FIVE PART Competing in a Global Marketplace Part Five Competing in a Global Marketplace

Ten C h a p t e rC h a p t e r Global Strategy Part Five Competing in a Global Marketplace

Irwin/McGraw-Hill Copyright  2001 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

Irwin/McGraw-Hill Copyright  2001 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

Irwin/McGraw-Hill Copyright  2001 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 Slide 10-3 B Accumulated output Experience curve Unit costs A

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Pressures for Global Integration & Local Responsiveness High Low Cost Reduction (Global Integration) Pressures Local Responsiveness Pressures Differences in - consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs Ball bearings, wheat Cosmetics, food, household goods Slide 10-4

Irwin/McGraw-Hill Copyright  2001 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

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 Source: Bartlett and Ghoshal, Managing across borders, 1989 Slide 10-6

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 Source: Bartlett and Ghoshal, Managing across borders, 1989 Slide 10-7

Global MNC 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 UK Chile India Japan USA HK Mexico Source: Bartlett and Ghoshal, Managing across borders, 1989 Slide 10-8

Transnational MNC 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 UK Chile India Japan USA HK Mexico Source: Bartlett and Ghoshal, Managing across borders, 1989 Slide 10-9

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. International Strategic Alliances Cooperative agreements between potential or actual competitors from different countries  Advantages Facilitate entry into a foreign country Allow fixed costs of new products and processes to be shared Bring together complementary skills and assets that can not easily be developed independently Help establish industry standards in technology Allow reduction of operating costs,e.g., shared training, purchasing  Disadvantages Give competitors a low cost route to new technology / markets Disproportional benefit accrual to partners Slide 10-10

Irwin/McGraw-Hill Copyright  2001 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 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) Slide 10-11

Irwin/McGraw-Hill Copyright  2001 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

Irwin/McGraw-Hill Copyright  2001 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