Strategic Management in the Multinational Company: Content and Formulation

1. 5 Strategic Management in the Multinational Company: Content and Formulation

2. Learning Objectives • Define differentiation and low cost • Understand how low-cost and differentiation strategists make money • Recall multinational examples of use of generic strategies • Understand competitive advantage and value chain • Understand offensive and defensive strategies

3. Learning Objectives • Understand basics of multinational diversification • Understand how traditional strategy formulation techniques apply to the multinational company • Realize both the convergence and divergence in strategies

4. Basic Strategy for the Multinational Company • Strategy: the central, comprehensive, integrated and externally oriented set of choices of how a company will achieve its objectives

5. Basic Strategy for the Multinational Company • Important strategic areas • Arenas: a company needs to be able to decide which businesses it wants to be in • Vehicles: a properly stated strategy also needs to include the vehicles a company will use to create a presence in specific markets or products • Differentiators/Economic Logic: a company also needs to decide what ways it will use to win over customers • Sequencing: a company also needs to decide in what sequence and at what pace major decisions will be made

6. Basic Strategy for the Multinational Company • Multinational companies use many of the same strategies as domestic companies

7. Competitive Advantage and Multinational Applications of Generic Strategies • Generic strategies: basic ways to achieve and sustain competitive advantage • Competitive advantage: when a company can outmatch its rivals in attracting and maintaining its targeted customers

8. Competitive Advantage and Multinational Applications of Generic Strategies (cont.) • Differentiation strategy: providing superior value to customers • Ex.: BMW competing in the world market by providing high-quality and performance sports cars • Low-cost strategy: producing at a lower cost than competitors • Ex.: Korean semiconductor firms

9. How Do Low-Cost and Differentiation Firms Make Money? • Differentiation • Customers often pay a higher price for extra value • Low-cost • Additional profits come from cost savings

10. Exhibit 5.1: Costs, Prices, and Profits for Differentiation and Low-Cost Strategies

11. Focus Strategy • Strategies can be further subdivided on the basis of competitive scope • Competitive scope: how broadly a firm targets its products or services • - Narrow competitive scope for certain buyers or geographic areas • - Broad competitive scope when a large range of buyers are targeted

12. Exhibit 5.2: Porter’s Generic Strategies

13. Competitive Advantage and the Value Chain • A firm can gain competitive advantage by finding differentiation or low costs in its activities • Value chain is a convenient way of looking at the firm’s activities • Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product

14. Exhibit 5.3: The Value Chain

15. Components of the Value Chain • Primary activities: physical actions of creating, selling, and after-sale service of products • Upstream: early activities in the value chain • - R&D • - Dealing with suppliers

16. Components of the Value Chain (cont.) • Downstream: later value chain activities • Sales and dealing with distribution channels • Support activities: systems for human resources management, organizational design and control, and technology

17. Outsourcing • Outsourcing: a deliberate decision to have outsiders or strategic allies perform certain activities in the value chain • About half of U.S. manufacturing jobs will be outsourced to more than 28 emerging countries over the next 10 years • About 10% of U.S. service jobs may be outsourced

18. Outsourcing • When should a multinational company outsource? • Outsourcing makes sense if an outsider can perform a value-chain task better or more cheaply • However, tasks that are outsourced should the ones that are not crucial to the company’s ability to achieve competitive advantage

19. Exhibit: 5.4: The Major Advantages and Disadvantages of Outsourcing

20. Distinctive Competencies • Strengths that allow companies to outperform rivals - Ex.: Quality, innovation, customer service • Resources: inputs into the production or service processes - Ex.: Buildings, land, equipment, employees

21. Distinctive Competencies • Capabilities: ability to assemble and coordinate resources effectively • Resources provide the organization with potential capabilities. • For long-term success, capabilities must lead to sustainable competitive advantage.

22. Sustaining Competitive Advantage • Sustainable: strategies not easily defeated by competitors • Four characteristics of capabilities that lead to competitive advantage - Valuable - Rare - Difficult to imitate - Non-substitutable

23. Exhibit 5.5: Relationships Among Resources, Capabilities, Distinctive Competencies, and Eventual Profitability

24. Competitive Strategies in International Markets • Competitive strategies: strategic moves multinationals use to defeat competitors - Offensive competitive strategies: direct attacks to capture market share - Defensive competitive strategies: attempts to discourage offensive strategies - Counter-parry: fending off a competitor’s attack in one country by attacking in another country

25. Offensive Strategies • Direct attacks: price cutting, adding new features, or going after poorly served markets • End-run offensives: seeking unoccupied markets • Preemptive competitive strategies: being first to obtain particular advantageous position • Acquisitions: buying out a competitor

26. Defensive Strategies • Attempts to reduce risks of being attacked • Convince an attacking firm to seek other targets • Blunt the impacts of any attack • Exclusive contracts with best suppliers • New models to match competitor’s lower prices • Public announcements about the willingness to fight

27. Counter-parry • Popular strategy for multinationals • Respond to attack by attacking competitor in another country • Ex.: Kodak—When Fuji attacked Kodak in the U.S., Kodak retaliated by attacking Fuji in Japan. • Goodyear also attacked Michelin in Europe as response to attack in U.S.

28. Multinational Diversification Strategy • Business-level strategies: strategies for a single business operation • Corporate-level strategies: how companies choose their mixture of different businesses

29. Diversification • Related diversification: companies acquire businesses that are similar in some way to their original or core business • - Ex.: Nike adding clothing line to its shoe operations • Unrelated diversification: firms acquire businesses in any industry • - Main concern is whether it’s a good financial investment

30. Strategy Formulation: Traditional Approaches • Strategy formulation: process by which managers select the strategies to be used by their company • Popular analysis techniques • Competitive dynamics of the industry • Company’s competitive position in the industry • Opportunities and threats faced by their company • Company’s strengths and weaknesses

31. Industry and Competitive Analysis • Porter’s five forces model: a popular technique that can help a multinational firm understand the major forces at work in the industry and the degree of attractiveness of the industry

32. Industry and Competitive Analysis • Porter’s Five Forces Model • The degree of competition among existing competitors in the industry • The threat of new entrants • The bargaining power of buyers • The bargaining power of suppliers • The threat of substitutes

33. Industry and Competitive Analysis • Managers must understand their industry well to formulate good strategies. • Must understand economic characteristics of industries and driving forces • Economic characteristics include - Market size - Ease of entry - Opportunities for economies of scale

34. Driving Forces • The important changes that have potential to affect an industry - Speed of new product innovations - Technological changes - Changing societal attitudes and lifestyles

35. Key Success Factors (KSFs) • Important characteristics of a company or its product that lead to success in an industry - Innovative technology or products - Broad product line - Effective distribution channels - Price advantages - Effective promotion - Superior physical facilities or skilled labor

36. Key Success Factors - Experience of firm in business - Cost position for raw materials - Cost position for production - R&D quality - Financial assets - Product quality - Quality of human resources

37. Competitor Analysis • Profiles of competitor’s strategies and objectives • Four steps • Identify strategic intent of competitors • Identify current and anticipated generic strategies • Identify current and anticipated offensive and defensive competitive strategies • Assess current positions of competitors

38. Competitor Analysis (cont.) • Strategic intent - Broad objectives of competitors • Current and anticipated generic strategies - Helps determine key KSF • Current and anticipated offensive and defensive competitive strategies • Current positions

39. Exhibit 5.7: Hypothetical Competitive Profiles of Four Companies in Different Countries

40. Exhibit 5.7: Hypothetical Competitive Profiles of Four Companies in Different Countries

41. Company-Situation Analysis: SWOT • Strengths: distinctive capability, resource or skill • Weaknesses: competitive disadvantage compared to competitors • Opportunities: favorable conditions in the environment • Threats: unfavorable conditions in the environment

42. SWOT Analysis • More complex than for domestic firms • Multinationals face more complex general and operating environments • Environments vary by country

43. Corporate Strategy Selection • Diversified corporation has a portfolio of businesses • Major issue is which businesses to invest in and which businesses to divest • The basic tool: matrix analyses • The most popular is the growth-share matrix of the Boston Consulting Group (BCG).

44. BCG Share Matrix • Division into four categories based on market share and relative market share • Stars: the most successful firm • Dogs: businesses with low market shares in low-growth industries • Cash cows: businesses in slow-growth industries where company has strong market-share position • Problem children: businesses in high-growth industries where company has a poor market share

45. Exhibit 5.8: The BCG Growth Share Matrix

46. Matrices • All matrices help answer basic strategy formulation question such as • Are businesses in attractive industries? • Are most businesses growing? • Are there sufficient cash cows to finance other businesses? • Is business portfolio well positioned for the future? • Is the some strategic synergies among businesses?

47. Organizations Alike: Globalization and Convergence • Convergence: increasing similarity of management practices • Convergence is most apparent with transnational firms • Multinational firms competing in the same industry tend to have similar structures and strategies regardless of the location of the company’s headquarters

48. Organizations Alike: Globalization and convergence • How Globalization pushes organizations to be more similar • Global customers and products • Growing levels of industrialization and economic development • Global competition and global trade • Gross-border mergers, acquisitions, and alliances • Cross-national mobility of managers • Internationalization of business education

49. Organizations Alike: Globalization and convergence • National differences still affect the way many firms compete via their choices of strategies • Three important reasons to understand the national differences • Managers in successful multinational firms must understand and anticipate the strategies of rivals from other countries • Managers in successful multinational firms must understand the strategies of potential business partners • Strategies developed in one national context might be copied and modified to fit another national context

50. The National Context and Organizational Strategy: Overview and Observations • The national context affects organizational design and strategy formulation and content through the following processes • The social institutions and national and business cultures encourage or discourage certain forms of businesses and strategies in each nation • Social institutions and national culture serve as barriers to the easy transfer of competitive advantages among countries