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McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Presentation on theme: "McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved."— Presentation transcript:

1 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

2 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. CHAPTER Global Strategy

3 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 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?

4 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 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 Slide 10-1

5 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 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 Slide 10-2

6 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 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 B Accumulated output Experience curve Unit costs A Slide 10-3

7 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Pressures for Global Integration & Local Responsiveness High Low Global Integration Local Responsiveness Pressures Country Differences in - consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs Ball bearings, wheat Cosmetics, food, household goods Slide 10-4 Cost Reduction Pressures

8 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategic Choice High Low Local Responsiveness Pressures Global Strategy Transnational Strategy Multidomestic Strategy International Strategy Cost Reduction (Global Integration) Pressures Slide 10-5

9 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Multidomestic MNC 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 UK Chile India Japan USA HK Mexico From: Bartlett and Ghoshal, Managing across borders, 1989 Slide 10-6

10 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. International MNC 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 UK Chile India Japan USA HK Mexico From: Bartlett and Ghoshal, Managing across borders, 1989 Slide 10-7

11 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Global MNC UK Chile India Japan USA 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 HK Mexico From: Bartlett and Ghoshal, Managing across borders, 1989 Slide 10-8

12 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Transnational MNC UK Chile India Japan USA 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 HK Mexico From: Bartlett and Ghoshal, Managing across borders, 1989 Slide 10-9

13 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. International Strategic Alliances 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 Slide Cooperative agreements among competitors from different countries

14 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Making alliances work Which partner? A suitable partner –Helps achieve strategic goals; brings needed, valuable capabilities –Shares the firms vision for the alliances 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) Slide 10-11

15 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Making alliances work What 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 Slide 10-12

16 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Making alliances work How 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 Slide 10-13


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