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Strategic Management

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International Strategy

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Strategic Management

  1. 1. 2014 STUDENT NAME: SUFIAN MOHAMMED ABDO ALBAADANI ID: 201212239 DATE: 31/01/2015 STRATEGIC MANAGEMENT BMST5103 Assignment MBA Program SEPTEMBER 2014
  2. 2. 1 Contents Why companies choose to venture out of their home country? benefits and outcomes of international strategy. .............................................................................................................. 2 The Different modes of entry into the international markets and challenges......................... 3 The Internet.......................................................................................................................... 3 Exporting .............................................................................................................................. 4 Licensing............................................................................................................................... 4 Joint Venture ........................................................................................................................ 5 Foreign Direct Investment/ Overseas Manufacture / International Sales Subsidiary ....... 6 International Agents and International Distributors .......................................................... 7 Strategic Alliance.................................................................................................................. 7 Case Study , HP Company ....................................................................................................... 9 Hewlett &Packard, HP Company........................................................................................ 9 HP Corporate Level Strategy............................................................................................... 9 Risk Management............................................................................................................... 10 Vision statement: ................................................................................................................ 10 Mission statement:.............................................................................................................. 10 SWOT Analysis: ................................................................................................................. 10 IFE (INTERNAL FACTOR EVALUATION MATRIX).................................................. 12 EFE (EXTERNAL FACTOR EVALUATION MATRIX)............................................... 13 CPM (COMPETITIVE PROFILE MATRIX) .................................................................. 14 S.W.O.T Strategies ............................................................................................................. 15 SPACE (STRATEGIC POSITION & ACTION EVALUATION MATRIX) .................. 16 BCG (BOSTON CONSULTING GROUP)........................................................................ 18 IE (Internal /External)........................................................................................................ 19 GRAND STRATEGY MATRIX........................................................................................ 20 QSPM (QUANTITATIVE STRATEGIC PLANNING MATRIX)................................... 21 Resources:................................................................................................................................ 23
  3. 3. 2 Question A: Why would companies choose to venture out of their home country? Include the benefits and outcomes of international strategy for a company in your response. Few Companies can afford to ignore the presence of international competition. Companies that seem insulated and comfortable today may be vulnerable tomorrow. A world economy and monetary system are emerging. Corporations all over the world globalize to seek customers. Markets are shifting rapidly. Innovative transport systems are accelerating the transfer technology, shifts in the nature and location of production systems, especially to China and India, re reducing the response time to market changing conditions. More and more countries globally compete for foreign investment, capital labor, and human talents. Many countries become more protectionists during the recent global economic recession. Global consumer demand has increased tremendously .Shareholders of companies globally expect better return on their investment. Companies have many reasons for formulating and implementing strategies that initiate, continue, or expand involvement in business operations out of their home countries. The greatest outcome is that companies can gain new customers for their products and services, thus increasing revenues. Growth in revenues and profits is a common organizational objective and often an expectation of shareholders because it is a measure of organizational success. Potential advantages to initiating, continuing, and expanding international operations are as follows: a- Company can gain new customers for their products and services b- Foreign operations can absorb excess capacity, reduce unit costs, and spread risks over a wider number of markets c- Competition is less intense in foreign markets. d- Foreign operations can allow companies to establish low-cost production facilities in locations near to raw materials and cheaper labor.
  4. 4. 3 e- Joint ventures can enable companies learn the technology, culture, and business practices of others people and to network with participants of supply chain in foreign countries. f- Economies of scale can be achieved from international operations. g- Company’s power and prestige in domestic markets may be significantly enhanced. h- Companies can capitalize on core competencies Question B: Companies may select different modes of entry into the international markets. Discuss some challenges of the different modes of entry. Expansion into foreign markets can be achieved via the following mechanisms: - The Internet - Exporting - Licensing - Joint Venture - Direct Investment - International Agents & International Distributors - Strategic Alliances The Internet • The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations • The eMarketing space consists of new Internet companies that have emerged as the Internet has developed, as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan New Internet Companies: • New online retail brand e.g. Amazon, Lastminute.com • Online Auction e.g. eBay • New online manufacturer brand e.g. Dell.com
  5. 5. 4 Exporting • Exporting is the marketing and direct sale of domestically-produced goods in another country • There are direct and indirect approaches to exporting to other nations • Direct exporting is straightforward. Essentially the organization makes a commitment to market overseas on its own behalf • if you were to employ a home country agency (i.e. an exporting company from your country - which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly Examples of indirect exporting include: • Piggybacking whereby your new product uses the existing distribution and logistics of another business. • Export Management Houses (EMHs) that act as a bolt on export department for your company. They offer a whole range of bespoke or a la carte services to exporting organizations. • Trading companies were started when some nations decided that they wished to have overseas colonies. They date back to an imperialist past that some nations might prefer to forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage. Licensing • Licensing essentially permits a company in the target country to use the property of the licensor • Such property usually is intangible • The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.
  6. 6. 5 • Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI • Licensing includes franchising, Turnkey contracts and contract manufacturing • Franchising involves the organization (franchiser) providing branding, concepts, expertise, and infact most facets that are needed to operate in an overseas market, to the franchisee. Management tends to be controlled by the franchiser. Examples include Dominos Pizza, Coffee Republic and McDonald’s. • Turnkey contracts are major strategies to build large plants. • They often include the training and development of key employees where skills are sparse - for example, Toyota’s car plant in Adapazari, Turkey. You would not own the plant once it is handed over. • Contract manufacturing firm is that which manufactures components or products for another "hiring" firm. It is a form of outsourcing • The practice of utilizing contract manufacturing relies on the manufacturer's ability to drive down the cost of production through economies of scale • It also allows the hiring company to obtain the needed components or products without needing to own and operate a factory. Joint Venture • There are five common objectives in a joint venture: - market entry - risk/reward sharing - technology sharing - joint product development - conforming to government regulations Such alliances often are favorable when:
  7. 7. 6 • The partners' strategic goals converge while their competitive goals diverge; • The partners' size, market power, and resources are small compared to the industry leaders; and • Partners' are able to learn from one another while limiting access to their own proprietary skills Potential problems include: • Conflict over asymmetric new investments • Mistrust over proprietary knowledge • Performance ambiguity - how to split the pie • Lack of parent firm support • Cultural clashes • If, how, and when to terminate the relationship Foreign Direct Investment/ Overseas Manufacture / International Sales Subsidiary • A business may decide that none of the other options are as viable as actually owning an overseas manufacturing plant i.e. the organization invests in plant, machinery and labor in the overseas market • involves the transfer of resources including capital, technology, and personnel • through the acquisition of an existing entity or the establishment of a new enterprise • The key benefit is that your business becomes localized - you manufacture for customers in the market in which you are trading • downside is that you take on the risk associated with the local domestic market
  8. 8. 7 International Agents and International Distributors • agents are individuals or organizations that are contracted to your business, and market on your behalf in a particular country • They rarely take ownership of products, and more commonly take a commission on goods sold. • Agents usually represent more than one organization • Agents are a low-cost, but low-control option • They tend to be expensive to recruit, retain and train • Distributors are similar to agents, with the main difference that distributors take ownership of the goods Strategic Alliance • Astrategic alliance is a term that describes a whole series of different relationships between companies that market internationally • Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain independent and separate. • There are many examples including: • Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot • Research and Development (R&D) arrangements • Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom • Marketing agreements • Several streams of thought are discernible in the discussion of cooperative or collective strategy • alliance has been considered as a strategy of behavior contrasted with competitive strategy
  9. 9. 8 • “if you can’t beat ‘em, join ‘em.” • Alliance has been posited as a systematic response to promote areas of common interest between two firms • Alliance has been theorized as a particular value system with emphasis on humanism and fairness. Examples: • SAIL and TATASteel: SAIL signed an agreement with Tata steel for joint development of coal blocks • Xerox and Fuji: These two multinational giants, located in U.S. and Japan, respectively, joined hands to explore new markets in Europe and in Pacific Rim countries. • AT&T, IBM, Motorola, and Loral: A giant alliance between AT&T, IBM, Motorola and Loral was formed to develop an advanced computer chip manufacturing technology.
  10. 10. 9 Question C: Select ONE public listed company, local or multinational. Identify the international corporate level strategy (multidomestic, global or transnational strategy) that the organisation has undertaken to grow its market (in products or services) as a strategic competitive advantage. Take into consideration that such a firm would operate in multiple industries in multiple countries or regions for which they operate multiple products. Refer to any journal articles or case studies to support the company’s strategy to go global. Identify possible risks that the company could be facing and how it can mitigate or minimize such risks. Provide a critical evaluation of the strategy and conclude based on your understanding. Hewlett &Packard, HP Company Bill Hewlett and Dave Packard are two students who graduated in electrical engineering from STANFORD University in 1935.The Company originated in a garage in nearby Palo Alto, California, USA during a fellowship in 1939 with initial capital investment of $538. Hewlett Packard company commonly referred as ‘HP’.HP company became an American multinational information technology corporation headquartered in Palo Alto , California , USA Nearly in each country. HP product lines are personal computing devices, enterprise servers, related storage devices, and diverse range of printers & imaging products. HP markets its products to household, small to medium size consumers and enterprise directly as well as via online distribution. HP Corporate Level Strategy HP is pursuing the diversification as a corporate level strategy. It is obvious from the variety of products and services the company produce. HP operates in nearly every country in the world, which gives them market exposure to even the most rural areas. The recent big news about HP has come from their printing products. The book publishing
  11. 11. 10 industry has evolved in a way that books are being printed more effectively and more rapidly. With nearly the whole world as HP's market, printing books to the masses are resulting in tremendous success. Now HP is considered the leading book printer in Europe. The printing machine delivers high productivity with low operating costs which offers more revenue opportunities. In the last decade, HP has made several acquisitions in many related areas including Software companies, personal systems, and even imaging & printing firms. However, the main acquisitions and mergers in the past decade began in 2001 when HP and Compaq merged which created the two companies into one giant computer products manufacturer. One company that many people might recognize is Snapfish. Snapfish is a website where people have the ability to store their picture albums on the internet and even order prints for a small fee. The most recent acquisition by HP was last July when they bought out IBRIX, a company that focuses on file serving software and data protection. Studies have shown that network storage industry has grown by 20 percent each year and that the acquisition of this company shows HP's leadership in this emerging market Risk Management HP uses its environmental management system (EMS) to identify environmental risks throughout the company’s operations. Sites undergo regular aspect identification analyses and policies and procedures are developed to manage key risk areas. One of the primary roles of the Internal Audit group is to assess risks throughout the company and to evaluate, monitor and improve the effectiveness of controls and governance processes that support corporate objectives. The group audits global citizenship issues and management systems, and provides regular reports directly to the Board Audit Committee on its findings Vision statement: “To view change in market as an opportunity to grow, to use our profit and our ability to develop & produce innovative products , services and solutions that satisfy emerging customers need” Mission statement: “To provide product, services and solution of highest quality and deliver more value to our customers that earn their respect and loyalty ” SWOT Analysis: STRENGTHS Ø Brand name WEAKNESSES
  12. 12. 11 Ø Low debt Ø Wide range of innovative products Ø Developing of own hardware and software Ø Web technology used for product awareness & sale Ø Lack of in-house management consulting division Ø Intellectual capital is underestimated Ø No aggressive investment in R & D Ø No good people retention policy OPPORTUNITES Ø Expansion of retailed stores for customer convenience Ø Participation in joint venture Ø Make easy to use product for upcoming retirees Ø Computer and cell phone software & hardware THREATS Ø Competitor’s technology & pricing Ø low compatibility with non- HP product Ø Availability of substitute Ø Less global coverage than competitor
  13. 13. 12 IFE (INTERNAL FACTOR EVALUATION MATRIX) Table (1): Internal Factor Evaluation Matrix
  14. 14. 13 EFE (EXTERNAL FACTOR EVALUATION MATRIX) Table (2): External Factor Evaluation Matrix
  15. 15. 14 CPM (COMPETITIVE PROFILE MATRIX) Table (3) :Competitive Profile Matrix
  16. 16. 15 S.W.O.T Strategies S.W.O.T Strengths - S 1. Brand name 2. Low debt 3. Wide range of innovative products 4. Developing of own hardware and software 5. Web technology used for product awareness & sale Weakness – W 1. Lack of in-house management consulting division 2. Intellectual capital is underestimated 3. No aggressive investment in R & D 4. No good people retention policy Opportunities – O 1. Expansion of retailed stores for customer convenience 2. Participation in joint venture 3. Make easy to use product for upcoming retirees 4. Computer and cell phone software & hardware SO - strategies v (S1, S3,O1,) (must open new retail stores throughout the world to take advantage of financial strength) v (S4, O3) (develop easy pc and cell phone for old generation) WO – strategies v (W1,W5,O2) (develop new HR policy in order to retain human capital by taking advantage or other firm management ) Threats - T 1. Competitor’s technology & pricing 2. low compatibility with non- HP product 3. Availability of substitute 4. Less global coverage than competitor ST – strategies v (S4, T1) (developed low price and innovative pc & cell phone than competitors ) v (S5,T2) (developed such hardware and software for computer & cell phone which are compatible with other companies software and accessories) WT – strategies v (W1,T1) (give attention to management consulting division to have more focus on technology improvements)
  17. 17. 16 SPACE (STRATEGIC POSITION & ACTION EVALUATION MATRIX) Internal Strategic Position External Strategic position Financial Strengths (FS) Environmental Stability (ES) Return on Investment leverage Working Capital Liquidity Price earning ratio Total Average +5 +3 +4 +5 +4 +21 +4.2 Technological changes Rate of Inflation Price range of Competing products Competitive pressure Barriers to entry into market Demand variability Total Average -3 -2 -3 -5 -4 -2 -19 -3.17 Competitive Advantage (CA) Industry Strength (IS) Market Share Product Quality Customer Loyalty Technological know-how Control over suppliers and distributors Total Average -2 -3 -2 -2 -4 -13 -2.6 Growth Potential Profit Potential Financial Stability Labor cost Technological know-how Total Average +5 +5 +4 +3 +4 +21 +4.2 Table(4): Strategic Position& Action Evaluation Matrix
  18. 18. 17 SPACE Quadrant Chart Analysis: According to the space matrix score, HP falls in the “AGGRESSIVE quadrant” . Their strategies should be one of the following: • Vertical and horizontal integration • Market penetration • Market development • Product development • Diversification
  19. 19. 18 BCG (BOSTON CONSULTING GROUP) ID SEGMENTS REVENUE % PROFIT % GROWTH RATE % MARKET SHRE % A ESS 19 2 11 0.8 B HPS 17 20 8 0.1 C SOFTWARE 1.4 5 14 0.6 D IPG 29.2 30 8 0.8 E PSG 32 42 -10 0.7 F HPHS 2.2 2 -14 0.2 Table (5) BCG Matrix HP divisions
  20. 20. 19 IE (Internal /External) IFE Total Weighted Score 3.02 Analysis: HP falls in first region of IE matrix and there main focus will be on “GROW AND BUILD” and they will mainly focus on strategies which are: • Market development • Horizontal integration
  21. 21. 20 GRAND STRATEGY MATRIX Analysis: HP has rapid market growth and strong competitive position so it falls in first quadrant and the most suitable strategies for HP are: • Market development • Horizontal integration
  22. 22. 21 QSPM (QUANTITATIVE STRATEGIC PLANNING MATRIX) Key Internal Factors HORIZONTAL INTEGRATION MARKET DEVELOPEMNT Strengths Weight AS TAS AS TAS Brand name 0.14 3 0.42 4 0.56 Low debt 0.13 3 0.39 2 0.26 Wide range of innovative products 0.13 4 0.52 3 0.39 Developing of own hardware and software 0.11 4 0.44 3 0.33 Web technology used for product awareness and sale 0.10 2 0.20 3 0.30 Weaknesses Lack of in-house management consulting division 0.10 2 0.20 3 0.30 Intellectual capital is underestimated 0.08 -- -- -- -- No aggressive investment in R & D 0.11 3 0.33 2 0.22 No good people retention policy 0.10 3 0.30 2 0.20 Total weight 1.00
  23. 23. 22 Key External Factors HORIZONTAL INTEGRATION MARKET DEVELOMENT Opportunities weight AS TAS AS TAS Expansion of retailed store for customer convenience 0.11 3 0.33 4 0.44 Participation in joint venture 0.20 4 0.80 2 0.40 Make easy to use product for upcoming retirees 0.09 3 0.27 2 0.18 Computer and cell phone software and hardware 0.12 3 0.36 2 0.24 Threats Competitors technology and pricing 0.14 4 0.56 3 0.42 Low compatibility with non-HP product 0.13 3 0.39 2 0.26 Availability of substitutes 0.10 4 0.40 3 0.30 Less global coverage than competitors 0.11 3 0.33 2 0.22 Total weight 1.00 Total Attractive Score 6.24 5.02 Table (6): Quantitative Strategic Planning Matrix
  24. 24. 23 Analysis: According to the total attractive score of QSPM HP should go for “HORIZONTAL INTEGRATION” Resources: · Chiara Franco, F. R. (2008). Why do firms invest abroad?An analysis of the motives underlying Foreign, Direct Investments. · David, F. R. (2011). Strategic Management Concepts and Cases. Pearson Education, Inc., publishing as Prentice Hall, One Lake Street,. · Pok, D. C. (2012). STUDY GUIDE Strategic Management. · Rizwan, D. P. (2012). Different Modes of entry into international business.

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