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Lesson 4. Global Strategic Management International Investment Management. Global Strategic Management. Issues: ( ) International Management Strategies ( ) The MNE’s Strategic Orientations ( ) Strategic leadership

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Lesson 4
Lesson 4

Global Strategic Management

International Investment Management


Global strategic management
Global Strategic Management

Issues:

() International Management Strategies

() The MNE’s Strategic Orientations

() Strategic leadership

() Strategic architecture & Strategic flexibility

() Industry Competitiveness

()MNEs’ Competitive Advantage

() Building Blocks of Competitive Advantage

Value Chain & Competitiveness

Cases: Larry Bossidy at AlliedSignal

Mechanical excavator industry

U.S. Semiconductor Industry in Early 1990s

Wal-Mart; Intel


4 5 value chain competitiveness
4.5 Value Chain & Competitiveness

Company

Infrastructure

Information

systems

Material

management

Human

resources

Value Chain Analysis

Support Activities

R&D Production Marketing Service

Input Output

Primary Activities


Value chain competitive advantage
Value Chain & Competitive Advantage

Value Chain Analysis

Identify

Bases for developing

Resource Audit

Capability Assessment

Value

Activities

Value

Drivers

Cost

Drivers

Critical

Linkages

Competitive Advantage


E g intel
e.g. Intel

Why did Intel lose its dominance in DRAMs market in early 1980s?

Year Its market share in DRAMs

1974 83% 1984 1%

However, later it builds and maintains its competitive advantage in microprocessor market. Why?

Main reasons for its failure in DRAMS

Externally, Japanese firms developed new products quickly & invested heavily on manufacturing. Their superior production equipment & process technology enabled them to capture large share of the world market for DRAMs.


Internally intel put too much emphasis on
Internally, Intel put too much emphasis on

product design by trying to be “first to market.” But it fell behind the foreign competitors in

process development & manufacturing scale-up.

Q. Is the Icarus (伊卡洛斯) Paradox applicable?

The greatest asset can be the cause of demise.

It’s very suitable for Digital Equipment Corp.


Analysis
Analysis:

Value Chain Linkages

In DRAMs, a link broke down

R&D production marketing,

Input Output

* * * * * * *

In microprocessors, it has formed successful linkages.

R&D production marketing,

Input Output


Recapitulation
Recapitulation

 Globalization vs localization is a key strategic issue;

 There are four global strategic orientations: ethnocentric, regioncentric, multidomestic, and geocentric;

A strategic leader needs: vision & action plans, commitment, emotional intelligence, and astute management skills;Strategy is designed to achieve and enhance competitive advantage;

  • Building blocks of competitive advantage are superior innovation, efficiency, quality, global leverage, customer responsiveness;

    Global leverage include cost advantages, global learning, cross-subsidization and risk diversification;

     5 forces model is a tool of assessment for industry competitiveness

     Value chain analysis is a tool of identifying key variables for developing competitive advantage


Lesson 5 int l investment management
Lesson 5 Int’l Investment Management

Main Issues:

International Merger & Acquisition (M & A)

International New Start-ups

Managing Foreign Exchange Risks

Cost of Capital for International Investment

Feasibility Analysis for International Projects

Cases & Examples:

Matsushita in Hollywood

IBM PC Goes to Lenovo

Buying a Big Mac

Jack’s Hedging Strategy

Should you invest in MEC?


Lesson 5 international investment management
Lesson 5 International Investment Management

5.1 Forms of Foreign Direct Investment

5.1.1 Merger & Acquisition (M & A)

Horizontal merger: Combining of firms that sell the

same type of goods.

e.g. an auto firm + an auto firm

Vertical merger: Combining of firms that are linked

in production or distribution chain.

e.g. an auto firm + a tire Co.

Conglomerate merger: Combining of firms in

unrelated industries.

Concentrated Merger: Combining of firms that have the same market but different production technology, or the same tech but different market


Takeover tactics
Takeover Tactics

(1) Direct Takeovers

Negotiated acquisition or friendly takeover, Leveraged buyout?

Use of a target company’s asset value to finance the debt for acquiring the company.

Q. How can a small firm take over a large company?

Capital Leverage

S Company L Company Stock price: $10

Its cash: Buyout Bid: $20

$100 million Buyout Value: $1 billion

borrow $900 million from Bank C

by usingL’s assets as guarantee


Q why is mbo discouraged in china
Q. Why is MBO discouraged in China?

MBO

Management Buyout

In China, MBO often takes the form of leveraged buyout. But buyout prices are usually too low for

state owned enterprises. Leveraged buyouts tend to enrich management at the expense of public.

(2)Indirect Method

e.g. hostile takeover

Means of Payment

Cash, trade bills, stocks


Case matsushita in hollywood
Case: Matsushita in Hollywood

Questions:

A. Why did Matsushita acquire MCA?What type of merger was it?

B. Was Matsushita’s international management strategy effective?

C. Disregarding the interest cost of capital, did Matsushita make profit from its investment in MCA in terms of dollar value? What about in terms of Japanese yen?

D. Generally speaking, how can the acquirer reform & integrate the acquired firm successfully?


A why did matsushita acquire mca
A. Why did Matsushita acquire MCA

(1) Obtain synergies

Achieve economies of integration by sharing distribution channels, advertising campaign, etc.

(2) Acquire valuable assets

Get MCA’s patents, well-known brands, &

technological & managerial know-how

(3) Build corporate image

(4)Expand markets

Enter the U.S. market rapidly;

Capture international market share through MCA’s influence.


What type of merger was it
What type of merger was it

This was a hybrid acquisition with cash.

It had elements of vertical merger, conglomerate merger & concentrated merger.

Reasons: ….

B. Was Matsushita’s international management strategy effective?

No. It adopted a multidomestic strategy, or localization strategy. But it didn’t work well.

There were cultural clash and management upheaval. Several key executives threatened to quit.


C did matsushita profit from the investment
C. Did Matsushita profit from the investment?

In terms of U.S. dollars,

in 1990 it paid 6.59 billion, in 1995 it received

5.7 + (1/4) 5.7 = 5.7+1.425 = 7.125

Profit = 7.125 – 6.59 = 0.535 billion=535 million 2.

In terms of Japanese yen,

in 1990 it paid

6.59 (145) = 955.55 billion yen

in 1995 it received

5.7 (97) + (1/4) 5.7 (97) = 691.125 billion yen

Loss = 691.125 – 955.55 = 264.425 billion yen

The loss would be in fact much larger if opportunity cost is factored in.


D in general how can the acquirer reform integrate the acquired firm successfully
D. In general, how can the acquirer reform & integrate the acquired firm successfully?

There are various integration methods.

e.g. CA(Computer Associates): 2nd largest software co.

M&As: over 100

CEO: Charles Wang, “Great Master of M&As”

Magic formula of CA(Computer Associates):

(1) Change the management team of the acquired firm;

(2) Inject CA’s culture into the acquired firm through rules change and training

e.g. big family feeling

(3) Promotion based on performance.

e.g. Former managers in the pre-merger firm must prove themselves to be promoted by starting over as ordinary technicians or staff members.


In the case of matsushita mca the following steps
In the case of Matsushita & MCA, the following steps acquired firm successfully?

may be taken:

(1) Set up an integration team, and work out specific plan for integration;

(2) Matsushita should hire a management talent in movie industry to be the vice president of MCA;

(3) Establish executive exchange programs between the parent and MCA, and break down cultural barriers.

e.g. cooking eggs

Western and Oriental cooking styles differ.


Group presentation contest
Group Presentation Contest acquired firm successfully?

Today

(1) Group presentation is a special task, different from the final project.

(2) Each group, consisting of 5 to 6 students, will make a presentation in class;

(3) The presentation will be focused on a concept, a case, or a model related to our course;

(4) Each presentation will last 5 to 6 minutes;

(5) The presentation may take any form such as role-play, story-telling or multimedia performance.

(6) The presentation will be evaluated based on content, style, team work and originality.

  Try to show your creativity & team-work spirit!


Next class
Next Class acquired firm successfully?

Topics: The Rest of Chapter 8, Book 1

Managing Foreign Exchange Risks

Cost of Capital for International Investment

Feasibility Analysis for International Projects

Individual Homework:

7 to 8 students are needed to do the case analysis of

Jack’s Hedging Strategy (Available in our class e-mail box)

Reminder:

For those students choosing it for the case write-up, please submit a hard copy at the beginning of the class. Bonus points will be given if an electronic copy of the case write-up and Powerpoint is sent to the T.A. the day before the class.