Chapter 4 Strategic Management in the Multinational Company

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Chapter 4 Strategic Management in the Multinational Company: Content and Formulation Copyright© 2004 Thomson

Chapter 4 Strategic Management in the Multinational Company: Content and Formulation Copyright© 2004 Thomson Learning All rights

Learning Objectives • Define differentiation and low cost • Understand how low-cost and differentiation

Learning Objectives • Define differentiation and low cost • Understand how low-cost and differentiation strategists make money • Recall multinational examples of use of generic strategies • Understand competitive advantage and value chain • Understand offensive and defensive strategies Copyright© 2005 South-Western/Thomson Learning All rights

Learning Objectives • Understand basics of multinational diversification • Understand how traditional strategy formulation

Learning Objectives • Understand basics of multinational diversification • Understand how traditional strategy formulation techniques apply to the multinational company • Realize both the convergence and divergence in strategies Copyright© 2005 South-Western/Thomson Learning All rights

Basic Strategy for the Multinational Company • Multinational companies use many of the same

Basic Strategy for the Multinational Company • Multinational companies use many of the same strategies as domestic companies Copyright© 2005 South-Western/Thomson Learning All rights

Competitive Advantage and Multinational Applications of Generic Strategies • Generic strategies: basic ways to

Competitive Advantage and Multinational Applications of Generic Strategies • Generic strategies: basic ways to achieve and sustain competitive advantage • Competitive advantage: when a company can outmatch its rivals in attracting and maintaining its targeted customers Copyright© 2005 South-Western/Thomson Learning All rights

Competitive Advantage and Multinational Applications of Generic Strategies (cont. ) • Differentiation strategy: providing

Competitive Advantage and Multinational Applications of Generic Strategies (cont. ) • Differentiation strategy: providing superior value to customers • Ex. : BMW competing in the world market by providing high-quality and performance sports cars • Low-cost strategy: producing at a lower cost than competitors • Ex. : Korean semiconductor firms Copyright© 2005 South-Western/Thomson Learning All rights

How Do Low-Cost and Differentiation Firms Make Money? • Differentiation • Customers often pay

How Do Low-Cost and Differentiation Firms Make Money? • Differentiation • Customers often pay a higher price for extra value • Low-cost • Additional profits come from cost savings Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 1: Costs, Prices, and Profits for Differentiation and Low. Cost Strategies Copyright©

Exhibit 4. 1: Costs, Prices, and Profits for Differentiation and Low. Cost Strategies Copyright© 2005 South-Western/Thomson Learning All rights

Focus Strategy • Strategies can be further subdivided on the basis of competitive scope

Focus Strategy • Strategies can be further subdivided on the basis of competitive scope • Competitive scope: how broadly a firm targets its products or services • Narrow competitive scope for certain buyers or geographic areas • Broad competitive scope when a large range of buyers are targeted Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 2: Porter’s Generic Strategies Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 2: Porter’s Generic Strategies Copyright© 2005 South-Western/Thomson Learning All rights

Competitive Advantage and the Value Chain • A firm can gain competitive advantage by

Competitive Advantage and the Value Chain • A firm can gain competitive advantage by finding differentiation or low costs in its activities • Value chain is a convenient way of looking at the firm’s activities • Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 3: The Value Chain Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 3: The Value Chain Copyright© 2005 South-Western/Thomson Learning All rights

Components of the Value Chain • Primary activities: physical actions of creating, selling, and

Components of the Value Chain • Primary activities: physical actions of creating, selling, and after-sale service of products • Upstream: early activities in the value chain • R&D • Dealing with suppliers Copyright© 2005 South-Western/Thomson Learning All rights

Components of the Value Chain (cont. ) • Downstream: later value chain activities •

Components of the Value Chain (cont. ) • Downstream: later value chain activities • Sales and dealing with distribution channels • Support activities: systems for human resources management, organizational design and control, and technology Copyright© 2005 South-Western/Thomson Learning All rights

Distinctive Competencies • Strengths that allow companies to outperform rivals • Ex. : Quality,

Distinctive Competencies • Strengths that allow companies to outperform rivals • Ex. : Quality, innovation, customer service • Resources: inputs into the production or service processes • Ex. : Buildings, land, equipment, employees Copyright© 2005 South-Western/Thomson Learning All rights

Distinctive Competencies • Capabilities: ability to assemble and coordinate resources effectively • Resources provide

Distinctive Competencies • Capabilities: ability to assemble and coordinate resources effectively • Resources provide the organization with potential capabilities. • For long-term success, capabilities must lead to sustainable competitive advantage. Copyright© 2005 South-Western/Thomson Learning All rights

Sustaining Competitive Advantage • Sustainable: strategies not easily defeated by competitors • Four characteristics

Sustaining Competitive Advantage • Sustainable: strategies not easily defeated by competitors • Four characteristics of capabilities that lead to competitive advantage • Valuable • Rare • Difficult to imitate • Non-substitutable Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 4: Relationships Among Resources, Capabilities, Distinctive Competencies, and Eventual Profitability Copyright© 2005

Exhibit 4. 4: Relationships Among Resources, Capabilities, Distinctive Competencies, and Eventual Profitability Copyright© 2005 South-Western/Thomson Learning All rights

Competitive Strategies in International Markets • Competitive strategies: strategic moves multinationals use to defeat

Competitive Strategies in International Markets • Competitive strategies: strategic moves multinationals use to defeat competitors • Offensive competitive strategies: direct attacks to capture market share • Defensive competitive strategies: attempts to discourage offensive strategies • Counter-parry: fending off a competitor’s attack in one country by attacking in another country Copyright© 2005 South-Western/Thomson Learning All rights

Offensive Strategies • Direct attacks: price cutting, adding new features, or going after poorly

Offensive Strategies • Direct attacks: price cutting, adding new features, or going after poorly served markets • End-run offensives: seeking unoccupied markets • Preemptive competitive strategies: being first to obtain particular advantageous position • Acquisitions: buying out a competitor Copyright© 2005 South-Western/Thomson Learning All rights

Defensive Strategies • Attempts to reduce risks of being attacked • Convince an attacking

Defensive Strategies • Attempts to reduce risks of being attacked • Convince an attacking firm to seek other targets • Blunt the impacts of any attack • Exclusive contracts with best suppliers • New models to match competitor’s lower prices • Public announcements about the willingness to fight Copyright© 2005 South-Western/Thomson Learning All rights

Counter-parry • Popular strategy for multinationals • Respond to attack by attacking competitor in

Counter-parry • Popular strategy for multinationals • Respond to attack by attacking competitor in another country • Ex. : Kodak—When Fuji attacked Kodak in the U. S. , Kodak retaliated by attacking Fuji in Japan. • Goodyear also attacked Michelin in Europe as response to attack in U. S. Copyright© 2005 South-Western/Thomson Learning All rights

Multinational Diversification Strategy • Business-level strategies: strategies for a single business operation • Corporate-level

Multinational Diversification Strategy • Business-level strategies: strategies for a single business operation • Corporate-level strategies: how companies choose their mixture of different businesses Copyright© 2005 South-Western/Thomson Learning All rights

Diversification • Related diversification: companies acquire businesses that are similar in some way to

Diversification • Related diversification: companies acquire businesses that are similar in some way to their original or core business • Ex. : Nike adding clothing line to its shoe operations • Unrelated diversification: firms acquire businesses in any industry • Main concern is whether it’s a good financial investment Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 5: Selection of Global Fortune 500 Diversified Multinationals Copyright© 2005 South-Western/Thomson Learning

Exhibit 4. 5: Selection of Global Fortune 500 Diversified Multinationals Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 5: Selection of Global Fortune 500 Diversified Multinationals Copyright© 2005 South-Western/Thomson Learning

Exhibit 4. 5: Selection of Global Fortune 500 Diversified Multinationals Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 5: Selection of Global Fortune 500 Diversified Multinationals Copyright© 2005 South-Western/Thomson Learning

Exhibit 4. 5: Selection of Global Fortune 500 Diversified Multinationals Copyright© 2005 South-Western/Thomson Learning All rights

Strategy Formulation: Traditional Approaches • Strategy formulation: process by which managers select the strategies

Strategy Formulation: Traditional Approaches • Strategy formulation: process by which managers select the strategies to be used by their company • Analyses Copyright© 2005 South-Western/Thomson Learning All rights

Strategy Formulation: Traditional Approaches (cont. ) • Popular analysis techniques • Competitive dynamics of

Strategy Formulation: Traditional Approaches (cont. ) • Popular analysis techniques • Competitive dynamics of the industry • Company’s competitive position in the industry • Opportunities and threats faced by their company • Company’s strengths and weaknesses Copyright© 2005 South-Western/Thomson Learning All rights

Industry and Competitive Analysis • Managers must understand their industry well to formulate good

Industry and Competitive Analysis • Managers must understand their industry well to formulate good strategies. • Must understand economic characteristics of industries and driving forces • Economic characteristics include • Market size • Ease of entry • Opportunities for economies of scale Copyright© 2005 South-Western/Thomson Learning All rights

Driving Forces • The important changes that have potential to affect an industry •

Driving Forces • The important changes that have potential to affect an industry • Speed of new product innovations • Technological changes • Changing societal attitudes and lifestyles Copyright© 2005 South-Western/Thomson Learning All rights

Key Success Factors • Important characteristics of a company or its product that lead

Key Success Factors • Important characteristics of a company or its product that lead to success in an industry • Innovative technology or products • Broad product line • Effective distribution channels • Price advantages • Effective promotion • Superior physical facilities or skilled labor Copyright© 2005 South-Western/Thomson Learning All rights

Key Success Factors • • Experience of firm in business Cost position for raw

Key Success Factors • • Experience of firm in business Cost position for raw materials Cost position for production R&D quality Financial assets Product quality Quality of human resources Copyright© 2005 South-Western/Thomson Learning All rights

Competitor Analysis • Profiles of competitor’s strategies and objectives • Four steps • Strategic

Competitor Analysis • Profiles of competitor’s strategies and objectives • Four steps • Strategic intent • Current and anticipated generic strategies • Current and anticipated offensive and defensive competitive strategies • Current positions Copyright© 2005 South-Western/Thomson Learning All rights

Competitor Analysis (cont. ) • Strategic intent • Broad objectives of competitors • Current

Competitor Analysis (cont. ) • Strategic intent • Broad objectives of competitors • Current and anticipated generic strategies • Helps determine key KSF • Current and anticipated offensive and defensive competitive strategies • Current positions Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 6: Hypothetical Competitive Profiles of Four Companies in Different Countries Copyright© 2005

Exhibit 4. 6: Hypothetical Competitive Profiles of Four Companies in Different Countries Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 6: Hypothetical Competitive Profiles of Four Companies in Different Countries Copyright© 2005

Exhibit 4. 6: Hypothetical Competitive Profiles of Four Companies in Different Countries Copyright© 2005 South-Western/Thomson Learning All rights

Company-Situation Analysis: SWOT • Strengths: distinctive capability, resource or skill • Weaknesses: competitive disadvantage

Company-Situation Analysis: SWOT • Strengths: distinctive capability, resource or skill • Weaknesses: competitive disadvantage compared to competitors • Opportunities: favorable conditions in the environment • Threats: unfavorable conditions in the environment Copyright© 2005 South-Western/Thomson Learning All rights

SWOT Analysis • More complex than for domestic firms • Multinationals face more complex

SWOT Analysis • More complex than for domestic firms • Multinationals face more complex general and operating environments • Environments vary by country Copyright© 2005 South-Western/Thomson Learning All rights

Corporate Strategy Selection • Diversified corporation has a portfolio of businesses • Major issue

Corporate Strategy Selection • Diversified corporation has a portfolio of businesses • Major issue is which businesses to invest in and which businesses to divest • The basic tool: matrix analyses • The most popular is the growth-share matrix of the Boston Consulting Group (BCG). Copyright© 2005 South-Western/Thomson Learning All rights

BCG Share Matrix • Division into four categories based on market share and relative

BCG Share Matrix • Division into four categories based on market share and relative market share • Stars: the most successful firm • Dogs: businesses with low market shares in low-growth industries • Cash cows: businesses in slow-growth industries where company has strong market-share position • Problem children: businesses in highgrowth industries where company has a Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 7: The BCG Growth Share Matrix Copyright© 2005 South-Western/Thomson Learning All rights

Exhibit 4. 7: The BCG Growth Share Matrix Copyright© 2005 South-Western/Thomson Learning All rights

Matrices • All matrices help answer basic strategy formulation question such as • Are

Matrices • All matrices help answer basic strategy formulation question such as • Are businesses in attractive industries? • Are most businesses growing? • Are there sufficient cash cows to finance other businesses? • Is business portfolio well positioned for the future? • Is the some strategic synergies among Copyright© 2005 South-Western/Thomson Learning All rights