Chapter 11 Global Strategy

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Global Strategy Strategy: Mission-Business Strategy- Operating Strategy -General purpose: maximize/make profit Economies of Scope -Differentiate products, increase price: add value, features, quality, service Economies of Scale -Achieve low cost -Key means: allocation of scarce resources to attain goals

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 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)- policies/programs human resources research and development

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McGraw-Hill/Irwin Global Business Today, 4/e © 2006 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 (ownership advantages) 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

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 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/requirements Ball bearings, wheat Cosmetics, food, household goods

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 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

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 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 Sweden HK Mexico From: Bartlett and Ghoshal, Managing across borders, 1989

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. International MNC 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 UK Chile India Japan USA HK Mexico From: Bartlett and Ghoshal, Managing across borders, 1989

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Global MNC UK Chile India USA Japan 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

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 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

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McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. International Strategic Alliances Cooperative agreements between 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 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

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Making alliances work Which partner? A suitable partner -Helps achieve strategic goals 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 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

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 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

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 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 a common value system -Build informal network of personal relationships Learn from partners -Apply the knowledge within your own organization -Brief your employees on partner strengths