CHAPTER 10 Global Strategy

Key Issues What is the concept of strategy? How can firms profit from global expansion? What are the different strategies to compete globally? How do cost pressures and country differences influence global strategy? How can firms use strategic alliances to support their global strategy?

Slide 10-1 Global Strategy Strategy: “the action managers take to attain the goals of a firm” General purpose: maximize/make profit Differentiate products, increase price: add value, features, quality, service Achieve low cost Key means: allocation of scarce resources to attain goals

Slide 10-2 Activity Value Chain Firm as a chain of discrete value creating activities Primary upstream activities, manufacturing downstream activities: marketing, sales, after sales service Support infrastructure (general and administrative) human resources research and development

Global Expansion Benefits Slide 10-3 Global Expansion Benefits Earn greater return from distinctive skills, core competences inimitable or difficult to imitate skills in value chain Realize location economies (choice of FDI location) create multinational network of activities (global web) Realize greater experience curve economies, which reduce the cost of value creation learning effects, economies of scale Unit costs Experience curve B A Accumulated output

Pressures for Global Integration & Local Responsiveness Slide 10-4 Pressures for Global Integration & Local Responsiveness High Ball bearings, wheat Global Integration Cost Reduction Pressures Cosmetics, food, household goods Low Low Local Responsiveness Pressures High Country Differences in - consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs

Strategic Choice High “Global” “Transnational” Strategy Strategy Slide 10-5 Strategic Choice High “Global” Strategy “Transnational” Strategy Cost Reduction (Global Integration) Pressures “International” Strategy “Multidomestic” Strategy Low Low High Local Responsiveness Pressures

Multidomestic MNC HK UK Chile USA India Japan Mexico Slide 10-6 Multidomestic MNC From: Bartlett and Ghoshal, Managing across borders, 1989 HK UK Chile USA India Japan Mexico Decentralized Federation - Many key assets, responsibilities and decisions localized Personal Control - Informal HQ-Sub relationship, simple financial controls Multidomestic Mentality - Management sees overseas operations as portfolio of independent businesses

International MNC HK UK Chile USA India Japan Mexico Slide 10-7 International MNC From: Bartlett and Ghoshal, Managing across borders, 1989 HK UK Chile USA India Japan Mexico Coordinated Federation - Many key assets, responsibilities and decisions localized Administrative Control - Centralized HQ control, formal planning and control, tight HQ-Sub linkage International Mentality - Management sees overseas operations as appendages to a domestic operation

Global MNC HK UK Chile USA India Japan Mexico Slide 10-8 Global MNC From: Bartlett and Ghoshal, Managing across borders, 1989 HK UK Chile USA India Japan Mexico Centralized Hub - Most strategic assets, resources, responsibilities and decisions centralized Operational Control - Tight HQ control of decisions, resources, information Global Mentality - Management sees overseas operations as delivery pipelines to a unified global market

Transnational MNC HK UK Chile USA Japan India Mexico Slide 10-9 Transnational MNC From: Bartlett and Ghoshal, Managing across borders, 1989 HK UK Chile USA Japan India Mexico Networked Organization - Distributed, specialized resources and capabilities Interdependent Units - large flows of components, products, resources, people, and information Transnational Mentality - Complex process of coordination and cooperation in an environment of shared decision making

International Strategic Alliances Slide 10-10 International Strategic Alliances Cooperative agreements among competitors from different countries Advantages Facilitate entry into a foreign country Allow sharing of fixed costs of new products/processes Bring together complementary skills and assets that can not easily be developed independently Help establish industry standards in technology Reduce operating costs,e.g., shared training, purchasing Disadvantages Give competitors new technology / markets at low cost Disproportional benefit accrual to partners

Making alliances work Which partner? Slide 10-11 Making alliances work Which partner? A suitable partner Helps achieve strategic goals; brings needed, valuable capabilities Shares the firm’s vision for the alliance’s purpose Is not likely to exploit the alliance to its own ends To select a partner Do thorough background check from public sources Collect information from third parties who have personal experience with the likely partner(s) Spend a lot of face-to-face time with likely partner(s)

Making alliances work What Structure? Slide 10-12 Making alliances work What Structure? Protect technology/know-how that is not intended to be transferred Draw a solid contract with safeguards against opportunism Achieve equitable gain through agreed swaps of technology the other wants Seek creditable, clearly articulated commitment to partner “behavior” a-priori

Making alliances work How to manage? Slide 10-13 Making alliances work How to manage? Show sensitivity to cultural differences that explain different managerial styles Build trust Set up framework for formal and informal face-to-face meetings to create the opportunity for a common value system to emerge Build an informal network of personal relationships Learn from partners Apply the knowledge within your own organization Brief your employees on partner strengths