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Introduction to Strategy;

Global Strategic Management;

Peculiarities

Components

Purpose

Value Creation;

Strategic Levels

Strategic Choices

Global Strategic Management process;


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What Is Strategy?

Strategy is a plan of action that channels anorganizations resources so that it caneffectively differentiate itself from competitorsand accomplish unique and viable goals.

Managers develop strategies based on theorganizations strengths and weaknessesrelative to the competition and assessingopportunities.

Managers decide which customers to target,what product lines to offer, and with whichfirms to compete.


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Concerned with deciding on strategy and planning how

that strategy is put into effect.

According to J. Paul Peter, Strategic management is a

continuous, iterative cross functional process aimed at

keeping an organization as a whole appropriately matched

to its environment.


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Strategy: actions that managers must take to attainthe goals of the firm

Main goal usually to maximize long-term profit (),

(EPS) Profitability defined by return on sales or return on

equity

Think strategic, not operational - this is what makes

a great CEO


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Strategy in an international context is a plan forthe organization to position itself vis-a-vis itscompetitors, and resolve how it wants to configureits value chain activities on a global scale.

Its purpose is to help managers create aninternational vision, allocate resources, participatein major international markets, be competitive,and perhaps reconfigure its value chain activitiesgiven the new international opportunities.


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Strategic management of a global company is distinctfrom that of domestic company due to its peculiarities.


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Flow of goods and/or services across the countries

Analysis of global environment

Integrated strategic management

Impact of present decision on the future Action oriented

Continuous and dynamic management

Integrated operations Other differences


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Distinctivecompetence

Scope ofoperations

Resourcedeployment

Synergy


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Distinctive Competence

Answers the question

What do we do exceptionally well, especially as

compared to our competitors?

Represents important resource to the firm


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Where are we going to conduct business?

May be defined by

Geographical region

Market or product niches within regions

Specialized market niches


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Given that we are going to compete in these markets,

how will we allocate our resources to them?

May be specified by

Product lines

Geographical lines


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How can different elements of our business benefit

each other?

Goal is to create a situation where the whole is

greater than the sum of the parts


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Bartlett and Ghoshal argue that managers shouldlook to develop, at one and the same time,global scale in efficiency, multinational flexibility,

and the ability to develop innovations and leverageknowledge on a worldwidebasis.

These three strategic objectives efficiency,flexibility, and learning must be sought

simultaneously by the firm that aspires to becomea globally competitive enterprise.


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In the final analysis, international businesssuccess is largely determined by the degree towhich the firm achieves the goals of efficiency,

flexibility, and learning. But it is often difficult to excel in all three areas

simultaneously. Rather, one firm may excel atefficiency, while another may excel at flexibility,

and a third at learning.

Sustainability over time is also a challenge.


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The difference between thevalue of the product tothe customers and the cost of producing thatproduct is referred to as Value Creation

Profit determined by : The amount of value customers place on firms goods or

services (V) Firms cost of production (C)

Consumer surplus occurs when price charged by afirm on a good or service is less than value placedon it by a customer

Firm creates profit by increasing value or loweringcost


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Realized by performing a value creation activity in an optimal location anywherearound the globe

Often arise due to differences in factor costs

It can lower costs of value to enable low cost strategy and/or

Help in differentiation of products from competitors

Global web: different stages of value chain are dispersed to those locations whereperceived value is maximized or costs of value creation are minimized


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Parts

PartsParts

Assembly

Advertising Design

Sales

Creating a Global Web


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The systematic reduction in production costs thatoccurs over the life of a product

First observed in aircraft industry where unit costs reduced by80% each time output was doubled

Caused due to

Learning effects

Economies of scale


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Cost savings that come from learning by doing

Arises due to increased worker productivity and

management efficiency

Significant in cases of technologically complex task asthere is a lot to be learned

Experienced during start-up phase, cease after two orthree years


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Refers to reduction in unit cost byproducing a large volume of a product

Reduces fixed costs by spreading itover a large volume

Ability of large firms to employ

increasingly specialized equipmentor personnel

Sources:


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The firm that moves down the experience curve mostrapidly has a cost advantage over its competitors


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Where does value come from-

Any firm is composed of a series of distinct value creating activities

Primaryactivities

Research & development Production

Marketing & sales

Service

SupportActivities

Materials management or logistics Human resource

Information systems, (this includes you accts)

Company infrastructure


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Language

Culture

Politics Economy

Governmental

interference Labor

Labor relations

Financing

Market research

Advertising Money

Transportation/

communication Control

Contracts


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Corporate Strategy

Business Strategy

Functional Strategy


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Single-Business Strategy

Related Diversification

Unrelated Diversification


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Differentiation

Overall Cost Leadership

Focus


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Financial

Marketing

Operations

Human Resource

R&D


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Try to come back in 6 min


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Four basic strategies to enter and compete in theinternational environment:

International strategy

Multi domestic strategy

Global strategy

Transnational strategy


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Intense in industries of standardized, commoditytype product that serve universal needs

Major competitors are based in low-costlocations

Consumers are powerful and face low switchingcosts

Liberalization of world trade and investment

environment ExamplesBulk chemicals, petroleum, steel, personal computers


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Differences in consumer tastes & preferences North American families like pickup trucks while in

Europe it is viewed as a utility vehicle for firms

Differences in infrastructure & traditional practices

Consumer electrical system in North America is based on110 volts; in India on 240 volts

Differences in distribution channels Germany has few retailers dominating the food market,

while in Italy it is fragmented

Host-Government demands Health care system differences between countries require

pharmaceutical firms to change operating procedures


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The firmviews international business as separate from, andsecondary to, its domestic business. Such a firm may viewinternational business as an opportunity to generate incrementalsales for domestic product lines.

Products are designed with domestic customers in mind, andinternational business is sought as a way of extending the productlifecycle and replicating its home market success.

The firm expects little knowledge flows from foreign operations.


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Headquarters delegates considerable autonomy to each country managerallowing him/her to operate independently and pursue localresponsiveness.

With this strategy, managers recognize and emphasize differences amongnational markets. As a result, the internationalizing company allowssubsidiaries to vary product and management practices by country.

Country managers tend to be highly independent entrepreneurs, oftennationals of the host country. They function independently and have little

incentive to share knowledge and experiences with managers elsewhere.

Products and services are carefully adapted to suit the unique needs ofeach country.


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With global strategy,the headquarters seeks substantial control overits country operations in an effort to minimize redundancy, andachieve maximum efficiency, learning, and integration worldwide.

In the extreme case, global strategy asks why not make the samething, the same way, everywhere? It favors greater centralcoordination and control than multi-domestic strategy, with variousproduct or business managers having worldwide responsibility.

Activities such as R&D and manufacturing are centralized atheadquarters, and management tends to view the world as one largemarketplace.


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A coordinated approach to internationalization in which the firmstrives to be more responsive to local needs while retaining sufficientcentral control of operations to ensure efficiency and learning.

Transnational strategy combines the major advantages of multi-domestic andglobal strategies, while minimizing their disadvantages.

Transnational strategy implies a flexible approach: standardize wherefeasible; adapt where appropriate.


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Some 90% of the product line is identical across more than twodozen countries. IKEA does modify some of its furnitureofferings to suit tastes in individual countries.

IKEAs overall marketing plan is centrally developed atcompany headquarters in response to convergence of productexpectations; but the plan is implemented with localadjustments.

IKEA decentralizes some of its decision-making, such aslanguage to use in advertising, to local stores.


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Most firms find it difficult to implement transnational strategy.

In the long run, almost all firms find that they need to include someelements of localized decision-making because each country hasidiosyncratic characteristics. Few people in Japan want to buy acomputer that includes an English-language keyboard.

While Dell can apply a mostly global strategy to Japan, it mustincorporate some multi-domestic elements as well. Even Coca-Cola,varies its ingredients slightly in different markets. While consumersin the U.S. prefer a sweeter Coca-Cola, the Chinese want less sugar.


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Organizational structure refers to the reporting relationshipsinside the firm the boxes and lines that specify the linkagesamong people, functions, and processes that allow the firm tocarry out its operations.

In the larger, more experienced MNE, these linkages are extensiveand include the firm's subsidiaries, affiliates, suppliers, and otherpartners.

A fundamental issue is how much decision-making responsibilitythe firm should retain at headquarters and how much it shoulddelegate to foreign subsidiaries and affiliates. This is the choicebetween centralization and decentralization.


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AH

B

C

D

E

F

SD

BD

CD

RD

Subsidiary Level NetworkS

: SuppliersR

: Regulatory institutionsB: Buyers C: Customers S

EBE

CE RE

SB

BB

CB

RB

SA BA

CA RA

SF BF

CF

RF

SC

BC

CC

RC

A: Home plantH: HeadquartersB F: Subsidiaries


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Analysis of existing Missions and goals

Organizational Analysis of a global business firm

Analysis of international Environment

Formulation of Alternative Corporate level strategies

Formulation of Alternative Business unit level strategies

Selection of best among the Alternative Strategies

Strategic Implementation

Strategy Evaluation and Control


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Company finds that thecurrent mission and

goals would beredundant when itsignificantly addsproduct and\or services

and\country portfoliosto the existing portfolio.


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Team or individual based Flat or tall

Organizational

Customers

4 PsMarketing

Sources of material Plant location

Production

Sources of Finance EPSFinance

Sourcing of Manpower Cost and culture of employees

HumanResource


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Govt. Controls Opportunities

Political-legalFactor

Various rates Per capita income

Economic Factors

Technological advancementTechnological

Factors

Values, traditions & patterns of behaviorSocial Factors


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Stability

Growth

Retrenchment

Combination


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The firm has noforeign manufacturingexpertise and requiresinvestment only indistribution.

Export

Whats the best solution?Situation Optimal Solution


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The firm needs tofacilitate the productimprovementsnecessary to enterforeign markets.

Licensing



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The firm needs toconnect with anexperienced partneralready in the targetedmarket.

Strategic Alliance



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The firm needs toreduce its risk throughthe sharing of costs.

Strategic Alliance



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The firm is facinguncertain situationssuch as an emergingeconomy in itstargeted market.

Strategic Alliance



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The firms intellectualproperty rights in anemerging economy arenot well protected, thenumber of firms in the

industry is growingfast, and the need forglobal integration ishigh.

Wholly-owned

Subsidiary



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Cost ofproduction Cost of marketing

Low costleadership

strategy

Small market Specific market

Focus or NicheStrategy

Product policies Price policies

DifferentiationStrategy


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Boston Consultancy Group matrix the strategy with high industry growth rate and high relative market

share is best

General electric nine cell matrix the strategy with long term industry attractiveness and high business

strength is best

Directional Policy Matrix. the strategy with high business sector prospects and high competitiveability of the company is best


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Partner Selection

Organizational structure

Behavioral implementation

Marketing implementation

Financial implementation

Production implementation

Human Resource implementation


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Establish the standards of strategic managementprocess

Measure the performance of the process at

every stage

Compare the performance with the strategy

Observe the deviation

Take corrective steps

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