GLOBAL STRATEGIC MANAGEMENT

1. GLOBAL STRATEGIC MANAGEMENT K.RANGARAJAN

2. Module 1 Fundamentals on Strategic Management & Global Context Strategy, Strategic Management Process Levels of Management & Strategy Globalisation & firm drivers Globalisation & Global Strategy?

3. A Few Points to ponder……… • India is rated as the second preferred destination for FDIs in the coming years. • Excess Capacity especially in the wake of WTO is becoming a strategic issue of top priority (Steel, Textile, Polyester etc.) • Greenfield Investments is the preferred form for investment in developing countries. • The No. of Parent Cos of TNCs operating in economy is around 82k (India-815) • Only 2 coys from India are ranked in the top 100 non-financial TNCs by Foreign Assets from the Developing Countries. • The R & D expenditure by Indian Business firms is around 0.32% of Sales • The downslide of Traditional business houses (Great Indian Churn) • Growing interdependence of global economies • Growing Economic Turbulence across the world • Crash of TNCs like Standard Oil, Union Carbide, Enron, Lehman ………

4. India’s Most Admired Companies Based on BT ranking of most Valuable Companies 2011

5. Challenge of Strategic Management Competitive success is transient...unless care is taken to preserve competitive position

6. StrategicCompetitiveness Achieved when a firm successfully formulates and implements a value-creating strategy Sustained Competitive Advantage Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate Above-Average Returns Returns in excess of what an investor expects to earn from other investments with similar risk

7. Commitments Decisions Actions The Strategic Management Process Involves the full set of: which are required for firms to achieve: Strategic Competitiveness Sustained Competitive Advantage Above-Average Returns

8. 21st Century Competitive Landscape

9. Traditional sources of competitive advantage no longer guarantee success New keys to success include: • Flexibility • Innovation • Speed • Integration 21st Century Competitive Landscape • The global economy is changing. • People, goods, services and ideas move freely across geographic boundaries • New opportunities emerge in multiple global markets • Markets and industries become more internationalised.

10. Strategic Management & Strategy Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives. Strategic Management Strategy Means by which long-term objectives are achieved

11. Other views of Strategy Strategy as Plan: Consciously intended course of action which may be in the form of guidelines/report guiding decision making. Strategy as Ploy: Short-term tactic or a maneuver, intended to outwit a competitor. Strategy as Pattern: It is after-the-fact view which emerges over a period of time.

12. Other views of Strategy Strategy as Position: Managers see their firm as occupying a space within an environment in terms of Market share, Profits, Assets etc. Strategy as Perspective: This is a way of perceiving the world, and individuals in an organization are united by common thinking and behaviour.

13. Elements of Strategy Strategy Formulation Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

14. Elements of Strategy Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation

15. Elements of Strategy Strategy Evaluation Internal Review External Review Performance Metrics Corrective Actions

16. Levels of Strategy • Corporate Level – Choice of business, dividend policies, sources of long term financing and priorities for growth • Business Level – Plant location, marketing segmentation and geographic coverage, and distribution channels • Functional Level – Levels of Inventory, degree of supervision, selection of production equipment etc.

17. Managerial Decisions (Vs) Strategic Levels

18. Achieving Sustained Competitive Advantage 1. Adapting to change in external trends, internal capabilities and resources 2. Effectively formulating, implementing & evaluating strategies

19. Adapting to Change – Key Strategic Management Questions • What kind of business should we become? • Are we in the right fields? • Are there new competitors? • What strategies should we pursue? • How are our customers changing?

20. A Company’s Actual Strategy Is Partly Planned and Partly Reactive Actual Company Strategy Company Experiences, Know-how, Resource Strengths and Weaknesses, and Competitive Capabilities Abandoned strategy features PLANNED STRATEGY New initiatives plus ongoing strategy features continued form prior periods Adaptive reactions to changing circumstances REACTIVE STRATEGY

21. Recent Changes in General Globalization Drivers • Some of the widespread changes include the following: • Market Drivers • Per capita income converging among industrialized nations • Convergence of lifestyles and tastes (e.g., McDonald’s in India and Stolichnaya vodka in America) • Increasing travel creating global consumers • Organizations beginning to behave as global customer • Growth of global and regional channels (e.g.,Walmart (US) in 10 Countries, Carrefour (France) in 31, Metro (Ger.) in21,& 7-eleven (Jap.) in 21 ) • Establishment of world brands (e.g., Coca-Cola, Levi’s, Microsoft) • Push to develop global advertising (e.g. McCann's for Nestle & Gillette; Saatchi & Saatchi’s commercials for British Airways. • Spread of Global & regional media (CNN,MTV,Star TV in Asia)

22. Recent Changes in General Globalization Drivers… Cost Drivers • Continuing push for economies of scale (but offset by flexible manufacturing) • Accelerating technological innovation • Advances in transportation (e.g., use of Federal Express to deliver urgent supplies from one continent to another) • Emergence of newly industrializing countries with productive capabilities and low labor costs (e.g.., China, India, Indonesia etc.) • Increasing cost of product development relative to market life

23. Recent Changes in General Globalization Drivers… Government Drivers • Reduction of tariff barriers (e.g., NAFTA,FTAs) • Reduction of non-tariff barriers (e.g., Japan’s gradual opening of its markets) • Creation of trading blocs (e.g., EU etc) • Decline in role of governments as producers and customers (e.g., denationalization of many industries in Europe, China, India etc.) • Privatization in previously state-dominated economies, particularly in Latin America • Shift to open market economies from closed communist systems in Eastern Europe & Soviet • Increasing participation of China and India in the global economy

24. Recent Changes in General Globalization Drivers… Competitive Drivers • Continuing increase in level of world trade • More countries becoming key competitive battlegrounds (e.g., rise of Japan to become a “lead” country) • Increased ownership of corporations by foreign acquirers • Rise of new competitors intent upon becoming global competitors(e.g.,Japanese(70s),Koreans(80s),Taiwanese (90s),Chinese(00s), Indian & Russian (10s). • Rise of ‘born global’ companies. • Growth of global networks making countries interdependent in particular industries ( eg.,electronics)

25. Recent Changes in General Globalization Drivers… Other Drivers • Revolution in information and communications (e.g.,personalcomputers,mobiletelephony, internet etc.) • Globalization of financial markets (e.g., listing of corporations on multiple exchanges, and issuing debt in multiple currencies) • Improvements in business travel (e.g., improved air travel and rise of international hotel chains)

26. Historically Corporate Globalization took place in 3 stages Global Integration (Global) Internationalisation (Multinational) Export (Trade)

27. R R R P M P M P M R R R P M P M P M R R R P M P M P M ELEVATORS in EUROPE M R M M P P P M M M P R M M M GIS 4

28. Why Companies Globalize? • Increase Size (V): Capture market opportunities Customer Value CV • Increase Size benefit from Economies of Scale (C) Price • Get Access to resources and procurement(S) PROFIT Costs • Get access to low cost labor and infrastructure (C) Internal Costs C • Get access to knowledge (CV and C) Supplies (S) • Serve global customers (CV) Volume (V) • Reduce risks through geographical diversification

29. Globalisation Push Factors Political Factors * GATT * EEC * FDI Reduce trade barriers Technological Factors * Transport * Manufacturing * Telecommunication * R&D Reduce the cost of co-ordination Increase economies of scale Social Factors * Convergence of customer’s needs * Travel, TV, movies Favour standardisation and global branding Globalisation Competitive Factors * Japanese and Korean * Multinational Customers Induce integration and co-ordination

30. Localisation Push Factors Cultural Factors * Attitudes, tastes * Behaviour * Social Codes Reduce the benefits of standardisation Technical Factors * Standards * Transportation * Spatial presence * Languages Reduce the benefits of economies of scale, centralisation and standardisation Commercial Factors * Distribution networks * Customisation * Responsiveness Require differentiated approaches to sales and marketing Localisation Legal Factors * Regulations * National security Limit free flow of people, goods, data, cash Impose localisation constraints

31. LOCAL INDUSTRIES GLOBAL INDUSTRIES • Local industries are industries • in which firms can sustain competitive within the boundaries of countries. • Firm competing in multilocal industries • Are either: • Domestic firms within each country • Subsidiaries of multinational companies operating independently of each others in the respective countries • Global industries are industries • in which firms can sustain competitive advantages only if : • They are present in the key countries of the world • and • They integrate and coordinate their activities across the world on a centralized manner.

32. Characteristics of Global Industries Characteristics of Local Industries Industries: Global or Local ? • Different Needs & Customers Behavior • Customized Products/services • Low economies of scale • Complex distribution • Transferability of experience • “Local” customers • High transport costs • Similar Needs & Customers Behavior • Standardized Products • Beyond country economies of scale • Speed of Innovation • Transferability of experience • “Global” customers • “Global” pricing • “Global” competitors

33. DIFFERENT INDUSTRIES HAVE DIFFERENT COMPETITIVE REQUIREMENTS Telecommunication Equipments CivilAircraft Microprocessors Institutional Banking Corporate Banking Automobile BulkChemicals Paint Package Tours Retail Banking Catering Food Retail HIGH GLOBAL FORCES LOW LOW HIGH LOCAL FORCES

34. WITHIN BUSINESSES DIFFERENT SEGMENTS HAVE DIFFERENT COMPETITIVE REQUIREMENTS PAINTS HIGH AUTOMOTIVE MARINE AIRCRAFT CAR GLOBAL FORCES INDUSTRIAL DO IT YOURSELF LOW LOW HIGH LOCAL FORCES

35. WITHIN BUSINESSES DIFFERENT FUNCTIONS HAVE DIFFERENT BENEFITS OF BEING "GLOBAL" or "LOCAL" Research Development Finances After Sales Services Components Sourcing Components Manufacturing Logistics Marketing Advertising Accounting Customers Services Sales HIGH GLOBAL FORCES LOW LOW HIGH LOCAL FORCES

36. Domestic (vs.) Global Strategy: • Greater scale and scope of activities • More alternatives for configuration Of VA Activities • More scope for competitive advantage • More subjected to cultural and lingual activities • Wider economic and factor conditions

37. Thank You !