Chapter 11 Global Strategy 11 3 Global Strategy
Chapter 11 • Global • Strategy
11 - 3 Global Strategy • Strategy: Mission-Business Strategy. Operating Strategy - General purpose: maximize/make profit • Economies of Scope -Differentiate products, increase price: add value, features, quality, service • Economies of Scale -Achieve low cost - Key means: allocation of scarce resources to attain goals Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 4 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)policies/programs • human resources • research and development Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 5 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 6 Global Expansion Benefits • • • Earn greater return from distinctive skills, core competences - Inimitable or difficult to imitate skills (ownership advantages) 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 Unit costs Experience curve B A Accumulated output Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 7 Pressures for Global Integration & Local Responsiveness High Cost Reduction (Global Integration) Pressures Low Local Responsiveness Pressures Mc. Graw-Hill/Irwin Global Business Today, 4/e Ball bearings, wheat Cosmetics, food, household goods High Differences in - consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs/requirements © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 8 Strategic Choice High Cost Reduction (Global Integration) Pressures “Global” Strategy “Transnational” Strategy “International” Strategy “Multidomestic” Strategy Low Mc. Graw-Hill/Irwin Global Business Today, 4/e Local Responsiveness Pressures High © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 9 Multidomestic MNC HK UK Chile Sweden India Japan Mexico Decentralized Federation - Many key assets, responsibilities and decisions localized Personal Control - Informal HQ-Sub relationship, simple financial controls Multidomestic Mentality - Management sees overseas operations as portfolio of independent businesses From: Bartlett and Ghoshal, Managing across borders, 1989 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 10 International MNC HK UK Chile USA India Japan Mexico Coordinated Federation - Key assets, responsibilities decisions localized Administrative Control - Centralized HQ control, formal planning and control, tight HQ-Sub linkage International Mentality - Management sees overseas operations as appendages to a domestic operation From: Bartlett and Ghoshal, Managing across borders, 1989 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 11 Global MNC HK Chile UK Japan India USA Mexico Centralized Hub - Most strategic assets, resources, responsibilities and decisions centralized Operational Control - Tight HQ control of decisions, resources, information Global Mentality - Management sees overseas operations as delivery pipelines to a unified global market From: Bartlett and Ghoshal, Managing across borders, 1989 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 12 Transnational MNC HK Chile UK USA Japan India Mexico Networked Organization - Distributed, specialized resources and capabilities Interdependent Units - large flows of components, products, resources, people, and information Transnational Mentality - Complex process of coordination and cooperation in an environment of shared decision making From: Bartlett and Ghoshal, Managing across borders, 1989 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 13 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 14 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 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 15 Making alliances work Which 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 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 16 Making alliances work What 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 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
11 - 17 Making alliances work How to manage? • Show sensitivity to cultural differences that explain different managerial styles • Build trust - Set up framework formal and informal face-toface 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 Mc. Graw-Hill/Irwin Global Business Today, 4/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.
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