MGRECON401 Economics of International Business and Multinationals LECTURE 5

1. MGRECON401Economics of International Business and MultinationalsLECTURE 5 Formulating a Global Strategy

2. Lecture Focus • Review a framework for thinking about a firm’s strategy • Discuss what is different about a global strategy

3. Formulating a StrategyJohn Roberts, The Modern Firm

4. The Starting Point • A business opportunity: • an unmet need • an inefficiency • Due to: • Lower cost product • Better product • Because of: • Better technology • More creativity • Unexploited economies of scale or scope

5. The Goal • Choose a goal against which the firm can measure itself and judge its success. • Nokia • Double market share by the end of the decade • Beat Motorolla • Komatsu • Beat Caterpillar

6. Statement of Scope • A specification of: • The business the firm is in • What products and services it will offer • What customers and market segments it will serve • What activities it will undertake • Where it will do these things • What technology it will use • Statement of scope clearly indicates what a firm will not do

7. Statement of Scope • Nokia: • Focused, Global, Telecom-Oriented, Value-Added. • Consumer oriented cell phones

8. Statement of Competitive Advantage • Indication of how the firm strategy will lead others to deal with it on terms that will allow it to realize its goals • How will it attract a profitable market? • How will it create value: generate a willingness to pay by customers that exceeds cost of serving them? • Will it offer a better product? • Will it offer a lower quality product for less?

9. Statement of Competitive Advantage • Toyota • Efficiency and quality • Lower inventory cost

10. How Will You Realize YourCompetitive Advantage? • How will a firm sustain a price that exceeds its cost? • What will keep actual and potential customers from eroding its margins and stealing its customers? • What will ensure that suppliers or customers do not manage to appropriate all the value created?

11. What is a Global Strategy?

12. Important Features of a Global Strategy • Successful Multinational Strategy will balance three objectives: • Global Efficiency • Local Responsiveness • Worldwide Learning

13. Global Efficiency • Location to minimize cost • Achieve scale economies • A flexible global network is a source of competitive advantage • Earn a greater return from a firm’s distinctive skills • Example: Caterpillar Tractor

14. Local Responsiveness Arise from: • Differences in consumer tastes and preferences • Differences in infrastructure and traditional practices • Differences in distribution channels • Host government demands • Example: McDonald’s

15. Worldwide Learning • Multinationals create knowledge at various points of the organization • Key to success of a multinational is to leverage its knowledge • How do you get knowledge to flow horizontally across the organization (product development in Brazil to the UK) • How do you get knowledge to flow vertically within the organization (sales to R&D to sales)

16. Worldwide Learning • Use all global resources to pursue common goals: globally linked. • Know what everybody is doing and make accessible to all: globally leveraged. • Elaborate mechanisms to facilitate worldwide learning: direct contact, liason, teams. • Example: Matsushita (Panasonic)

17. Komatsu • What are the sources of Komatsu’s success? • How was this company able to challenge Caterpillar when so many larger and better established companies--companies like International Harvester, John Deere, and J. I. Case--had failed? • How are environmental forces and industry changes likely to affect Komatsu’s competitive position vis-à-vis Cat? What recommendations do you have for Komatsu? For Cat?