Cross cultural management 5e by cullen CH05

May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.. Learning Objectives • Define differentiation and low cost • Understand how low

Chapter 5

Strategic Management in the

Multinational Company: Content

and Formulation

© 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part

Learning Objectives

• Define differentiation and low cost

• Understand how low-cost and differentiation strategists make money

• Recall multinational examples of use of generic

strategies

• Understand competitive advantage and value chain

• Understand offensive and defensive strategies

• Define differentiation and low cost

• Understand how low-cost and differentiation strategists make money

• Recall multinational examples of use of generic

strategies

• Understand competitive advantage and value chain

• Understand offensive and defensive strategies

Learning Objectives

• Understand basics of multinational diversification

• Understand how traditional strategy formulation

techniques apply to the multinational company

• Realize both the convergence and divergence in

strategies

• Understand basics of multinational diversification

• Understand how traditional strategy formulation

techniques apply to the multinational company

• Realize both the convergence and divergence in

strategies

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Basic Strategy for the Multinational Company

• Strategy: the central, comprehensive, integrated and externally oriented set of choices of how a company

will achieve its objectives

• Strategy: the central, comprehensive, integrated and

externally oriented set of choices of how a company

will achieve its objectives

Basic Strategy for the Multinational Company

• Important strategic areas

- Arenas: a company needs to be able to decide which

businesses it wants to be in

- Vehicles: a properly stated strategy also needs to include the vehicles a company will use to create a presence in

specific markets or products

- Differentiators/Economic Logic: a company also needs to decide what ways it will use to win over customers

• Important strategic areas

- Arenas: a company needs to be able to decide which

businesses it wants to be in

- Vehicles: a properly stated strategy also needs to include

the vehicles a company will use to create a presence in

specific markets or products

- Differentiators/Economic Logic: a company also needs to

decide what ways it will use to win over customers

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Basic Strategy for the Multinational Company

• Multinational companies use many of the same

strategies as domestic companies

• Multinational companies use many of the same

strategies as domestic companies

Competitive Advantage and Multinational Applications of Generic Strategies

• Generic strategies: basic ways to achieve and sustain competitive advantage

• 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

• Competitive advantage: when a company can

outmatch its rivals in attracting and maintaining its

targeted customers

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Competitive Advantage and Multinational Applications of Generic Strategies (cont.)

• Differentiation strategy: providing superior value to

customers

• Ex.: BMW competing in the world market by

providing high-quality and performance sports cars

• Low-cost strategy: producing at a lower cost than

competitors

• Ex.: Korean semiconductor firms

• Differentiation strategy: providing superior value to

customers

• Ex.: BMW competing in the world market by

providing high-quality and performance sports cars

• Low-cost strategy: producing at a lower cost than

competitors

• Ex.: Korean semiconductor firms

How Do Low-Cost and Differentiation Firms Make Money?

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Exhibit 5.1: Costs, Prices, and

Profits for Differentiation and

Low-Cost Strategies

• - Broad competitive scope when a large range of

• Strategies can be further subdivided on the basis of

© 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part

Exhibit 5.2: Porter’s Generic

Strategies

Competitive Advantage and the Value Chain

• A firm can gain competitive advantage by finding

differentiation or low costs in its activities

• Value chain is a convenient way of looking at the firm’s activities

• Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product

• A firm can gain competitive advantage by finding

differentiation or low costs in its activities

• Value chain is a convenient way of looking at the firm’s activities

• Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product

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Exhibit 5.3: The Value Chain

Components of the Value Chain

• Primary activities: physical actions of creating, selling, and after-sale service of products

• Upstream: early activities in the value chain

• - R&D

• - Dealing with suppliers

• Primary activities: physical actions of creating, selling, and after-sale service of products

• Upstream: early activities in the value chain

• - R&D

• - Dealing with suppliers

© 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part

Components of the Value Chain (cont.)

• Downstream: later value chain activities

• Sales and dealing with distribution channels

• Support activities: systems for human resources

management, organizational design and control, and technology

• Downstream: later value chain activities

• Sales and dealing with distribution channels

• Support activities: systems for human resources

management, organizational design and control, and

technology

• Outsourcing: a deliberate decision to have outsiders or strategic allies perform certain activities in the value

chain

• About half of U.S manufacturing jobs will be

outsourced to more than 28 emerging countries over the next 10 years

• About 10% of U.S service jobs may be outsourced

• Outsourcing: a deliberate decision to have outsiders or strategic allies perform certain activities in the value

chain

• About half of U.S manufacturing jobs will be

outsourced to more than 28 emerging countries over

the next 10 years

• About 10% of U.S service jobs may be outsourced

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Outsourcing

• When should a multinational company outsource?

• Outsourcing makes sense if an outsider can perform

a value-chain task better or more cheaply

• However, tasks that are outsourced should the ones that are not crucial to the company’s ability to

achieve competitive advantage

• When should a multinational company outsource?

• Outsourcing makes sense if an outsider can perform

a value-chain task better or more cheaply

• However, tasks that are outsourced should the ones that are not crucial to the company’s ability to

achieve competitive advantage

Exhibit: 5.4: The Major

Advantages and

Disadvantages of Outsourcing

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Distinctive Competencies

• Strengths that allow companies to outperform rivals

- Ex.: Quality, innovation, customer service

• Resources: inputs into the production or service

processes

- Ex.: Buildings, land, equipment, employees

• Strengths that allow companies to outperform rivals

- Ex.: Quality, innovation, customer service

• Resources: inputs into the production or service

processes

- Ex.: Buildings, land, equipment, employees

• For long-term success, capabilities must lead to

sustainable competitive advantage

• Capabilities: ability to assemble and coordinate

resources effectively

• Resources provide the organization with potential

capabilities

• For long-term success, capabilities must lead to

sustainable competitive advantage

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Sustaining Competitive Advantage

• Sustainable: strategies not easily defeated by

Exhibit 5.5: Relationships Among

Resources, Capabilities, Distinctive

Competencies, and Eventual

Profitability

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Competitive Strategies in International Markets

• Competitive strategies: 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

• Competitive strategies: 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

• Direct attacks: price cutting, adding new features, or

going after poorly served markets

• End-run offensives: seeking unoccupied markets

• Preemptive competitive strategies: being first to obtain particular advantageous position

• Acquisitions: buying out a competitor

• Direct attacks: price cutting, adding new features, or

going after poorly served markets

• End-run offensives: seeking unoccupied markets

• Preemptive competitive strategies: being first to obtain particular advantageous position

• Acquisitions: buying out a competitor

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Defensive Strategies

• Attempts to reduce risks of being attacked

• Convince an attacking firm to seek other targets

• Blunt the impacts of any attack

• Exclusive contracts with best suppliers

• New models to match competitor’s lower prices

• Public announcements about the willingness to fight

• Attempts to reduce risks of being attacked

• Convince an attacking firm to seek other targets

• Blunt the impacts of any attack

• Exclusive contracts with best suppliers

• New models to match competitor’s lower prices

• Public announcements about the willingness to fight

• Popular strategy for multinationals

• Respond to attack by 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

• Popular strategy for multinationals

• Respond to attack by 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

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Multinational Diversification Strategy

• Business-level strategies: strategies for a single

business operation

• Corporate-level strategies: how companies choose

their mixture of different businesses

• Business-level strategies: strategies for a single

business operation

• Corporate-level strategies: how companies choose

their mixture of different businesses

• 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

• 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

© 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part

Strategy Formulation:

Traditional Approaches

• Strategy formulation: 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

• Strategy formulation: 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

Industry and Competitive Analysis

• Porter’s five forces model: a popular technique that can help a multinational firm understand the major forces at work in the industry and the degree of attractiveness of the industry

• Porter’s five forces model: a popular technique that can help a multinational firm understand the major forces at work in the industry and the degree of attractiveness of the industry

© 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part

Industry and Competitive Analysis

• Porter’s Five Forces Model

1 The degree of competition among existing

competitors in the industry

2 The threat of new entrants

3 The bargaining power of buyers

4 The bargaining power of suppliers

5 The threat of substitutes

• Porter’s Five Forces Model

1 The degree of competition among existing

competitors in the industry

2 The threat of new entrants

3 The bargaining power of buyers

4 The bargaining power of suppliers

5 The threat of substitutes

Industry and Competitive Analysis

• Managers must understand their industry well to

formulate good strategies

• Must understand economic characteristics of industries and driving forces

• Economic characteristics include

- Market size

• Managers must understand their industry well to

formulate good strategies

• Must understand economic characteristics of industries and driving forces

• Economic characteristics include

- Market size

- Ease of entry