensions of a country is essential. The country subsidiary is the major structural device employed today to enable the corporation to acquire geographical knowledge.

Product knowledge and know-how. Product managers with a worldwide responsibility can achieve this level of competence on a global basis. Another way of achieving global product competence is simply to duplicate product management organizations in domestic and international divisions, achieving high competence in both organizational units.

Competence in such fields as finance, production, and, especially, marketing. Corporate functional staff with worldwide responsibility contributes toward the development of functional competence on a global basis. In some companies, the corporate functional manager, who is responsible for the development of his or her functional activity on a global basis, reviews the appointment of country subsidiary functional managers.

Knowledge of the customer or industry and its needs. Certain large and extremely sophisticated global companies have staff with a responsibility for serving industries on a global basis to assist the line managers in the country organizations in their efforts to penetrate specific customer markets.

The Matrix Design (3 of 3)

Figure 17-4 The Matrix Structure

This organization chart starts with a bottom section that represents a single-country responsibility level, moves to representing the area or international level, and finally moves to representing global responsibility from the product divisions to the corporate staff, to the chief executive at the top of the structure.

The key to successful matrix management is ensuring that managers are able to resolve conflicts and achieve integration of organization programs and plans. The mere adoption of a matrix design or structure does not create a true matrix organization. Instead, evolution of a matrix organization requires fundamental changes in management behavior, organizational culture, and technical systems. In a matrix, influence is based on technical competence and interpersonal sensitivity,

not on formal authority. Moreover, managers in a matrix culture recognize the absolute need to resolve issues and choices at the lowest possible level and do not rely on higher authority for making decisions.

Lean Production: Organizing the Japanese Way

Comparison of craft production, mass production, and lean production

Craft production meant one worker created one product

Mass production gained advantages because one worker could do far more specialized work due to the moving assembly line

Lean production uses less factory space, smaller inventories, and quality control methods; increased efficiency by 50% over typical mass production

The mass producers—most notably Ford Motor Company—gained their substantial advantage by changing their value chains so that each worker was able to do far more work each day than the craft producers. The innovation that made this possible was the moving assembly line, which required the originators to conceptualize the production process in a totally new way. The assembly line also required a new approach to organizing people, production machinery, and supplies. By rearranging their value chain activities, the mass producers were able to achieve substantial reductions in effort over the craft producers. These productivity improvements provided an obvious competitive advantage.

The Toyota Production System (TPS), as the Japanese company’s manufacturing methods are known, achieves efficiencies of about 50 percent over typical mass production systems. Even with the reduced assembly time, the lean producer’s vehicles have significantly fewer defects than the mass-produced vehicles. The lean producer is also using about 40 percent less factory space and maintaining only a fraction of the inventory stored by the mass producer.

Lean Production

Assembler Value Chains

Skilled employees, Kaizen-continuous improvement enables quality control

Flexible mechanization is the hallmark of lean production

Downstream Value Chains

Eliminates conflict between producer and intermediaries, spirit of cooperation

Employee ability is emphasized in a lean production environment. Before being hired, people seeking jobs with Toyota participate in the Day of Work, a 12-hour assessment test to determine who has the right mix of physical dexterity, team attitude, and problem-solving ability. Once hired, workers receive considerable training to enable them to perform any job in their section of the assembly line or area of the plant, and they are assigned to teams in which all members must be able to perform the functions of all other team members. Workers are also empowered to make suggestions and to take actions aimed at improving quality and productivity. Quality control is achieved through kaizen, a devotion to continuous improvement that ensures that every flaw is isolated, examined in detail to determine the ultimate cause, and then corrected.

Mechanization, and particularly flexible mechanization, is a hallmark of lean production. For example, a single assembly line in Georgetown, Kentucky, that produces Toyota’s Camry sedan also produces the Sienna minivan. The Sienna and Camry share the same basic chassis and 50 percent of their parts. Of the 300 different stations on the line, only 26 stations require different parts to assemble minivans.

The differences between lean producers and U.S. mass producers in the way they deal with their respective dealers, distributors, and customers are as dramatic as the differences in the way they deal with their suppliers. U.S. mass producers follow the basic industry model and maintain an “arm’s-length” relationship with dealers that is often characterized by a lack of cooperation and even open hostility. There is often no sharing of information because there is no incentive to do so. The manufacturer is often trying to force on the dealer models the dealer knows will not sell. The dealer, in turn, is often trying to pressure the customer into buying models he or she does not want. All parties are trying to hide information about what they really want from their supposed partners. This kind of disingenuous behavior does little to ensure that the industry is responsive to market needs.

In Japan, the dealer’s employees are true product specialists. They know their products and deal with all aspects of the products, including financing, service, maintenance, insurance, registration and inspection, and delivery. Further, dealer representatives are included on the manufacturer’s product development teams and provide continuous input regarding customer desires. The linkages between dealers, marketing divisions, and product development teams are totally optimized.

Ethics, C S R, & Social Responsiveness

Today’s C E O must be a proactive steward of the firm

He or she must respond to:

Stakeholders-managers, employees, customers, stockholders, suppliers

Secondary stakeholders-general business community, local community groups, and nongovernmental organizations (N G Os)

Nongovernmental organizations (NGOs) include Oxfam, Greenpeace, and Amnesty International. Stakeholder analysis is the process of formulating a “win-win” outcome for all stakeholders.

U2 singer Bono and Bobby Shriver are cofounders of Product (RED), a partnership with well-known global companies to raise money to fight disease in Africa. Apple, American Express, Emporio Armani, Converse, Gap, and Motorola all offer (RED)-themed merchandise and services to their customers. The partners are demonstrating their commitment to corporate social responsibility by pledging to donate a percentage of the profits generated to the Global Fund to Fight AIDS, Tuberculosis, and Malaria. To launch its (RED) line, Gap’s advertising campaign used celebrities and one-word headlines consisting of verbs that end in “-red.” For example, one ad featured the word “INSPI(RED)” superimposed over a photo of director Steven Spielberg wearing a Product (RED) leather jacket.

Corporate Social Responsibility (1 of 2)

An obligation to pursue goals and practices that are in the best interest of society

Many companies create a formal Code of Ethics that summarize core ideologies, corporate values, and expectations

The leaders of global companies must practice corporate social responsibility (CSR), which can be defined as a company’s obligation to pursue goals and policies that are in society’s best interests. A key issue for a company contemplating its CSR is whose interests come first. That is, how does a company find the right balance between competing points of view? Peter Brabeck, former chairman and CEO of Nestlé, summarized the situation this way: “The unique role of business is to create social, economic and environmental value for the countries where we operate.”

At many companies, a formal statement or code of ethics summarizes core ideologies, corporate values, and expectations. GE, Boeing, and United Technologies Corp. are some of the American companies offering training programs that specifically address ethics issues. For many years, Jack Welch, the legendary former CEO of GE, challenged his employees to take an informal “mirror test.” The challenge: “Can you look in the mirror every day and feel proud of what you’re

doing?” Today, GE uses more formal approaches to ethics and compliance; it has produced training videos and instituted an online training program, and also provides employees with a 64-page guide to ethical conduct titled The Spirit & The Letter. The document provides guidance on potentially illegal payments, security and crisis management, and other issues.

Corporate Social Responsibility (2 of 2)

“Perhaps we have the opportunity to be a different type of global company, a global brand that can build a different model, a company that is a global business, that makes a profit, but at the same time demonstrates a social conscience and gives back to the local market.”

-Howard Schultz, C E O, Starbucks, responding to a question about the likelihood of anti-globalization activists

Issues in C S R

How do C E Os decide what is in the best interest of society? Which society?

Bangladeshi children lost garment industry jobs after the U.S. threatened trade sanctions and the children were worse off.

Fashion industry is under attack for alleged poor working conditions in factories that make well-known brands.

Walmart has been under fire for a number of reasons including labor practices, resulting in social repercussions in communities it serves.

C E O pay in the U.S. is rising faster than average salaries; C E Os were paid 271 times more than the average worker in 2016.

A Lesson from Starbucks

S R companies are targets for criticism but also are good candidates for collaboration.

Don’t wait for a crisis to collaborate.

Think strategically about relationships with N G Os

Recognize that collaboration involves some compromise.

Appreciate the value of the N G Os’ independence.

Understand that building relationships with N G Os takes time and effort.

Think more like an N G O by using communication strategically.

Using Starbucks as a case study, Paul A. Argenti explains how global companies can work collaboratively with NGOs to arrive at a “win–win” outcome. As previously noted, with no external prompting, Starbucks CEO Schultz uses enlightened compensation and benefits packages to attract and retain employees. Despite the fact that Starbucks is widely admired for such forward-thinking management policies, Global Exchange pressed the company to further demonstrate its commitment to social responsibility by selling Fair Trade coffee. Schultz was faced with three options: ignore Global Exchange’s demands, fight back, or capitulate. In the end, Schultz pursued a middle ground: He agreed to offer Fair Trade coffee in Starbucks’ company-owned U.S. stores. He also launched several other initiatives, including establishing long-term, direct relationships with suppliers.

Argenti offers seven lessons from the Starbucks case study:

Realize that socially responsible companies are likely targets but also attractive candidates for collaboration.

Don’t wait for a crisis to collaborate.

Think strategically about relationships with NGOs.

Recognize that collaboration involves some compromise.

Appreciate the value of the NGOs’ independence.

Understand that building relationships with NGOs takes time and effort.

Think more like an NGO by using communication strategically.

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