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D esigning the Value Chain Across Borders: The Dispersion Decision National Diamonds and International Competition. GLOBAL STRATEGY Dr. Ruth V. Aguilera College of Business University of Illinois at Champaign-Urbana March 2009. Session I: Topics to Cover. What is Global Strategy?

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Designing the Value Chain Across Borders: The Dispersion DecisionNational Diamonds and International Competition

GLOBAL STRATEGY

Dr. Ruth V. Aguilera

College of Business

University of Illinois at Champaign-Urbana

March 2009


Session i topics to cover
Session I: Topics to Cover

  • What is Global Strategy?

    • Global vs. Multi-domestic Firms

  • Multinational Firms

    • Types of Multinational Firms

    • Global Integration

  • Globalization or Regionalization?

  • Porter’s International Competitive Advantage

  • Vernon Product Life Cycle


What is global strategy ghoshal
What is Global Strategy?Ghoshal

  • Definition

    • Strategic Objectives

    • Sources of Competitive Advantage

  • Integration-Responsiveness Framework


Multinational firms guillen
Multinational Firms Guillen

  • Definition

  • Dispersion (assets or employees)

  • Coordination:

    • Kobrin’s index of global integration


Regional global strategies in mncs

Regional & Global Strategies in MNCs

Rugman & Verbeke (2004)

Thinking about how to measure how global a company is…

How would you measure it?


Regional global strategies
Regional & Global Strategies

  • From WWII economic power has become more disperse

    • While in 1967, U.S. held 50.4% of the world stock of FDI, by 1990 it only participated with 25.4%.

    • Formation of a TRIAD: North America, EU & Asia.

  • The Fortune 500 (2001)

    • International sales


Types of mncs
Types of MNCs

  • Home region oriented: At least 50% of their sales in their home region of the triad.

  • Bi-regional: At least 20% of their sales in each of two regions.

  • Host region oriented: More than 50% of their sales in a triad market other than their home region.

  • Global: at least 20% of their sales in all three triad regions, but less than 50% in any one region.


  • Particularly Rugman & Verbeke (2004) noted:

    • The majority of the world’s largest 500 companies are MNCs

    • Out of the 365 Co. within those 500, only 9 are considered “GLOBAL” from a sale profile viewpoint.

    • 320 of those companies have 80% of their sales in their home region of the TRIAD


Percentages of types of mncs percentage intra regional sales
Percentages of Types of MNCs & Percentage intra-regional sales

  • Home region oriented (320 firms): 80.3%

  • Bi-regional (25 firms): 42%

  • Host region oriented (11 firms): 30.9%

  • Global (9 firms): 38.3%


Global mncs rugman verbeke
Global MNCs (Rugman & Verbeke) sales

  • IBM

  • Sony

  • Royal Philips Electronics

  • Nokia

  • Intel

  • Canon

  • Coca-cola

  • Flextronics electronics

  • LVMH



To be continued by flores mba2003 and aguilera

To be continued by Flores (MBA2003) and Aguilera! sales

Check the course website for details


Porter s five forces to industry analysis
Porter’s Five Forces to Industry Analysis sales

SUBSTITUTE

PRODUCTS

SUPPLIERS

COMPETITORS

CUSTOMERS

ENTRY

BARRIERS


What makes entry barriers a strong force
What Makes salesEntry Barriers a Strong Force?

Few Economies of

Scale Effects

Few Technology

Advantages

Few Tariffs or Other

Trade Barriers

ENTRY

BARRIERS

Few Experience

Curve Effects

Low Capital Requirements

Low Brand Loyalty

Low Customer Loyalty


What makes substitute products a strong force
What Makes salesSubstitute Products a Strong Force?

Low Priced Substitutes

SUBSTITUTE

PRODUCTS

Low Switching Costs

High Quality Substitute Products


What makes suppliers a strong force
What Makes salesSuppliers a Strong Force?

Suppliers have

Good Reputations

Few Suppliers

SUPPLIERS

High Switching Costs

Few Substitute Products

Ability to Integrate

Forward


What makes customers a strong force
What Makes salesCustomers a Strong Force?

Customers Purchase

in Large Quantities

Customers are Large

CUSTOMERS

Low Switching Costs

Customer Profits are Low

Customers Purchase

From Several Suppliers


What makes competitors a strong force
What Makes salesCompetitors a Strong Force?

Competitors of Equal Size

Many Competitors

Low Switching Costs

High Exit Barriers

COMPETITORS

Diversity Rivalry

Entry of New Firms

High “First Mover” Advantages



Porter s diamond of national advantage
Porter’s salesDiamond of National Advantage

innovation

Leaders

Strong firms Intense rivalry Rapid innovation

Firm

Strategy,

Structure,

Rivalry

CHANGE

Factor

Conditions

Demand

Conditions

Market size Scale effects Sophisticated buyers Government support & demand

Land & Capital Skilled labor Infrastructure Open markets Free trade flows

Related

Industries

chance

Government

Supplier industries feed innovation into industry & place pressures on industry to innovate.


Determinants of national competitive advantage
Determinants of National Competitive Advantage sales

  • Factor Conditions: the nation’s position in factors of production such as skilled labor or infrastructure, necessary to compete in a given industry.

  • Demand Conditions: the nature of home-marketdemand for the industry’s product or service.

  • Related and Supporting Industries: the presence or absence in the nation of supplier industries and other related industries that are internationally competitive.

  • Firm Strategy, Structure and Rivalry: the conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.


Points to remember
Points to Remember sales

  • Factor conditions change and are malleable.

  • Rivalry generally good, although perhaps not among your suppliers.

  • Pay attention to global demand.

  • Complacency breeds failure.

  • Next discontinuity?


Internet impact
Internet Impact sales

  • Product design, features, and use:

    • Data-carrying watches (w/ Sega).

    • Watches with email, internet connection, cash chip, telephone? (w/ HP).

  • Marketing: Need to redesign colors.

  • Services: Internet time (1,000 beats/day). 51 million visits to its website.



Sources of firm advantages that stem from national advantages
Sources of Firm Advantages that stem from National Advantages

  • Efficiency:

    • Combination & recombination of K, L, and technology to lower costs.

    • Experience/learning curve effect from operating in one location.

    • Problem: Adverse changes in relative prices.

  • Specialization:

    • Become a “category-killer.”

    • Benefit from networks of long-term relations with specialized suppliers.

  • Flexibility:

    • Long-term connections with related & support industries.

    • Problem: Difficulty in shifting production in the short run?

  • Innovation:

    • Advantage of co-locating R&D and manufacturing.

    • Problem: Sophistication/universality of home-country demand?


International product cycles vernon
International Product Cycles Advantages(Vernon)

  • Traditional Product Cycle Hypothesis (PCH):

  • Products go through a “life cycle”:

    • Introduction

    • Growth

    • Maturation

    • Decline


2. Entrepreneurs and managers: Advantages

Introduce new products when they see a market opportunity

They tend to be “myopic” and/or “rationally bounded”

Market opportunities are first seen in the home market of the firm.

Examples:

Consumer electronics

Automobiles

Wristwatches

Medicinal herbs

Life insurance

Fast food


3. Introduction and Growth stages: Advantages

Product is unstandardized: different designs, inputs & processes.

Hard to determine optimum location, production scale or sale price.

High product differentiation across firms.

Individual firms do not differentiate.

Low price-elasticity of demand

4. Maturation & Decline

Standarization within differentiated kinds.

Normalization of designs, inputs & processes.

Less uncertainty as to optimum location, production sale or sale price.

Individual firms differentiate through brands, advertising, and variations.

Increased price-elasticity of demand.


5 implications of the theory
5. Implications of the theory Advantages

  • Product or service innovations reflect features of the home country

  • Home country features are taken into account when locating activities abroad

  • International expansion ought to be careful, cautious, incremental, one-step-at-a-time process

  • Countries most similar to the home country are approached first


6. Sequence of expansion: Advantages

Exporting arms-length from home

Licensing a foreign producer

Establishing a sales subsidiary

Establishing a first plant

Establishing subsequent plants

Examples:

International migration of production

Swedish multinationals

Japanese consumer electronics


B the new product cycle theory
B. The New Product Cycle AdvantagesTheory:

  • Big changes since the mid-1970s

    • Globalization & Trade Blocs.

    • Firms and managers are now less “myopic” (learning, experience, training, telecommunications, the “global” village).

    • Many firms are now global in reach

    • Cross-national lags in new product introduction have been shortened.

  • Vernon’s qualifications in 1979

    • “Global scanner” companies =>PCH is useless to them.

    • “Multidomestic” companies => PCH still applies.

    • Small exporting companies => PCH still applies


  • 3 other limitations
    3. Other Limitations Advantages

    For some products, shifts in location do not usually take place The innovating country maintains its export ability through the product’s life cycle

    • Products w/ extremely short life cycles

    • Luxury products for which cost is of little concern to the consumer

    • Products for which the company can use a differentiation strategy

    • Products that require specialized technical labor to evolve into the next generation


    Comparative vs competitive advantage
    Comparative vs. Competitive Advantage Advantages

    • Comparative Advantage – location-specific

    • Competitive Advantage – firm-specific

    • Value-added

      Questions:

    • Where should the value-added chain be broken across borders?

    • In what functional activities should a firm concentrate resources?


    Comparative vs competitive
    Comparative vs. Competitive Advantages

    1. Each stage’s contribution to the : VALUE ADDED CHAIN.

    • Highly competitive industries => low cost oriented strategies (total cost) – American steel industry

    • Low competitive industries =>Revenue oriented strategies (product differentiation; market value), -- ex. home computers


    2 value added analysis
    2. Value-Added Analysis Advantages

    • “Strategy is not jus the selection of profitable product markets; it is also the attempt to create a competitive advantage by investing in the link that generates the product attribute most strongly desired by consumers and which corresponds to the firm’s distinctive competence relative to its competitors.”

    • “An application of the value-added chain in this context rests on the identification of the characteristics of consumer demand and the strategic positioning of firms in terms of their control over the critical links that supply these characteristics”


    Example panasonic radio shack
    Example: Panasonic/Radio Shack Advantages

    PANASONIC

    RADIO SHACK

    Components

    Assembly

    Marketing, Sales & Distribution

    Retailing


    The value added chain of comparative advantage
    The Value-Added Chain of Comparative Advantage Advantages

    3. International environment. Differences in:

    • Institutional & cultural barriers

    • Endowments, costs, productivities

      4. Distortions:

    • Transportation costs

    • Tariffs & other trade regulations

    • Competitive advantage if firms (scale, scope, and learning)

      5. International strategy is a/ either comparative or competitive strategy, or both.




    Comparative advantage of nations
    Comparative Advantage of Nations Advantages

    Gov’t: Competition Policy.

    Firm strategy,

    structure, and

    rivalry

    Gov’t: Education;

    financial

    regulation.

    Gov’t: product standards and

    regulations; trade protection.

    Factor

    conditions

    Demand

    conditions

    Related and

    supporting

    industries

    Gov’t: Industrial policies, infrastructure for business.



    The swatch story
    The Swatch story Advantages


    Collections
    Collections Advantages

    Irony

    Scuba

    Chrono

    Skin

    Original

    Beat


    Main exporting countries in 2007
    Main Exporting Countries in 2007 Advantages

    * Includes re-exports. Note that Seiko and Citizen manufacture a large proportion of their inexpensive watches in Hong Kong and China.

    Source: http://www.fhs.ch


    Swiss exports by type of watch in 2007
    Swiss Exports by Type of Watch in 2007 Advantages

    Source: http://www.fhs.ch


    Swatch operating margins
    Swatch: Operating Margins Advantages

    Upper segment: 24%.

    Middle segment: 13%.

    Lower segment: 5%.

    Movements: 4%.

    http://www.fhs.ch/en/swissm.php



    Wristomo
    Wristomo Advantages

    DoCoMo—Seiko.

    Launched in 2003.

    Weight (grams) Approx. 113 (including battery). Continuous talk time (minutes) Approx. 120. Continuous stand-by time (hours) Approx. 200. Data transmission speed 64 kbps/ 32 kbps.

    http://www.3gnewsroom.com/3g_news/mar_03/news_3234.shtml


    Other docomo gear
    Other DoCoMo Gear Advantages


    Citizen s virt
    Citizen’s VIRT Advantages

    Bluetooth-enabled watch.

    The watch communicates with the owner’s cell phone.

    When a call comes in, the number and name of the caller is shown on the watch.

    Calls can be put on hold or forwarded from the watch.

    It alerts the owner if he o she leaves the cell phone behind.

    Announced in June 2006.



    Citizen s virt1
    Citizen’s VIRT Advantages

    Bluetooth-enabled watch.

    The watch communicates with the owner’s cell phone.

    When a call comes in, the number and name of the caller is shown on the watch.

    Calls can be put on hold or forwarded from the watch.

    It alerts the owner if he o she leaves the cell phone behind.

    Announced in June 2006.




    Detective dick tracy 1946
    Detective AdvantagesDick Tracy (1946)


    Points to remember1
    Points to Remember Advantages

    Location advantages are contingent on the technology employed.

    Location advantages can turn into disadvantages very quickly.

    Importance of paying attention to global demand shifts.

    Complacency breeds failure.

    Next technological discontinuity?

    It will affect low-cost producers (i.e. China) to a greater extent than higher-end & differentiated producers (Switzerland, France).


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