Headquarter Level Headquarter Level StrategyStrategy

Global Strategic DevelopmentGlobal Strategic Development

Introduction Introduction

Tata is now India’s largest and most admired conglomerate.

Tata began its activities in 1847 as a single business company operating as a textile mill.

Due to Government regulation Tata was forced to diversify itself into unrelated businesses.

Tata’s activities span most key sectors of the Indian economy including steels, auto manufacturing, hotels, telecommunication, financial services, chemical, electricity, IT consultancy, tea & watches.

IntroductionIntroduction

Tata’s corporate strategy is to manage by a Tata’s corporate strategy is to manage by a central group of corporate managers. central group of corporate managers. – On the one hand their task is to act as a On the one hand their task is to act as a buffer

between the different subsidiaries, so that the different subsidiaries, so that each subsidiary is accountable for its activities.each subsidiary is accountable for its activities.

– On the other hand their task to act as a On the other hand their task to act as a bridge across the different subsidiaries, so as to the different subsidiaries, so as to enable expansion into new businesses and enable expansion into new businesses and regions and assistance to businesses that need regions and assistance to businesses that need capital help from the centre (venture capital help from the centre (venture capitalist).capitalist).

Role of Corporate Role of Corporate ParentParent CP must determine the overall strategic CP must determine the overall strategic

direction and structure of the multinational direction and structure of the multinational firm: firm: Global SourcingGlobal Sourcing

CP must determine the scope of operation by CP must determine the scope of operation by defining the extent of the firm’s involvement defining the extent of the firm’s involvement across different operations and countries: across different operations and countries: DiversificationDiversification

The management team at the corporate level The management team at the corporate level needs to develop basis for maintaining an needs to develop basis for maintaining an overview of performance across all overview of performance across all subsidiaries: managing a subsidiaries: managing a Global PortfolioGlobal Portfolio

Global Sourcing Global Sourcing StrategyStrategy Sourcing refers to the process by which MNC’s Sourcing refers to the process by which MNC’s

manage the flow of components and finished goods manage the flow of components and finished goods to serve domestic and international markets. to serve domestic and international markets.

GSS is the management of logistics identifying which GSS is the management of logistics identifying which production units will serve which particular markets production units will serve which particular markets and how components will be supplied for production.and how components will be supplied for production.

GSS must enable firms to exploit both its own and its GSS must enable firms to exploit both its own and its suppliers’ competitive advantages and the suppliers’ competitive advantages and the comparative locational advantages of various comparative locational advantages of various countries in global competition.countries in global competition.

Global Sourcing Global Sourcing StrategyStrategy

Sourcing

Sourcing Method

Location Type of Sourcing

Intra- Firm/Vertical Integration

DomesticIn-house sourcing from domestic subsidiaries

Foreign Countries

In-house sourcing from subsidiaries abroad

OutsourcingDomestic

Sourcing from domestic external suppliers

Foreign Countries

Sourcing from suppliers located abroad

Vertical IntegrationVertical Integration

VI represents the expansion of the firm’s VI represents the expansion of the firm’s activities to include activities carried out by activities to include activities carried out by suppliers or customers.suppliers or customers.– Firm source components in-house when Firm source components in-house when

cost of producing them abroad outweigh cost of producing them abroad outweigh the benefits.the benefits.

– Global intra-housing strategy- involves Global intra-housing strategy- involves coordinating and integrating the flow of coordinating and integrating the flow of inputs both within and among subsidiaries inputs both within and among subsidiaries in different countries. in different countries.

Motives for VIMotives for VI

Lack of quality suppliersLack of quality suppliers Retain control over property Retain control over property

knowledgeknowledge High entry barrierHigh entry barrier Maintain qualityMaintain quality Add value at different stages of the Add value at different stages of the

value chain.value chain.

Problems of VIProblems of VI

Lost focusLost focus Higher costHigher cost Fast changing global business Fast changing global business

environmentenvironment

OutsourcingOutsourcing

Outsourcing by multinational firm comprises Outsourcing by multinational firm comprises the inputs supplied to the multinational firm the inputs supplied to the multinational firm by independent suppliers from around the by independent suppliers from around the world.world.

Conditions of OutsourcingConditions of Outsourcing– Specify what attributes it needs from suppliersSpecify what attributes it needs from suppliers– Technology and processes to measure those Technology and processes to measure those

attributes must be reliable and conveniently attributes must be reliable and conveniently accessibleaccessible

– Variations in the deliveries needs to be Variations in the deliveries needs to be incorporated and adjusted in the final product.incorporated and adjusted in the final product.

Types of OutsourcingTypes of Outsourcing

Firm’s prefer domestic outsourcing when the Firm’s prefer domestic outsourcing when the disadvantages of producing them abroad disadvantages of producing them abroad outweigh the advantage.outweigh the advantage.– The cost of producing and distributing the components The cost of producing and distributing the components

by a domestic supplier is lower than the cost of by a domestic supplier is lower than the cost of producing them by foreign suppliersproducing them by foreign suppliers

– Where the foreign suppliers do not possess the Where the foreign suppliers do not possess the necessary skills and technologies needed to produce necessary skills and technologies needed to produce the componentsthe components

National differences also have an impact on National differences also have an impact on the outsourcing strategy- Arm’s length basis/ the outsourcing strategy- Arm’s length basis/ Keiretsu.Keiretsu.

Advantages of Advantages of OutsourcingOutsourcing

Cost SavingCost Saving Access to proprietary knowledgeAccess to proprietary knowledge Focus on core competenceFocus on core competence FlexibilityFlexibility CompetitionCompetition

Disadvantages of Disadvantages of OutsourcingOutsourcing

Hollow firmsHollow firms High failure rateHigh failure rate Operational & Cultural problemOperational & Cultural problem Damage corporate imageDamage corporate image

DiversificationDiversification

DiversificationDiversification is a form of corporate strategy is a form of corporate strategy for a company. It seeks to increase profitability for a company. It seeks to increase profitability through greater sales volume obtained from through greater sales volume obtained from new products and new markets. new products and new markets.

Why Diversify? Why Diversify?

•To maintain an appropriate level of risk To maintain an appropriate level of risk exposure exposure •To temper market volatility To temper market volatility

Diversification Diversification StrategiesStrategies

Focused Strategy: Single business/ Concentric Diversification

Diversification Strategy

Related Diversification

Unrelated Diversification

Related Global Diversification

Unrelated Global Diversification

Related Global Diversification

Unrelated Global Diversification

Industrial Diversification

Global Diversification

Focused Strategy: Single Focused Strategy: Single BusinessBusiness Single businesses strategy followers stick to the Single businesses strategy followers stick to the

core business they know well; i.e. MacDonald, core business they know well; i.e. MacDonald, domino’s pizza , following concentration strategy.domino’s pizza , following concentration strategy.– AdvantagesAdvantages

In-depth knowledgeIn-depth knowledge Better positioned to develop CA- develop Better positioned to develop CA- develop

unique competenceunique competence– DisadvantagesDisadvantages

Risk is substantial – obsoleteRisk is substantial – obsolete Business starts to shrinkBusiness starts to shrink

Industrial Industrial Diversification Diversification Two industrial diversification options are Two industrial diversification options are

available for firms:available for firms:– Diversify into closely related business- Diversify into closely related business-

Related Diversification: RD measures Related Diversification: RD measures dispersal of activities across business dispersal of activities across business segments segments within within industriesindustries

– Diversify into completely unrelated Diversify into completely unrelated business- Unrelated Diversification: URD business- Unrelated Diversification: URD measures the extent to which a firm’s measures the extent to which a firm’s activities are dispersed activities are dispersed acrossacross different different industries.industries.

Related DiversificationRelated Diversification

Related diversificationRelated diversification: companies : companies acquire businesses that are similar in acquire businesses that are similar in some way to their original or core some way to their original or core businessbusiness– Ex.: Nike adding clothing line to its Ex.: Nike adding clothing line to its

shoe operationsshoe operations

Opportunities:Opportunities:– Economies of scope: sharing of Economies of scope: sharing of

knowledgeknowledge– Market powerMarket power– R&D competenciesR&D competencies

Related DiversificationRelated Diversification

Unrelated DiversificationUnrelated Diversification

Unrelated diversificationUnrelated diversification: firms : firms acquire businesses in any industryacquire businesses in any industry– Sound financial investment: key Sound financial investment: key

concernconcern– Diversify risksDiversify risks– Market/ Profit opportunityMarket/ Profit opportunity

Problem of ContaminationProblem of Contamination

Risks of DiversificationRisks of Diversification

Demotivate better performing Demotivate better performing subsidiariessubsidiaries

Parent’s interferenceParent’s interference

Diversification in Diversification in Emerging EconomiesEmerging Economies Developed economies are advised to stick to Developed economies are advised to stick to

their core business unless they have a good their core business unless they have a good reason to diversify.reason to diversify.

On the other hand large firms in emerging On the other hand large firms in emerging economies are advised to diversify into economies are advised to diversify into different line of businesses unless they have different line of businesses unless they have a good reason to follow a focused strategy. a good reason to follow a focused strategy.

Diversification in Diversification in Emerging EconomiesEmerging Economies

Reasons – dealing with market Reasons – dealing with market imperfectionimperfection

– Lack of venture capitalLack of venture capital– Political risk- bureaucracy, red tapePolitical risk- bureaucracy, red tape– Lack of information flowLack of information flow

Global DiversificationGlobal Diversification

The key motivations for global diversifications areThe key motivations for global diversifications are– Search for new market to exploit unique assetsSearch for new market to exploit unique assets– To gain access to lower cost higher quality inputTo gain access to lower cost higher quality input– To build scale economies and other efficienciesTo build scale economies and other efficiencies– Pre-empt competitorsPre-empt competitors

While global diversification has increased over time, While global diversification has increased over time, industrial diversification has declined over the same industrial diversification has declined over the same period.period.

Global DiversificationGlobal Diversification

Related & Unrelated GDRelated & Unrelated GD– Related GD: the dispersion of a global Related GD: the dispersion of a global

firm’s activities across countries within firm’s activities across countries within relatively homogeneous cluster of relatively homogeneous cluster of countriescountries

– Unrelated GD: the dispersion of a global Unrelated GD: the dispersion of a global firm’s activities across heterogeneous firm’s activities across heterogeneous geographic regiongeographic region

Global DiversificationGlobal Diversification

BenefitsBenefits– Increases shareholders valueIncreases shareholders value– Create flexibility- production, Create flexibility- production,

operationoperation– Lower the overall tax liabilityLower the overall tax liability– Increased powerIncreased power– Spreading riskSpreading risk

Global DiversificationGlobal Diversification

CostsCosts– More complex structureMore complex structure– Inefficient subsidiariesInefficient subsidiaries– Cost of coordinationCost of coordination

Managing Portfolio: BCG Managing Portfolio: BCG Share MatrixShare Matrix

BCG Share MatrixBCG Share Matrix

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

low-growth industrieslow-growth industries– Cash cows: businesses in slow-growth Cash cows: businesses in slow-growth

industries where company has strong industries where company has strong market-share positionmarket-share position

– Problem children: businesses in high-growth Problem children: businesses in high-growth industries where company has a poor industries where company has a poor market sharemarket share

Managing Global Managing Global PortfolioPortfolio

Country Attractiveness

Companies

compatibility with each

country

Country Country Attractiveness: FordAttractiveness: Ford

Competitive Strength: Competitive Strength: FordFord

CA vs. CSCA vs. CS