Slides 8 Global Strategy(1)

8/3/2019 Slides 8 Global Strategy(1)

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Strategic Management/

Business Policy

Slides 8 Global Strategy


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Questions About Global Competition

What is an international strategy?

What is the value of global strategies?

Why are some countries more competitivethan others in global competition?

How do companies diversify internationally?

How do you organize a global company?


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FACTOR CONDITIONS

DEMANDCONDITIONS

RELATING AND

SUPPORTINGINDUSTRIES

STRATEGY, STRUCTURE,

AND RIVALRY

Porters National Diamond Framework

1. FACTOR CONDITIONSHome grownresources/capabilities more importantthannatural endowments.

2. RELATED AND SUPPORTING INDUSTRIESKey role ofindustry clusters3. DEMAND CONDITIONSDiscerning domestic customers drive quality & innovation

4. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives upgrading.


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OmahaTelemarketingHotel ReservationsCredit Card Processing

Wisconsin / Iowa / IllinoisAgricultural Equipment

DetroitAuto Equipmentand Parts

RochesterImaging Equipment

Western MassachusettsPolymers

BostonMutual FundsMedical Devices

Mgmt. ConsultingBiotechnologySoftware and

NetworkingVenture Capital

HartfordInsurance

ProvidenceJewelryMarine Equipment

New York CityFinancial ServicesAdvertisingPublishingMultimedia

Pennsylvania / New JerseyPharmaceuticals

North CarolinaHousehold FurnitureSynthetic Fibers

Hosiery

Dalton, GeorgiaCarpets

South FloridaHealth TechnologyComputers

Nashville / LouisvilleHospital Management

Baton Rouge /New OrleansSpecialty Foods

Southeast Texas /LouisianaChemicals

DallasReal EstateDevelopment

WichitaLight AircraftFarm Equipment

Los Angeles Area

Defense AerospaceEntertainment

Silicon ValleyMicroelectronicsBiotechnologyVenture Capital

Cleveland / LouisvillePaints & Coatings

PittsburghAdvanced MaterialsEnergy

West MichiganOffice and Institutional

Furniture

MichiganClocks

San DiegoGolf EquipmentBiotech/Pharma

MinneapolisCardio-vascularEquipmentand Services

Warsaw, IndianaOrthopedic Devices

ColoradoComputer Integrated Systems / ProgrammingEngineering ServicesMining / Oil and Gas Exploration

Las VegasAmusement /CasinosSmall Airlines

OregonElectrical MeasuringEquipmentWoodworking EquipmentLogging / Lumber Supplies

SeattleAircraft Equipment and DesignSoftwareCoffee Retailers

BoiseInformation TechFarm Machinery

Geographical Distribution of Clusters

Source: Adapted from Professor Michael E. Porter, Harvard Business School


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Value of Global Strategies

Gain Access to New Customers for CurrentProducts or ServicesDisneyland Tokyo, EuroDisney

Gain Access to Low-Cost Factors of

ProductionAchieving global economies of scale in theautomobile industry

Leverage Core Competencies

E.g., Honda developing and leveraging itscompetencies in producing motors formotorcycles, automobiles, snow blowers andlawn mowers.


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Value of Global StrategiesStretching to Develop New CoreCompetencies

E.g., Pepsi Restaurants trying to develop newskills in upscale casual dining.

Managing Corporate Risk

As global capital markets become moreefficient over time, the benefit provided bythis corporate strategy diminishes.


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International Business Strategy:

A Typology

Location of Production

Glo

balintegration:control

&c

ommunication

GlobalStrategy

TransnationalStrategy

InternationalStrategy

MultidomesticStrategy

High

Low

Concentrated Dispersed


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Organization and drivers of

performanceIncreasingly dispersed production means

Fewer economies of scale (cost)

But, (probably) lower transportation costs (cost)Local responsiveness (differentiation)

More locations vulnerable to war, disasters, currency collapse (risk)

But, no one unit as critical (risk)

Greater global integration of control & communication means

Higher costs of coordination (cost)

But, lower costs from learning across production sites (cost)

Less local responsiveness (differentiation)

But, more control of reputation, marketing, quality (differentiation)


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International strategyGood forfirms startingtheirinternationalexpansion(Why?)

Product is

hard tolocalize, butmarketing,etc. can be

Less learning


Globalintegration:

control

&

communication

GlobalStrategy


International

Strategy

Multidomestic

Strategy

High

Low



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Multi-domestic strategyProducts andservices tailoredto local markets

Focus oncompetition ineach market

Prominentstrategy amongEuropean firms

due to broadvariety ofcultures andmarkets inEurope

Low learningLocation of Production

Globalintegration:

control

&

communication

GlobalStrategy


International

Strategy

Multidomestic

Strategy

High

Low



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Global StrategyProductsstandardizedacross markets

Economies ofscale

Not responsiveto local markets

Requiresresource sharingandcoordinationacross borders


Globalintegration:

control

&

communication

GlobalStrategy


International

Strategy

Multidomestic

Strategy

High

Low



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Transnational StrategyGlobal efficiencyandlocalresponsiveness

Difficult toachieve:

Strong centralcontrol andcoordination toachieveefficiency and

local flexibilityDecentralizationto achieve localmarketresponsiveness.


Globalintegration:

control

&

communication

GlobalStrategy


International

Strategy

Multidomestic

Strategy

High

Low



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Entering foreign marketsHow should a firm sell its goods into a foreignmarket?

All the normally challenges of cooperation,plus

Language/social/legal differences

Preference for local goodsCommunications costs and delays

Trade barriers

Foreign currency

Transportation costs


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A spectrum of entry modes


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How Should We Enter A Foreign Country?

Entry Mode Advantages Disadvantages

Exporting High Experience &Location Economies

Transport Costs Trade Barriers Agency

Licensing Low entry costs Low control

Low learning Low coordination

Franchising Low entry costs Low control Low coordination

Joint Ventures Sharing of costs &knowledge

Political Risk Low control Diffusion of knowledge

Wholly OwnedSubsidiaries

High Learning Protection of Tech. High coordination

High costs & risks


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Cooperative StrategiesStrategic alliances arepartnerships between firmswhereby their resources,capabilities, and core competenciesare combined to pursue mutual

interests in designing,manufacturing, or distributinggoods or services.


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Types of Corporate-Level Strategic Alliances

Diversifying Alliancese.g., Samsung Group joins with Nissan tobuild new automobiles

Synergistic Alliancese.g., Sony shares development with many

small firmsFranchising

e.g., McDonalds or Century 21


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Cooperative StrategiesFranchising is an alternative to

diversification that is considereda cooperative strategy based ona contractual relationship.


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A national presence can be developed more quickly andwith a smaller investment on the part of the franchisor.

Qualifications for franchise ownership can be set andenforced.

Money is obtained when goods are delivered rather thanwhen they are sold.

Agreements can be drawn up that require franchisees toabide by stringent regulations set by the franchisor.

Because franchisees are owners and not employees,they have a greater incentive to work hard.

After a franchisee has paid for the franchise, thefranchisor also receives royalties or sells products to the

individual proprietor.

Franchisor Pros

Pros & Cons of Franchising


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Individual franchisees can ruin the overall image andreputation of the franchise if they do not maintaincompany standards.

Lack of uniformity adversely affects customer loyalty

Intrafranchise competition is not desirable.The resale value of individual units is injured iffranchisees perform poorly.

An ineffective franchise unit directly injures the

franchisors profitability from the sales of services,materials, or products to franchisees, or from royaltyfees.

Franchisees, in greater numbers, are seeking

independence form franchiser rules and regulations.

Franchisor Cons



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An individual businessperson can own and operate a retailenterprise with a relatively small capital investment.

Franchisee acquires a well-known name and goods orservice line.

Standard operating procedures and management skillsare taught to the franchisee.

A cooperative marketing program is usually employed(e.g, national advertising) that could not otherwise be

afforded.The franchisee obtains exclusive selling rights for aspecified geographical territory.

Purchases may be made more cheaply because of

volume.

Franchisee Pros


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Oversaturation may occur if too many franchisees arelocated in one geographic area.

Because overzealous selling of franchises, the franchisormight sell to underfunded or incompetent buyers.

A franchisee may be locked into a contract purchasingprovision requiring purchases through the franchisor orapproved vendors

Cancellation provisions may give the franchisor the right to

cancel a franchise if any provison of the franchiseagreement is not met

Franchise agreements may be of short duration.

Royalties often are a percentage of gross sales, regardless

of the franchisees profits.

Franchisee Cons



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Cooperative StrategiesAnetwork strategy is the

alliance-related actions taken bya group of interrelated andcomparable firms to serve the

common interests of allpartners.

Slides 8 Global Strategy(1)

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