COURSE GLOBAL BUSINESS MANAGEMENT MGT 610 DR DIMITRIS

COURSE: GLOBAL BUSINESS MANAGEMENT MGT 610 DR. DIMITRIS STAVROULAKIS PROFESSOR OF HUMAN RESOURCE MANAGEMENT DEPT OF ACCOUNTING TEI OF PIRAEUS

Unit 3: MNC Strategy Training Material: - Textbook: pp 175 -180. -Video: “Facebook’s Competitive Advantage” (3. 24 min).

Business Strategy

What is Strategy? v Greek origin, strategos: stratos = army, agos = leader Strategy as “the basic characteristics of the match an organization achieves with its of Strategy as “the basic characteristics environment. ” (Hofer & Schendel, 1978, with the match an organization achieves Strategy formulation: (Hofer Analytical concepts; its environment” & Schendel, the field’s first textbook) 1978, Strategy Formulation: Analytical Concepts; the field’s first textbook). Strategyis is“thegreatworkof ofthe organization. In situations of lifeor or death, it is the Tao of survival or extinction. Itsstudycannotbe be neglected. ” (Sun Tzu, approx. neglected. ” Sun Tzu (400 -300 500 b. c. )BC) “Everyone ‘till they “Everyonehas hasaaplan strategy untilget you get punched in the mouth. ” (Mike Tyson) punched in the mouth” (Mike Tyson). Strategyas as“plan, pattern, position, perspective, and ploy. ” (Henry perspective, and ploy” (Henry Mintzberg, P’s for Strategy) 1987, Five 1987, P’s for. Five Strategy). Strategy as a “pattern of objectives, purposes, or goals, andasmajor policies and plans for achieving Strategy a “pattern of objectives, purposes, or those stated in suchand a way as for to define what goals, and major policies plans achieving business the company is in or is toas betoindefine and the those goals, stated in such a way what kind of company it is or is is in to or be. ” (Kenneth business the company is to be in and the Andrews, 1971, The concept corporate strategy) kind of company it is or is toof be” (Kenneth Andrews, 1971, The Concept of Corporate Strategy).

Strategy preconditions u Strategy has been defined as “the match an organization achieves between è its internal resources and skills […] and è the opportunities and risks created by its external environment. ” “Know yourself, know your opponents; encounter a hundred battles, win a hundred victories !” Sun Tzu, “The Art of War”, approx. 500 BC Source: Hofer, C. W. & Schendel, D. (1978). “Strategy formulation: Analytic concepts”, St. Paul, MN: West: 12.

Winning Strategy Template o Is strategy compatible with the company mission statement? o Does the strategy fit the company’s external environment ? o Is strategy feasible and within the potential of company resources ? Is it compatible to personnel values? o Does strategy lead to sustainable competitive advantage? o Will the company strategy beat the market ? o Does strategy boost company performance? o Does strategy put the company ahead of trends? o Does the company strategy embrace uncertainty? o Has risk & competition been assessed ? o Is strategy compatible with the life-cycle of company products ?

Competitive Advantage (CA) Ø The set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. Ø An advantage over competitors is gained by offering consumers greater value than competitors. Ø When two or more firms compete within the same market, one firms possesses a CA over its rivals when it earns a persistently higher rate of profit (or has the potential to earn a persistently higher rate of profit) (Grant, 2000). Ø Can be achieved either by exploiting resources and developing competencies, or by exploiting opportunities at the external environment (internal or external strategy).

Competitive Advantage (CA) (cont) Ø CA has to be recognizable and to be translated to customer value (e. g. lower pricing due to exceptional contract with key suppliers). Advantages that do not add to customer value are not going to last (e. g. unexploited qualified personnel, as in the Greek public sector). National CA (abundance of Greek scientists/professionals). Ø Sustaining CA requires erecting barriers against the competition. “A good strategist seeks not only to ‘win the hill’, but hold on to it. ” (S. Jain). Ø In order to be sustainable, CA has to be embedded in the firm over time in the form of culture, expertise, resources etc. CA has to be durable against competitors’ attacks, as well as against environmental changes. Ø It may be achieved either through cost leadership (Greece), or through differentiation, or focus on a particular segment of the market.

Sources of Competitive Advantage COMPETITIVE ADVANTAGE COST ADVANTAGE ct u d ro p r st la o i c m r Si we o l at fro m Pri ce un pre iqu mi um ep rod uc t DIFFERENTIATION ADVANTAGE

Features of Cost Leadership and Differentiation Strategies Generic strategy COST LEADERSHIP DIFFERENTIATION Key strategy elements Resource & organizational requirements Scale-efficient plants. Access to capital. Process Design for manufacture. engineering skills. Frequent Control of overheads & reports. Tight cost control. R&D. Avoidance of Specialization of jobs and marginal customer functions. Incentives for accounts. quantitative targets. Emphasis on branding Marketing. Product and brand advertising, engineering. Creativity. design, service, and Product R&D, Innovation, KM. quality. Human resources and incentives. Strong cross-functional coordination.

Porter’s generic strategies v Cost leadership: Lower cost producer. Use of technology, reduction of distribution cost, government assistance, reduction of labor costs, economies of scale, global approach to the market (Easy. Jet, Samsung, Wal. Mart). v Differentiation: Takes advantage of unique features (brand name, technical excellence, quality, packaging). Possibilities for creating new product lines for different market segments (Toyota Lexus Camry). Identification of strategic customers and competitors. Achievement of hard loyalty. Control of costs ! (Savoy Hotel, London: 3 employees per guest, guests may call a waiter, maid, or valet any moment by pressing a button – less than 1% annual profit in 2009). Friday’s (personal waiter, called by first name). v Focus: on specific market segments (IKEA, Porsche, Godiva). Possibly differentiate later on through vertical integration (Gucci, Germanos, Babyland etc). Combination of cost & differentiation strategies: e. g. in the clothing industry (Benetton, Diesel, Zara etc). Porter : Danger of being caught in the middle (average prices & nothing exceptional).

Cost Leadership Strategy An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers. Preconditions: ü Relatively standardized products ü Features acceptable to many customers ü Lowest competitive price Cost saving actions required by this strategy: v Tightly controlling production costs and overheads v Minimizing costs of sales, R&D and service v Building efficient scale & manufacturing facilities v Monitoring costs of services provided by subcontractors v Simplifying production processes

Cost Leadership Strategy Competitive Risks: Processes used to produce and distribute good or service may become obsolete due to competitors’ innovations Focus on cost reductions may occur at expense of customers’ perceptions of quality and differentiation Competitors, using their own core competencies, may successfully imitate the cost leader’s strategy

Differentiation Strategy An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them. Features: Non-standardized products Customers value differentiated features more than they value low cost Cornerstones: Ø Quality Ø R&D and innovation Ø Fit to customers’ needs and demands Ø Cost proximity. Differentiation does not mean indifference to costs, instead costs ought to remain near competition Differentiation may concern both tangible and imaginary, intangible features of a product (image, status & value for money).

Competitive Risks of Differentiation The price differential between the differentiator’s product and the cost leader’s product becomes too large Differentiation ceases to provide enough value for which customers are willing to pay Experienced customers scrutinize the value of differentiated features Counterfeit goods replicate differentiated features of the firm’s products

Focus Strategies An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment. Preconditions: Particular buyer groups (e. g. youths or senior citizens) Different segments of a product line (e. g. conventional customers versus do- it-yourselfers - IKEA) Different geographic markets Types of focused strategies: Ø Focused cost leadership strategy Ø Focused differentiation strategy

Competitive Risks of Focus Strategies A focusing firm may be “outfocused” by its competitors A large competitor may set its sights on a firm’s niche market Customer preferences in a niche market may shift to the broader market Can involve compromises: Becoming neither the lowest cost nor the most differentiated firm Becoming “stuck in the middle”: Lacking the strong commitment and expertise of firms following either a cost leadership or a differentiated strategy

Economies of scale: Obtained through mass production and negotiations of costs with suppliers. Economies of scope: Obtained through synergistic utilization of resources (tangible or intangible), e. g. knowledge, patents, innovations with regard to new markets, products, or services.

Competitive Advantage within the International Context FIRM RESOURCES & CAPABILITIES -- Financial resources -- Physical resources -- Technology -- Reputation -- Functional capabilities -- General management capabilities THE INDUSTRY ENVIRONMENT Key Success Factors COMPETITIVE ADVANTAGE THE NATIONAL ENVIRONMENT -- National resources and capabilities (raw materials; national culture; human resources; transportation, communication, legal infrastructure -- Domestic market conditions -- Government policies -- Exchange rates -- Related and supporting industries

Resources Are the source of a firm’s capabilities Cover a spectrum of individual, social and organizational phenomena Alone, do not yield a competitive advantage Comprise a firm’s assets, including people and the value of its brand name Represent inputs into a firm’s production process, such as: Capital equipment Skills of line employees Brand names Financial resources Talented managers

Steps of Resource Imitability Cannot be imitated: Patents Unique location Unique assets (e. g. Mineral rights) Difficult to Imitate: Brand Loyalty Favorable cost position Employee Satisfaction Reputation for Fairness Can be Imitated (but may not be): Capacity Economies of Scale Easy to Imitate: Cash Commodities Source: Collins & Montgomery, Corporate Strategy: Resources and the Scope of the Firm (1996).

VRIO Framework – Four questions to evaluate firm’s key resources (Barney) –Value: Does it provide customer value and competitive advantage? –Rareness: Do other competitor possess it? –Imitability: Is it costly for competitors to imitate? –Organization: Is the firm properly organized to exploit the resource? It is not enough for an organization to possess valuable resources, it must have also the capacity to appropriately exploit them !. 23

“Intangible” Corporate Value • 1930 – Intangible value represented roughly 30% of the market value of major corporations Tangible Value • 2000 – Intangible value represented 80 -85%* • 2010 – And beyond ? Intangible Value * Based on capital market valuations. 24

Strategic Audit: SWOT Analysis Ø Purpose: SWOT aims at the identification of a company-specific strategic model that will match company resources to the demands of the environment. Strengths & Weaknesses: Internal, within the company Opportunities & Threats: External, outside the company v Strengths: E. g. international experience, skilled personnel, distribution network, long-term contracts. v Weaknesses: E. g. outdated technology, inefficient customer service, bureaucracy, inexperienced execs. v Opportunities: E. g. appearance of new markets, economic growth, perspectives for business alliances. v Threats: E. g. emergence of new competitors, rising oil prices, unstable political environment, inflation.

Business Strategy