foundations of strategy chapter 8: global strategies and the multinational company
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Foundations of Strategy Chapter 8: Global Strategies and the Multinational Company. Jacob Felty Sabrea Hebb Alexandra Hill Shaady Ibrahim Callie Myers Colby Wulf. Patterns of Internationalization. Occurs through: - PowerPoint PPT PresentationTRANSCRIPT
Foundations of Strategy Chapter 8:Global Strategies and the Multinational Company
Jacob FeltySabrea Hebb Alexandra HillShaady IbrahimCallie MyersColby Wulf
Patterns of Internationalization
Occurs through:◦ Trade – the sale
and shipment of goods and services from one country to another
◦ Direct Investment – building or acquiring productive assets in another country
USA China
Internationalization of Industries
Sheltered Industries – protected from trade and direct investment
Trading Industries – engaged in trade, not direct investment
Multidomestic Industries – engaged in direct investment, not trading
Global Industries – trade and direct investment involved
Trading Industries- Airbus
- De Beers
Global Industries
- ExxonMobil- LG
Sheltered Industries- Gandy’s - Mahon Cleaners
Multidomestic Industries
- McDonald’s- Hilton
Foreign Direct InvestmentLow High
Inte
rnat
iona
l Tra
deHi
ghLo
w
Competitive Advantage in an International World
Achieved when internal strengths in resources and capabilities to the key success factors of the industry are matched
Comparative Advantage: a country intensively uses those resources they have in abundance◦ Large home market is an
additional source
Natural Environme
nt: - Raw
Materials like Sugar- Relatively
little government
control- Logistics Services
Firm Resources
and Capabilities:
- Great Reputation
- Huge Financial
Resources - Physical Resources
Industry Environme
nt:- Taste
- Availability
Coca – Cola Competitive Advantage
Porter’s National Diamond Framework
Factor Conditions – constraints or freedoms, beyond control
Related and Supporting Industries – clusters of inter-related and interdependent industries
Demand Conditions – domestic demand drives innovation and quality
Strategy, Structure, and Rivalry – intense domestic competition vital to success
Factor Conditions:Lack of rubber trees
leads to development of synthetic rubber
Strategy, Structure and
Rivalry:Microsoft vs.
Google vs. Apple
Demand Conditions:
Cheap fast-food
Related and Supported Industries:
Wichita Falls, Kansas
Limitations of the Diamond ModelFirst Perspective:
◦ Fails to consider attributes of home country’s trading partners
◦ Not applicable to smallest nations
◦ Ignores the role of multinational corporations in influencing competitive success of nations
Second Perspective:◦ Too general, lacks value◦ Insufficiently precise to
generate predictions
Would countries rich in cheap labor, such as Bangladesh, be competitive without clothing companies such as Gap?
International Location of Production
Firms consider several factors for locating production:National resource availability – Finding
countries where resource supplies are good (ex: oil industry in the Gulf of Mexico)
Firm-specific competitive advantages – a firm’s competitive advantage dependent on internal resources need to find locations where they are located◦ Goldman Sachs and Toyota have succeeded in
transferring their competitive advantage abroad
International Location of Production
Tradability – the harder it is to transport product, the more local production must become ◦ Trade barriers (i.e. tariffs, quotas) or government
restrictions (licensing) factor into the choice◦ Services are best produced nearby consumption
Political considerations – Location decision is affected by government incentives, penalties, and restrictions
Freedom House - Economic Freedom Index
Location and Value Chain A vertical chain of activities comprises the
production of goods. But advantages for any stage varies by country
Consumer electronics is costly in capital and R&D. Neither is always in the same location
ECCO produces ‘leisure casual branded footwear’. The firm uses a vertically-integrated production chain (“from cow to consumer”)
Design, R&D, leather production, and distribution are handled in very different locations like Denmark, Portugal, Indonesia, China, Hong Kong, etc.
Factors of Entering Foreign Markets
Competitive Advantage: ◦ firm specific vs. country specific (Toyota)
Firm specific = production/management capabilities Country specific = Low domestic cost base
Tradability of product & barriers of trade◦ Barriers to trade
transportation constraints import restrictions
Range of resources and capabilities◦ To establish competitive advantage
Directly appropriating Returns on resources◦ Licensing arrangement factors:
Reliability and capabilities of local licensee Transaction costs involved
◦ transport costs & tariffs, exchange rate risk, information costs
◦ McDonald’s vs. Starbucks
Entering Foreign Markets
Location?
Independent factors
Cost / availability of inputs
Foreign governme
nt incentives/ penalties
Internal resources
and capabilitie
s
Dependent factors
Firm’s business strategy
Coordination
benefits
International alliances and joint ventures
Strategic Alliances◦Collaborative arrangement between
firmsAccess the market knowledge,
distribution capabilities, and product development of local companies
Sharing resources and capabilities between the partners◦Helps minimize costs and increase
market share
International Strategic Alliances
Overseas
Market Entry
TransactionsLicensing
Patents/ other IP
Franchising
ExportingSpot Sales
Long-term Contract
Foreign agent/ distributor
Direct Investment
Joint Venture
Marketing/ Distribution
onlyFully
integratedWholly Owned
subsidiary
Marketing/ Distribution
onlyFully
integrated
Multinational Strategies: Global Integration vs. National Differentiation
◦The benefits of a global strategy◦The need for differentiation◦Reconciling global integration with national differentiation
The Benefits of a Global StrategyViews the world as a single,
segmented marketGlobal players usually win
◦Access to scale economies◦Barriers to exploiting these scale
economies are fast disappearing
Levitt’s Analysis of the Potential for Global StrategiesCost Benefits of Scale and
ReplicationServing Global CustomersExploiting National Resources –
Arbitrage BenefitsLearning BenefitsCompeting Strategically
Cost Benefits of Scale and ReplicationPrimary sources of scale
economy is product developmentReplication costs are a fraction of
the original cost of developing the product◦Disneyland theme parks
Serving Global Customers Investment BankingAudit servicesAdvertising
Exploiting National ResourcesExploiting the efficiencies from
locating different activities in different places
Search of resource opportunities◦Raw materials◦Low cost labor
Therefore, leads to a search for knowledge
Learning BenefitsRefers to
◦Ability to access and transfer local knowledge
◦Integration of this knowledge◦Creation of new knowledge learned
from interacting with different national environments
IKEA expansion
Competing StrategicallyInternational firms can fight more
aggressively with national firms using resources from other national markets
Can cut prices lower than national firms◦Can contradict standards set by the
World Trade Organization
The Need for National DifferentiationProducts designed to meet the needs of
a global customer tend to be unappealing to most customers
Costs of national differentiation are low if ◦Designs are basic◦Common major components remain the same
CAGE framework◦Cultural distance◦Administrative and political distance◦Geographical distance◦Economic distance
Reconciling Global Integration with National DifferentiationInternational strategy is a
tradeoff between global integration and national adaptation
Industries where scale economies are large global strategy
If national preferences are pronounced multi-domestic strategy
Reconciling conflicting forces is one of the greatest strategic challenges
Strategy and Structure of the Multinational CorporationThe strategy-structure mix for MNCs are
dependent on the ones they used to enter the international marketplace.
Over the past 100 years, different time periods have called for different strategies and structures.
However, radical changes are difficult and dangerous.
Three main eras in strategy-structure development:◦ Early 20th Century◦ Post World-War II◦ The 1970s and 1980s
Early 20th Century: era of the European MultinationalPioneers of multinational
expansion: Unilever, Shell, ICI, and Phillips.
Poor transportation and communication called for the invention of “multinational federations”.
Post World War II: era of the American Multinational
The dominance of the US economy was the basis for emergence of multinationals such as Ford and Coca-Cola.
US-based technology and resources were their primary competitive advantage at this time.
During WWII, Coke began representing itself as a patriotic brand, setting the stage for their multinational expansion.
The 1970s and 80s: the Japanese Challenge
Japanese MNCs such as Honda and Toyota dominated during this era.
R&D and manufacturing were based in Japan while sales and distribution were done overseas.
Globally standardized products were produced in large quantities, providing a cost and quality advantage.
Reconfiguring the MNCChanging the organization structure:Changes in structure must be backed
by changes in responsibilities, decision making, and coordination modes.
Escalating local customer needs calls for more decentralization. However, this should not stifle innovation and creation.
These factors introduce a new idea: “The Transnational Organization”.
The Transnational FirmThe transnational firm is
a concept and direction for strategy rather than a strategy itself.
P&G adopts global standardization for some products and national differentiation for others.
Aligning resources with these changing strategies may require a headquarters relocation.
Organizing R&D and NPDInnovation and creation requires
autonomy while distribution requires heavy coordination.
Assigning national subsidiaries can remedy this problem.