STRATEGIC MANAGEMENT

WHAT IS STRATEGIC MANAGEMENT

• A process of setting long term direction for the organization• Achieving a sustainable competitive advantage

Story of two CEOs

STRATEGIC MANAGEMENT PROCESS

Strategic Analysis Strategic Development Strategic Implementation

STRATEGIC MANAGEMENT

•Strategic management is the process of strategic decision making that sets the long term direction for the organization.

•The central thrust of strategic management is achieving a sustainable competitive advantage.

•The strategy process consists of analysis, development and implementation.

STRATEGIC MANAGEMENT

Twin Forces

•Global convergence of markets•Technological revolution

(The age of global strategy)

STRATEGIC MANAGEMENT

Benefit to Firms (following global strategy)-- Can launch standardized products across markets, resulting in--

•Economies of scale (gains through volume)•Economies of scope (gains through sharing activities)

4 PHASES OF GLOBAL STRATEGY

• Single-country strategy

• Export strategy

• International strategy

• Global strategy

SINGLE-COUNTRY STRATEGY

Best strategy if•Strong competitive strength at home•Pressure for global competition in the sector is low•Limited experience abroad and weak at home —first try to improve competitive strength at home

Firms operating in a growing non-global industry like construction, primary & secondary education, and health services are better offstaying at home.

SINGLE-COUNTRY STRATEGY

Risks•Putting all eggs in one basket is risky —adverse changes in the market could ruin the firm•Risk of getting surprised by global competitors•Limited experience of managers in case firm has to move to another country

EXPORT STRATEGY

This phase is basically a domestic strategy with export strategy attached.

• Domestic strategy is most important• Strategic decision to select appropriate countries• Strategic decision regarding appropriate level of modification• Strategic decision for setting up and managing export channels

INTERNATIONAL STRATEGY

When firms establish subsidiaries outside home market, they move from domestic strategy phase to international strategy phase

• Each subsidiary is likely to have its own strategy—analyzing, developing and implementing strategy tailored

to a particular local market• Adaptation of products to suit local market is prime concern• Internationally scattered subsidiaries act as independent local companies• Wide variety of strategies and high level of adaptation to

local business environment

GLOBAL STRATEGY

A global strategy involves creating a single strategy for the entire network of subsidiaries,

encompassing many countries simultaneouslyleveraging synergies

• Most of the activities of subsidiaries are coordinated from HQ to maximize global efficiency

• Firm achieves economies of scale & scope• A difficult process with several strategic challenges• Should have the flexibility to adapt to local business environment if required

INTERNATIONAL STRATEGY & GLOBAL STRATEGY

Differences:

• Degree of involvement & coordination from the centre (centrally planned and interdependently executed strategy to exploit synergies)

• Degree of product standardization & responsiveness to local market conditions.• Degree of strategic integration & competitive moves (Global strategy plans

and executes competitive battles on a global scale whereas international strategy treats competition in each country on a stand alone basis)

GLOBAL STRATEGYGlobal strategic management is the process of crafting a coherent, coordinated, integrated and unified strategy that sets the degree to which a firm globalizes its strategic behaviors in different countries through standardization of offerings, configuration and coordination of activities in different countries, and integration ofcompetitive moves across countries.

Global Strategy

Standardization DimensionHow much a firm standardize its activities across countries?

Integration DimensionHow much a firm integrate

its competitive moves across countries?

Configuration & Coordination DimensionHow much are a firm’s activities concentrated

in a few locations and coordinated across countries standardize its activities across countries?

Three Dimensions of Corporate Globality

DRIVERS OF GLOBAL STRATEGIC PERSPECTIVE

The extent to which an MNC adopts a global strategy depends on three factors:

•Macro Globalizing Drivers (globalization & ICT)•Industry Globalizing Drivers (market drivers, cost drivers, government drivers

& competitive drivers)•Internal Globalizing Drivers (global orientation & international experience)

MACRO GLOBALIZING DRIVERS

•Globalization:a composite of three interrelated elements-creation of global economypolitical globalizationglobalization of ideas and values

•Information Communication Technology (ICT)ICT is shrinking distancesMaking information flow complete & accurateEliminating intermediariesBringing about closer integration of world economyHelps MNCs reduce uncertainties

INDUSTRY GLOBLIZING DRIVERS

Market Globalization Drivers:

•Convergence of GNP in developed world leading to convergence of wealth and income sensitive markets like cars, TVs, computers

•Convergence of customers’ tastes, perceptions and buying behaviour in some industries

•MNCs are increasingly favouring global standardization of marketing and advertising efforts

INDUSTRY GLOBLIZING DRIVERS

Cost Globalization Drivers:

•Economies or dis-economies of global scale•Global sourcing efficiencies

INDUSTRY GLOBLIZING DRIVERS

Government Globalization Drivers:

•Trade barriers & regulation- trend is towards lowering•Different standards becoming similar

INDUSTRY GLOBLIZING DRIVERS

Competitive Globalization Drivers:

•Globalized competitors drive companies to adopt a global strategy•Ability to transfer competitive advantage across different countries

INTERNAL GLOBLIZING DRIVERS

•Global orientation (We want one solution for the world rather than 54 country solutions-HP Manager)

•International experience (More experienced MNCs take advantage of comparative advantage of different countries, spot and capitalize on synergies between subsidiaries, & exploit common needs among customer segments worldwide to keep core product features intact.

STARBUCKS EXPERIENCE

Genesis- Howard Schultz, the founder

while visiting Milan got the idea from Italian expresso bars.

StarbucksBeginning as a small coffee shop in Seattle’s Pike Market, it is now an international megabrand with $9 b annual revenue and 12000 outlets

worldwide.

“Just for selling cups of consistent but richly priced cups

of coffee.”

PromotionWord of mouth, movie placements,

saturation placement of stores, minimal advertising

Competition“No Pepsi to Starbuck’s Coke”

Offering Standardized milk based drinks, drip coffee or expresso, light or

dark roasts.

“Probably coffee as a product is not that important to Starbucks.

People will go to them for 15 minutes of relaxation.”

Foray Into Europe

What strategy to adopt?

Problems

•Strong coffee culture in most of Europe with several strong local players

•Diversity of tastes all over Europe•Loyalty of customers to local café•Anti-American sentiments