MGMT. 416

1. MGMT. 416 International Business II Assoc. Prof. Dr. Şule Aker

2. Chapter 13 International Competitive Strategy

3. Sun Tzu Father of strategy was Sun Tzu, a Chinese General who lived 2500 years ago. He specified 36 strategies to win a war. Some of his suggestions: “Attack the enemy where he is unprepared” “The best general is the one who wins the war without fighting” “Whether to concentrate or to divide your troops , must be decided by circumstances”

4. Strategic management It combines strategic thinking, strategic planning, and strategic implementation. New strategic planning is not only the responsibility of top managers, but it is assigned to teams of line and staff managers from different businesses and functional areas, process-improvement task forces and quality circles. Everybody with creative thinking is involved. Also suppliers, customers, and stockholders are consulted. First-hand experiences are very important.

5. Basic concept behind strategic planning: It is to ensure that managers understand the business, strategy, the assumptions behind this strategy, the external business environment pressures, and their own direction. The organization (firm) should respond to challenges more effectively than its competitors. (Sometimes the fruits of an investment can be collected after 10 years)

6. International strategy It is the way firms make choices about acquiring and using scarce resources in order to achieve their international objectives. To be effective, the firm’s international strategy must be consistent among various functions, products, and the regional units of the company (internal consistency), as well as with the demands of international competitive environment (external consistency).

7. Competitive Advantage It is the ability of a company to have higher rates of profits than its competitors. The goal of the international strategy is to achieve and maintain a unique and valuable competitive position both within a nation and globally, the position is competitive advantage.

8. To have competitive advantage, a firm must; • Perform activities different from the competitors, or • Perform same activities in a different way.

9. To create competitive advantage and to sustain it a firm should have skills and competencies that; • Create value for customers for which customers are willing to pay, • Are rare, • Are difficult to imitate or substitue for, • Are organized in a way to utilize these competencies.

10. Global strategic planning Global strategic plans; provide consistency of action among firm’s managers worldwide, and require the participants to consider the ramifications of their actions in the other geographical and functional areas after the firm.

11. Standardization and planning Historically R&D and manufacturing have been standardized and coordinated worldwide. Marketing strategies are best determined locally because of market differences.

12. Global strategic planning process: (CEO is the responsible manager) • Analyze the company’s external environments. • Analyze the company’s internal environment. • Define the company’s business and mission. • Set the corporate objectives. • Quantify goals. • Formulate strategies. • Make tactical plans.

13. Example – General Electric Observations: • Future economic growth will be uneven. So firms have to navigate major global trends. • There is excess manufacturing capacity, thus price pressures. Winning firms will inves in innovation and buil new revenue streams. • New economic order of global competitiveness and growth is on the way. Eg, China and India has low-cost manufacturing with highly competitive engineers (who work for less than the workers in the developed world). Companies should be very competitive. • Distribution becomes very important. Winning companies will have strong direct sales force and distirbution channels. • Demographics are important. Winning companies will invest in high-growth markets. • More volatile and uncertain world (9/11, stock market bubbles). Financial strength is important during fluctuations.

14. Analyze corporate controllable variables: Value-chain analysis In this anaysis, management will analyze firm’s activities from the time raw materials enter the plant until end-product reaches the final user: • Who are company’s target customers? • What value does the company deliver to these customers? • How will this customer value be created?

15. Value-Chain Analysis Support activities: Managerial, legal, and administrative, infrastructure HR Management Technology development Procurement Primary activities: Product design Sourcing of raw materials and components Manufacturing and assembly Distirbution and logistics Marketing and sales Post-sale services Result in creation of economic value

16. The goal of value-chain analysis is to enable the management to determine; • Which of these activities the company will do and which to be outsourced, • Where to locate the value-chain activities (marketing close to customers, for example).

17. Linkages are important, because the production process should be efficient Linkages between activities in the value chain, like between sales and product development, and between external entities, such as suppliers, disitributors, and customers, determine the competitiveness of the firm.

18. Knowledge It should be transferred between employees, as well as between customers and firm managers. For example, China gave a $ 900 million contract to construct a high-tech electricity generating turbine to GE in return to share its technology.

19. Mission statement It is a broad statement that defines organization’s scope. Examples: Ford Motor Co.→To become world’s leading consumer company for automotive products and services. DuPont→To improve life on planet and to create super profits for the shareholders and managers. Amazon.com→To be Earth’s biggest selection and Earth’s most customer-centric company where customers can find and discover anything they may want to buy.

20. Corporate objectives • They direct the firm’s course of action, • They maintain it within the boundaries of the stated mission, and • They ensure its continuing existence.

21. Quantify objectives For example, the company may target growth in earnings per share of more than 10% in a year.

22. Formulate competitive strategies Competitive strategies are action plans to enable organization to reach its objectives. SWOT analysis: S strengths, W weaknesses, O opportunities, T threats.

23. Suppose two things are happening: • Japanese Government makes it easier for foreign firms to enter Japanese market, • Japanese competing firm is preparing to enter the US market.

24. What should the US firm do? • Defend the home market by reducing the price (defensive strategy), • Attack the the competitor in its home market by establishing a subsidiary in Japan, • Do both.

25. When developing and assessing international alternatives, there are two opposing forces: • Reduction of costs, and • Adaptation to local markets.

26. Three strategies: • Multidomestic • Global • transnational

27. Global strategy It is used when a company faces strong pressure for reducing costs and limited pressure to adapt to local markets. Strategy and decision-making is centralized at the headquarters and firms tend to offer standardized products and services. Value-chain activities are located in only one or few areas, so the firm reduces costs through economies of scale.

28. Disadvantages of global strategy: • Limited ability to adjust quickly and effectively to changes in consumer needs across national or regional markets, • Increased transportation and tariff costs, • Risks of locating activities ina centralized location (like political changes, ER fluctuations).

29. Multidomestic strategy It is used when there is strong pressure to adapt the firm’s goods and services for local market. Decision-making tends to be more decentralized in order to allow the firm to modify its products and to respond quickly to changes in local competition and demand.

30. Disadvantages of multidomestic strategy: • Local adaptation of products increases costs, becasue the firm has to invest in local culture, language, customer demographics, HR practices, government regulations, distribution systems, etc. • Adapting too much to local tastes may take away the distinctiveness of the firm’s product. • Local adaptation may change over time.

31. Example: GM in Japan • Firm had to change to smaller cars to fit the narrow streets of Japan, • Demand was for better interior design. Still sales were not satisfactory. Customers found it too expensive after all the changes.

32. Transnational strategy It is used when a company confronts pressures both for cost effectiveness and local adaptation, and when there is competitive advantage in responding these two divergent forces. Typically, in this case, more upstream value-chain activities, lke product development, raw materials sourcing, and manufacturing, will be more centralized, and downstream value-chain activities, like marketing, sales, and service, will be more decentralized, located closer to the customers.

33. Scenarios They are multiple, plausible stories for probable futures. For example, what to do when; • There is a large sudden increase in sales • Sudden increases in the prices of raw materials • Sudden increases in taxes • Change in the politics (for example, political party)

34. Contingency plans They are plans for the best-or-worst-case scenarios or for critical events that could have a severe impact on the firm

35. Tactical plans (operational plans) They are very specific, short-term means for achievng the goals of tactical planning.

36. Strategic plans Sales forecasts→They estimate revenues and units to be sold, and they are basis for planning in other functional areas (like production, financial, procurement). Budgets→They are planning and control technique.

37. Plan implementation facilitators: Policies→are broad quidelines issued by upper management to assist lower-level managers in handling problems. For example, “work with wholesalers and not with retailers”. Procedures→prescribe hpw certain activites will be carried out. For example, “prepare budgets in a certain format”. This way, the management can compare performance between different affiliates (like US, Turkey, Brazil, etc.)

38. Kinds of strategic plans There are short-run, medium-run, long-run sttrategic plans. Short-run strategic plans are usually between one-three years. Time horizon for medium and long-run plans change. They are subject to review annually or more frequently. Time also changes according to the age of the firm and stability of the markets. Long-run palns are usually done by mature companies with stable markets.

39. Planning and levels • Each level in the organization prepares its level plan. • Each functional area prepares its own area plan.

40. Method of planning Top-down planning→begins at the highest level in the organization and continues downward. Examples are; definition of the business, the mission statement, company objectives, financial assumption, the content of the plan, and special issues.

41. Example The international division is expected to contribute $5 million. The international division in turn will break this total among the affiliates, for example, $1 million from Germany, $500,000 from Turkey, $400,000 from Brazil, etc.

42. Disadvantages of top-down planning: • Restricts initiative at the lower levels • Shows insensitivity to local conditions

43. Bottom-up planning It begins at the lowest level in the organization and continues upward. Advantage is people responsible for attaining the goals are formulating these goals (subsidiaries’ directors). Disadvantage is that the goals of subsidiaries may not coincide with eachother or with the headquarters. Japanese use this type of planning.

44. Iterative planning It is repetition of the bottom-up or top-down planning process until all differences are reconciled.

45. Example: 3M

46. 3M’s Chairman and CEO James McNerney: “Our objective is to double the number of qualified new 3M product ideas and triple the value of products that win in the marketplace. We’re already seeing good results...Our new product pipeline holds the potential to generate more than $5 billion annual sales.”

47. New directions in planning • Who does the planning? • How is it done? • The contents of the plan.

48. 1) Who does the planning? Until 1980’s, planning was done by CEO’s and head of the planning department. Then it would be handed down to middle-managers. In 1980’s, there was a hostility between managers and planning department. The GM manager Roger Smith says; “We got those great plans together, put them on the shelf, and marched-off to do what we would be doing anyway”. In 1980’s, world uncertainty and tough competition make practical knowledge a very important input. So operating managers entered into planning process, and the role of planning department decreased.

49. Example: GE Central planning department is dismantled and company’s 11 business heads become responsible for planning. They meet with Chairman and CEO, Jeffrey Immelt, and top management team, and they tell them what their plans are, nw products they are working on and what the competitors are doing, on going basis. Also planning teams include line and staff managers from different ages and from different countries. Some bring in customers and suppliers in the planning process to have first-hand experience with firm’s markets.

50. 2) How is it done? By 1980’s firms were using sophisticated computer programs to produce huge, detailed plans, because the managers wanted to know predictions to decimal points. After 1980’s less quantifyable factors become very important, like sociopolitical developments. Also uncertainty and crisis made the plans unuseful (for example price of oil). So many firms switched to less structured formats and much shorter documents. If strategy cannot be implemented, then strategy should be changed. If objectives cannot be achieved, then change the objective.