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Strategy in the Global Environment.ppt
1.
8 Strategy in the Global Environment
2.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 2 Increasing Profitability Through Global Expansion • Location economies – Economic benefits from performing a value creation activity in the optimal location – Effects • Can lower costs • Can enable differentiation – Caveats • Transportation costs and trade barriers • Political and economic risks
3.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 3 Increasing Profitability Through Global Expansion (cont’d) • The experience curve – Serving a global market from one or a few plants is consistent with moving down the experience curve and establishing a low-cost position • Transferring distinctive competencies – Companies with distinctive competencies can realize large returns by expanding to global markets where competitors lack similar competencies and products
4.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 4 Increasing Profitability Through Global Expansion (cont’d) • Leveraging the skills of global subsidiaries – Competencies can be created anywhere within a multinational’s global network of operations – Managers must establish an incentive system to encourage local employees to acquire new competencies – Managers must have processes in place to identify valuable new competencies and help transfer them within the company
5.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 5 Pressures for Cost Reductions and Local Responsiveness
6.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 6 Pressures for Cost Reductions • When companies produce commodity products • Where differentiation on nonprice factors is difficult and price is the main competitive weapon • Where competitors are based in low-cost locations • Where there is persistent excess capacity • Where consumers are powerful and face low switching costs • The liberalization of the world trade and investment environment
7.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 7 Pressures for Local Responsiveness • Differences in customer tastes and preferences • Differences in infrastructure and traditional practices • Differences in distribution channels • Host government demands
8.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 8 Four Basic Strategies
9.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 9 Choosing a Global Strategy • International strategy – Creating value by transferring competencies and products to foreign markets where indigenous competitors lack those competencies and products – Makes sense if a company has a valuable competence that indigenous competitors in foreign markets lack and if it faces weak pressure for local responsiveness and cost reductions
10.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 10 Choosing a Global Strategy (cont’d) • Multidomestic strategy – Developing a business model that allows a company to achieve maximum local responsiveness – Makes sense when there are high pressures for local responsiveness and low pressures for cost reductions – Companies may become too decentralized and lose the ability to transfer skills and products
11.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 11 Choosing a Global Strategy (cont’d) • Global strategy – Focusing on increasing profitability by reaping cost reductions that come from experience curve effects and location economies; pursuing a low- cost strategy on a global scale – Makes sense when there are strong pressures for cost reductions and demand for local responsiveness is minimal
12.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 12 Choosing a Global Strategy (cont’d) • Transnational strategy – Simultaneously seeking to lower costs, be locally responsive, and transfer competencies in a way consistent with global learning
13.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 13 Cost Pressures and Pressures for Local Responsiveness Facing Caterpillar
14.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 14 Advantages and Disadvantages of Different Strategies for Competing Globally
15.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 15 Basic Entry Decisions • Which overseas markets to enter – Assessment of long-run profit potential • A function of the size of the market, purchasing power of consumers, the likely future purchasing power of consumers – Balancing the benefits, costs, and risks associate with doing business in a country • A function of economic development and political stability
16.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 16 Basic Entry Decisions (cont’d) • Timing of entry – First-mover advantages – First-mover disadvantages • Scale of entry and strategic commitments – Entering on a large scale is a strategic commitment, both positive and negative – Benefits and drawbacks of small-scale entry
17.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 17 The Choice of Entry Mode • Exporting • Licensing • Franchising • Joint ventures • Wholly-owned subsidiaries • Choosing Among Entry Modes
18.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 18 The Advantages and Disadvantages of Different Entry Modes
19.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 19 Choosing Among Entry Modes • Distinctive competencies and entry mode – Technological competency • Wholly-owned subsidiary is preferred over licensing and joint ventures – Management competency • Franchising, joint ventures, subsidiaries • Pressures for cost reduction in entry mode – Great pressure for cost reductions • Exporting and wholly-owned subsidiaries
20.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 20 Global Strategic Alliances • Advantages – Facilitate entry into a foreign market – Share fixed costs and associated risks – Bring together complementary skills and assets – Set technological standards to the industry • Disadvantages – Give competitors a low-cost route to gain new technology and market access
21.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 21 Making Strategic Alliances Work: Partner Selection • A good partner: – Helps the company achieve strategic goals – Shares the firm’s vision for the purpose of the alliance – Is unlikely to try to exploit the alliance to its own ends • Conduct research on potential partners
22.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 22 Structuring Alliances to Reduce Opportunism
23.
Copyright © Houghton
Mifflin Company. All rights reserved. 8 - 23 Making Strategic Alliances Work: Managing the Alliance • Sensitivity to cultural differences and their effects on management style • Building interpersonal relationships among managers from different companies • Ability to learn from alliance partners and put the knowledge to good use
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