Multinational corporation information, how they operate and what are the pron and corns

2. Multinational Strategy
International Business
Authorizer: Professor Jehanzaib Akram

3. “Achievers”
1. H. M. Nouman Riaz
2. Muhammad Talha
3. Adnan Siddique
4. Raja Saim Azad
5. Tahmeena Batool
6. Anum Zafar
7. Mehak Athar

4. Topics:
 Introduction
 Strategy formulation and external
environment assessment
 Strategic orientations
 Internal environment assessment
H.M. Nouman Riaz
Mehak Athar
Muhammad Talha

5. Topics:
 Goal setting
 Strategy implementation
 Functional Strategies
 Control and evaluation
Adnan Siddique
Tahmeena Batool
Raja Saim Azad
Anum Zafar

6. Introduction

7. Why strategy formulation is important for
MNE?
 MNC has productive operations is several countries
 Complex environment
 Environment analysis
 Strategic planning
 3 steps process
1. Formulation
2. Implementation
3. Control

8. Strategic planning
 “process of evaluating the enterprise's environment and
it’s internal strengths and then identifying the short term
and long term activities”
 Strategic planning provides an MNC
o General directions and specific guidance
o Ability to make adjustments
o Capacity to face ever-changing challenges in world
market

9. Strategic orientation
Mehak Athar

10. Strategic Orientation
MNE’s have strategic predisposition. This
predisposition helps to determine the specific
decisions the firm will implement. There are four
predispositions which as follows
 Ethnocentric
 Polycentric
 Region centric
 Geocentric

11. Ethnocentric
The tendency of Multinational Company to
relay on the value and interest of the parent
company in formulating and implementing
the strategic plan.
Example:
Lays (Pepsi & co.)

12. Polycentric
The tendency of a MNC to tailor its strategic
plan to meet the needs of the local culture.
The concept of Glocal ( Global + local)
Example:
Lays (Halal)

13. Region centric
The tendency of a MNC to use a strategy that
address both local and regional.
Example:
Carbonated components %age in
Pepsi drinks.

14. Geocentric
The tendency of a MNC to construct its strategic
plan with a global view of operations.
Example:
Pepsi Strategies , Uniliver , McDonald.

15. Strategy formulation and external
environment assessment
Nouman Riaz

16. Strategy formulation
“process of evaluating the firm’s
environment and its internal strengths”
Strategy formulation starts with the
identification of:
External environment and opportunities
Internal strengths

17. External environmental assessment
Two activities are involved in external environment assessment
 Information gathering
 Information assessment
These activities answer two questions:
1. What trends are present in external environment?
2. How will these developments affect our company?

18. Information gathering
 Competitive intelligence
Four methods of environmental scan:
1. Asking experts for industry trends and forecasting
future
2. Using historical industry trends to predict future
3. Asking knowledgeable managers
4. Using computers to pretend the environment

19. Informations assessment
After gathering information MNC will analyze the data and draw evaluation.
Five forces that determine industry competitiveness:
1. Bargaining power of buyers
2. Bargaining power of suppliers
3. New entrants
4. Threats of substitutes
5. Rivalry
a) Offering new goods b) Increasing productivity and lowering cost c) Differentiate goods and services
d) Increasing overall quality e) specific groups

20. External environment assessment with
the reference of Pepsi and co.

21. Porters five forces model

22. Porter five forces model (cont.…)
1- Bargaining Power of Buyers: HIGH
 number of substitute products
 Customer in beverage industry is price sensitive
 Consumer can switch to an other company
2- Bargaining Power of Suppliers: LOW
 Number of suppliers are available
 Main ingredients of carbonated water are same so supplier cannot differentiate
 Supplier wont lose a huge market share i.e. Pepsi Co

23. Porter five forces model (cont.…)
3- Threats of New Entrants: LOW
 Already number of different companies are existing
 Few MNC’s hold a large market share
 High initial cost
4- Threat of Substitute: HIGH
 Many substitutes are available
 Pepsi Co has different product lines so different competitors
5- Rivalry among Existing Competitors: VERY HIGH
 Some companies have controlled the market
 High competition from competitors i.e. Coca Cola.

24. Internal environment
assessment
Muhammad Talha

25. Outline
Internal Environmental Assessment
 Physical resources and personnel
competencies
 Value chain analysis

26. 1. Physical resources and
personnel skills

27. Physical resources
 Physical assets used to carry out the strategic plan.
 For most synergy and profitable manner.
 Location and disposition/ settlement of resources
 Integration among operating units (SBUs)
 Which further involves
i. Vertical integration and
ii. Virtual integration

28. Location and disposition/
settlement of resources

29. Location and disposition/ settlement of resources
 MNE having Manufacturing plants in more than 1 countries.
 Competitive advantage.
 PepsiCo, Countries over 200
 Still planning to expand more

30. Integration among
operating units (SBUs)

31. Integration among operating units (SBUs)
 SBUs strategic business units
 Operating units having their own strategic space and they produce & sell G&S to
a market segment, and have a well defined set of competitors.
 PepsiCo SBUs
 Lays
 Quaker
 Gatorade
 Pepsi cola

32. Vertical VS virtual
integration

33. Vertical integration
 Vertical integration is the ownership of all the assets involved in producing G&S
and delivering to customers by its own
 Advantages
 Good control over supply
 Cost effective
 Disadvantages
 Difficult to achieve that specialized level

34. virtual integration
 Ownership of the core technologies and manufacturing capabilities needed to
produce Outputs while depending on Outsourcers to provide all other needed
Inputs.
 In short doesn't own all FOP

35. Personnel competencies (skills)
 Skills & talents of the people
 Reflect the strength and weakness.

36. 2. Value chain analysis

37. Value chain analysis
 The way in which primary and secondary activities are combined in
providing G&S and in increasing profit margin.

38. Value chain analysis
 Determine effective strategy
1. Cost strategy
A pricing strategy in which a company offers a relatively low
price to stimulate demand
2. Differentiation strategy
Approach under which a firm aims to develop and market
unique products for different customer segments.
3. Focus strategy
The 'focus' strategy involves focusing on a narrow, defined
segment of the market, also called a 'niche' segment.

39. Goal settings
Adnan Siddique

40. Goal setting
The external and internal
environmental analyses will
provide an MNE with the
information needed for
setting goals.
There are two basic ways of examining the goals or
objectives of international business operations.

41. One is to review them on the basis of operating performance or
functional area. Some of the major goals are related to profitability,
marketing, production, finance, and human resources.
A second way is to examine these goals by geographic area or on an
SBU basis.
Then there are accompanying functional goals for marketing ,production
,and finance. If the MNE has SBUs , each strategic business unit in these
geographic locales will have its own list of goals.

42. Cascading Effect
A succession of stages, processes, operations, or units.
 Each geographic area or Business unit is then
assigned a profitability goal that, if attained, will
result in the MNE reaching its overall
desired profitability.
 The same approach is used in other key areas such
as marketing, production, and finance. Within each
unit, these objectives are further subdivided so that
every part of the organization understands its
objectives and every one is working toward the
same overall goals.

43. Cascading Effect

44. Strategy
Implementation
Tahmeena Batool

45. Strategy Implementation
The process of attaining goals by
using the organizational structure to
execute the formulated strategy
properly

46. Main focused areas of strategy
Implementation
There are three main focus areas for strategy
implementation:
 Location
 Ownership(international joint venture &
Strategic Alliances)
 Functional strategy Implementation

47. Location
Location is when MNC expands its international presence.
Benefits :
 Local facilities provide cost advantage to the producer
 So the raw material and labor needed to produce the product can
be inexpensively obtained
 Residents prefer locally produced products
 Imported goods are subjected to tariffs, quotas and other
governmental restrictions making local manufacturers more
desirable.

48. Location
Drawbacks:
Unstable political environment leaves
MNE vulnerable to low profit.
Possibility of revolution or armed conflict

49. Ownership
Ownership decisions are of two types:
1. International joint venture
2. Strategic Alliance
International joint venture
(IJV) is an agreement between two or more partners to own and control an
overseas business (setting up a new business entity).
Benefits:
 Government encouragement and legislation that are designed to make it
attractive for foreign investors to bring in local partners

50. Ownership
 Desire by outside investors to find local collaboration with whom
they can team up effectively
Drawbacks :
Joint ventures are difficult to manage and are unstable
Example:
 PepsiCo and Unilever Create 'Pepsi Lipton International' RTD
Tea Joint Venture in Selected International Markets
 IDJ-International Dairy & Juice ( A Joint Venture Of PepsiCo &
Almarai )

51. Ownership
Strategic Alliance:
It is an agreement between two or more competitive MNEs for the
purpose of serving a global market
Strategic partnerships are formed by firms in the same line of
businesses.
Example :
 PepsiCo's new strategic alliance with leading local drink makers
Tingyi-Ashani Beverages(TAB).
 PepsiCo's strategic alliance with Starbucks

52. Functional strategies
Saim Azad

53. Functional Strategies
Functional strategies are used to coordinate operations and ensure
that the plan is carried out properly.
The specific functions typically fall into six major areas:
1. Marketing
2. Manufacturing
3. Finance
4. Procurement
5. Technology
6. Human resources.

54. Marketing
 The marketing strategy is designed to identify consumer needs and formulate
a plan of action for selling the desired goods and services to these customers.
Most marketing strategies are built around what is commonly known as the
“four Ps” of marketing:
Product, Price, Promotion, and Place.
 Marketing Strategy apprises the manufacturing department of any
modifications needed to meet local needs, and it determines the price at which
the goods can be sold.

55. Manufacturing
 Designed to fit together with the marketing plan
 The manufacturing strategy ensures that the right products are built and
delivered in time for sale.
 Manufacturing also coordinates its strategy with the procurement and
technology people to ensure that the desired materials are available and the
products have the necessary state-of-the-art quality.
 If the MNE is producing goods in more than one country, it gives attention to
coordinating activities where needed.

56. Finance
 Financial strategy often serves to both lead and lag the other functional strategies.
 In the lead position, finance limits the amounts of money that can be spent on
marketing (new product development, advertising, promotion) and manufacturing
(machinery, equipment, quality control) to ensure that the desired return on
investment is achieved.
 In the lag position, the financial strategy is used to evaluate performance and
provide insights into how future strategy should be changed.
 Financial strategies used to be formulated and controlled out of the home office. In
recent years, however, MNEs have learned that this approach can be cumbersome
and, due to fluctuating currency prices, costly as well.

57. Control and evaluation
Anum Zafar

58. Control and evaluation
The strategy formulation and implementation processes
are a prelude to control and evaluation.
This process involves an examination of the MNE’s
performance for the purpose of determining:
 how well the organization has done;
 what actions should be taken in the light of this
performance.

59. Common methods of
measurement
 Six of the most common methods of measurement used for control
and evaluation purposes:
 return on investment (ROI)
 sales growth and/or market share
 costs
 new product development
 MNE/host-country relations
 management performance.