4 Strategic Management in the Multinational Company: Content and Formulation

Basic Strategy for the Multinational Company Multinational companies use many of the same strategies as domestic companies Two Important Concepts: Competitive advantage: when a company can outmatch its rivals in attracting and maintaining its targeted customers Generic strategies: basic ways to achieve and sustain competitive advantage

Generic Strategies for Competitive Advantage Differentiation strategy: providing superior value to customers Ex.: BMW competing in the world market by providing high-quality and performance sports cars Customers often pay a higher price for extra value Low-cost strategy: producing at a lower cost than competitors Ex.: Korean semiconductor firms Additional profits come from cost savings Focus Strategy: Based on the competitive scope or how broadly a firm targets its products or services

The Value Chain and Competitive Advantage A firm can gain competitive advantage by finding differentiation or low costs in its value chain activities Value chain is a convenient way of looking at all the firm’s activities used to design, produce, market, deliver, and support its product (See Exhibit 4.3 – p. 129) Primary vs. Support Activities Upstream vs. Downstream activities

Distinctive Competencies Are internal STRENGTHS that allow companies to outperform rivals based on quality, innovation, efficiency, and customer service. Resources: inputs into the production or service processes Capabilities: ability to assemble & coordinate resources effectively (See Exhibit 4.4)

Sustaining Competitive Advantage Sustainability means that strategies will not easily be defeated by competitors There are four characteristics of resources & capabilities that lead to competitive advantage Valuable Rare Difficult to imitate Non-substitutable

Competitive Strategies in International Markets Competitive strategies are strategic moves multinationals use to defeat competitors Offensive competitive strategies: direct attacks to capture market share Defensive competitive strategies: attempts to discourage offensive strategies Counter-parry: fending off a competitor’s attack in one country by attacking in another country

Offensive Strategies Cut prices and/or add new features to the product (Direct attacks) Seek unoccupied markets (End-run offensives) Try to be the first to obtain particular advantageous position (Preemptive competitive strategies) Buy out a competitor (Acquisitions)

Defensive Strategies Attempts to reduce risks of being attacked, Convince an attacking firm to seek other targets, or Blunt the impacts of any attack by: Exclusive contracts with best suppliers Develop new models to match competitor’s lower prices Make public announcements about the willingness to fight

Counter-parry Popular strategy for multinationals where firm respond to attack by counter attacking competitor in another country Ex.: Kodak—When Fuji attacked Kodak in the U.S., Kodak retaliated by attacking Fuji in Japan. Goodyear also attacked Michelin in Europe as response to attack in U.S.

Multinational Diversification Strategy Related diversification: companies acquire businesses that are similar in some way to their original or core business Ex.: Nike adding clothing line to its shoe operations Unrelated diversification: firms acquire businesses in any industry Main concern is whether it’s a good financial investment

Traditional Approaches for Strategy Formulation Strategy formulation is the process by which managers select the strategies to be used by their company Popular analysis techniques Competitive dynamics of the industry Company’s competitive position in the industry Opportunities and threats faced by their company Company’s strengths and weaknesses

1) Industry and Competitive Analysis Managers must understand their industry well to formulate good strategies including the economic characteristics and the driving forces in the environment. Economic characteristics include: Market size Ease of entry Opportunities for economies of scale Driving forces are important changes that have potential to affect an industry such as: Speed of new product innovations Technological changes Changing societal attitudes and lifestyles

Know the Industry Key Success Factors Innovative technology or products Broad product line Effective distribution channels Price advantages Effective promotion Superior physical facilities or skilled labor Experience of firm in business Cost position for raw materials Cost position for production R&D quality Financial assets Product quality Quality of human resources

2) Competitor Analysis Develop profiles of competitor’s strategies and objectives Four steps: Identify competitors’ strategic intent (Understand the broad objectives of competitors) Identify the current and anticipated generic strategies of competitors Identify the current and anticipated offensive and defensive competitive strategies of competitors Identify what are competitors’ current competitive position in the industry

2) Company-Situation Analysis: SWOT More complex than for domestic firms since Multinationals face more complex general and operating environments and environments vary by country Strengths: distinctive capability, resource or skill Weaknesses: competitive disadvantage compared to competitors Opportunities: favorable conditions in the environment Threats: unfavorable conditions in the environment

Corporate Strategy Selection Diversified corporation has a portfolio of businesses and must decide in which businesses to invest in and which businesses to divest (Resource Allocation) The basic tool: matrix analyses help answer basic strategy formulation question such as: Are businesses in attractive industries? Are most businesses growing? Are there sufficient cash cows to finance other businesses? Is business portfolio well positioned for the future? Is the some strategic synergies among businesses? The most popular is the growth-share matrix of the Boston Consulting Group (BCG).

BCG Share Matrix Division into four categories based on market share and relative market share Stars: the most successful firm Dogs: businesses with low market shares in low-growth industries Cash cows: businesses in slow-growth industries where company has strong market-share position Problem children (Question Mark): businesses in high-growth industries where company has a poor market share