Welcome to week 09: Multi-disciplinary strategic management

Multi-Disciplinary Strategic Management 1 December 2018 Multi-Disciplinary Strategic Management Today’s agenda: February 18, 2014 Housekeeping: Welcome the guest, Classroom Management. Reflecting on “IKEA’s successful Overall Cost Leadership Strategy” Topic: International Strategy, Creating Value in Global Markets(Chapter 07) Review of today’s lesson: Summary Homework and wrap up Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy International Expansion: An opportunity to expand or a risk to face? An opportunity to expand and exploit the new markets with strategy to minimize risk. Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy What are the risks? Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy Going global involves both risk and opportunities: Opportunities Open Economies > Closed Economies New Economy Transfer of resources Risks Disparity in income and wealth distribution across the world Broader economic factors like Interest rates, Inflation and Unemployment

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy The Diamond of National Advantage:

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy India’s Diamond in Software Industry:

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy Motivations for going GLOBAL: Increase the size of potential markets Attain economies of scale, reducing R&D cost Extend the life cycle of a product Opportunities for arbitrage

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy Motivations for going GLOBAL: Optimize the physical location for every activity in its value chain Performance enhancement Cost reduction: maquiladoras Risk reduction

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy Risks for going GLOBAL: Political and economic risk Social unrest Military turmoil Demonstrations Violent conflict and terrorism Laws and their enforcement

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy Risks for going GLOBAL: Currency risks: Currency exchange fluctuations Management risks : Culture ; Customs; Language Income levels Customer preferences Distribution system

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy Three assumptions Problems Customer needs and interests worldwide are becoming more homogeneous People (worldwide) prefer lower prices at high quality Economies of scale in production and marketing can be achieved through supplying global markets Product markets vary widely between nations In many product and service markets there appears to be a growing interest in multiple product features, quality and Technology permits flexible production, cost of production may not be critical to product cost, and firm’s strategy should not be product-driven

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Two opposing Pressure: Low cost standardized product Tailoring of the product to the local demand Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy Sharmin Shamaly 1 December 2018 Multi-Disciplinary Strategic Management international strategy Opposing Pressures and Four Strategies Opposing Pressures and Four Strategies Opposing Pressures and Four Strategies Opposing Pressures and Four Strategies

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy International Strategy: Diffusion and adaptation of parent’s compny’s knowledge and resource Country units enjoy little independence Different activities in the value chain have different optimal locations Examples Ericsson from Sweden. Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Global Strategy: Competitive strategy is centralized and controlled largely by corporate office Emphasizes on economies of scale, standard product Works well when focus is to reduce cost Examples Aircraft, Pharmaceuticals Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Multi-domestic Strategy: Emphasis is differentiating products and services to adapt to local markets Authority is more decentralized Examples Honda Motorcycle Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Transnational Strategy: Optimization of tradeoffs associated with efficiency, local adaptation, and learning Firm’s assets and capabilities are dispersed according to the most beneficial location for a specific activity Examples Nestle: Downstream primary activities are decentralized Upstream primary activities are centralized Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Pros and Cons of these 4 Strategies: Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Pros and Cons of these 4 Strategies: Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Entry Modes of International Expansion: Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Entry Modes of International Expansion: Exporting: Relatively inexpensive way to enter foreign market, minimal risk, win-win situation Licensing and Franchising: Franchisor receives a royalty or fee, Franchisee gets to use trademark, patent, trade secret or other valuable intellectual property Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Entry Modes of International Expansion: Strategic Alliances and Joint Ventures: Partnerships that enable firms to share risks and potential revenues and profits Wholly Owned Subsidiaries: Acquire an existing company in the home country Develop a totally new operation (greenfield venture) Most expensive and risky of all global entry strategies Greatest control over all activities Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Pros and Cons of each Mode: Type of Entry Advantages Disadvantages Exporting Fast entry, low risk Low control, low local knowledge, potential negative environmental impact of transportation Licensing and Franchising Fast entry, low cost, low risk Less control, licensee may become a competitor, legal and regulatory environment must be sound Partnering and Strategic Alliance Shared costs reduce investment needed, reduced risk, seen as local entity Higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures Greenfield Venture (Launch of a new, wholly owned subsidiary) Gain local market knowledge; can be seen as insider who employs locals; maximum control High cost, high risk due to unknowns, slow entry due to setup time Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Global Dispersion of Value Chains: Offshoring: Offshoring occurs when a firm decides to shift an activity that it was performing in a domestic location to a foreign location. Outsourcing Outsourcing occurs when a firm decides to utilize other firms to perform value-creating activities that were previously performed in-house Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Entry Modes of International Expansion: Strategic Alliances and Joint Ventures: Partnerships that enable firms to share risks and potential revenues and profits Wholly Owned Subsidiaries: Acquire an existing company in the home country Develop a totally new operation (greenfield venture) Most expensive and risky of all global entry strategies Greatest control over all activities Sharmin Shamaly

Multi-Disciplinary Strategic Management international strategy 1 December 2018 Multi-Disciplinary Strategic Management international strategy Review of today’s lesson Sharmin Shamaly

Multi-Disciplinary Strategic Management 1 December 2018 Multi-Disciplinary Strategic Management Home Work for Week 10: Read Chapter 8 in the textbook Read Blackboard readings/activities Complete Competitive Dynamic discussion on Blackboard ( March 04 midnight to March 11 midnight) Individual assignment two due on 15th March, Saturday midnight. (Info on BB) Sharmin Shamaly