chapter copyright© 2004 thomson learning all rights reserved 4 strategic management in the...

Chapter

Copyright© 2004 Thomson Learning All rights reserved

4Strategic Management in the Multinational Company:

Content and Formulation

Copyright© 2005 South-Western/Thomson Learning All rights reserved

Learning Objectives

• Define differentiation and low cost• Understand how low-cost and differentiation strategists

make money• Recall multinational examples of use of generic

strategies• Understand competitive advantage and value chain• Understand offensive and defensive strategies

• Define differentiation and low cost• Understand how low-cost and differentiation strategists

make money• Recall multinational examples of use of generic

strategies• Understand competitive advantage and value chain• Understand offensive and defensive strategies


Learning Objectives

• Understand basics of multinational diversification• Understand how traditional strategy formulation

techniques apply to the multinational company• Realize both the convergence and divergence in

strategies

• Understand basics of multinational diversification• Understand how traditional strategy formulation

techniques apply to the multinational company• Realize both the convergence and divergence in

strategies


Basic Strategy for the Multinational Company

• Multinational companies use many of the same strategies as domestic companies

• Multinational companies use many of the same strategies as domestic companies


Competitive Advantage and Multinational Applications of Generic Strategies

• Generic strategies: basic ways to achieve and sustain competitive advantage

• Competitive advantage: when a company can outmatch its rivals in attracting and maintaining its targeted customers

• Generic strategies: basic ways to achieve and sustain competitive advantage

• Competitive advantage: when a company can outmatch its rivals in attracting and maintaining its targeted customers


Competitive Advantage and Multinational Applications of Generic Strategies (cont.)

• Differentiation strategy: providing superior value to customers• Ex.: BMW competing in the world market by

providing high-quality and performance sports cars• Low-cost strategy: producing at a lower cost than

competitors• Ex.: Korean semiconductor firms

• Differentiation strategy: providing superior value to customers• Ex.: BMW competing in the world market by

providing high-quality and performance sports cars• Low-cost strategy: producing at a lower cost than

competitors• Ex.: Korean semiconductor firms


How Do Low-Cost and Differentiation Firms Make Money?

• Differentiation• Customers often pay a higher price for extra value

• Low-cost• Additional profits come from cost savings

• Differentiation• Customers often pay a higher price for extra value

• Low-cost• Additional profits come from cost savings


Exhibit 4.1: Costs, Prices, and Profits for Differentiation and Low-Cost Strategies


Focus Strategy

• Strategies can be further subdivided on the basis of competitive scope

• Competitive scope: how broadly a firm targets its products or services• Narrow competitive scope for certain buyers or

geographic areas• Broad competitive scope when a large range of

buyers are targeted

• Strategies can be further subdivided on the basis of competitive scope

• Competitive scope: how broadly a firm targets its products or services• Narrow competitive scope for certain buyers or

geographic areas• Broad competitive scope when a large range of

buyers are targeted


Exhibit 4.2: Porter’s Generic Strategies


Competitive Advantage and the Value Chain

• A firm can gain competitive advantage by finding differentiation or low costs in its activities

• Value chain is a convenient way of looking at the firm’s activities

• Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product

• A firm can gain competitive advantage by finding differentiation or low costs in its activities

• Value chain is a convenient way of looking at the firm’s activities

• Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product


Exhibit 4.3: The Value Chain


Components of the Value Chain

• Primary activities: physical actions of creating, selling, and after-sale service of products

• Upstream: early activities in the value chain• R&D• Dealing with suppliers

• Primary activities: physical actions of creating, selling, and after-sale service of products

• Upstream: early activities in the value chain• R&D• Dealing with suppliers


Components of the Value Chain (cont.)

• Downstream: later value chain activities• Sales and dealing with distribution channels

• Support activities: systems for human resources management, organizational design and control, and technology

• Downstream: later value chain activities• Sales and dealing with distribution channels

• Support activities: systems for human resources management, organizational design and control, and technology


Distinctive Competencies

• Strengths that allow companies to outperform rivals• Ex.: Quality, innovation, customer service

• Resources: inputs into the production or service processes• Ex.: Buildings, land, equipment, employees

• Strengths that allow companies to outperform rivals• Ex.: Quality, innovation, customer service

• Resources: inputs into the production or service processes• Ex.: Buildings, land, equipment, employees


Distinctive Competencies

• Capabilities: ability to assemble and coordinate resources effectively

• Resources provide the organization with potential capabilities.

• For long-term success, capabilities must lead to sustainable competitive advantage.

• Capabilities: ability to assemble and coordinate resources effectively

• Resources provide the organization with potential capabilities.

• For long-term success, capabilities must lead to sustainable competitive advantage.


Sustaining Competitive Advantage

• Sustainable: strategies not easily defeated by competitors

• Four characteristics of capabilities that lead to competitive advantage

• Valuable• Rare• Difficult to imitate• Non-substitutable

• Sustainable: strategies not easily defeated by competitors

• Four characteristics of capabilities that lead to competitive advantage

• Valuable• Rare• Difficult to imitate• Non-substitutable


Exhibit 4.4: Relationships Among Resources, Capabilities, Distinctive Competencies, and Eventual Profitability


Competitive Strategies in International Markets

• Competitive strategies: strategic moves multinationals use to defeat competitors• Offensive competitive strategies: direct attacks to

capture market share• Defensive competitive strategies: attempts to

discourage offensive strategies• Counter-parry: fending off a competitor’s attack in

one country by attacking in another country

• Competitive strategies: strategic moves multinationals use to defeat competitors• Offensive competitive strategies: direct attacks to

capture market share• Defensive competitive strategies: attempts to

discourage offensive strategies• Counter-parry: fending off a competitor’s attack in

one country by attacking in another country


Offensive Strategies

• Direct attacks: price cutting, adding new features, or going after poorly served markets

• End-run offensives: seeking unoccupied markets• Preemptive competitive strategies: being first to obtain

particular advantageous position• Acquisitions: buying out a competitor

• Direct attacks: price cutting, adding new features, or going after poorly served markets

• End-run offensives: seeking unoccupied markets• Preemptive competitive strategies: being first to obtain

particular advantageous position• Acquisitions: buying out a competitor


Defensive Strategies

• Attempts to reduce risks of being attacked• Convince an attacking firm to seek other targets• Blunt the impacts of any attack

• Exclusive contracts with best suppliers• New models to match competitor’s lower prices• Public announcements about the willingness to fight

• Attempts to reduce risks of being attacked• Convince an attacking firm to seek other targets• Blunt the impacts of any attack

• Exclusive contracts with best suppliers• New models to match competitor’s lower prices• Public announcements about the willingness to fight


Counter-parry

• Popular strategy for multinationals• Respond to attack by attacking competitor in another

country• Ex.: Kodak—When Fuji attacked Kodak in the U.S.,

Kodak retaliated by attacking Fuji in Japan.• Goodyear also attacked Michelin in Europe as

response to attack in U.S.

• Popular strategy for multinationals• Respond to attack by attacking competitor in another

country• Ex.: Kodak—When Fuji attacked Kodak in the U.S.,

Kodak retaliated by attacking Fuji in Japan.• Goodyear also attacked Michelin in Europe as

response to attack in U.S.


Multinational Diversification Strategy

• Business-level strategies: strategies for a single business operation

• Corporate-level strategies: how companies choose their mixture of different businesses

• Business-level strategies: strategies for a single business operation

• Corporate-level strategies: how companies choose their mixture of different businesses


Diversification

• Related diversification: companies acquire businesses that are similar in some way to their original or core business• Ex.: Nike adding clothing line to its shoe operations

• Unrelated diversification: firms acquire businesses in any industry• Main concern is whether it’s a good financial

investment

• Related diversification: companies acquire businesses that are similar in some way to their original or core business• Ex.: Nike adding clothing line to its shoe operations

• Unrelated diversification: firms acquire businesses in any industry• Main concern is whether it’s a good financial

investment


Exhibit 4.5: Selection of Global Fortune 500 Diversified Multinationals


Strategy Formulation: Traditional Approaches

• Strategy formulation: process by which managers select the strategies to be used by their company

• Analyses

• Strategy formulation: process by which managers select the strategies to be used by their company

• Analyses


Strategy Formulation: Traditional Approaches (cont.)

• Popular analysis techniques • Competitive dynamics of the industry • Company’s competitive position in the industry• Opportunities and threats faced by their company• Company’s strengths and weaknesses

• Popular analysis techniques • Competitive dynamics of the industry • Company’s competitive position in the industry• Opportunities and threats faced by their company• Company’s strengths and weaknesses


Industry and Competitive Analysis

• Managers must understand their industry well to formulate good strategies.

• Must understand economic characteristics of industries and driving forces

• Economic characteristics include• Market size• Ease of entry• Opportunities for economies of scale

• Managers must understand their industry well to formulate good strategies.

• Must understand economic characteristics of industries and driving forces

• Economic characteristics include• Market size• Ease of entry• Opportunities for economies of scale


Driving Forces

• The important changes that have potential to affect an industry• Speed of new product innovations• Technological changes• Changing societal attitudes and lifestyles

• The important changes that have potential to affect an industry• Speed of new product innovations• Technological changes• Changing societal attitudes and lifestyles


Key Success Factors

• Important characteristics of a company or its product that lead to success in an industry• Innovative technology or products• Broad product line• Effective distribution channels• Price advantages• Effective promotion• Superior physical facilities or skilled labor

• Important characteristics of a company or its product that lead to success in an industry• Innovative technology or products• Broad product line• Effective distribution channels• Price advantages• Effective promotion• Superior physical facilities or skilled labor


Key Success Factors

• Experience of firm in business• Cost position for raw materials• Cost position for production• R&D quality• Financial assets• Product quality• Quality of human resources

• Experience of firm in business• Cost position for raw materials• Cost position for production• R&D quality• Financial assets• Product quality• Quality of human resources


Competitor Analysis

• Profiles of competitor’s strategies and objectives• Four steps

• Strategic intent• Current and anticipated generic strategies• Current and anticipated offensive and defensive

competitive strategies• Current positions

• Profiles of competitor’s strategies and objectives• Four steps

• Strategic intent• Current and anticipated generic strategies• Current and anticipated offensive and defensive

competitive strategies• Current positions


Competitor Analysis (cont.)

1. Strategic intent1.Broad objectives of competitors

2. Current and anticipated generic strategies1.Helps determine key KSF

3. Current and anticipated offensive and defensive competitive strategies

4. Current positions

1. Strategic intent1.Broad objectives of competitors

2. Current and anticipated generic strategies1.Helps determine key KSF

3. Current and anticipated offensive and defensive competitive strategies

4. Current positions


Exhibit 4.6: Hypothetical Competitive Profiles of Four Companies in Different Countries


Company-Situation Analysis: SWOT

• Strengths: distinctive capability, resource or skill• Weaknesses: competitive disadvantage compared to

competitors• Opportunities: favorable conditions in the environment• Threats: unfavorable conditions in the environment

• Strengths: distinctive capability, resource or skill• Weaknesses: competitive disadvantage compared to

competitors• Opportunities: favorable conditions in the environment• Threats: unfavorable conditions in the environment


SWOT Analysis

• More complex than for domestic firms• Multinationals face more complex general and

operating environments• Environments vary by country

• More complex than for domestic firms• Multinationals face more complex general and

operating environments• Environments vary by country


Corporate Strategy Selection

• Diversified corporation has a portfolio of businesses• Major issue is which businesses to invest in and which

businesses to divest• The basic tool: matrix analyses• The most popular is the growth-share matrix of the

Boston Consulting Group (BCG).

• Diversified corporation has a portfolio of businesses• Major issue is which businesses to invest in and which

businesses to divest• The basic tool: matrix analyses• The most popular is the growth-share matrix of the

Boston Consulting Group (BCG).


BCG Share Matrix

• Division into four categories based on market share and relative market share• Stars: the most successful firm• Dogs: businesses with low market shares in low-

growth industries• Cash cows: businesses in slow-growth industries

where company has strong market-share position• Problem children: businesses in high-growth

industries where company has a poor market share

• Division into four categories based on market share and relative market share• Stars: the most successful firm• Dogs: businesses with low market shares in low-

growth industries• Cash cows: businesses in slow-growth industries

where company has strong market-share position• Problem children: businesses in high-growth

industries where company has a poor market share


Exhibit 4.7: The BCG Growth Share Matrix


Matrices

• All matrices help answer basic strategy formulation question such as• Are businesses in attractive industries?• Are most businesses growing?• Are there sufficient cash cows to finance other

businesses?• Is business portfolio well positioned for the future?• Is the some strategic synergies among businesses?

• All matrices help answer basic strategy formulation question such as• Are businesses in attractive industries?• Are most businesses growing?• Are there sufficient cash cows to finance other

businesses?• Is business portfolio well positioned for the future?• Is the some strategic synergies among businesses?

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