Chapter 11

Global Strategy

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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

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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

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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 curveUnit costs

A

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Pressures for Global Integration

& Local ResponsivenessHigh

HighLowLow

Cost Reduction(Global Integration)

Pressures

Local Responsiveness Pressures

Differences in - consumer tastes/preferences- infrastructure/practices- distribution channels- host government needs/requirements

Ball bearings,wheat

Cosmetics, food,household goods

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Strategic Choice

High

HighLow

Low

Local Responsiveness Pressures

“Global”Strategy

“Transnational”Strategy

“Multidomestic”Strategy

“International”Strategy

Cost Reduction(Global Integration)

Pressures

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Multidomestic MNC

Decentralized Federation - Many key assets, responsibilities and decisions localized

Personal Control - Informal HQ-Sub relationship, simple financial controlsMultidomestic Mentality - Management sees overseas operations as

portfolio of independent businesses

UK Chile

IndiaJapan

USA

HK

Mexico

From: Bartlett and Ghoshal, Managing across borders, 1989

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International MNC

Coordinated Federation - Key assets, responsibilities decisions localizedAdministrative Control - Centralized HQ control, formal planning and

control, tight HQ-Sub linkageInternational Mentality - Management sees overseas operations as

appendages to a domestic operation

UK Chile

IndiaJapan

USA

HK

Mexico

From: Bartlett and Ghoshal, Managing across borders, 1989

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Global MNC

UK Chile

IndiaJapan

USA

Centralized Hub - Most strategic assets, resources, responsibilities and decisions centralized

Operational Control - Tight HQ control of decisions, resources, informationGlobal Mentality - Management sees overseas operations as delivery

pipelines to a unified global market

HK

Mexico

From: Bartlett and Ghoshal, Managing across borders, 1989

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Transnational MNC

UK Chile

IndiaJapan

USA

Networked Organization - Distributed, specialized resources and capabilitiesInterdependent Units - large flows of components, products, resources,

people, and informationTransnational Mentality - Complex process of coordination and

cooperation in an environment of shared decision making

HK

Mexico

From: Bartlett and Ghoshal, Managing across borders, 1989

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International Strategic Alliances

• Cooperative agreements between competitors from different countries

- Advantages

• Facilitate entry into a foreign country

• Allow fixed costs of new products and processes to be shared

• Bring together complementary skills and assets

• Help establish industry standards in technology

• Allow reduction of operating costs,e.g., shared training, purchasing

- Disadvantages

• Give competitors a low cost route to new technology / markets

• Disproportional benefit accrual to partners

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Making alliances workWhich partner?

• A suitable partner- Helps achieve strategic goals

• Adds needed, valuable capabilities - Shares the firm’s vision for purpose of the alliance- Is not likely to exploit the alliance to its own ends

• Steps to select a partner- Thorough background check via public sources- Advice from third parties who have personal experience

with likely partner(s)- A lot of face-to-face time with likely partner(s) in their

environment

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Making alliances workWhat 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

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Making alliances workHow 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 a common value system

- Build informal network of personal relationships

• Learn from partners

- Apply the knowledge within your own organization

- Brief your employees on partner strengths