Global Strategy
Global Strategy Ø Strategy: “the action managers take to attain the goals of a firm” – General purpose: maximize/make profit l Differentiate products, increase price: add value, features, quality, service l Achieve low cost – Key means: allocation of scarce resources to attain goals
Activity Value Chain Ø Firm as a chain of discrete value creating activities – Primary upstream activities, manufacturing l downstream activities: marketing, sales, after sales service l – Support infrastructure (general and administrative) l human resources l research and development l
Global Expansion Benefits Earn greater return from distinctive skills, core competences – Inimitable or difficult to imitate skills in value chain Ø Realize location economies – Choice of FDI location – Create multinational network of activities (global web) Ø Realize greater experience curve economies, which reduce the cost of value creation – Learning effects, economies of scale Ø Unit costs Experience curve B A Accumulated output
Pressures for Global Integration & Local Responsiveness High Cost Reduction (Global Integration) Pressures Low Local Responsiveness Pressures Ball bearings, wheat Cosmetics, food, household goods High Differences in - consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs/requirements
Strategic Choice Cost Reduction (Global Integration) Pressures “Global” Strategy “Transnational” Strategy “International” Strategy High “Multidomestic” Strategy Low Local Responsiveness Pressures High
Multidomestic MNC 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 HK UK Chile USA India Japan Mexico Coordinated Federation - Key assets, responsibilities 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 HK Chile UK 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 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 Ø Cooperative agreements between competitors from different countries – Advantages l Facilitate entry into a foreign country l Allow fixed costs of new products and processes to be shared l Bring together complementary skills and assets l Help establish industry standards in technology l Allow reduction of operating costs, e. g. , shared training, purchasing – Disadvantages l Give competitors a low cost route to new technology / markets l Disproportional benefit accrual to partners
Making alliances work which partner? Ø A suitable partner – Helps achieve strategic goals l Adds needed, valuable capabilities – Shares the firm’s vision for purpose of the alliance – Is not likely to exploit the alliance to its own ends Ø Steps to select a partner – Thorough background check via public sources – Advice from third parties who have personal experience with likely partner(s) – A lot of face-to-face time with likely partner(s) in their environment
Making alliances work - What Structure? Ø Protect technology/know-how that is not intended to be transferred Ø Draw a solid contract with safeguards against opportunism Ø Achieve equitable gain through agreed swaps of technology the other wants Ø Seek creditable, clearly articulated commitment to partner “behavior” a-priori
Making alliances work - How to manage? Ø Show sensitivity to cultural differences that explain different managerial styles Ø Build trust – Set up framework formal and informal face-to -face meetings to create a common value system – Build informal network of personal relationships Ø Learn from partners – Apply the knowledge within your own organization – Brief your employees on partner strengths
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