Slide global business today chap010 global strategy

• How do cost pressures and country differences influence global strategy?. Global Strategy• Strategy: “the action managers take to attain the goals of a firm” – General purpose: maxim

Global Strategy

10

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?

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

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

10-2

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

B

Accumulated output

Experience curve Unit costs

A

Pressures for

Global Integration & Local Responsiveness

High

High Low

Low

Global Integration

Local Responsiveness Pressures

Country Differences in

- consumer tastes/preferences

- infrastructure/practices

- distribution channels

- host government needs

Ball bearings, wheat

Cosmetics, food, household goods

10-4

Cost Reduction

Pressures

Strategic Choice

High

High Low

Low

Local Responsiveness Pressures

“Global”

“Multidomestic”

Strategy

“International”

Strategy

Cost Reduction

(Global Integration)

Pressures

Multidomestic MNC

Decentralized Federation - Many key assets, responsibilities and

decisions localized

financial controls Multidomestic Mentality - Management sees overseas operations

as portfolio of independent businesses

India Japan

USA HK

Mexico

From: Bartlett and Ghoshal, Managing across borders, 1989

10-6

International MNC

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

India Japan

USA HK

Mexico

From: Bartlett and Ghoshal, Managing across borders, 1989

Global MNC

India Japan

USA

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

HK

Mexico

From: Bartlett and Ghoshal, Managing across borders, 1989

10-8

India Japan

USA

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

HK

Mexico

International Strategic Alliances

• 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

10-10

different countries

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?

• 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

10-12

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