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Introduction to Strategy; Global Strategic Management; Peculiarities Components Purpose Value Creation; Strategic Levels

Strategic Choices
Global Strategic Management process;

What Is Strategy?
Strategy is a plan of action that channels an

organizations resources so that it can effectively differentiate itself from competitors and accomplish unique and viable goals. Managers develop strategies based on the organizations strengths and weaknesses relative to the competition and assessing opportunities. Managers decide which customers to target, what product lines to offer, and with which firms to compete.

 Concerned with deciding on strategy and planning how

that strategy is put into effect.

According to J. Paul Peter, Strategic management is a

continuous, iterative cross functional process aimed at keeping an organization as a whole appropriately matched to its environment.

 Strategy: actions that managers must take to attain

the goals of the firm Main goal usually to maximize long-term profit (), (EPS) Profitability defined by return on sales or return on equity Think strategic, not operational - this is what makes a great CEO

 Strategy in an international context is a plan for

the organization to position itself vis-a-vis its competitors, and resolve how it wants to configure its value chain activities on a global scale. Its purpose is to help managers create an international vision, allocate resources, participate in major international markets, be competitive, and perhaps reconfigure its value chain activities given the new international opportunities.

Strategic management of a global company is distinct from that of domestic company due to its peculiarities.

 Flow of goods and/or services across the countries

Analysis of global environment

Integrated strategic management Impact of present decision on the future

Action oriented
Continuous and dynamic management Integrated operations

Other differences

Distinctive competence

Scope of operations

Resource deployment

Synergy

Distinctive Competence
Answers the question
What

do we do exceptionally well, especially as compared to our competitors?

Represents important resource to the firm

 Answers the question

Where

are we going to conduct business?

May be defined by
Geographical

region Market or product niches within regions Specialized market niches

 Answers the question

Given

that we are going to compete in these markets, how will we allocate our resources to them?

May be specified by
Product

lines Geographical lines

 Answers the question

How

can different elements of our business benefit each other?

Goal is to create a situation where the whole is

greater than the sum of the parts

 Bartlett and Ghoshal argue that managers should

look to develop, at one and the same time, global scale in efficiency, multinational flexibility, and the ability to develop innovations and leverage knowledge on a worldwide basis. These three strategic objectives efficiency, flexibility, and learning must be sought simultaneously by the firm that aspires to become a globally competitive enterprise.

 Efficiency

lower the cost of operations and

activities. Flexibility tap local resources and opportunities to help keep the firm and its products unique . Learning -- add to its proprietary technology, brand name and management capabilities by internalizing knowledge gained from international ventures.

 In the final analysis, international business

success is largely determined by the degree to which the firm achieves the goals of efficiency, flexibility, and learning. But it is often difficult to excel in all three areas simultaneously. Rather, one firm may excel at efficiency, while another may excel at flexibility, and a third at learning. Sustainability over time is also a challenge.

 The difference between the value of the product to

the customers and the cost of producing that product is referred to as Value Creation Profit determined by :
The amount of value customers place on firms goods or services (V) Firms cost of production (C)

Consumer surplus occurs when price charged by a

firm on a good or service is less than value placed on it by a customer Firm creates profit by increasing value or lowering cost

Realized by performing a value creation activity in an optimal location anywhere around the globe
Often arise due to differences in factor costs

It can lower costs of value to enable low cost strategy and/or

Help in differentiation of products from competitors

Global web: different stages of value chain are dispersed to those locations where perceived value is maximized or costs of value creation are minimized

Creating a Global Web

Assembly

Parts Sales

Advertising

Design

Parts

Parts

The systematic reduction in production costs that occurs over the life of a product
First observed in aircraft industry where unit costs reduced by 80% each time output was doubled

Caused due to
Learning effects Economies of scale

Cost savings that come from learning by doing

Arises due to increased worker productivity and management efficiency

Significant in cases of technologically complex task as there is a lot to be learned Experienced during start-up phase, cease after two or three years

Refers to reduction in unit cost by producing a large volume of a product

Reduces fixed costs by spreading it over a large volume Ability of large firms to employ increasingly specialized equipment or personnel

Sources:

The firm that moves down the experience curve most rapidly has a cost advantage over its competitors

Where does value come fromAny firm is composed of a series of distinct value creating activities Primary activities
Research & development Production Marketing & sales Service

Support Activities
Materials management or logistics Human resource Information systems, (this includes you accts) Company infrastructure

 Language
Culture Politics

Financing
Market research Advertising

Economy
Governmental

Money
Transportation/

interference Labor Labor relations

communication Control Contracts

 Corporate Strategy
Business Strategy Functional Strategy

 Single-Business Strategy Related Diversification Unrelated Diversification

 Differentiation Overall Cost Leadership Focus

 Financial

Marketing
Operations Human Resource R&D

Try to come back in 6 min

 Four basic strategies to enter and compete in the

international environment: International strategy Multi domestic strategy Global strategy Transnational strategy

 Intense in industries of standardized, commodity

type product that serve universal needs Major competitors are based in low-cost locations Consumers are powerful and face low switching costs Liberalization of world trade and investment environment Examples
Bulk

chemicals, petroleum, steel, personal computers

 Differences in consumer tastes & preferences North American families like pickup trucks while in Europe it is viewed as a utility vehicle for firms Differences in infrastructure & traditional practices Consumer electrical system in North America is based on 110 volts; in India on 240 volts Differences in distribution channels Germany has few retailers dominating the food market, while in Italy it is fragmented Host-Government demands Health care system differences between countries require pharmaceutical firms to change operating procedures

The firm views international business as separate from, and secondary to, its domestic business. Such a firm may view international business as an opportunity to generate incremental sales for domestic product lines. Products are designed with domestic customers in mind, and international business is sought as a way of extending the product lifecycle and replicating its home market success.

The firm expects little knowledge flows from foreign operations.

Headquarters delegates considerable autonomy to each country manager allowing him/her to operate independently and pursue local responsiveness.
With this strategy, managers recognize and emphasize differences among national markets. As a result, the internationalizing company allows subsidiaries to vary product and management practices by country. Country managers tend to be highly independent entrepreneurs, often nationals of the host country. They function independently and have little incentive to share knowledge and experiences with managers elsewhere. Products and services are carefully adapted to suit the unique needs of each country.

With global strategy, the headquarters seeks substantial control over its country operations in an effort to minimize redundancy, and achieve maximum efficiency, learning, and integration worldwide. In the extreme case, global strategy asks why not make the same thing, the same way, everywhere? It favors greater central coordination and control than multi-domestic strategy, with various product or business managers having worldwide responsibility. Activities such as R&D and manufacturing are centralized at headquarters, and management tends to view the world as one large marketplace.

A coordinated approach to internationalization in which the firm strives to be more responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning. Transnational strategy combines the major advantages of multidomestic and global strategies, while minimizing their disadvantages. Transnational strategy implies a flexible approach: standardize where feasible; adapt where appropriate.

Some 90% of the product line is identical across more than two dozen countries. IKEA does modify some of its furniture offerings to suit tastes in individual countries. IKEAs overall marketing plan is centrally developed at company headquarters in response to convergence of product expectations; but the plan is implemented with local adjustments. IKEA decentralizes some of its decision-making, such as language to use in advertising, to local stores.

Most firms find it difficult to implement transnational strategy.

In the long run, almost all firms find that they need to include some elements of localized decision-making because each country has idiosyncratic characteristics. Few people in Japan want to buy a computer that includes an English-language keyboard. While Dell can apply a mostly global strategy to Japan, it must incorporate some multi-domestic elements as well. Even Coca-Cola, varies its ingredients slightly in different markets. While consumers in the U.S. prefer a sweeter Coca-Cola, the Chinese want less sugar.

Organizational structure refers to the reporting relationships inside the firm the boxes and lines that specify the linkages among people, functions, and processes that allow the firm to carry out its operations. In the larger, more experienced MNE, these linkages are extensive and include the firm's subsidiaries, affiliates, suppliers, and other partners. A fundamental issue is how much decision-making responsibility the firm should retain at headquarters and how much it should delegate to foreign subsidiaries and affiliates. This is the choice between centralization and decentralization.

Subsidiary Level Network S: Suppliers R: Regulatory institutions B: Buyers C: Customers

BE

SE

RD
SD

SA

BA RA

CE E
RB

RE

BD
CD

D
SF BF

CA

A
H
SC
BC CC RC RF

B
CB

SB BB

CF

A : Home plant H: Headquarters B F: Subsidiaries

Analysis of existing Missions and goals

Organizational Analysis of a global business firm Analysis of international Environment Formulation of Alternative Corporate level strategies Formulation of Alternative Business unit level strategies Selection of best among the Alternative Strategies Strategic Implementation

Strategy Evaluation and Control

Company finds that the current mission and goals would be redundant when it significantly adds product and\or services and\country portfolios to the existing portfolio.

Organizational

Team or individual based Flat or tall

Marketing
Production Finance

Customers 4 Ps
Sources of material Plant location Sources of Finance EPS Sourcing of Manpower Cost and culture of employees

Human Resource

Political-legal Factor Economic Factors Technological Factors Social Factors

Govt. Controls Opportunities Various rates Per capita income Technological advancement
Values, traditions & patterns of behavior

Stability Growth Retrenchment Combination

Whats the best solution?

Situation
The firm has no foreign manufacturing expertise and requires investment only in distribution.

Optimal Solution
Export

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Whats the best solution?

Situation
The firm needs to facilitate the product improvements necessary to enter foreign markets.

Optimal Solution
Licensing

62

Whats the best solution?

Situation
The firm needs to connect with an experienced partner already in the targeted market.

Optimal Solution
Strategic Alliance

63

Whats the best solution?

Situation
The firm needs to reduce its risk through the sharing of costs.

Optimal Solution
Strategic Alliance

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Whats the best solution?

Situation
The firm is facing uncertain situations such as an emerging economy in its targeted market.

Optimal Solution
Strategic Alliance

65

Whats the best solution?

Situation
The firms intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high.

Optimal Solution
Wholly-owned Subsidiary

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 Cost of production Cost of marketing

Focus or Niche Strategy

Small market Specific market

Product policies Price policies

Low cost leadership strategy

Differentiation Strategy

Boston Consultancy Group matrix

the strategy with high industry growth rate and high relative market share is best

General electric nine cell matrix

the strategy with long term industry attractiveness and high business strength is best

Directional Policy Matrix

ability of the company is best

. the strategy with high business sector prospects and high competitive

Partner Selection
Organizational structure Behavioral implementation Marketing implementation Financial implementation

Production implementation
Human Resource implementation

Establish the standards of strategic management process Measure the performance of the process at every stage

Compare the performance with the strategy

Observe the deviation Take corrective steps