Activities for Today

1. Activities for Today • Attendance • Simulation Decision # 5 Due • Strategic Intent (Hamel and Prahalad) • We have covered this already! • Chapter 10 • Fun Quiz • Red Flags in Profits (maybe?) • Break (7.30 to 7.40 pm) • Review Case (7.40 – 7.45 pm) • Clayton Industries • Homework • Chapter 12 • Good Managers Don't Make Policy Decisions

2. Strategic Intent - Hamel and PrahaladDiscussion Questions • What is strategic intent? Explain strategic intent as an active management process. • What are the four suggestions Hamel offers for competitive innovation against rivals? • What advice can we take from this article to improve the strategic planning process?

3. Strategic Intent - Hamel and Prahalad • Ambition out of proportion to current resources and capabilities. • Essence of Winning • Stable over Time • Personal Attention and Commitment • Outcomes • Creates a sense of Urgency • Creates a Competitive Focus • Provide employees with Skills • Gives Organization Time before Going to Other Targets • Establish Milestones and Review Mechanisms

4. Strategic Intent - Hamel and Prahalad • Four Approaches to CA • Layers of Advantages • Loose Bricks • Changing terms of Engagement • Competing through Collaboration

5. Other Lessons from Strategic Intent • Time period • Today’s Problems vs. Tomorrow’s Opportunities • Problems Using Financial Measures • Dichotomy between Planning and Implementation • Top Managers Have Answers • Importance of Global Thinking • Incremental Thinking is not a Good Idea! • CA is Not Permanent • Need to involve employees “Emotionally and Intellectually” • Sharing Gains and Pain • Outsourcing “Your Future”?

6. Part 2 Strategy Formulation 10-2 2–6

7. What Is Globalization? • Globalization is a process of closer integration and exchange between different countries and peoples worldwide. • Made possible by: • Falling trade and investment barriers • Advanced telecommunications • Reduced transportation costs • Importance of MNEs and FDIs

8. EXHIBIT 10.1 Lifetime Revenues - Blockbuster Movies

9. 2011 Data from Compustat

10. What Is Globalization (cont'd) Multinational Enterprise (MNE) Deploys resources and capabilities in the procurement, production, and distribution in at least two countries Less than 1% of firms, BUT employ 19% of U.S. workforce 74% of private sector R&D spending Foreign Direct Investment (FDI) Investments in value chain activities abroad Global Strategy To sustain a competitive advantage Competing against foreign and domestic companies around the world 10–10

11. Why Global? Gain access to a larger market Capitalize on market potential, such as China, India, and emerging economies Gain access to low-cost input factors Labor, natural resources, technology, logistics Develop new competencies Location economies Unique locational advantages 10–11

12. Disadvantages of Expanding Internationally Liability of foreignness Additional cost of doing business in an unfamiliar cultural and economic environment Cost of coordinating across geographic distance Economic development may increase the cost of doing business Rising wages with improved living standards Difficulty in protecting intellectual property 10–12

13. Global Expansion: Where • How does an MNE decide where to go? • National institutions: • Well-established legal and ethical pillars as well as well- functioning economic institutions such as capital markets, banks, and infrastructures • National culture: "Programming of the mind" • Geert Hofstede’s Cultural Dimensions • Power distance • Individualism • Masculinity/femininity • Uncertainty-avoidance • Long-term orientation

14. Global Expansion: Where • Hofstede’s Cultural Dimensions • Power distance • How a society deals with inequality among people in terms of physical and intellectual capabilities High = Philippines Low = Austria • Individualism • Relationship between individuals in a society, particularly in regard to the relationship between individual and collective pursuits High = U.S.A. Low = Venezuela • Masculinity/femininity • Relationship between genders and its relation to an individual’s role at work and in society High = Japan Low = Sweden • Uncertainty-avoidance • Societal differences in tolerance toward ambiguity and uncertainty High = Russia Low = Singapore

15. Global Expansion: How Exporting: producing goods in one country to sell in another Acquisition, strategic alliance are also popular vehicles for entry into foreign markets MNEs sometime prefers greenfield operations or wholly owned subsidiaries Greenfield is building new factories/offices from scratch Physically and organizationally building from the "ground up". 10–15

16. Modes of Foreign Market Entry EXHIBIT 10.5 Market Entry along the Investment & Control Continuum

17. Strategy around the World: Cost Reduction vs. Local Responsiveness • Local responsiveness: • Tailor product and service offerings to fit local consumer preferences and host-country requirements • Higher cost • Ex: McDonald’s uses mutton in India • Cost reduction: • MNEs enter global marketplace with the intention to reduce operation cost • Ex: Toyota Prius 10–17

18. The Integration-Responsiveness Framework EXHIBIT 10.6

19. Four Global Strategies • International strategy • Leveraging home-based core competencies • Selling the same products or services in both domestic and foreign markets • Ex: Harley-Davidson in Poland • Localization strategy • Maximize local responsiveness • Consumers will perceive them to be domestic companies • Ex: Nestlé’s customized product offerings 10–19

20. Four Global Strategies (cont'd) Global standardization strategy Economies of scale and location economies Pursuing a global division of labor based on best-of-class capabilities reside at the lowest cost Ex: Lenovo’s R&D in Beijing, Shanghai, and Raleigh; production center in Mexico, India, and China Transnational strategy Combination of localization strategy (high responsiveness) with global standardization strategy (lowest cost position attainable) Glocalization Ex: German multimedia conglomerate Bertelsmann 10–20

21. National Competitive Advantage • Death-of-distance hypothesis • Geographic location alone should not lead to firm-level competitive advantage because firms are now more able to source inputs globally(ex: capital, commodities, etc.) Labor markets also have become more global. • Computer manufacturers – China & Taiwan • Consumer electronics – Japan & South Korea • Mining companies – Australia • Why are certain industries in some countries more competitive than in others? • Answer: National Competitive Advantage 10–21

22. EXHIBIT 10.8 Porter’s Diamond of National Competitive Advantage Porter American Future Video

23. National Competitive Advantage Framework Factor conditions A nation’s endowments in terms of national, human, and other resources Demand conditions Specific characteristics of demand in a firm’s domestic market Competitive intensity Highly competitive environments tend to stimulate firms to outperform others Related and supporting industry leadership in related and supporting industries can also foster world-class competitors in downstream industry Complementarity 10–23

24. Regional Clusters Regional cluster A group of interconnected companies and institutions in a specific industry, located near each other geographically and linked by common characteristics Knowledge spillover Positive externalities that are regionally constrained Exchange of ideas among firms in a cluster 10–24

25. RED Flags in Profits? • Quality of Earnings • Contracts (GLOBAL CROSSING) • Pension Funds (IBM) • Share Buybacks (IBM) • Insider Selling (WHERE TO LOOK?) • Reporting of Earnings • Diversified Companies (GE) • Price War (PROFITLESS PROSPERITY – LIKE JOBLESS RECOVERY) • Compensation Practices (TMT-CAN NO LONGER OFFER ANYTHING) • Business Model Logic Weakens (GMAC/SEARS)