Deresky Chapter 6: Formulating Strategy Repetition Figures only

Strategic Formulation Process The global formulation process parallels the domestic process, but it is more complex because of the greater difficulty in gaining accurate and timely information, the diversity of geographic locations, and the differences in political, legal, cultural, market, and financial processes. The strategic planning process identifies potential opportunities for (1) appropriate market expansion, (2) increased profitability, and (3) new ventures for exploiting strategic advantages. This figure demonstrates the process is comprised of two primary phases: planning and implementation. In reality, the stages depicted in this slide are rarely so linear. Instead, the process in continuous and intertwined.

Strategic Decision-Making Models This figure summarizes three leading strategic models. Global, regional, and country factors and risks are part of the considerations in an institution-based theory of existing and potential risks and influences on the host area. The firm’s competitive position in its industry can be reviewed using Porter’s industry-based five-forces model. The five forces are (1) the level of competition already in the industry, (2) ease of entry into the field, (3) how much power suppliers in the industry have, (4) how much power buyers in the industry have, and (5) the extent of substitute products available. The resource based-view entails considering the unique value of the firm’s competencies and that of its products or services.

Strategic Choice The strategic choice of one or more entry strategies will depend on (1) evaluation of the advantages (and disadvantages) of each in relation to the firm’s capabilities, (2) the critical environmental factors, and (3) the contribution that each choice would make to the overall mission and objectives of the company. Additionally, specific factors relating to that firm’s situation must be taken into account. After considering these factors and what is legal and desirable in a given location, some entry strategies will fall out of the feasibility zone. Among the remaining options, planners must decide which factors are more important to the firm than others. Pan and Tse found that managers tend to follow a hierarchy of decision-sequence in choosing an entry mode. Managers must first decide between equity and non-equity based, and the remaining options follow. Pan and Tse found that the level of country risk was the primary influence in deciding between equity and non-equity based options.

Strategic Choice Similarly, Gupta and Govindarajan suggest firms must first decide the extent they will export or produce locally, then the extent of ownership control over activities that will be performed locally in the target market. There is an array of choice combinations within these two dimensions. Entry strategies require a long-term perspective and need to be conceived as part of a well-designed, overall plan. Often companies will decide on a particular means of entry only to find it was shortsighted.

Repetition: Chapter 7: Global Alliances and Strategy Implementation PowerPoint by Hettie A. Richardson Louisiana State University

Strategic Alliances Partnerships between two or more firms that combine financial, managerial, and technological resources and their distinctive competitive advantages to pursue mutual goals Also referred to as cooperative strategies Alliances are transition mechanisms that propel the partners’ strategies forward faster than would be possible for each company alone.

Categories of Alliances Joint Ventures PSA Peugeot-Citroen Group and Toyota Equity strategic alliances TCL-Thompson Electronics Non-equity strategic alliances UPS and Nike Global strategic alliances Covisint Joint ventures (JVs) are independent entities jointly created and owned by two or more parent companies. An international joint venture (IJV) is a joint venture among companies in different countries. The JV form for a firm may comprise a majority (more than 50% equity), a minority (less than 50% equity), or may be 50-50 (equal equity). An example of a 50-50 IJV is between France’s PSA Peugeot-Citroen Group and Japan’s Toyota in the Czech Republic. From this IJV Toyota gains knowledge of suppliers and their capabilities from one of Europe’s biggest indigenous car makers. Peugeot-Citroen gains experience from Toyota’s manufacturing system. In equity strategic alliances two or more partners have different relative ownership shares in the new venture. An example is TCL-Thompson Electronics. France’s Thompson owns 33% of the combined company and China’s TCL owns 67%. Most global manufacturers have equity alliances with suppliers, subassemblers, and distributors.

Motivations and Benefits of Global and Cross-Border Alliances To avoid import barriers, licensing requirements, and other protectionist legislation To share costs of research and development Toshiba To gain access to markets that favor domestic companies To reduce political risk To gain rapid entry into a new or consolidating industry In the semi-conductor industry each new generation of memory chips is estimated to cost more than $1 billion to develop and technological evolution is rapid. In this and similar industries, such endeavors usually require the resources of more than one firm. For example, Toshiba has more than two dozen major joint ventures and strategic alliances around the world.

Challenges in Implementing Global Alliances Many alliances fail or end up in takeover Choosing the right form of governance The benefits of cooperation vs. the dangers of new competition A recent survey by McKinsey & Company of 150 companies in alliances found that 75% had been taken over by Japanese partners. Many of the issues associated with international activities already discussed also contribute to the difficulty of creating successful alliances. These include problems with shared ownership, differences in national cultures, the integration of different structures and systems, the distribution of power, and conflicts about the locus of decision making and control. Choice of governance—either contractual agreement or joint venture—often depends on the desire to control information about proprietary technology. Joint ventures provide greater control and coordination in high-technology industries. Often cross-border partnerships become a “race to learn,” with the faster learner later dominating the alliance and rewriting its terms. Partners also often have problems with mistrust and secrecy when it comes to competitively sensitive areas. The cumulative learning gained through an alliance can potentially be applied to other products or industries beyond the alliance.

Guidelines for Successful Alliances Choose a partner with compatible strategic goals and objectives Seek complementary skills, products, and markets Work out how each partner will deal with proprietary knowledge or competitively sensitive information Recognize that most alliances only last a few years Choosing a partner with compatible goals and objectives will result in synergies through combined markets, technologies, and management cadre. Seek alliances where complementary skills, products, and markets will result. If each partner brings distinctive skills and assets to the venture, there will be reduced potential for direct competition.

Knowledge Management in IJVs Managing the performance of an IJV for the long term, as well as adding value to the parent companies, necessitates managing the knowledge flows within the IJV network. Thus, managers must recognize that it is critical to overcome cultural and system differences in managing knowledge flows in order to gain advantage for the alliance. Knowledge management is the active management of creating, disseminating, evolving, and applying knowledge to strategic ends. As defined by Berdow and Lane, these processes are: Transfer: managing the flow of existing knowledge between parents and from parents to the IJV. Transformation: managing the transformation and creation of knowledge within the IJV through its dependent activities. Harvest: managing the flow of transformed and newly created knowledge from the IJV back to the parents. Those companies found to be most successful in developing and harvesting information for the benefit of the parents were those that had personal involvement by the principals of the parent company in shared goals, in the activities and decisions being made, and in encouraging joint learning and coaching.

Repetition: Chapter 8: Organization Structure and Control Systems PowerPoint by Hettie A. Richardson Louisiana State University

Organizational Structure Must evolve to accommodate internationalization Must “fit” with strategy Should be contingency based A firm’s structure must “fit” with its strategy—that is, be conducive to its implementation. Choice of structure also should be contingency based, taking into consideration factors such as the firm’s size, the appropriate technology, the organizational environment, geographic dispersion, and differences in time, language, cultural attitudes, and business practices. Many managers find it more difficult to develop the appropriate organizational structure than it is to develop the strategy.

The Thinking of How to Change Structures Differentiation Dividing the main task into sub tasks Differentiation takes place in the functions. – The more you differentiate – The more pressure you will se for integration Integration Coordinating the performance of the sub tasks, to assure that the goal af the main task will be obtained Typically a function for managers / leaders

the balance, that will minimize the complexity of the organization The Circle of Formalization The Problem is to find the balance, that will minimize the complexity of the organization Differentiation Integration ”After the task has been divided into specialist subtasks, the problem is to integrate the subtasks around the completion of the global task. This is the problem of organization design.” Jay Galbraith (1974), Organization Design – An Information Processing View

Choice of Organizational Form Exhibit 8-7 Transnational Strategy Globalization Strategy International Strategy Two major issues in choosing the structure and design of an organization are the opportunities and need for (1) globalization and (2) localization. This exhibit shows alternative structural forms appropriate to each of these variables and to the strategic choices regarding the level and type of international involvement desired by the firm. It updates the evolutionary stages model to reflect alternative organizational responses to more recent environments and to the anticipated competitive environments ahead. As the company progresses through various stages from domestic to transnational the organizational structure must be adapted to accommodate changes in relative focus on globalization versus localization, choosing a global product structure, a geographic area structure, or perhaps a matrix form. Multidomestic Strategy