Slide of strategic management w10

• The discussion will differentiate between global and international strategy, business, local and international operations and global trade • Global strategy, business, trade and oper

BMA799

STRATEGIC MANAGEMENT

Lecture Ten:

Global Strategy

Learning objectives

• Use the tools of industry analysis to examine the

impact of globalisation on industry structure and

strategies and overseas production strategies

• Formulate global strategies that achieve an optimal balance between global integration and national

differentiation

• This lecture examines the strategy implications of the global business environment

• The discussion will differentiate between global and

international strategy, business, local and international operations and global trade

• Global strategy, business, trade and operations will be considered to be primarily focused on the global market, rather than on individual country or regional markets

Global strategic management

• Global strategic management views the

world as a single, segmented, market and applies the organisation’s resources to the opportunities (and risks) it offers

• The principal elements of global strategic management are similar to domestic

strategic management

Global strategic management

• Organisational learning refers to retaining

information obtained from past projects and events at the organisational level

• Born global are organisations that plan and achieve global operations in just a few years

• Offshoring operations involve transferring

specific operations to another country

• Outsourcing is a special type of offshoring

The benefits of a global strategy

• Companies that compete on a national basis are highly vulnerable, compared to companies that compete on a global basis

• A global strategy can provide a greater degree of security for two reasons:

• globalisation of customer preferences

• scale economies

The benefits of a global strategy

• Further benefits of globalisation include:

• cost benefits — scale and replication

• exploiting national resource efficiencies

• serving global customers

• achieving a global-level knowledge of the industry

• increasing the range of competitive options available

Analysing a global industry

• The impact of globalisation on competition can be analysed using Porter’s five forces of competition framework

• The industry in which the global business

operates in that country (or region) will then

comprise all organisations, anywhere in the

globe, that supply that national or regional market

Analysing a global industry

• The five forces of analysis include:

• competition from potential entrants

• rivalry among existing organisations

• the bargaining power of buyers

• the threat substitutes

• the bargaining power of suppliers

Impact of local conditions: comparative

advantage

• The term comparative advantage refers to the

relative efficiencies of producing different

products

• Comparative advantage refer to the advantage gained

by production of a product or service in one region over another due to local external conditions such as skill levels It does not apply to specific organisational capabilities

National competitive advantage

Fig 11.1

The elements of Porter’s model

• Porter’s diamond framework is based on the following elements:

Comparing comparative and competitive advantage

• Comparative advantage always concerns nations,

not companies

that governments should allow their nations to do

what they do best with their existing capabilities

• Competitive advantage usually refers to a company,

but it also is applied to countries, as with Porter’s

theory

• Competitive advantage is achieved when an

organisation matches its internal strengths in

resources and capabilities to the key success factors

of the industry

Comparing comparative and competitive advantage

Fig 11.2

Selecting an entry mode

• Entry mode refers to the approach taken to enter an international market including:

Selecting an entry mode

Fig 11.3

Selecting an entry mode

• What is the source of organisation’s competitive

advantage?

• Is the product tradable and what are the barriers to trade?

• Does the organisation possess the resources and for

establishing a competitive advantage?

• Can the organisation directly appropriate the returns to its resources?

• What transaction costs are involved?

The structured entry approach

• Structured entry refer to a systematic approach to planning and implementing foreign market entry

• The following steps should be considered:

• assess the products in relation to the markets

• set up objectives and goals

• choose the entry mode

• design the marketing plan

Analysing an international market

• Analysis of an international market is one of the most important aspects of the structured entry

approach

• Most organisations find that an international

market is rarely as attractive as their assessment indicated

• The analysis of a foreign market should

incorporate knowledge of the market and a

sensitivity analysis to determine the impact of

inaccuracies in the analysis

Emerging market analysis

• An emerging market is a new or developing

market

• An emerging market is a particularly important type of market to consider when planning entry strategies

• Many organisations find it difficult to identify the important features of their strategy for that

market because of the lack of accurate and

current information available due to the level of change that is occurring as the market emerges

Assessing the organisation’s readiness

• Assessing the preparedness involves considering how well the organisation can support a particular entry mode

on the basis of:

• financial preparedness (sufficient financial resources)

• organisational readiness (sufficient people resources)

• stakeholder support (for example, shareholder

confidence)

• Being the first organisation of a significant size into a

market offers both significant advantages and

disadvantages

Dunning’s eclectic theory

• Dunning’s eclectic theory provides a useful approach for selecting the best market entry mode

• It argues that, for a successful entry:

• the organisation must possess a competitive advantage that it can use in that market

• the best (highest return) use of the organisation’s capabilities is through market entry, rather than exporting

• the location selected must provide at least one desirable

characteristic that can be combined with these capabilities

advantageously

Global strategic alliances

• Strategic alliances are partnerships between

organisations involving sharing of key resources

to take advantage of significant opportunities

• Strategic alliances are an important part of

contemporary global business and are used by many large organisations to establish operations

in new countries

Maintaining strategic alliances

• Strategic alliances can best be maintained by a combination of approaches

• These include a regular partnership agreement review, commencing the alliance by achieving a good mutual understanding, and ensuring that there are skilled staff in place at all key levels by allocating the authority and responsibility for the alliance to specific managers

International joint-venture partnerships

• A joint-venture partnership refers to a partnership

in a strategic project where the partners share

equity

• Joint-venture partnerships are a very important subset of strategic alliances — particularly in

countries such as China where much of the

investment by foreign companies has been

through joint-venture partnerships

Organising global operations

• Managing business activities that cross national frontiers is complex

• When designing a global business, it is important to adopt a structure for the entire business that reflects the global strategy that is to be adopted

• The success of global strategies depends

critically on the effectiveness with which they are implemented

Global strategy orientation

• Whereas domestic strategic thinking tends to be driven by an organisation’s mission, values and objectives, global strategy can also be driven by the orientation toward a specific global behaviour that an organisation selects

• The three main orientations are a:

1. product/service orientation

2. regional orientation

3. customer orientation

Business structures for global

Contemporary structures of global organisations

Global leadership

• Leadership skills are an essential component of

implementing strategy in global organisations

• Two possible dimensions to global leadership are:

• Organisation as a global leader

• Leadership skills driving a global organisation

• Review of successful global organisations suggests that the two dimensions are inter-linked

• Global leadership behaviour must be driven by the

complexity of organisation’s global environment

Creating global strategy success

• What are the overall success factors for global strategy?

• What is the relative importance of the success factors in a

particular country?

• Are these factors influenced by the industry sector of the

organisation – service and manufacturing for example?

• What is the role of informal networks and structures in creating successful global strategy?

• It is important to acknowledge that global strategy is driven by a large number of factors and influences including:

• Global complexity

• Competitive context and position

• Overseas market analysis

• Competitive advantage

• Global leadership