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    Chapter 4 Chapter 4 Presentation Transcript

    • Chapter 4Strategic Management in theMultinational Company: Contentand Formulation Copyright© 2007 Thomson Learning All rights reserved
    • Learning Objectives•• Define differentiation and low cost Define differentiation and low cost•• Understand how low-cost and differentiation strategists Understand how low-cost and differentiation strategists make money make money•• Recall multinational examples of use of generic Recall multinational examples of use of generic strategies strategies•• Understand competitive advantage and value chain Understand competitive advantage and value chain•• Understand offensive and defensive strategies Understand offensive and defensive strategies Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Learning Objectives•• Understand basics of multinational diversification Understand basics of multinational diversification•• Understand how traditional strategy formulation Understand how traditional strategy formulation techniques apply to the multinational company techniques apply to the multinational company•• Realize both the convergence and divergence in Realize both the convergence and divergence in strategies strategies Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Basic Strategy for the Multinational Company•• Strategy: the central, comprehensive, integrated and Strategy: the central, comprehensive, integrated and externally oriented set of choices of how a company externally oriented set of choices of how a company will achieve its objectives will achieve its objectives Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Basic Strategy for the Multinational Company•• Important strategic areas Important strategic areas -- Arenas: a company needs to be able to decide which Arenas: a company needs to be able to decide which businesses ititwants to be in businesses wants to be in -- Vehicles: a properly stated strategy also needs to include Vehicles: a properly stated strategy also needs to include the vehicles a company will use to create a presence in the vehicles a company will use to create a presence in specific markets or products specific markets or products -- Differentiators/Economic Logic: a company also needs to Differentiators/Economic Logic: a company also needs to decide what ways ititwill use to win over customers decide what ways will use to win over customers -- Sequencing: a company also needs to decide in what Sequencing: a company also needs to decide in what sequence and at what pace major decisions will be made sequence and at what pace major decisions will be made Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Basic Strategy for the Multinational Company•• Multinational companies use many of the same Multinational companies use many of the same strategies as domestic companies strategies as domestic companies Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Competitive Advantage and Multinational Applications of Generic Strategies•• Generic strategies: basic ways to achieve and sustain Generic strategies: basic ways to achieve and sustain competitive advantage competitive advantage•• Competitive advantage: when a company can Competitive advantage: when a company can outmatch its rivals in attracting and maintaining its outmatch its rivals in attracting and maintaining its targeted customers targeted customers Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Competitive Advantage and Multinational Applications of Generic Strategies (cont.)•• Differentiation strategy: providing superior value to Differentiation strategy: providing superior value to customers customers •• Ex.: BMW competing in the world market by Ex.: BMW competing in the world market by providing high-quality and performance sports cars providing high-quality and performance sports cars•• Low-cost strategy: producing at a lower cost than Low-cost strategy: producing at a lower cost than competitors competitors •• Ex.: Korean semiconductor firms Ex.: Korean semiconductor firms Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • How Do Low-Cost and Differentiation Firms Make Money?•• Differentiation Differentiation •• Customers often pay a higher price for extra value Customers often pay a higher price for extra value•• Low-cost Low-cost •• Additional profits come from cost savings Additional profits come from cost savings Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Exhibit 5.1: Costs, Prices, andProfits for Differentiation andLow-Cost Strategies Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Focus Strategy•• Strategies can be further subdivided on the basis of Strategies can be further subdivided on the basis of competitive scope competitive scope•• Competitive scope: how broadly a firm targets its Competitive scope: how broadly a firm targets its products or services products or services •• -- Narrow competitive scope for certain buyers or Narrow competitive scope for certain buyers or geographic areas geographic areas •• -- Broad competitive scope when a large range of Broad competitive scope when a large range of buyers are targeted buyers are targeted Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Exhibit 5.2: Porter’s GenericStrategies Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Competitive Advantage and the Value Chain•• A firm can gain competitive advantage by finding A firm can gain competitive advantage by finding differentiation or low costs in its activities differentiation or low costs in its activities•• Value chain is a convenient way of looking at the firm’s Value chain is a convenient way of looking at the firm’s activities activities•• Value chain: all the activities that a firm used to design, Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product produce, market, deliver, and support its product Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Exhibit 5.3: The Value Chain Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Components of the Value Chain•• Primary activities: physical actions of creating, selling, Primary activities: physical actions of creating, selling, and after-sale service of products and after-sale service of products•• Upstream: early activities in the value chain Upstream: early activities in the value chain •• -- R&D R&D •• -- Dealing with suppliers Dealing with suppliers Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Components of the Value Chain (cont.)•• Downstream: later value chain activities Downstream: later value chain activities •• Sales and dealing with distribution channels Sales and dealing with distribution channels•• Support activities: systems for human resources Support activities: systems for human resources management, organizational design and control, and management, organizational design and control, and technology technology Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Outsourcing•• Outsourcing: a deliberate decision to have outsiders or Outsourcing: a deliberate decision to have outsiders or strategic allies perform certain activities in the value strategic allies perform certain activities in the value chain chain•• About half of U.S. manufacturing jobs will be About half of U.S. manufacturing jobs will be outsourced to more than 28 emerging countries over outsourced to more than 28 emerging countries over the next 10 years the next 10 years•• About 10% of U.S. service jobs may be outsourced About 10% of U.S. service jobs may be outsourced Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Outsourcing•• When should a multinational company outsource? When should a multinational company outsource? •• Outsourcing makes sense if an outsider can perform Outsourcing makes sense if an outsider can perform a value-chain task better or more cheaply a value-chain task better or more cheaply •• However, tasks that are outsourced should the ones However, tasks that are outsourced should the ones that are not crucial to the company’s ability to that are not crucial to the company’s ability to achieve competitive advantage achieve competitive advantage Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Exhibit: 5.4: The MajorAdvantages andDisadvantages of Outsourcing Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Distinctive Competencies•• Strengths that allow companies to outperform rivals Strengths that allow companies to outperform rivals -- Ex.: Quality, innovation, customer service Ex.: Quality, innovation, customer service•• Resources: inputs into the production or service Resources: inputs into the production or service processes processes -- Ex.: Buildings, land, equipment, employees Ex.: Buildings, land, equipment, employees Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Distinctive Competencies•• Capabilities: ability to assemble and coordinate Capabilities: ability to assemble and coordinate resources effectively resources effectively•• Resources provide the organization with potential Resources provide the organization with potential capabilities. capabilities.•• For long-term success, capabilities must lead to For long-term success, capabilities must lead to sustainable competitive advantage. sustainable competitive advantage. Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Sustaining Competitive Advantage•• Sustainable: strategies not easily defeated by Sustainable: strategies not easily defeated by competitors competitors•• Four characteristics of capabilities that lead to Four characteristics of capabilities that lead to competitive advantage competitive advantage -- Valuable Valuable -- Rare Rare -- Difficult to imitate Difficult to imitate -- Non-substitutable Non-substitutable Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Exhibit 5.5: Relationships AmongResources, Capabilities, DistinctiveCompetencies, and EventualProfitability Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Competitive Strategies in International Markets•• Competitive strategies: strategic moves multinationals Competitive strategies: strategic moves multinationals use to defeat competitors use to defeat competitors -- Offensive competitive strategies: direct attacks to Offensive competitive strategies: direct attacks to capture market share capture market share -- Defensive competitive strategies: attempts to Defensive competitive strategies: attempts to discourage offensive strategies discourage offensive strategies -- Counter-parry: fending off a competitor’s attack in Counter-parry: fending off a competitor’s attack in one country by attacking in another country one country by attacking in another country Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Offensive Strategies•• Direct attacks: price cutting, adding new features, or Direct attacks: price cutting, adding new features, or going after poorly served markets going after poorly served markets•• End-run offensives: seeking unoccupied markets End-run offensives: seeking unoccupied markets•• Preemptive competitive strategies: being first to obtain Preemptive competitive strategies: being first to obtain particular advantageous position particular advantageous position•• Acquisitions: buying out a competitor Acquisitions: buying out a competitor Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Defensive Strategies•• Attempts to reduce risks of being attacked Attempts to reduce risks of being attacked•• Convince an attacking firm to seek other targets Convince an attacking firm to seek other targets•• Blunt the impacts of any attack Blunt the impacts of any attack •• Exclusive contracts with best suppliers Exclusive contracts with best suppliers •• New models to match competitor’s lower prices New models to match competitor’s lower prices •• Public announcements about the willingness to fight Public announcements about the willingness to fight Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Counter-parry•• Popular strategy for multinationals Popular strategy for multinationals•• Respond to attack by attacking competitor in another Respond to attack by attacking competitor in another country country •• Ex.: Kodak—When Fuji attacked Kodak in the U.S., Ex.: Kodak—When Fuji attacked Kodak in the U.S., Kodak retaliated by attacking Fuji in Japan. Kodak retaliated by attacking Fuji in Japan. •• Goodyear also attacked Michelin in Europe as Goodyear also attacked Michelin in Europe as response to attack in U.S. response to attack in U.S. Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Multinational Diversification Strategy•• Business-level strategies: strategies for a single Business-level strategies: strategies for a single business operation business operation•• Corporate-level strategies: how companies choose Corporate-level strategies: how companies choose their mixture of different businesses their mixture of different businesses Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Diversification•• Related diversification: companies acquire businesses Related diversification: companies acquire businesses that are similar in some way to their original or core that are similar in some way to their original or core business business •• -- Ex.: Nike adding clothing line to its shoe Ex.: Nike adding clothing line to its shoe operations operations•• Unrelated diversification: firms acquire businesses in Unrelated diversification: firms acquire businesses in any industry any industry •• -- Main concern is whether it’s a good financial Main concern is whether it’s a good financial investment investment Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Strategy Formulation: Traditional Approaches•• Strategy formulation: process by which managers Strategy formulation: process by which managers select the strategies to be used by their company select the strategies to be used by their company•• Popular analysis techniques Popular analysis techniques •• Competitive dynamics of the industry Competitive dynamics of the industry •• Company’s competitive position in the industry Company’s competitive position in the industry •• Opportunities and threats faced by their company Opportunities and threats faced by their company •• Company’s strengths and weaknesses Company’s strengths and weaknesses Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Industry and Competitive Analysis•• Porter’s five forces model: a popular technique that Porter’s five forces model: a popular technique that can help a multinational firm understand the major can help a multinational firm understand the major forces at work in the industry and the degree of forces at work in the industry and the degree of attractiveness of the industry attractiveness of the industry Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Industry and Competitive Analysis•• Porter’s Five Forces Model Porter’s Five Forces Model 1. The degree of competition among existing 1. The degree of competition among existing competitors in the industry competitors in the industry 2. The threat of new entrants 2. The threat of new entrants 3. The bargaining power of buyers 3. The bargaining power of buyers 4. The bargaining power of suppliers 4. The bargaining power of suppliers 5. The threat of substitutes 5. The threat of substitutes Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Industry and Competitive Analysis•• Managers must understand their industry well to Managers must understand their industry well to formulate good strategies. formulate good strategies.•• Must understand economic characteristics of industries Must understand economic characteristics of industries and driving forces and driving forces•• Economic characteristics include Economic characteristics include -- Market size Market size -- Ease of entry Ease of entry -- Opportunities for economies of scale Opportunities for economies of scale Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Driving Forces•• The important changes that have potential to affect an The important changes that have potential to affect an industry industry -- Speed of new product innovations Speed of new product innovations -- Technological changes Technological changes -- Changing societal attitudes and lifestyles Changing societal attitudes and lifestyles Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Key Success Factors (KSFs)•• Important characteristics of a company or its product Important characteristics of a company or its product that lead to success in an industry that lead to success in an industry -- Innovative technology or products Innovative technology or products -- Broad product line Broad product line -- Effective distribution channels Effective distribution channels -- Price advantages Price advantages -- Effective promotion Effective promotion -- Superior physical facilities or skilled labor Superior physical facilities or skilled labor Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Key Success Factors-- Experience of firm in business Experience of firm in business-- Cost position for raw materials Cost position for raw materials-- Cost position for production Cost position for production-- R&D quality R&D quality-- Financial assets Financial assets-- Product quality Product quality-- Quality of human resources Quality of human resources Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Competitor Analysis•• Profiles of competitor’s strategies and objectives Profiles of competitor’s strategies and objectives•• Four steps Four steps 1. Identify strategic intent of competitors 1. Identify strategic intent of competitors 2. Identify current and anticipated generic strategies 2. Identify current and anticipated generic strategies 3. Identify current and anticipated offensive and 3. Identify current and anticipated offensive and defensive competitive strategies defensive competitive strategies 4. Assess current positions of competitors 4. Assess current positions of competitors Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Competitor Analysis (cont.)1. Strategic intent1. Strategic intent -- Broad objectives of competitors Broad objectives of competitors1. Current and anticipated generic strategies1. Current and anticipated generic strategies -- Helps determine key KSF Helps determine key KSF1. Current and anticipated offensive and defensive1. Current and anticipated offensive and defensive competitive strategies competitive strategies2. Current positions2. Current positions Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Exhibit 5.7: Hypothetical CompetitiveProfiles of Four Companies in DifferentCountries Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Exhibit 5.7: Hypothetical CompetitiveProfiles of Four Companies in DifferentCountries Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Company-Situation Analysis: SWOT•• Strengths: distinctive capability, resource or skill Strengths: distinctive capability, resource or skill•• Weaknesses: competitive disadvantage compared to Weaknesses: competitive disadvantage compared to competitors competitors•• Opportunities: favorable conditions in the environment Opportunities: favorable conditions in the environment•• Threats: unfavorable conditions in the environment Threats: unfavorable conditions in the environment Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • SWOT Analysis•• More complex than for domestic firms More complex than for domestic firms•• Multinationals face more complex general and Multinationals face more complex general and operating environments operating environments•• Environments vary by country Environments vary by country Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Corporate Strategy Selection•• Diversified corporation has a portfolio of businesses Diversified corporation has a portfolio of businesses•• Major issue is which businesses to invest in and which Major issue is which businesses to invest in and which businesses to divest businesses to divest•• The basic tool: matrix analyses The basic tool: matrix analyses•• The most popular is the growth-share matrix of the The most popular is the growth-share matrix of the Boston Consulting Group (BCG). Boston Consulting Group (BCG). Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • BCG Share Matrix•• Division into four categories based on market share Division into four categories based on market share and relative market share and relative market share •• Stars: the most successful firm Stars: the most successful firm •• Dogs: businesses with low market shares in low- Dogs: businesses with low market shares in low- growth industries growth industries •• Cash cows: businesses in slow-growth industries Cash cows: businesses in slow-growth industries where company has strong market-share position where company has strong market-share position •• Problem children: businesses in high-growth Problem children: businesses in high-growth industries where company has a poor market share industries where company has a poor market share Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Exhibit 5.8: The BCG GrowthShare Matrix Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Matrices•• All matrices help answer basic strategy formulation All matrices help answer basic strategy formulation question such as question such as •• Are businesses in attractive industries? Are businesses in attractive industries? •• Are most businesses growing? Are most businesses growing? •• Are there sufficient cash cows to finance other Are there sufficient cash cows to finance other businesses? businesses? •• Is business portfolio well positioned for the future? Is business portfolio well positioned for the future? •• Is the some strategic synergies among businesses? Is the some strategic synergies among businesses? Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Organizations Alike: Globalization and Convergence•• Convergence: increasing similarity of management Convergence: increasing similarity of management practices practices•• Convergence is most apparent with transnational firms Convergence is most apparent with transnational firms•• Multinational firms competing in the same industry tend Multinational firms competing in the same industry tend to have similar structures and strategies regardless of to have similar structures and strategies regardless of the location of the company’s headquarters the location of the company’s headquarters Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Organizations Alike: Globalization and convergence•• How Globalization pushes organizations to be more How Globalization pushes organizations to be more similar similar -- Global customers and products Global customers and products -- Growing levels of industrialization and economic Growing levels of industrialization and economic development development -- Global competition and global trade Global competition and global trade -- Gross-border mergers, acquisitions, and alliances Gross-border mergers, acquisitions, and alliances -- Cross-national mobility of managers Cross-national mobility of managers -- Internationalization of business education Internationalization of business education Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • Organizations Alike: Globalization and convergence•• National differences still affect the way many firms compete via National differences still affect the way many firms compete via their choices of strategies their choices of strategies•• Three important reasons to understand the national differences Three important reasons to understand the national differences •• Managers in successful multinational firms must understand Managers in successful multinational firms must understand and anticipate the strategies of rivals from other countries and anticipate the strategies of rivals from other countries •• Managers in successful multinational firms must understand Managers in successful multinational firms must understand the strategies of potential business partners the strategies of potential business partners •• Strategies developed in one national context might be Strategies developed in one national context might be copied and modified to fit another national context copied and modified to fit another national context Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • The National Context and Organizational Strategy: Overview and Observations•• The national context affects organizational design and The national context affects organizational design and strategy formulation and content through the following strategy formulation and content through the following processes processes -- The social institutions and national and business The social institutions and national and business cultures encourage or discourage certain forms of cultures encourage or discourage certain forms of businesses and strategies in each nation businesses and strategies in each nation -- Social institutions and national culture serve as Social institutions and national culture serve as barriers to the easy transfer of competitive barriers to the easy transfer of competitive advantages among countries advantages among countries Copyright© 2007 South-Western/Thomson Learning All rights reserved
    • The National Context and Organizational Strategy: Overview and Observations-- Each nation must rely on its available factor Each nation must rely on its available factorconditions for developing industries and the firms conditions for developing industries and the firmswithin industries within industries-- Social institutions and culture determine which Social institutions and culture determine whichresources are used, how they are used, and which resources are used, how they are used, and whichresources are developed resources are developed Copyright© 2007 South-Western/Thomson Learning All rights reserved