Lesson 4 Global Strategic Management


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  • 时间较紧 , 第一节将 KODACK 讲完 1.2 小时 ; 第二节讲 AFLAC, 至于 ALIBER 视情况而定
  • 3 min Time about right. First half finishes Matsushita case Globalization due to cost pressure; localization due to local demand pressure Globalization and localization are well balanced; Production in a few locations, assembly plants In every major market to adds local product features national differences in tastes and preferences; experience curve & economies of scale
  • 3 min=6; In essence, it’s value creation ability.
  • 3 min.=9 Drivers stand for important factors.
  • 6 min= 15 DEC engineering excellence, obsessed with design standards, and engineering details.
  • 6 min= 21 DEC engineering excellence, obsessed with design standards, and engineering details.
  • 3 min=24
  • 2 min =25
  • 5 min. =30
  • 5 min=35
  • 10 min.=45 Leveraged buyout: Small fish can eat big one MBOs
  • 5 min.=50 Leveraged buyout: Small fish can eat big one MBOs
  • Total: 40 min=90 . 10 min. Group discussion: 15 min. Class dis.: 15 min. key
  • 2006 年 2 月 2 日松下同 MCA 的联姻结束 , 卖掉 1.15 亿美元的股份后 , 将近 8% 的股票份额转让给法国的 Vivendi Universal
  • 20,000 employees, annual profit over 1 billion. 500 software. In 1980 first takeover target:Capex “If you don’t have, buy it” Charles received income over 600 million in 2000. 2004 Revenue $3.48 billion; 15,000 employees in 50 countries.
  • asymmetric information;A true story: 1 Yuan bought a firm, but later it found out it had 18 million more debts.
  • 3=163 Best analysis; Best drama or story (creativity); Best presentation (content, style, teamwork); Best PPT.
  • 3=163 Best analysis; Best drama or story (creativity); Best presentation (content, style, teamwork); Best PPT.
  • Lesson 4 Global Strategic Management

    1. 1. Lesson 4 <ul><li>Global Strategic Management </li></ul><ul><li>International Investment Management </li></ul><ul><li> </li></ul>
    2. 2. Global Strategic Management <ul><li>Issues: </li></ul><ul><li>(  ) International Management Strategies </li></ul><ul><li>(  ) The MNE’s Strategic Orientations </li></ul><ul><li>(  ) Strategic leadership </li></ul><ul><li>(  ) Strategic architecture & Strategic flexibility </li></ul><ul><li>(  ) Industry Competitiveness </li></ul><ul><li>(  ) MNEs’ Competitive Advantage </li></ul><ul><li>(  ) Building Blocks of Competitive Advantage </li></ul><ul><li>Value Chain & Competitiveness </li></ul><ul><li>Cases: Larry Bossidy at AlliedSignal </li></ul><ul><li>Mechanical excavator industry </li></ul><ul><li> U.S. Semiconductor Industry in Early 1990s </li></ul><ul><li>Wal-Mart; Intel </li></ul>
    3. 3. 4.5 Value Chain & Competitiveness <ul><li>Value Chain Analysis </li></ul><ul><li>Support Activities </li></ul><ul><li>R&D Production Marketing Service </li></ul><ul><li>Input Output </li></ul><ul><li>Primary Activities </li></ul>Company Infrastructure Information systems Material management Human resources
    4. 4. Value Chain & Competitive Advantage <ul><li>Identify </li></ul><ul><li>Bases for developing </li></ul>Value Chain Analysis Resource Audit Capability Assessment Value Activities Competitive Advantage Value Drivers Cost Drivers Critical Linkages
    5. 5. e.g. Intel <ul><li>Why did Intel lose its dominance in DRAMs market in early 1980s? </li></ul><ul><li>Year Its market share in DRAMs </li></ul><ul><li>1974 83% 1984 1% </li></ul><ul><li>However, later it builds and maintains its competitive advantage in microprocessor market. Why? </li></ul><ul><li>Main reasons for its failure in DRAMS </li></ul><ul><li>Externally, Japanese firms developed new products quickly & invested heavily on manufacturing. Their superior production equipment & process technology enabled them to capture large share of the world market for DRAMs. </li></ul>
    6. 6. Internally, Intel put too much emphasis on <ul><li>product design by trying to be “first to market.” But it fell behind the foreign competitors in </li></ul><ul><li>process development & manufacturing scale-up. </li></ul><ul><li>Q. Is the Icarus ( 伊卡洛斯 ) Paradox applicable? </li></ul><ul><li>The greatest asset can be the cause of demise. </li></ul><ul><li>It’s very suitable for Digital Equipment Corp. </li></ul>
    7. 7. Analysis: <ul><li>Value Chain Linkages </li></ul><ul><li>In DRAMs, a link broke down </li></ul><ul><li>R&D production marketing, </li></ul><ul><li>Input Output </li></ul><ul><li>* * * * * * * </li></ul><ul><li>In microprocessors, it has formed successful linkages. </li></ul><ul><li>R&D production marketing, </li></ul><ul><li>Input Output </li></ul>
    8. 8. Recapitulation <ul><li> Globalization vs localization is a key strategic issue; </li></ul><ul><li> There are four global strategic orientations: ethnocentric, regioncentric, multidomestic, and geocentric; </li></ul><ul><li> A strategic leader needs: vision & action plans, commitment, emotional intelligence, and astute management skills;  Strategy is designed to achieve and enhance competitive advantage; </li></ul><ul><li>Building blocks of competitive advantage are superior innovation, efficiency, quality, global leverage, customer responsiveness; </li></ul><ul><li> Global leverage include cost advantages, global learning, cross-subsidization and risk diversification; </li></ul><ul><li> 5 forces model is a tool of assessment for industry competitiveness </li></ul><ul><li> Value chain analysis is a tool of identifying key variables for developing competitive advantage </li></ul>
    9. 9. Lesson 5 Int’l Investment Management <ul><li>Main Issues: </li></ul><ul><li>International Merger & Acquisition (M & A) </li></ul><ul><li>International New Start-ups </li></ul><ul><li>Managing Foreign Exchange Risks </li></ul><ul><li>Cost of Capital for International Investment </li></ul><ul><li>Feasibility Analysis for International Projects </li></ul><ul><li>Cases & Examples: </li></ul><ul><li> Matsushita in Hollywood </li></ul><ul><li>IBM PC Goes to Lenovo </li></ul><ul><li>Buying a Big Mac </li></ul><ul><li>Jack’s Hedging Strategy </li></ul><ul><li>Should you invest in MEC? </li></ul>
    10. 10. Lesson 5 International Investment Management <ul><li>5.1 Forms of Foreign Direct Investment </li></ul><ul><li>5.1.1 Merger & Acquisition (M & A) </li></ul><ul><li>Horizontal merger: Combining of firms that sell the </li></ul><ul><li> same type of goods. </li></ul><ul><li>e.g. an auto firm + an auto firm </li></ul><ul><li>Vertical merger: Combining of firms that are linked </li></ul><ul><li> in production or distribution chain. </li></ul><ul><li> e.g. an auto firm + a tire Co. </li></ul><ul><li>Conglomerate merger: Combining of firms in </li></ul><ul><li>unrelated industries. </li></ul><ul><li>Concentrated Merger: Combining of firms that have the same market but different production technology, or the same tech but different market </li></ul>
    11. 11. Takeover Tactics <ul><li>(1) Direct Takeovers </li></ul><ul><li>Negotiated acquisition or friendly takeover, Leveraged buyout? </li></ul><ul><li>Use of a target company’s asset value to finance the debt for acquiring the company. </li></ul><ul><li>Q. How can a small firm take over a large company? </li></ul><ul><li>Capital Leverage </li></ul><ul><li>S Company L Company Stock price: $10 </li></ul><ul><li>Its cash: Buyout Bid: $20 </li></ul><ul><li>$100 million Buyout Value: $1 billion </li></ul><ul><li>borrow $900 million from Bank C </li></ul><ul><li>by using L’s assets as guarantee </li></ul>
    12. 12. Q. Why is MBO discouraged in China? <ul><li> MBO </li></ul><ul><li> Management Buyout </li></ul><ul><li>In China, MBO often takes the form of leveraged buyout. But buyout prices are usually too low for </li></ul><ul><li>state owned enterprises. Leveraged buyouts tend to enrich management at the expense of public. </li></ul><ul><li>( 2 ) Indirect Method </li></ul><ul><li>e.g. hostile takeover </li></ul><ul><li>Means of Payment </li></ul><ul><li>Cash, trade bills, stocks </li></ul>
    13. 13. Case: Matsushita in Hollywood <ul><li>Questions: </li></ul><ul><li>A. Why did Matsushita acquire MCA ? What type of merger was it ? </li></ul><ul><li>B. Was Matsushita’s international management strategy effective? </li></ul><ul><li>C. Disregarding the interest cost of capital, did Matsushita make profit from its investment in MCA in terms of dollar value? What about in terms of Japanese yen? </li></ul><ul><li>D. Generally speaking, how can the acquirer reform & integrate the acquired firm successfully? </li></ul>
    14. 14. A. Why did Matsushita acquire MCA ? <ul><li>( 1 ) Obtain synergies </li></ul><ul><li>Achieve economies of integration by sharing distribution channels, advertising campaign, etc. </li></ul><ul><li>( 2 ) Acquire valuable assets </li></ul><ul><li> Get MCA’s patents, well-known brands, & </li></ul><ul><li>technological & managerial know-how </li></ul><ul><li>( 3 ) Build corporate image </li></ul><ul><li>( 4 ) Expand markets </li></ul><ul><li>Enter the U.S. market rapidly; </li></ul><ul><li>Capture international market share through MCA’s influence. </li></ul>
    15. 15. What type of merger was it ? <ul><li>This was a hybrid acquisition with cash. </li></ul><ul><li>It had elements of vertical merger, conglomerate merger & concentrated merger. </li></ul><ul><li> Reasons: …. </li></ul><ul><li>B. Was Matsushita’s international management strategy effective ? </li></ul><ul><li>No. It adopted a multidomestic strategy, or localization strategy. But it didn’t work well. </li></ul><ul><li>There were cultural clash and management upheaval. Several key executives threatened to quit. </li></ul>
    16. 16. C. Did Matsushita profit from the investment? <ul><li>In terms of U.S. dollars, </li></ul><ul><li>in 1990 it paid 6.59 billion, in 1995 it received </li></ul><ul><li>5.7 + (1/4) 5.7 = 5.7+1.425 = 7.125 </li></ul><ul><li>Profit = 7.125 – 6.59 = 0.535 billion=535 million 2. </li></ul><ul><li>In terms of Japanese yen, </li></ul><ul><li>in 1990 it paid </li></ul><ul><li>6.59 (145) = 955.55 billion yen </li></ul><ul><li>in 1995 it received </li></ul><ul><li>5.7 (97) + (1/4) 5.7 (97) = 691.125 billion yen </li></ul><ul><li>Loss = 691.125 – 955.55 = 264.425 billion yen </li></ul><ul><li>The loss would be in fact much larger if opportunity cost is factored in. </li></ul>
    17. 17. D. In general, how can the acquirer reform & integrate the acquired firm successfully? <ul><li>There are various integration methods. </li></ul><ul><li>e.g. CA(Computer Associates): 2 nd largest software co. </li></ul><ul><li>M&As: over 100 </li></ul><ul><li>CEO: Charles Wang, “Great Master of M&As” </li></ul><ul><li>Magic formula of CA(Computer Associates): </li></ul><ul><li>(1) Change the management team of the acquired firm; </li></ul><ul><li>(2) Inject CA’s culture into the acquired firm through rules change and training </li></ul><ul><li>e.g. big family feeling </li></ul><ul><li>(3) Promotion based on performance. </li></ul><ul><li>e.g. Former managers in the pre-merger firm must prove themselves to be promoted by starting over as ordinary technicians or staff members. </li></ul>
    18. 18. In the case of Matsushita & MCA, the following steps <ul><li>may be taken: </li></ul><ul><li>(1) Set up an integration team, and work out specific plan for integration; </li></ul><ul><li>(2) Matsushita should hire a management talent in movie industry to be the vice president of MCA; </li></ul><ul><li>(3) Establish executive exchange programs between the parent and MCA, and break down cultural barriers. </li></ul><ul><li>e.g. cooking eggs </li></ul><ul><li>Western and Oriental cooking styles differ. </li></ul>
    19. 19. Group Presentation Contest <ul><li>Today </li></ul><ul><li>(1) Group presentation is a special task, different from the final project. </li></ul><ul><li>(2) Each group, consisting of 5 to 6 students, will make a presentation in class; </li></ul><ul><li>(3) The presentation will be focused on a concept, a case, or a model related to our course; </li></ul><ul><li>(4) Each presentation will last 5 to 6 minutes; </li></ul><ul><li>(5) The presentation may take any form such as role-play, story-telling or multimedia performance. </li></ul><ul><li>(6) The presentation will be evaluated based on content, style, team work and originality. </li></ul><ul><li>  Try to show your creativity & team-work spirit! </li></ul>
    20. 20. Next Class <ul><li>Topics:  The Rest of Chapter 8, Book 1 </li></ul><ul><li>Managing Foreign Exchange Risks </li></ul><ul><li>Cost of Capital for International Investment </li></ul><ul><li>Feasibility Analysis for International Projects </li></ul><ul><li>Individual Homework: </li></ul><ul><li>7 to 8 students are needed to do the case analysis of </li></ul><ul><li>Jack’s Hedging Strategy (Available in our class e-mail box) </li></ul><ul><li>Reminder: </li></ul><ul><li>For those students choosing it for the case write-up, please submit a hard copy at the beginning of the class. Bonus points will be given if an electronic copy of the case write-up and Powerpoint is sent to the T.A. the day before the class. </li></ul>