Strategic Management in the Multinational Company: Content and Formulation

1. 4 Strategic Management in the Multinational Company: Content and Formulation

2. Learning Objectives • Define differentiation and low cost • Understand how low-cost and differentiation strategists make money • Recall multinational examples of use of generic strategies • Understand competitive advantage and value chain • Understand offensive and defensive strategies

3. Learning Objectives • Understand basics of multinational diversification • Understand how traditional strategy formulation techniques apply to the multinational company • Realize both the convergence and divergence in strategies

4. Basic Strategy for the Multinational Company • Multinational companies use many of the same strategies as domestic companies

5. Competitive Advantage and Multinational Applications of Generic Strategies • Generic strategies: basic ways to achieve and sustain competitive advantage • Competitive advantage: when a company can outmatch its rivals in attracting and maintaining its targeted customers

6. Competitive Advantage and Multinational Applications of Generic Strategies (cont.) • Differentiation strategy: providing superior value to customers • Ex.: BMW competing in the world market by providing high-quality and performance sports cars • Low-cost strategy: producing at a lower cost than competitors • Ex.: Korean semiconductor firms

7. How Do Low-Cost and Differentiation Firms Make Money? • Differentiation • Customers often pay a higher price for extra value • Low-cost • Additional profits come from cost savings

8. Exhibit 4.1: Costs, Prices, and Profits for Differentiation and Low-Cost Strategies

9. Focus Strategy • Strategies can be further subdivided on the basis of competitive scope • Competitive scope: how broadly a firm targets its products or services • Narrow competitive scope for certain buyers or geographic areas • Broad competitive scope when a large range of buyers are targeted

10. Exhibit 4.2: Porter’s Generic Strategies

11. Competitive Advantage and the Value Chain • A firm can gain competitive advantage by finding differentiation or low costs in its activities • Value chain is a convenient way of looking at the firm’s activities • Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product

12. Exhibit 4.3: The Value Chain

13. Components of the Value Chain • Primary activities: physical actions of creating, selling, and after-sale service of products • Upstream: early activities in the value chain • R&D • Dealing with suppliers

14. Components of the Value Chain (cont.) • Downstream: later value chain activities • Sales and dealing with distribution channels • Support activities: systems for human resources management, organizational design and control, and technology

15. Distinctive Competencies • Strengths that allow companies to outperform rivals • Ex.: Quality, innovation, customer service • Resources: inputs into the production or service processes • Ex.: Buildings, land, equipment, employees

16. Distinctive Competencies • Capabilities: ability to assemble and coordinate resources effectively • Resources provide the organization with potential capabilities. • For long-term success, capabilities must lead to sustainable competitive advantage.

17. Sustaining Competitive Advantage • Sustainable: strategies not easily defeated by competitors • Four characteristics of capabilities that lead to competitive advantage • Valuable • Rare • Difficult to imitate • Non-substitutable

18. Exhibit 4.4: Relationships Among Resources, Capabilities, Distinctive Competencies, and Eventual Profitability

19. Competitive Strategies in International Markets • Competitive strategies: strategic moves multinationals use to defeat competitors • Offensive competitive strategies: direct attacks to capture market share • Defensive competitive strategies: attempts to discourage offensive strategies • Counter-parry: fending off a competitor’s attack in one country by attacking in another country

20. Offensive Strategies • Direct attacks: price cutting, adding new features, or going after poorly served markets • End-run offensives: seeking unoccupied markets • Preemptive competitive strategies: being first to obtain particular advantageous position • Acquisitions: buying out a competitor

21. Defensive Strategies • Attempts to reduce risks of being attacked • Convince an attacking firm to seek other targets • Blunt the impacts of any attack • Exclusive contracts with best suppliers • New models to match competitor’s lower prices • Public announcements about the willingness to fight

22. Counter-parry • Popular strategy for multinationals • Respond to attack by attacking competitor in another country • Ex.: Kodak—When Fuji attacked Kodak in the U.S., Kodak retaliated by attacking Fuji in Japan. • Goodyear also attacked Michelin in Europe as response to attack in U.S.

23. Multinational Diversification Strategy • Business-level strategies: strategies for a single business operation • Corporate-level strategies: how companies choose their mixture of different businesses

24. Diversification • Related diversification: companies acquire businesses that are similar in some way to their original or core business • Ex.: Nike adding clothing line to its shoe operations • Unrelated diversification: firms acquire businesses in any industry • Main concern is whether it’s a good financial investment

25. Exhibit 4.5: Selection of Global Fortune 500 Diversified Multinationals

26. Exhibit 4.5: Selection of Global Fortune 500 Diversified Multinationals

27. Exhibit 4.5: Selection of Global Fortune 500 Diversified Multinationals

28. Strategy Formulation: Traditional Approaches • Strategy formulation: process by which managers select the strategies to be used by their company • Analyses

29. Strategy Formulation: Traditional Approaches (cont.) • Popular analysis techniques • Competitive dynamics of the industry • Company’s competitive position in the industry • Opportunities and threats faced by their company • Company’s strengths and weaknesses

30. Industry and Competitive Analysis • Managers must understand their industry well to formulate good strategies. • Must understand economic characteristics of industries and driving forces • Economic characteristics include • Market size • Ease of entry • Opportunities for economies of scale

31. Driving Forces • The important changes that have potential to affect an industry • Speed of new product innovations • Technological changes • Changing societal attitudes and lifestyles

32. Key Success Factors • Important characteristics of a company or its product that lead to success in an industry • Innovative technology or products • Broad product line • Effective distribution channels • Price advantages • Effective promotion • Superior physical facilities or skilled labor

33. Key Success Factors • Experience of firm in business • Cost position for raw materials • Cost position for production • R&D quality • Financial assets • Product quality • Quality of human resources

34. Competitor Analysis • Profiles of competitor’s strategies and objectives • Four steps • Strategic intent • Current and anticipated generic strategies • Current and anticipated offensive and defensive competitive strategies • Current positions

35. Competitor Analysis (cont.) • Strategic intent • Broad objectives of competitors • Current and anticipated generic strategies • Helps determine key KSF • Current and anticipated offensive and defensive competitive strategies • Current positions

36. Exhibit 4.6: Hypothetical Competitive Profiles of Four Companies in Different Countries

37. Exhibit 4.6: Hypothetical Competitive Profiles of Four Companies in Different Countries

38. Company-Situation Analysis: SWOT • Strengths: distinctive capability, resource or skill • Weaknesses: competitive disadvantage compared to competitors • Opportunities: favorable conditions in the environment • Threats: unfavorable conditions in the environment

39. SWOT Analysis • More complex than for domestic firms • Multinationals face more complex general and operating environments • Environments vary by country

40. Corporate Strategy Selection • Diversified corporation has a portfolio of businesses • Major issue is which businesses to invest in and which businesses to divest • The basic tool: matrix analyses • The most popular is the growth-share matrix of the Boston Consulting Group (BCG).

41. BCG Share Matrix • Division into four categories based on market share and relative market share • Stars: the most successful firm • Dogs: businesses with low market shares in low-growth industries • Cash cows: businesses in slow-growth industries where company has strong market-share position • Problem children: businesses in high-growth industries where company has a poor market share

42. Exhibit 4.7: The BCG Growth Share Matrix

43. Matrices • All matrices help answer basic strategy formulation question such as • Are businesses in attractive industries? • Are most businesses growing? • Are there sufficient cash cows to finance other businesses? • Is business portfolio well positioned for the future? • Is the some strategic synergies among businesses?