BASIC STRATEGY CONTENT BASIC STRATEGY CONTENT AND THE MULTINATIONAL AND THE MULTINATIONAL

COMPANYCOMPANY

Strategy content includes the Strategy content includes the strategic options available to strategic options available to companiescompanies

Multinational companies use Multinational companies use many of the same strategies as many of the same strategies as domestic companies domestic companies

COMPETITIVE ADVANTAGE COMPETITIVE ADVANTAGE AND GENERIC STRATEGIESAND GENERIC STRATEGIES

Competitive advantage Competitive advantage

–When a company can out When a company can out match its rivals in attracting match its rivals in attracting and maintaining its targeted and maintaining its targeted customers customers

Generic strategiesGeneric strategies

–Basic ways to keep and achieve Basic ways to keep and achieve competitive advantage competitive advantage

DIFFERENTIATIONDIFFERENTIATION

Find ways to provide superior Find ways to provide superior value to customers value to customers

LOW COSTLOW COST

Produce or deliver products or Produce or deliver products or services equal to those of their services equal to those of their competitors competitors

Produce or deliver products or Produce or deliver products or services more efficiently than the services more efficiently than the competition competition

HOW DO LOW COST AND HOW DO LOW COST AND DIFFERENTIATION FIRMS DIFFERENTIATION FIRMS

MAKE MONEY? MAKE MONEY? Differentiation Differentiation

–People will often pay a higher People will often pay a higher price for extra valueprice for extra value

Low cost Low cost

–Additional profits from cost Additional profits from cost savings savings

EXHIBIT 4.1 EXHIBIT 4.1 COSTS, PRICES, & PROFITS COSTS, PRICES, & PROFITS FOR DIFFERENTIATION AND FOR DIFFERENTIATION AND

LOW COST STRATEGIESLOW COST STRATEGIES

0102030405060708090

AverageCompetitor

Low CostStrategy

DifferentiationStrategy

$

CostPriceProfit

COMPETITIVE SCOPE COMPETITIVE SCOPE

How broadly a firm targets its How broadly a firm targets its products or services products or services

EXHIBIT 4.2EXHIBIT 4.2 PORTER’S GENERIC PORTER’S GENERIC

STRATEGIESSTRATEGIES

Scope ofCompetitive Target

Source of Competitive Advantage

Lower Cost Differentiation

Broad Market General CostLeader

GeneralDifferentiator

Niche Market Focused CostLeader

FocusedDifferentiator

THE VALUE CHAIN THE VALUE CHAIN

Michael porter uses the term Michael porter uses the term value chain to represent all the value chain to represent all the activities that a firm uses ".. To activities that a firm uses ".. To design, produce, market, deliver, design, produce, market, deliver, and support its product" (Porter and support its product" (Porter 1985: 36) 1985: 36)

InputLogistics

Operations

Marketingand Sales

Service

SUPPORT ACTIVITIES

PRIMARY ACTIVITIES DOWNSTREAMUPSTREAM

R&DOput

Logistics

EXHIBIT 4-3 THE VALUE CHAIN

COMPONENTS OF THE VALUE COMPONENTS OF THE VALUE CHAIN CHAIN

Primary activitiesPrimary activities Support activitiesSupport activities Upstream and downstreamUpstream and downstream

COMPETITIVE STRATEGIES IN COMPETITIVE STRATEGIES IN INTERNATIONAL MARKETSINTERNATIONAL MARKETS

OffensiveOffensive DefensiveDefensive

COUNTERPARRYCOUNTERPARRY

A popular strategy for A popular strategy for multinationals multinationals

Fends off a competitor's attack Fends off a competitor's attack in one country by attacking them in one country by attacking them in another countryin another country

E.G. Kodak versus Fuji E.G. Kodak versus Fuji

SUSTAINING COMPETITIVE SUSTAINING COMPETITIVE ADVANTAGE ADVANTAGE

Sustainable means that strategies Sustainable means that strategies are not easily neutralized, are not easily neutralized, copied, or attacked by copied, or attacked by competitorscompetitors

LOW COST LABORLOW COST LABOR

Most imitated sources of lower Most imitated sources of lower costs in the international marketcosts in the international market

Quickly copied by competitorsQuickly copied by competitors

CORPORATE STRATEGYCORPORATE STRATEGY Contrasts with business level strategy Contrasts with business level strategy How companies choose their mixtures How companies choose their mixtures

of different businessesof different businesses DiversificationDiversification

–Related Related

–UnrelatedUnrelated

MULTINATIONAL MULTINATIONAL DIVERSIFICATIONDIVERSIFICATION

A quick way to gain a market A quick way to gain a market presencepresence

Coordinate and use resources Coordinate and use resources from any locationfrom any location

Establishes global brand namesEstablishes global brand names Cross subsidizationCross subsidization

Exhibit 4-4 Shows a Selection Exhibit 4-4 Shows a Selection of Diversified Multinationals of Diversified Multinationals With Their Major Lines of With Their Major Lines of BusinessesBusinesses

Company(HeadquartersLocation)

Major Business Lines

GE(U.S.A.)

Aircraft engines, aerospace, appliancescommunications and services, electricaldistribution and control, financial services,industrial and power systems, lighting, medicalsystems, motors, NBC, plastics, transportation

Nestlé(Switzerland)

Drinks, dairy products, chocolate andconfectionery, culinary products, frozen food andice cream, food service products, hotels andrestaurants, instant food and dietetic products, petfoods, pharmaceutical products and cosmetics,refrigerated products

Philips(Netherlands)

Lighting, components, consumer electronics,domestic appliances and personal care, medicalsystems, industrial and electric acoustic systems,information systems, communication systems

STRATEGY FORMULATION STRATEGY FORMULATION TECHNIQUES: TRADITIONAL TECHNIQUES: TRADITIONAL

APPROACHES APPROACHES

STRATEGY FORMULATIONSTRATEGY FORMULATION

The process by which managers The process by which managers select the strategy to be used by select the strategy to be used by their companytheir company

ANALYSIS TECHNIQUES ANALYSIS TECHNIQUES Help Managers UnderstandHelp Managers Understand

–A company's competitive position A company's competitive position in the industryin the industry

–Opportunities and threats faced by Opportunities and threats faced by their companytheir company

–Company's strengths and Company's strengths and weaknesses weaknesses

INDUSTRY EFFECTS ON INDUSTRY EFFECTS ON STRATEGY SELECTION STRATEGY SELECTION

Market sizeMarket size Ease of entry and exitEase of entry and exit Whether there are economies of Whether there are economies of

scale in production scale in production Driving forces of change Driving forces of change Nature of competition in industryNature of competition in industry

EXAMPLE KEY SUCCESS EXAMPLE KEY SUCCESS FACTORS FACTORS

Innovative technologyInnovative technology Broad product lineBroad product line Distribution channel Distribution channel

effectivenesseffectiveness Price advantages Price advantages Promotion effectivenessPromotion effectiveness

Superior physical facilitiesSuperior physical facilities Experience of firm in businessExperience of firm in business Cost position for raw materialsCost position for raw materials

FORMULATING THE BEST FORMULATING THE BEST STRATEGIESSTRATEGIES

Know the industry and KSFsKnow the industry and KSFs Understand and anticipate your Understand and anticipate your

competitors' strategies competitors' strategies

THE COMPETITIVE ANALYSISTHE COMPETITIVE ANALYSIS

A competitive analysis develops A competitive analysis develops profiles of your competitors' profiles of your competitors' strategies and objectives strategies and objectives

FOUR STEPS FOUR STEPS For competitors and assess:For competitors and assess:

(1) Strategic intent(1) Strategic intent

(2) Current and anticipated generic (2) Current and anticipated generic strategiesstrategies

(3) Current and anticipated offensive (3) Current and anticipated offensive and defensive competitive strategiesand defensive competitive strategies

(4) Current positions(4) Current positions

KEY POINTS FOR MULTINATIONAL KEY POINTS FOR MULTINATIONAL MANAGEMENTMANAGEMENT

Use a country by country Use a country by country competitive analysis competitive analysis

Plan distinct competitive strategies Plan distinct competitive strategies by competitors and countries by competitors and countries

See exhibit 4-5 for examplesSee exhibit 4-5 for examples

COMPANY SITUATION COMPANY SITUATION ANALYSISANALYSIS

The most common tool: the The most common tool: the SWOT SWOT

–StrengthsStrengths

–WeaknessesWeaknesses

–OpportunitiesOpportunities

–ThreatsThreats

KEY POINT FOR MULTINATIONAL KEY POINT FOR MULTINATIONAL MANAGEMENTMANAGEMENT

The SWOT analysis for the The SWOT analysis for the MNC is more complexMNC is more complex

Each country provides its own Each country provides its own operating environmentoperating environment

A country-by-country SWOT is A country-by-country SWOT is probably most prudent probably most prudent

CORPORATE STRATEGY CORPORATE STRATEGY SELECTIONSELECTION

Deciding which businesses in the Deciding which businesses in the portfolio are targets for growth portfolio are targets for growth and investment and which are and investment and which are targets for divestment or targets for divestment or harvesting harvesting

ASSESSING A CORPORATE ASSESSING A CORPORATE BUSINESS PORTFOLIO BUSINESS PORTFOLIO

The basic tool: matrix analysesThe basic tool: matrix analyses The most popular is the growth-The most popular is the growth-

share matrix of the Boston share matrix of the Boston consulting group (BCG) consulting group (BCG)

THE BCG GROWTH-SHARE THE BCG GROWTH-SHARE MATRIX MATRIX

Based on the industry growth Based on the industry growth rate the relative market sharerate the relative market share

–StarsStars

–DogsDogs

–Cash cowsCash cows

–Problem childrenProblem children

MATRIX ANALYSES FOR THE MATRIX ANALYSES FOR THE DIVERSIFIED MULTINATIONAL DIVERSIFIED MULTINATIONAL

COMPANYCOMPANY The portfolio assessment The portfolio assessment

becomes more complexbecomes more complex Portfolio analyses must be Portfolio analyses must be

conducted for each business in conducted for each business in each country or region of each country or region of operationoperation

EXHIBIT 4.6 EXHIBIT 4.6 THE BCG GROWTH SHARE THE BCG GROWTH SHARE MATRIX FOR A DIVERSIFIED MATRIX FOR A DIVERSIFIED MULTINATIONAL COMPANYMULTINATIONAL COMPANY

Star

Strategy: Investand Expand

Cash Cow

Strategy: Defendand Harvest

Problem Child

Strategy: Investand Expand or

Divest

Dog

Strategy: Divest

Star

Strategy: Investand Expand

Cash Cow

Strategy: Defendand Harvest

Problem Child

Strategy: Investand Expand or

Divest

Dog

Strategy: Divest

Star

Strategy: Investand Expand

Cash Cow

Strategy: Defendand Harvest

Problem Child

Strategy: Investand Expand or

Divest

Dog

Strategy: Divest

Country A

Country B

Country CIn

dust

ry G

row

th R

ate

High

Low

Relative Market Share

High Low

CONCLUSIONSCONCLUSIONS

Few students will work in Few students will work in industries not touched by global industries not touched by global competition competition

All managers need to understand All managers need to understand the application of strategic the application of strategic management to the international management to the international arena arena