International Company Strategies

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International TechnologyTransfer Management

Int. Company StrategiesDr. Charlotta Flodell

Summersemester 2004 Lecture Notes by Phillip Kern

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International Company Strategies

Content

CONTENT................................................................................................................................ 1

1 INTRODUCTION............................................................................................................ 3

1.1 GOALS &POLICIES...................................................................................................... 3

1.2 KEY FACTORS FOR STRATEGY ...................................................................................... 4

1.3 TEST OF CONSISTENCY ................................................................................................ 4

1.4 APPROACH (TO DEVELOP A COMPANY STRATEGY) ..................................................... 4

2 BASICS ............................................................................................................................. 6

2.1 DEVELOPMENT OF MODERN COMPANIES ..................................................................... 62.2 STRUCTUAL ANALYSIS ................................................................................................ 8

2.3 DIFFERENCES ON COMPETITION INTERNATIONALLY .................................................. 10

3 GENERIC STRATEGIES TO DEAL WITH COMPETITIVE FORCES .............. 10

3.1 GLOBAL COMPETITIVE ADVANTAGE .......................................................................... 11

4 TECHNIQUES OF ANALYSIS I: OBJECTIVES OF COMPETITOR ANALYSIS

13

4.1 FUTURE GOALS ......................................................................................................... 13

4.2 ASSUMPTIONS ........................................................................................................... 14

4.3 CURRENT STRATEGIES .............................................................................................. 154.4 CAPABILITIES ............................................................................................................ 15

4.5 RESPONSE PROFILE ................................................................................................... 15

4.6 DEFENSIVE CAPABILITY............................................................................................16

5 TECHNIQUES OF ANALYSIS II: MARKET SIGNALS ........................................16

5.1 RECOGNIZE MARKET SIGNALS .................................................................................. 16

5.2 UNDERSTAND THE MARKET SIGNALS......................................................................... 16

6 TECHNIQUES OF ANALYSIS III: COMPETITIVE MOVES............................... 17

6.1 PRISONERS DILEMMA ................................................................................................ 17

6.2 STRUCTURAL CRITERIA FOR INTENSIVE COMPETITION ...............................................186.3 STRUCTURAL CRITERIA FOR LESS COMPETITION ........................................................ 18

6.4 COMPETITIVE MOVES ................................................................................................. 18

6.5 DEFENSIVE MOVES .................................................................................................... 18

7 ENTER NEW MARKETS ............................................................................................20

7.1 STRATEGIC ALTERNATIVES OF GLOBAL MARKET ENTRY ...........................................20

7.2 TIME TO ENTER NEW MARKETS .................................................................................. 20

8 BUSINESS LEVEL STRATEGIES ............................................................................. 21

8.1 BUSINESS LEVEL STRATEGIES: ................................................................................... 21

8.2 CORPORATE

LEVEL

STRATEGIES

............................................................................... 228.3 ISSUE......................................................................................................................... 22


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2004-03-24

1 Introduction

1.1 Goals & Policies

1) how to compete2) what goal3) which policy

figure 01: wheel of competive strategy


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1.2 key factors for strategy

CompanysStrengths & Weaknesses

- Finances- HR- brand identification- products- technicals

Industrial Environment(opportunities/potentials

& threads/risks)

Personal valueskey persons

- Attitudes- Motives- Needs

Broader Social

Expectations(laws, regulations,political strategies)

Competetiv

Strategy

company intern factors company extern factors

figure 02: strategy influencing factors

1.3 Test of consistency

1) Internal Consistencygoal and policies must fit together

2) Environmental FitDo goals and policies exploit the industrial opportunities?Do they match the societal expectation?Is there a need of special timing between goals and policies?

3) Resource FitDo goals and policies match the available resources?

4) Communication & ImplementationAre goals and policies communicated well to all layers?

Is (new) personnel able to fulfil the tasks to implement goals and policies?

1.4 Approach (to develop a Company Strategy)

A) What is the Business doing now?1. identification of (actual) strategy2. identification of implied assumption

threats

weaknesses

trend

fears

B) What is happening in the environment?


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1. market trends / industry analysis2. competitors3. social analysis

C) What should the business be doing?1. test if A) fit to B)2. think of alternative strategies regarding B)3. strategic choice


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2004-03-31

2 Basics

2.1 Development of modern companies

The evolution of firms

1840/50 Mr. Schmidt merchant by selling potatoesManagement role:

he was an AGENT/BROKER (from farmer to market)Risks:

no/low demand at destination

lack of knowledge (e.g. about demand)

Business structure: production by small family farmers

owner(shareholder) = manager

need own resources to investInfrastructure:

Transportation waterways, some railway, horsecarriage

Communication postal, telegraph many individual, regional firms

Finances:

no shares systems,

Production technology: no standards

Government:

not much supporting by government

Conditionschangedbusiness

1910/20 Change to: input production distributionBusiness structure:

owner manager

hierarchy

vertical integration

horizontal expansion (expand product portfolio) divisions came up

taylorism (control performance, manage employees)Production technology:

mass production high volume, low costInfrastructure:

Transport: railroad(!) faster, saver, more reliable

Communication: postal, telegraph, telephoneFinances:

shares came up reporting was necessaryGovernment/Environment:

school education as norm


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Today Business structure:- high diversification- holdings- wide portfolios mergers & acquisitions high coordination is necessary (e.g. matrix

organisation)Infrastructure:

- Transportation: Automotive, Airways, ContainerShipping

- Communication: Computing, Telecommunications Globalisation firms without boundaries e-Commerce

Finances:- good market for financesProduction Technology:

- high Automation- Computerization

Government:-

scientific books about evolution of firms:

- Alvin Tofler- Naisbitt


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2004-04-07

2.2 Structual analysis

goal: finding out competitive rules

potential strategies available

2.2.1 Goal of competitive strategies

- to be profitable- to increase market share- to survive- to find a position in the industry- to be able to defend yourself

2.2.2 pressures to companies in the industry

Key forces:

2.2.2.1 Threats of entrantso market shareo increase of profit margino price can be bid downo new resourceso

innovations production processo new capacities

reduce profitability


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Barriers of Market Entry:

1) Economy of Scale2) Product Differentiation

a. startup lossesb. takes a long time

3) Capital requirements4) Suitable cost5) Access to distribution channels

6) cost disadvantages independent of scalea. patentsb. favourable locations

7) Governmenta. pollution controlb. licensing

2.2.2.2 Internal Rivalry among existing competitors

1) numerous firms balanced competitors2) Slow industry growth firms seeing expansion= market share competition

3) High fixed or storage cost

4) Lack of differentiation

2.2.2.3 Pressure from substitute products

Innovations

product changes

product functions for the customer

2.2.2.4 Power of buyers

- forces low prices

- forces better quality & better services

2.2.2.5 Power of suppliers


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2.3 Differences on competition internationally

cost differences among countries different circumstances in foreign markets

different roles of government

differences in goals & resources

structural factors

foreign competitors

wider pool of potential entrants

broader scope of possible substitutes

3 Generic Strategies to deal with competitive forces

1) over all cost leadershipo cost reductiono tight costo overhead controlo buy not make

RISKS OPPORTUNITIES

2) Differentiationo Imageo designo technologyo customer serveo dealer network make, not buy!

3) Focuso better meeting the needs

Strategic advantageuniqueness Low cost position

Industrywide

DIFFERENTIATIONOVERALL COST

LEADERSHIPStrategic

targetParticularsegment

onlyFOCUS


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Required Skills &Resources

Common organizationalRequirement

Generic Strategy1) Overall cost leadership - product easy to

manufacture- process

engineering skills- international

supervision oflabour

- low cost distributionsystem

- tight cost control- frequently report- structural

organization & clearresponsibilities

- process orientation- quantitive ?

2) Differentiation - strong capability in

R+D- strong marketingabilities

- creative flair- experiences unique

to the industry- product engineering

- coordination

between R&D,marketing- person+product

orientation

3)Focus - -- -

3.1 Global competitive advantage

(The next parts are copied from JohnThanks!)

3.1.1 Sources

Production economy of scale (centralization)

Global experience (selling similar products in other countries)

Global knowledge management

Logistic economy of scale

Marketing economy of scale (use knowledge from other markets)

Purchasing economy of scale

Product differentiation

Mobility of production (consultants, ABB, etc.)

3.1.2 Barriers for reach global competitive advantages

Economicbarriers

Transportation and storage costs Different product needs in different markets


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Establish distribution channels

Sales requirements (if product requires direct sale service)

Sensitivity to trends (fashion, high-tech)

Lack of global demand

Managementbarriers

Distribution channels

Marketing media

Cost effective way to reach consumers

Rapidly changing technology

InstitutionalBarriers Governmental barriers (tariffs and duties, quotas, etc.) Preferential procurement

Instance for R&D

Tax laws

Resource limitations

Labor market policy

Culture


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Thanks to Andrea! - 2004-04-21

4 Techniques of Analysis I: objectives of competitor analysis

1) profile of nature and success of comp. strategy2) probable responses3) reaction to industry changes + environmental events

4 diagnostic components of competitor analysisWhat drives the competitor? What is the competitor doing or can do?

1) FUTURE GOALS 3) CURRENT STRATEGY

2) ASSUMPTIONS 4) CAPABILITY

COMPETITORRESPONSE

PROFILE

Satisfaction with position? likely strategy shifts or moves provocation to ratalation

First step: Which competitors all existing significant competitors potential competitors that probably will be in your industry

o firms easily overcome entry barrierso firms with obvious synergieso obvious extension of corporate strategy

Second step

4.1 Future Goalssatisfaction with market position + financial results -> change?

Diagnostic questionsA: Business goals

1. Financial goals2. Attitude to risks3. organizational values

4. organizational structure- allocation of power and responsibility- status of functional areas


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5. control + incentives6. Accounting-system7. Kind of managers

- CEO- younger managers (come from outside or "internal school"?)

8. Fractions9. Composition of board10. Formal restrictions

B: Corporation1. Overall result of the corporation-units2. strategic importance (of the unit for the corporation)3. Why the business unit causes?4. relationship between the business unit and the corporation

5. recruiting policy6. emotional attachment

C: Portfolio Analysis and competitors goalsThree by three Matrix

Company /Industry AttractivnessProbable Strategies

Industry Attractiveness

high middle lowhigh 1 1 2

middle 1 2 3

Business

unit

posttion

low 2 3 3

Criteria [Business unit position] Criteria [Industry Attractiveness]1. size2. growth3. market position4. image

5. employees..

1. size2. market growth3. competitive structure4. technological role

5. social role

1: Build strategy2: Hold Strategy3: Harvest Strategy

4.2 Assumptions

o identify "blind spots"o perception of itself


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o perception of environmento Perception of future demand of the products ?o Perception of strength and weakness themselves and their competitors analysing the current strategy

o History of .o Financial performance past + present comparisono market position past and presento major events (energy shortage, currency fluctuation, )

4.3 Current Strategies

identify the strategy as the key operation policy

4.4 Capabilities

Analysis of the competitors strength and weaknesses- R&D- Technology Strength- Financial Strength- cash flow- human resources- Products, Brand, Product line- Customer Relation- Sources

- Supplier-Relationship- Resources- Overall costs- Marketing skills- Dealer Distribution channels

1) CORE capabilities2) Ability to grow3) Quick response capability4) adapt to change

4.5 Response Profile

1) offensive move forward2) defensive capabilities3) the best "battle field"

= market segment


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4.6 Defensive Capability

1) Vulnerability(Verletzbarkeit,Schwachstelle)2) Provocation3) Effectiveness/Retaliation(Vergeltung)

Event Vulnerability Provocation EffectivenessRetaliation

Strategic Moves by thefirm

cost reduction

increase productcapacity

Environmental Changes

5 Techniques of Analysis II: Market Signals

5.1 Recognize Market Signals

new distribution channels

budget disposition for advertisement

sales values ROI

no. of subsidiaries/ new subsidiaries

market presence / target groups / key market

pricing policy

new products / product line(s)

Promotion

5.2 Understand the market signals

5.2.1 Prior Announcement of moves

We are going to / We plan to

- what- timing

can also be fake, but also in this case there is a strategic interest behind it!

possible strategic interests;

preempting other competitors (to be the first one)

threats of a counter action (to competitors) test of competitor reactions/feelings


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minimize provocation (e.g. to avoid battles)

communicate with financial community (e.g. pre-announcingfalling shares because of certain necessary activities)

5.2.2 Announcement of results or actions after occurring

intention to surprise

more reliable than Prior Announcement of moves

5.2.3 Public discussions of their industry in general

Comments on industry / market situation (e.g. influence of unemployment toChristmas business)

possible intention: implicate certain views/assumption also to competitors/customers to evaluate environment (e.g. to politics)

5.2.4 Competitors dismiss & explains of their own moves

5.2.5 Competitors tactics relative to what they could have done

5.2.6 Manner in which strategic changes are initially implemented

5.2.7 Divergence between past goals and strategic & tactics

6 Techniques of Analysis III: Competitive Moves

6.1 Prisoners Dilemma

cooperate self interest

Blamethe

other 1)

P1 will be

free & gets abonusP2 will hang

2)Both will

hang

Prisoner1

Cooperate

3)Both will befree

4)P2 will befree & gets abonusP1 will hang

Cooperate Blame the otherPrisoner 2

3) Coorperating profit for 2

2) Self-interest strategy loosing allprofit

1) & 4) Win & Bonus, but only for one


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6.2 Structural criteria for intensive competition

- equal power- limitation of resources- standardization of products- estimated high profit- market saturation- high fixed cost- slow growing industry

6.3 Structural criteria for less competition

- new potential market (no clear segments)- companies with diverse goals- no clear market segments- particular diverse and asymmetric business- niche market with no competitors

6.4 competitive moves

fights cost lots of resourcesbrutal way

1. game of finesse

2. cooperative or non-threatening moves

3. threatening moves

Questions

How likely is a counter strike?

How soon are competitors ready for a counter strike

How effective are they?

How though are they?

How can I influence their counter strike?

6.5 Defensive moves

Prevent a battle

Keeping discipline


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Show no weak spots

See before things occuring


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7 Enter new markets

7.1 Strategic Alternatives of global market entry

1. Broad line global competition++ resources++ relations to governments

2. Global focus3. National focus4. Niche protected

7.2 Time to enter new markets

1. one or manya. Sprinkling strategy

b. Waterfall strategy

2. at what timea. Pioneer good market position but lot of work


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b. Follower

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8 Business Level Strategies3 phases

1940 -1969 distribution

orientation

1969 -1992 productorientation

1992 - global orientation

Corporategovernance andthe profile strategy

distribution centers centralization globalized

Product structureMarket strategy

equal to national equal to national globalized platformsregional adaptations

Product systems equal to national world wideproduction

global learningtransfer ofproduction principles

8.1 business level strategies:

1) most simply strategy EXPORT

2) simple strategyadvantages:

a. rising distributionb. servicesc. big constant productiond. big sales volume

example: SWATCH

3) multinational strategy (multi-domestic) value chain in different countries more or less independent daughters (no corporate culture)advantages:

a. adaptation to local conditions

example: UNILEVER

4) International strategy strong mother company wide standards corporate cultureadvantages:

a. local adaptation

example:

5) real global strategy value chain completely spread over all daughters


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effectiveness plays the main roleadvantages:

a. concentration on economy of scaledisadvantage:

b. no adaptation

example: future of VW, GM6) transnational strategy

advantage:a. adaptation

example: ABB

8.2 Corporate Level Strategies

(Porter)

1. Portfolio Management Marketing

2. Restruction StrategyTypical for Companies identifying other, buying them by acquisitions, findingout why they are not performing very wellTo by companies cheap, restrict and sell them for much money

3. Transfer of resources of business units generic strategy

Build companies up, give them more potential increase the value4. to provide corporate activities for different business units generic strategy

typical for real global companies

8.3 Issue

Industrial Policy:- Key player, power they have, identify them- Relationship to governments in the countries you are playing

key to success

International Company Strategies

Documents

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