CHAPTER

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

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

9. 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. 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. 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. Slide 10-9 From: Bartlett and Ghoshal, Managing across borders, 1989 Transnational MNC HK Chile UK 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. 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. Slide 10-11 Making alliances workWhich 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. Slide 10-12 Making alliances workWhat 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. Slide 10-13 Making alliances workHow 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