2. CHAPTER 10
Global Strategy

3. 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. Slide 10-1
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

5. Slide 10-2
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

6. Global Expansion Benefits
Slide 10-3
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
Unit costs
Experience curve B A
Accumulated output

7. Pressures for Global Integration & Local Responsiveness
Slide 10-4
Pressures for Global Integration & Local Responsiveness
High
Ball bearings,
wheat
Global Integration
Cost Reduction
Pressures
Cosmetics, food,
household goods
Low
Low
Local Responsiveness Pressures
High
Country Differences in
- consumer tastes/preferences
- infrastructure/practices
- distribution channels
- host government needs

8. Strategic Choice High “Global” “Transnational” Strategy Strategy
Slide 10-5
Strategic Choice
High
“Global”
Strategy
“Transnational”
Strategy
Cost Reduction
(Global Integration)
Pressures
“International”
Strategy
“Multidomestic”
Strategy
Low
Low
High
Local Responsiveness Pressures

9. Multidomestic MNC HK UK Chile USA India Japan Mexico
Slide 10-6
Multidomestic MNC
From: Bartlett and Ghoshal, Managing across borders, 1989 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

10. International MNC HK UK Chile USA India Japan Mexico
Slide 10-7
International MNC
From: Bartlett and Ghoshal, Managing across borders, 1989 HK UK
Chile
USA
India
Japan
Mexico
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

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

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

13. International Strategic Alliances
Slide 10-10
International Strategic Alliances
Cooperative agreements among competitors from different countries
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

14. Making alliances work Which partner?
Slide 10-11
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)

15. Making alliances work What Structure?
Slide 10-12
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

16. Making alliances work How to manage?
Slide 10-13
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