TRANSNATIONAL MANAGEMENT : Lecture 5

1. TRANSNATIONAL MANAGEMENT:Lecture 5 Strategies & strategic orientations of internationally active companies 9th December 2009

2. 1. What we mean by strategy? • What is strategy?

3. Defining strategy… • Strategy is a pattern or plan, which integrates the key goals, policies and sequence of actions into a coherent manner, directed towards a certain goal or objective. • WHERE are we NOW? • WHERE do we want to be? • Markets • Regions • Consumers • HOW will we get there?

4. Strategy… • Coming from a military context (Greek word for general) • Strategy vs. Tactics? • Tactic – conduct of an engagement • Strategy – how different engagements are linked

5. What strategy is NOT! http://www.youtube.com/watch?v=ibrxIP0H84M

6. Porter’s generic strategies http://www.youtube.com/watch?v=mYF2_FBCvXw

7. I. Global cost leadership an innovative warehousing system, an emphasis on everyday low prices, basing store design on consumer studies, effective use of superstores, using size to negotiate for the best price on brand-name items, and an industry leading inventory control system http://www.youtube.com/watch?v=S4_RGUu9BM4

8. Wal-Mart • "There are only two ways to lower prices: Lower the cost of goods sold through improved supplier relationships while holding gross margin percentage constant, or, lower the retail prices. Increasing the range of merchandise requires either: increasing merchandise intensity per square foot, or, increasing store size. Wal-Mart has been pushing both these initiatives relentlessly over the past 10 years. By lowering gross margins and reducing costs of goods sold, Wal-Mart has been able to strengthen its price and value image“ • http://www.worldhistoryblog.com/2006/09/how-did-wal-mart-attain-cost.html

9. Wal-Mart: selling soap in India

10. II. Global Differentiation • Differentiation: • Strategically focusing on how to deliver products that are perceived to be valuable and different: • A low-volume, high-margin approach in targeting smaller, well-defined customer segments willing to pay premium prices. • Research/development and marketing/sales are important functional areas. • The less a differentiator resembles its rivals, the more protected its products are • The Strategic Requirement: • Differentiated products must have truly or perceived unique attributes such as quality, sophistication, prestige, and luxury • The Challenge: • To identify these attributes and deliver value centered on them for each market segment.

11. Example: Global Automobile Industry

13. Drawbacks: • A differentiator can have difficulty sustaining the basis of its differentiation over the long run • Customers may decide that the price differential between the differentiator’s and cost leader’s products is not worth paying for • The differentiator also has to confront relentless efforts of competitive imitation • As the overall quality of the industry increases, brand loyalty to differentiators may decline • The IBM PC was a differentiated product commanding a premium in 1984. PCs became a low-profit commodity and IBM sold its PC division to Lenovo, a Chinese firm, in 2004

14. Example: Swatch

15. III. Global segmentation (focus) • Focus Strategy: • Serving the needs of a particular segment or niche of an industry such as a geographical market, type of customer, or product line • A specialized differentiator has a smaller, narrower, and sharper focus than a large differentiator • A specialized cost leader deals with a narrower segment compared with the traditional cost leader • Focusing may be successful when a firm possesses intimate knowledge about a particular segment

16. Example: Vipp http://www.youtube.com/watch?v=H1Hz79weRq8

17. Start: knowing your competitive advantage • Sources of competitive advantage: • Physical assets (factories, locations, equipment…) • Intellectual property (patents, brands….) • Knowledge • Skills • Abilities • Organizational culture • Managing • Leadership • Other???

18. Other typologies of strategy

19. What are the competitive advantages of P&G?

20. Levels of strategy

21. I. Corporate strategy

22. Example: Corporate scope

23. Corporate parenting

24. II. Business strategy • How a business seeks to compete in its product market? • Create competitive strategy • Large range of businesses • Develop sustainable competitive advantage: • Existing rivals: same game • Inventing new ways: new game

26. Example: Yamaha piano

27. Back to business strategy…

28. III. Functional strategy BUSINESS STRATEGIES Bi-directional Human resources Finance FUNCTIONAL STRATEGIES Logistics Marketing Operations 1b-Strategy (18)

29. Example: Zara logistics

30. 4 Key functional areas DESIGN SALES SOURCING and MANUFACTURING DISTRIBUTION

31. Design • Each product line (female, male in children’s) with its own design team (designer+procurement specialist+developer/R&D) • These creative teams simultaneously work on the current season and next year’s season • Top management: “Zara is not run by maestros, but a flat design organization structure and a focused interpretation of fashion trends for the masses” • Regular visits to fashion fair and shows in Paris, Milan, New York; clippings from luxury catalogues and a close collaboration with in-store managers • Media clippings and the use of so called TRAND SPOTTERS (universities, discos) • Big focus on information and IT system and regular talks with in-store employees • A few dozen new design created every day – 1/3 make to the shelves • Pre-testing on key locations • Only 1% failed creations (10% industry average) • Design as a bridge between merchandizing and manufacturing

32. Procurement & manufacturing 1/2 • Procurement offices in Barcelona and Hong Kong • Comtidel – the heart of procurement and sourcing – linking over 200 suppliers – for so called grey products • About 50% of grey products – enabling greater flexibility • 40% finished products produced internally, 60% external suppliers (2/3 Europe and North Africa) • Most important and most risky pieces produced internally in small batches • Basic products (more price sensitive) outsourced • 20 key suppliers represent cca. 70% of all supplies • Zara has long term business relationships with suppliers, but with minimal formal obligations to them!

33. Procurement & manufacturing 2/2 • Internal production in 20 own production facilities, 18 in Galicia • Zara’s factories: highly automated, specialized according to fabric, focused on prints and cutting and on finishing and control • Vertical integration in production started in 1980, by 1990 the JIT system was implemented in collaboration with Toyota • Even within own production cut fabrics sent to external seamstress networks in local areas (450 seamstress shops with 20-30 employees) totally dependent on Zara • Zara offering TECHNOLOGY, LOGISTICS and FINANCIAL SERVICES • Every product labeled with a code

34. Distribution • On of the key levers of Zara’s and Inditex success • Focus on information, flexibility and vertical integration • The heart of the distribution system: a 400.000 m2 distribution center (Arteixo) and satellite distribution centers in Argentina, Brasil and Mexico • Highly sophisticated distribution tracking system based on EAN codes (45.000 pieces per hour), linked directly to hand held computers in stores • 2x a week orders in normal seasons and 3x a week in peak seasons • Loren Alba: “distribution center as a hub for products, not as a warehouse” • Most clothes leave the DC in a couple of hours, none stay longer than 72 hours • Shipments according to time zones • Ca. 75% road shipments and 25% air shipments • Supply times: 24-36 hours in Europe and 24-48 hours elsewhere • 2003:as second DC built near Madrid to meet growing business

35. Sales • Sophisticated shops, boutique interiors na prime locations • Main communication and information channels • Merchandizing: • Multiple, frequently changing product lines and collections • High focus on design • “Reasonable but not excessive quality” • Relatively high margins despite lower prices due to internal efficiencies • Only 0,3% of sales go for advertising (3-4% industry average) • Emphasis on location, store outlook and word-of-mouth marketing • Creating a sense of rareness and scarcity • Owned locations or 10-20 year rentals • Average shopper visits Zara 17-times annually (3-4 for industry average) • Sales people as consultants