1. 4 Strategic Management in the Multinational Company:
Content and Formulation

2. 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

3. 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

4. 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

5. 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)

6. 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

7. 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

8. 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)

9. 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

10. 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.

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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).

18. 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