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CHAPTER. 10. Global Strategy. Key Issues. What is the concept of strategy? How can firms profit from global expansion? What are the different strategies to compete globally? How do cost pressures and country differences influence global strategy?

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chapter
CHAPTER

10

Global Strategy

key issues
Key Issues
  • What is the concept of strategy?
  • How can firms profit from global expansion?
  • What are the different strategies to compete globally?
  • How do cost pressures and country differences influence global strategy?
  • How can firms use strategic alliances to support their global strategy?
global strategy

Slide 10-1

Global Strategy
  • Strategy: “the action managers take to attain the goals of a firm”
    • General purpose: maximize/make profit
      • Differentiate products, increase price: add value, features, quality, service
      • Achieve low cost
    • Key means: allocation of scarce resources to attain goals
activity value chain

Slide 10-2

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)
      • human resources
      • research and development
global expansion benefits

Slide 10-3

Global Expansion Benefits
  • Earn greater return from distinctive skills, core competences
      • inimitable or difficult to imitate skills 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

pressures for global integration local responsiveness

Slide 10-4

Pressures forGlobal Integration & Local Responsiveness

High

Ball bearings,

wheat

Global Integration

Cost Reduction

Pressures

Cosmetics, food,

household goods

Low

Low

High

Local Responsiveness Pressures

Country Differences in

- consumer tastes/preferences

- infrastructure/practices

- distribution channels

- host government needs

strategic choice

Slide 10-5

Strategic Choice

High

“Transnational”

Strategy

“Global”

Strategy

Cost Reduction

(Global Integration)

Pressures

“Multidomestic”

Strategy

“International”

Strategy

Low

Low

High

Local Responsiveness Pressures

multidomestic mnc

Slide 10-6

Multidomestic MNC

From: Bartlett and Ghoshal, Managing across borders, 1989

HK

UK

Chile

USA

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

international mnc

Slide 10-7

International MNC

From: Bartlett and Ghoshal, Managing across borders, 1989

HK

UK

Chile

USA

India

Japan

Mexico

Coordinated Federation - Many key assets, responsibilities and 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

global mnc

Slide 10-8

Global MNC

From: Bartlett and Ghoshal, Managing across borders, 1989

HK

UK

Chile

USA

India

Japan

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

transnational mnc

Slide 10-9

From: Bartlett and Ghoshal, Managing across borders, 1989

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

international strategic alliances

Slide 10-10

International Strategic Alliances
  • Cooperative agreements among competitors from different countries
  • Advantages
    • Facilitate entry into a foreign country
    • Allow sharing of fixed costs of new products/processes
    • Bring together complementary skills and assets that can not easily be developed independently
    • Help establish industry standards in technology
    • Reduce operating costs,e.g., shared training, purchasing
  • Disadvantages
    • Give competitors new technology / markets at low cost
    • Disproportional benefit accrual to partners
making alliances work which partner

Slide 10-11

Making alliances workWhich partner?
  • A suitable partner
    • Helps achieve strategic goals; brings needed, valuable capabilities
    • Shares the firm’s vision for the alliance’s purpose
    • Is not likely to exploit the alliance to its own ends
  • To select a partner
    • Do thorough background check from public sources
    • Collect information from third parties who have personal experience with the likely partner(s)
    • Spend a lot of face-to-face time with likely partner(s)
making alliances work what structure

Slide 10-12

Making alliances workWhat 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
making alliances work how to manage

Slide 10-13

Making alliances workHow to manage?
  • Show sensitivity to cultural differences that explain different managerial styles
  • Build trust
    • Set up framework for formal and informal face-to-face meetings to create the opportunity for a common value system to emerge
    • Build an informal network of personal relationships
  • Learn from partners
    • Apply the knowledge within your own organization
    • Brief your employees on partner strengths