Advanced Strategic

Management

Session 3, Winter Semester, 2023

Christian Bruck, MSc, MIB
Sebastian Priestersberger, MSc

22.11.2023
Semester Schedule
Unit Content
Introduction
Review of ISM I: Basics of Strategic Management & Strategy Analysis
1
Rothaermel (RA) Chapter 6: Business Strategy: Differentiation, Cost Leadership and Integration
Yukl & Gardner (YG) Chapter 5: Leading Change and Innovation
Reading Assignment RA Chapter 6, 8 + 9 and YG Chapter 5 + 12

RA Chapter 8: Corporate Strategy - Vertical Integration and Diversification

2
RA Chapter 9: Corporate Strategy: Acquisitions, Alliances, and Networks

Case Preparation Facebook, Reading Assignment RA Chapter 10

Case Presentation Facebook

3
RA Chapter 10: Global Strategy: Competing Around the World

Case Preparation Ringier, Reading Assignment RA Chapter 11+12

Case Discussion Ringier
RA Chapter 11+12: Strategy Implementation
4
YG Chapter 12: Strategic Leadership in Organizations
Review for the Exam
Study for the final exam
5 Final Exam
Agenda

Basics of Strategic Management & Strategy Analysis

Lecture 1

Business Strategy

Leading Change and Innovation

2+3
Lect

Corporate Strategy
ure

Strategy Implementation
Lect. 4

Strategic Leadership in Organizations

 Global Strategy

(stages of industry value chain)

Vertical integration 3

Diversification 2
(products and services)

Source: Rothaermel (2015)

 Globalization
Globalization is a process of closer integration and exchange between
different countries and people worldwide
Globalization
▪ Made possible by
‒ Falling trade and investment barriers
‒ Advances in telecommunication
‒ Reduction in transportation costs
‒ Importance of MNE and FDI
▪ Globalization has led to significant increases
in living standards
‒ Germany and Japan after World War II
‒ BRIC countries (Brazil, Russia, India,
China) nowadays
Source: Rothaermel (2021)
Multinational Enterprises (MNE)
▪ A company that deploys resources and
capabilities in the procurement, production
and distribution of goods and services in at
least two countries
‒ Walmart, P&G, IBM
Foreign Direct Investment (FDI)
▪ A firm’s investment in value chain activities
abroad
▪ MNE engage in FDI
‒ Airbus invested $600 million in the US
to build jetliners → the company avoids
import restrictions
 Global Strategy

MNE need an effective global strategy that enables them to gain and sustain
competitive advantage when competing against other foreign and domestic
companies around the world

Global Strategy: US MNE

▪ US MNE include Boeing, Caterpillar, Coca-Cola, GE, John Deere, Exxon Mobile, IBM, P&G, Walmart
▪ All these enterprises have been successfully pursuing a global strategy
▪ MNE make up less than 1% of all US companies but
‒ Account for 11% of private-sector employment growth since 1990
‒ Employ 19% of the work force
‒ Pay 25% of the wages
‒ Account for 31% of the US gross domestic product (GDP)
‒ Make up 74% of private-sector R&D spending

Source: Rothaermel (2021)

 GE’s Geographic Scope

GE has spread its business activities all over the world and thus has become a
truly global company

Source: General Electric

 International Sales as % of Total Sales

Sales in foreign markets have become a source of competitive advantage for

many US enterprises

Source: Rothaermel (2015), Data from 2010

Stages of Globalization

Since the beginning of the 20th century, globalization has proceeded through
three notable stages

Globalization 1.0: 1900-1941

Globalization 2.0: 1941-2000

Globalization 3.0: 21th Century

 Globalization 1.0: 1900-1941

All important business functions were located in the home country. Only sales
and distribution operations (exporting) took place overseas

⚫ ⚫

Source: Rothaermel (2021)

 Globalization 2.0: 1947-2000

MNE began to create smaller, self-contained copies of themselves with all

business functions in a few key countries

Source: Rothaermel (2021)

 Globalization 3.0: 21st Century

MNE have become global-collaboration networks. Such companies now freely

locate business functions anywhere in the world

⚫
⚫ ⚫
⚫ ⚫ ⚫
⚫ ⚫
⚫ ⚫ ⚫
⚫ ⚫
⚫ ⚫

⚫ ⚫ ⚫

⚫ ⚫
⚫

Source: Rothaermel (2021)

 Advantages of Going Global
Access to Larger Markets
▪ Becoming a MNE provides significant
opportunities for companies
▪ Access to large base of customers
▪ Economies of scale and scope can be
reaped by participating in much larger and
more diverse markets
▪ Domestic markets are often too small for
companies to reach economies of scale to
compete effectively
▪ For companies located in smaller economies,
becoming a MNE may enable growth or
sustained competitive advantage
‒ Acer (Taiwan)
‒ Nestle (Switzerland)
‒ Samsung (South Korea)
Source: Rothaermel (2021)
Access to Low-Cost Input Factors
▪ Going global allows for access to considerably
lower raw material and labor costs
▪ MNE tend to off-shore manufacturing and
service operations
‒ India offers low-cost IT services for
MNE (e.g. Infosys)
Develop New Competencies
▪ Some MNE pursue a global strategy to
develop new competencies
▪ MNE make FDI to be part of communities of
learning
‒ Unilever’s new-concept center is
located in Shanghai to monitor
consumer reactions in China
 Disadvantages of Going Global
Loss of Reputation
▪ One of the most valuable resources a firm
may possess is its reputation
▪ It may have several dimensions
‒ Innovation (e.g. P&G)
‒ Customer service (e.g. Dell)
‒ Brand (e.g. Apple’s brand reputation is
valued at $185 billion)
▪ A firm producing high quality products
may not be able to maintain quality
standards in foreign markets
▪ Loss in reputation can diminish the
MNE’s competitiveness
‒ Apple’s supplier Foxconn: low wages
and poor working conditions
contributed to suicide of workers
‒ Nike was involved in a sweatshop
scandal
Source: Rothaermel (2021)
Liability of Foreignness
▪ MNE doing business abroad must overcome
liability of foreignness
▪ Liability consists of the additional cost of
doing business in unfamiliar cultural and
economic environment
‒ eBay’s failure in the Chinese market
Loss of Intellectual Property
▪ Difficulty of protecting intellectual
property in foreign markets
▪ Software, movie and music industry have
lamented copy right infringements in foreign
markets
‒ Western firms forged joint ventures
with Chinese firms that used the
technology to develop own products
 Which Market to Enter? The CAGE Framework

The CAGE distance framework is a decision tool based on relative distance

between home and a foreign target country along four dimensions: cultural,
administrative & political, geographic and economic distance
Administrative and Political
Cultural Distance
Distance
▪ Distance between countries increases with ▪ Distance between countries increases with
‒ Different languages, ethnicities, ‒ Absence of trading bloc (EU,NAFTA)
religions, social norms ‒ Absence of shared currency (Euro)
‒ Lack of connective ethnic and social ‒ Absence of colonial ties
networks
‒ Political hostilities
‒ Lack of trust and mutual respect
‒ Weak legal and financial institutions
▪ Distance most affects industries or products
▪ Distance most affects industries or products
‒ With high linguistic content (TV)
‒ Industries that are considered critical to
‒ Related to national or religious identity national security (domestic airlines,
(food) telecommunications)
‒ Carrying country-specific quality
associations (wines)

Source: Rothaermel (2021)

 Which Market to Enter? The CAGE Framework
Geographic Distance
▪ Distance between countries increases with
‒ Lack of common border, waterway
access, adequate transportation or
communication links
‒ Physical remoteness
‒ Different climates and time zones
▪ Distance most affects industries or products
‒ With low value-to-weight ratio (cement)
‒ That are fragile or perishable (glass)
‒ In which communications are vital
(financial services, consulting)
The CAGE distance frameworks helps enterprises to select countries that fit to
their specifications
Source: Rothaermel (2021)
Economic Distance
▪ Distance between countries increases with
‒ Different consumer incomes (US vs
China)
‒ Different costs and quality of natural
financial and human resources
‒ Different information or knowledge
▪ Distance most affects industries or products
‒ For which demand varies by income
(cars)
‒ In which labor and other cost difference
matter (textiles)
 Walmart’s Operating Margin by Country (2004)

Source: Ghemawat (2008)

 Group Assignment

CAGE Distance Framework

▪ In 1997 Walmart, a US grocery chain, entered the German market
▪ However, Walmart was not successful in Germany and recorded considerable losses
▪ Thus, Walmart retreated from the German market in 2006
▪ Why do you think Walmart failed in Germany? Analyze the case by means of the CAGE distance
framework!
▪ Come together in teams of 3-4 students
▪ You have 15 minutes time for this task
▪ Be able to present your findings to the class

Source: Rothaermel (2021)

 Porter’s Diamond Framework

The diamond framework explains why some nations have a competitive

advantage over others in specific industries. It depends on four factors
1
Competitive
1 Intensity in 3
Companies with high domestic Focal Industry Specific characteristics of
competition outperform other demand in a firm’s domestic
foreign companies not used to market (e.g. Nokia in Finland,
fierce competition need for connection in rural
areas)

2 3
National
Factor Demand
Competitive
Conditions Conditions
Advantage

2 4
Complementors are firms that
Describe a countries endowments
4 offer a product which adds
in terms of natural, human and
Related and additional value to the original
other resources
Supporting offering if they are combined
Industries /
Complementor
Source: Rothaermel (2021)
 How to Enter Foreign Markets

Along the investment-control-continuum enterprises may choose various

options to enter foreign markets

Source: Rothaermel (2021)

 Integration Responsiveness Framework (1)

The integration-responsiveness framework reveals the opposing pressures for

cost reduction and local responsiveness to derive four global strategies

Source: Rothaermel (2021)

 Integration Responsiveness Framework (2)
International Strategy
▪ Low pressures for both local responsiveness
and cost reductions
▪ Enables firms to sell the same products or
services in both domestic and foreign markets
▪ Strategy is used by MNE with relatively large
domestic markets and strong brand name
and reputation
▪ MNE use differentiation as business strategy
▪ MNE leverage their home-based core
competencies in foreign markets
▪ Foreign customers want to buy the
original product
‒ Harley Davidson bike, Rolex watch,
Starbucks coffee, Porsche car
Source: Rothaermel (2021)
Multidomestic Strategy
▪ High pressure for local responsiveness and
low pressure for cost reductions
▪ Strategy attempts to maximize local
responsiveness
▪ MNE should be perceived as domestic
companies → adaptation to local conditions
very costly and inefficient
▪ Used to enter host countries with large
idiosyncratic domestic markets such as Japan
or Saudi Arabia
▪ Very common in consumer products and food
industries
‒ Nestle well known for customizing its
products to local preferences, tastes
and requirements
 Integration Responsiveness Framework (3)

Global-Standardization Strategy Transnational Strategy

▪ Low pressure for local responsiveness and
high pressure for cost reductions
▪ Strategy attempts to reap significant
economies of scale and location
▪ Global division of labor wherever labor
costs are the lowest
▪ MNE are often organized as networks →
striving for the lowest cost possible
▪ Business strategy tends to be cost
leadership → no differentiation since
products are highly standardized
▪ MNE manufacture commodity products such
as computer hardware
‒ Lenovo’s research center located in
Beijing, Shanghai, Japan and in US
‒ Manufacturing facilities in Mexico, India
and China
▪ High pressure for local responsiveness and
high pressure for cost reductions
▪ Strategy attempts to combine benefits of
localization and global-standardization strategy
▪ Used by MNE that pursue an integration
strategy at business level
▪ MNE need to reconcile trade-off between cost
reduction and local responsiveness
▪ MNE implement strategy through global
matrix structure
▪ German media company Bertelsmann owns
many regional players worldwide and focuses
on cutting down costs

Source: Rothaermel (2021)

Case assignments:
Presentations
Group allocation

Group 1 Group 2 Group 3

▪ Chum Hiu Ying ▪ Fantoni Mara Benedetta ▪ Binte Abdul Mutalib Nur
▪ Font Cuadras Alba ▪ Haunlieb Franz Xaver Aisyah
▪ Lavoie Felix-Antoine ▪ Lim Ivory ▪ Geneloni Filippo
▪ Maccio Margherita ▪ Turra Gutierrez Josefina ▪ Gibbons Sarah Leslie
▪ Pfeifer Emily Marie Paz ▪ Heng Sarah Chin Yee
▪ Yildirim Hava Rana ▪ Krentz Anna

Group 4 Group 5 Group 6

▪ Costantini Stefano ▪ Aristizabal Llamazares ▪ Ferreira Carneiro Ines
▪ Rymbayeva Nazira Valentina ▪ Harmak Habiba
▪ Traunbauer Marlene ▪ Filippou Natalia ▪ Lam Rui Han
▪ Zhao Na ▪ Haider Maximilian ▪ Redlhammer Marie Claudia
▪ Koh Cheng Cze Xu Jingci ▪ Tay Ling Hui
Kirbie
▪ Shalamanova Vladislava
 Case presentation:
Facebook and WhatsApp: Acquire or Ally
Facebook Case Study

▪ This Harvard Business Case describes Facebook’s decision to acquire WhatsApp. This case presents both
firms perspectives on this transaction, as well as providing an overview of the mobile communications
industry at the time, with a focus on messaging and social media apps.
▪ Sample questions:
‒ Why was Facebook interested in acquiring WhatsApp?
‒ What were the advantages and the risks of this acquisition to both parties?
‒ Does a financial analysis support the decision?
‒ Should either firm have pushed for a strategic alliance instead? Why/Why not?
▪ In general, presentations should focus on providing solutions, ideas and suggestions – we want to see
you critically engage with the cases and NOT simply repeat what was presented in the text.
▪ Upload your slides in pdf format to Canvas on the day before the course.
▪ The presentation should take about 20 minutes
Outlook
 Individual case – written assignment:
Ringier
Ringier Case Study

▪ This Harvard Business Case presents an overview of the strategic re-orientation and
diversification of Ringier a Swiss based media company as they confront the challenges
of staying competitive and profitable in the new and increasingly digital media landscape.
▪ Sample questions
‒ How did the scope of the firm change over the years?
‒ How did the strategic actions that Ringier took affect the company’s competitive position?
‒ What should the CEO do next with regard to corporate strategy, to tackle the changes in the firm‘s
environment?
▪ Upload your written answers to the case study in pdf format to Learn@WU on the day
before the 4th session
▪ The document should not exceed 3 pages
Semester Schedule
Unit Content
Introduction
Review of ISM I: Basics of Strategic Management & Strategy Analysis
1
Rothaermel (RA) Chapter 6: Business Strategy: Differentiation, Cost Leadership and Integration
Yukl & Gardner (YG) Chapter 5: Leading Change and Innovation
Reading Assignment RA Chapter 6, 8 + 9 and YG Chapter 5 + 12

RA Chapter 8: Corporate Strategy - Vertical Integration and Diversification

2
RA Chapter 9: Corporate Strategy: Acquisitions, Alliances, and Networks

Case Preparation Facebook, Reading Assignment RA Chapter 10

Case Presentation Facebook

3
RA Chapter 10: Global Strategy: Competing Around the World

Case Preparation Ringier, Reading Assignment RA Chapter 11+12

Case Discussion Ringier
RA Chapter 11+12: Strategy Implementation
4
YG Chapter 12: Strategic Leadership in Organizations
Review for the Exam
Study for the final exam
5 Final Exam