Strategies Types

Strategy is about creating value. Creating value-by producing a product for which customers are willing to pay more than the full cost of delivering the product to that customer. Customers differ in their perceptions Hence process involves selecting target customers and tailoring the product for those customers.

Capturing value-securing profit from the value the company creates. Strategic choice-trade off between willingness to pay and costs.

Location choice as part of strategy Reasons for going global Going global-issue-degree to which companies adapt the product to the foreign market. Choice on how these companies adapt the product is driven by cost versus willingness to pay. When going global-companies pick a place that has a cost advantage. Each activity is done where it can be done cheapest. Cost to interacting at a distance

Key cost concerns Labour costs Cost of supplies Transportation costs Communication/coordination costs within the firm. Tariffs and trade barriers Economies of scale

Key willingness to pay concerns includes Product adaptations Responsiveness to customer’ orders and service requirements Communications with customers Reputation.

Broad categories of strategies Exporting Multi domestic Global Variations of these three basic strategies Transnational Branching Off shore outsourcing

Exporting strategy Everything is done in one place-home country Centralization Adopted by companies that have following features/traits: Large fixed cost High internal communication costs Low transportation and border costs Home country is the major market even in the long run Home country has a cost advantage

Multidomestic strategy In pure multidomestic organisation,each subsidiary is a self sufficient entity Firm’s activities are replicated in each location Adopted by companies that have following traits: High transportation costs,high border cost Low fixed costs No substantial cost difference between countries

Global strategy Each function is performed in one place,but the functions are not at all performed in same place Ex: Finance in U.S., R&D functions in Germany etc It is also called as specialization strategy. Adopted by companies that have following traits: Costs vary substantially across countries for different kinds of production and services Low transportation costs and low border costs. Fixed costs are large Sometimes companies switch specialization strategy when facing competitive pressures.

Branching Strategy Hybrid of exporting and multidomestic Some functions are centralised,some are not. Adopted by companies that have following traits: High transportation cost on final goods and low transportation cost on parts. High border costs on final goods and low border costs on parts. Large economies of scale in engineering,design,strategic management and manufacture of key components, and high communication costs between these functions. Home country has cost advantage on parts, but there are no substantial costs Differences between countries on final assembly Large foreign markets.

Offshore outsourcing strategy Firm contracts other firms to carry out its foreign operations. Combination of exporting and global strategy Firms own activities are centralised. Ex: Nike

Transnational strategy Hybrid of other strategies Firm uses a multidomestic strategy only for those activities where that strategy makes sense and global strategy for activities where global strategy