Trans-national corporate strategy

1. 1 Trans-national corporate strategy Strategy & Management in the Asian Corporation Week 1

2. 2 What are the reasons for pursuing a trans-national strategy Homogeneity of customer requirements Reduction of tariff & trade barriers Technology investments that are too expensive to write off in one market Saturation of home markets (eg US) Rise of NIEs providing viable sites for manufacturing Multi-locational �v- globalisation

3. 3 Yip�s globalization triangle Apex 1 � industry globalisation drivers Markets/costs/conditions providing potential Apex 2 � global strategy levers Global market participation Standardised products Globally integrated competitive moves Global marketing approach Apex 3 � global organisation factors Ability to implement global strategy Dynamic relationship between each apex (Total Global Strategy 1992)

4. 4 Is there a typical strategy? Use of TNC/MNC/MNE interchangeably A global strategy implies not only worldwide cross-border activities but also integrated and coordinated access to global resource advantages and exploitation of corporation�s internal potential

5. 5 Does globalisation exist? Recent research suggests that globalization is a myth. Far from taking place in a single global market, most business activity by large firms takes place in regional blocks. There is no uniform spread of American market capitalism nor are global markets becoming homogenized. Government regulations and cultural differences divide the world into the triad blocks of North America, the European Union and Japan. Rival multinational enterprises from the triad compete for regional market share and so enhance economic efficiency. The end of global strategy Rugman & Hodgetts 2001

6. 6 How do we view a TNC Is it a series of subsidiaries operating in regional markets and adapting locally to market needs? If so to what extent do subsidiaries have autonomy? To what extent is the corporate strategy of the parent merely a directive to react to local conditions

7. 7 What are the benefits of TNCs New market opportunities Economies of scale and scope Factor advantages Learning Flexibility Risk reduction

8. 8 Performance measures Elango 2004 argues MNCs have higher profit margins in global rather than regional operations 3 distinct types Regional Global Home Based Defined as location where majority of Gross Profit earned Therefore success = high Gross Profit margins Strategic implications Global operations offer higher profit margins Regional approach preferred if MNC diversified in many products Global strategies are more costly to implement in terms of administration costs There is �fit� between firm profile and strategy

9. 9 Is profit too short term? Jalbert & Landry 2003 Need measures to suggest long term forward thinking strategic view across entire organisation Economic Value Added NOPAT � ( CC X IC ) Net profit after tax Cost of capital Invested capital Tracking Stocks Specific to unit of business Balanced Scorecard

10. 10 Jalbert & LandryBalanced Scorecard

11. 11 Shareholder value Litman & Welling 2002 Argue common measure is TSR (Total shareholder return) Share price growth Great companies do not necessarily exhibit good TSR Corporate strategy often founded on companies showing good TSR Eg Dot.Com bubble

12. 12 Kumar & Petersen 2004Integrated strategy to maximize Return on Investment (ROI)

13. 13 Kumar & Petersen 2004 Develops marketing strategy on basis of ROI Do we measure strategic success by a metric (like ROI)? Do we use a metric to specifically determine strategy?

14. 14 Multi-faceted measures Drucker 1954 argued for multi-dimensional financial & non-financial measures Demirag 1987 showed UK parent companies used ROI and budgeted �v- actual profit Borkowski 1999 Suggests a range of financial measures be used to gauge performance Methods by which company can define long/short term outlook German & Japanese TNCs see net income as important US & UK TNCs use cost reduction European TNCs reward innovation (technological & product) Argues Europeans encourage research and experimentation compared to Asian and US culture R&D????

15. 15 R&D expenditure as % of GDP2000 - 2001

16. 16 Davis & Devinney -The essence of corporate strategy (1996) The fundamental process of corporate strategy development is rational, and Managers and firms are bounded by human, firm, market and environmental factors that limit their actions

17. 17 Davis & Devinney -The essence of corporate strategy (1996) In the end, all strategy is about rivalry Most popular books on strategy talk about �how to beat the competition� The goal of the management of rivalry is the achieving of cooperation Understanding rivalry requires three things: understanding the structure of the environment understanding the payoffs to the players in the game knowing who knows what In other words, rivalry is about understanding the terrain, understanding the stakeholders and their motivations and understanding the knowledge base of the stakeholders

18. 18 You also need luck Having superior resources is a necessary condition for success. Having superior managerial skills is a necessary condition for success. Being lucky is a necessary condition for success. This questions how can luck be influenced?

19. 19 End of Corporate Imperialism Prahalad & Lieberthal 2003 Argue western MNCs entered emerging markets seeing them as �targets� Means of disposal of vast amounts of western goods MNC strategy ignored �low end� market MNCs now adapt products to complexities of new markets Is this swapping global for local? West � East strategy, how applicable for East � West?

20. 20 Bad news for latecomers? Carr & Garcia 2003 Argue market concentration/domination is key strategy driver of global MNCs General Electric (world�s most profitable company) aims to achieve top 3 position in any given market segment How does this affect �laggard� MNCs (late entrants)? If dominance is not feasible it must affect strategic options (localisation/regionalisation/product range/diversification)

21. 21 Bad news for latecomers? Study of 9 vehicle component companies in Spain Argues local companies cannot develop global presence Constraint on strategic choices Develop niche markets Concentrate on core technical competencies Get taken over Is this inevitable? If so explain Asian MNCs!

22. 22 Carr & Garcia - summary

23. 23 East � West strategy Carney & Gedajlovic 2002 Internationalization by strategic asset purchase Asian corporations are �laggards� on international scene Build on merchant trading logic Can East � West strategy be imperialistic (Japanese) How can Asian corporations develop MNC strategies as latecomers Is there a specific E � W strategy? How global are Asian corporations? Are they in fact multi-locational (regional)?

24. 24 How do we identify & measure? Use of actual data Use of case studies Use of articles Use of corporate information

25. 25 Asian ExampleMatsushita � Panasonic Worldwide, Matsushita has currently 589 consolidated companies as well as 81 companies which are reflected by the equity method. International marketing and sales of Matsushita�s products are handled mainly through its sales subsidiaries and affiliates located in respective countries or regions. In some countries, however, marketing and sales are handled through independent agents or distributors, depending on regional characteristics.

26. 26 5 Year income summary

27. 27 Achieving a V-shaped Recovery As part of a new business domain-based organizational structure and various management reforms implemented in fiscal 2004, overseas companies are now managed by respective business domain companies on a global consolidated basis. Matsushita also adopted two results-based standards, namely CCM and cash flows, for the evaluation of business performance. CCM (Capital Cost Management) is a management benchmark created by Matsushita that emphasizes return on capital. A CCM of zero or above indicates that the return on invested capital meets the minimum return expected by shareholders

28. 28 Strategic products! Sales of V-products, the driving force behind the V-shaped recovery in Matsushita�s business results, surged to approximately �1.24 trillion in fiscal 2004, up from about �1 trillion in fiscal 2003. Since fiscal 2003, Matsushita has promoted V-products that can attain top shares in high volume markets and contribute to overall earnings. Overseas operations play a vital role as a �growth engine� in expanding business and enhancing overall earnings.