CORPORATE–LEVEL STRATEGIES

INTERNATIONALISATION, COOPERATION & DIGITALISATION

CORPORATE-LEVEL STRATEGIESCorporate-level strategies are basically about decisions related to:

Allocating resources among the different business of a firm.

Transferring resources from one set of business to others and

Managing and nurturing a portfolio of business.

These decisions are taken so that the overallcorporate objectives are achieved.

INTERNATIONALISATION STRATEGIES

They are a type of expansion strategies that require organizations to market their products or services beyond their domestic or national market.

Context Technological developments, globalisation, trade

liberalisation, reduction of transport costs, geopolitical changes (after oil crisis of 1973) etc.

Porter’s Model of Competitive Advantage of Nations

According to M.E. Porter, there are four national characteristics, which create an environment that is conducive to creating globally competitive firms in particular industries. They are

1. Factor conditions: The special factors or inputs of production such as natural resources, raw materials, labour etc., that a nation is especially endowed with.

2. Demand conditions: The nature and size of the buyer’s needs in the domestic market.

3. Related and supporting industries: The existence of related and supporting industries to the ones in which a nation excels.

4. Firm strategy, structure and rivalry: The conditions in the nation determining how firms are created, organised and managed and the nature of domestic competition.

These four factors are called ‘Diamond determinants’.

Types of International StrategiesTwo set of factors impinge upon a firm’s decision to adopt international strategies:

Cost pressure : It denotes the demand on a firm to minimise its unit costs. Typically, cost pressures are high in industries such as petroleum, chemicals , steel etc.

Pressure for local responsiveness : It makes a firm tailor its strategies to respond to national level differences in terms of variables like customer preferences and tastes, government policies or business practices. A whole range of products and services like cars, clothes, food, entertainment or insurance face pressures for local responsiveness and firms have to tailor them to the requirements of individual country markets.

According to C.A.Bartlett & S.Ghosal the juxtaposition of these two factors leads to four types of international strategies. They are International Strategy: In this, firms create value by

transferring products and service to foreign markets where these products and services are not available. They offers standardised products and services in different countries, with little or no differentiation.

Multidomestic Strategy: In this, firms try to achieve a high level of local responsiveness by matching there products and service offerings to the national conditions operating in the countries they operate in. Here the multidomestic firms attempts to extensively customise their products and services according to the local conditions operating in the different countries.

Global Strategy: In this, firms adopt a low cost approach based on reaping the benefits of experience curve effects and location economies and offering standardised products and services across different countries. Here the firm tries to intensively focus on a low cost structure by leveraging their expertise in providing certain products and services at a few favourable locations around the world in an undifferentiated manner at competitive prices.

Transnational Strategy: In this, firms adopt a combined approach of low cost and high local responsiveness simultaneously, for their products and services. Barttlett and Ghosal make a strong case of adopting the transnational strategy as they opine that this is possibly the only viable strategy in a competitive world. According to them, the flow of expertise in a transnational firm is only from a developed country to the developing countries. But now , a transnational firm should transfer the expertise from its foreign subsidiaries to its headquarters and from one foreign subsidiary to another foreign subsidiary through a process they term as ”global learning ”

International Entry ModesInternational Entry Modes means the manner in which a firm would commence its international operations. They are of 3 types:

1. Export Entry Modes: Under these modes, the firm produces in the home country and markets in the overseas markets.

Direct Exports Indirect Exports

2. Contractual Entry Modes: These modes are non-equity associations between an international company and a company or any other legal entity in the overseas markets.

Licensing Franchising Other forms like Technical agreements, Service

contracts, Production sharing, BOT arrangements etc.

3. Investment Entry Modes: These modes involve ownership of production units in the overseas market, based on some form of equity investment or direct foreign investment.

Joint Ventures and Strategic Alliances Independent Ventures and Wholly Owned

Subsidiaries

Strategic Decisions in InternationalisationThere are three strategic decisions related to the international entry modes:Which International Markets to enter?

A firm contemplating internationalisation has to carefully assess the expected benefits of entering a market, the costs that are liable and the risks that are likely to be faced.Timing of Entry into International Markets

Timing of entry is meant by whether the international entry is made earlier than other international companies or later than them.Scale of Entry into International Markets

It means international entry on a small scale with little commitment in terms of resources or a large scale entry with significant commitments.

Advantages and Disadvantages of Expansion through InternationalisationAdvantages

Realising economies of scale Realising economies of scope Expansion and extension of markets Realising location economies Access to resources overseas

Disadvantages Higher risks Difficulty in managing cultural diversity High bureaucratic costs Higher distribution costs Trade barriers

Regionalisation StrategiesRegionalisation can be considered as an expression of semi-globalisation. Semi-globalisation implies that we observe neither extreme geographical fragmentation of the world in national markets, nor complete integration.Home base strategies Portfolio strategiesHub strategiesPlatform strategiesMandate strategies

Strategy options for local companies in competing against global companies in Emerging Market Economy(EME)EME is defined as an economy with low to middle per

capita income. It constitutes 80% of the global population and 20% of the world economies. Eg. China, India, Indonesia, Thailand etc.

The four Strategy options for local companies in emerging markets are:

1. Using Home-Field Advantages

2. Transforming the Company’s Expertise to Cross-Border Markets

3. Shifting to a New Business Model or Market Niche

4. Contending on a Global Level

COOPERATIVE STRATEGIES Cooperative strategy expresses the idea of

simultaneous competition and cooperation among rival firms for mutual benefits .

Types of cooperative strategies Mergers and Acquisitions (Takeovers). Joint Ventures. Strategic Alliances.

Mergers and Acquisitions(Takeovers) A merger is a combination of two or more organisation in which

one acquires the assets and liabilities of the other in exchange of shares or cash , or both the organisations are dissolved and assets and liabilities are combined and new stock is issued.

For the organisation which acquires another organisation , it is know as acquisition; For the organisation which is acquired is know as mergers

“Takeovers” is a popular strategic alternative adopted by Indian companies.(2 types i.e.Hostile and Friendly )

Eg. Tata Steel Takeover of Corus Steel for US$ 10 billions in 2007.

If both organisation dissolve their identity to create a new organisation , it is “Consolidation”.

Types of Mergers and Acquisitions Horizontal Mergers:- Combination of two or more organisations in the

same business.

Eg. Company making footwear company with another footwear company. Vertical Mergers:- Combination of two or more organisations not

necessarily in the same business.

Eg. Footwear company combines with a leather tannery company. Concentric Mergers:- Combination of two or more organisations related to

each other either in terms of customer functions, customer groups, or alternative technologies.

Eg. Footwear company combines with a hosiery firm making socks or another specialty footwear company.

Conglomerate Mergers:- Combination of two or more organisation and related to each other in terms of customer functions , customer groups and alternative technologies .

Eg. Footwear company combining with a pharma company .

Reasons for Mergers and Acquisitions

In Merger and Acquisitions process there are two parties involved i.e. Buyer and Seller orgainsations

According To Glueck

The reason why a Buyer wishes to merge: To increase the value of the organisation . To increase the growth rate . To reduce competition To acquire a product quickly.

The reason why Seller wishes to merge: To increase the value of the owner’s stock and investment. To increase the growth rate . To benefit from tax legislation . To acquire resources to stabilize operations.

Issues in Mergers and Acquisitions There are four types of issues in Mergers &

Acquisitions Strategic issues Financial issues

Valuation of companySources of financing Taxation

Managerial issues Legal issues

Joint VentureIt is a contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share in the profits and losses of the enterprise.

Types of Joint Ventures: Between two Indian organisations in one industry.

E.g. NTPC ltd. +Indian Railway =Bharatiya Rail Bijlee company Between two Indian organisations across different industries.

E.g. Action Aid India + TISS = offering degree courses in rural India Between an Indian organisation and a foreign organisation in India.

E.g. DLF ltd + Nakheel ( UAE ) = 2 integrated town ships in India Between an Indian organisation and a foreign organisation in that foreign country.

E.g. Kirlosker pumps = SPP Pumps Ltd ( UK) = Catering of EU market Between an Indian organisation and a foreign organisation in a third country.

E.g. Apollo Tyres + Continental AG Germany = Tyre manufacturing facility in Malaysia.

 

Conditions for Joint VenturesFour conditions for joint ventures are

1. When an activity in uneconomical for an organisation to do alone.

2. When the risk of business has to be shared and therefore , is reduced for the participating firms.

3. When the distinctive competence of two or more organisations can be brought together.

4. When setting up an organisation requires surrounding hurdles such as import quotes , tariffs nationalistic- political interests and cultural roadblocks.

As per Business Today 5 triggers are needed for a joint ventures

1. Technology

2. Geography

3. Regulation

4. Sharing of Risk and capital

5. Intellectual Exchange.

Benefits and Drawbacks in Joint VenturesBenefits Minimising risk Reducing an individual companies investment Access to foreign technology Broad based equity participation Access to governmental and political area

Drawbacks Change of strategy Regulatory changes Success of joint venture Having partners hampers growth Lack of transparency

Strategic AlliancesA Strategic Alliance is a formal relationship

between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations.

E.g. Cisco and Wipro Ltd

Types of Strategic Alliances Procompetitive Alliance (Low Interaction /low conflict) Non competitive Alliance (High interaction / low conflict) Competitive Alliance ( High interaction / high conflict ) Precompetitive Alliance (low interaction / high conflict)

Reasons for Strategic Alliances Entering new markets Reducing Manufacturing Costs Developing and Diffusing technology.

Pitfalls in strategic Alliance:- Lack of Trust and commitment Perceived misunderstanding among partners Conflicting goals and interests Inadequate preparation for entering into partnership Hasty implementation of plans Focusing on controlling the relationship rather than on

managing it for mutual benefits

DIGITALISATION STRATEGIESDigitalisation is defined as digital coding of information and the growing productivity gains in processing and transmission it enables. Digitalisation is a combination of various areas of Business, Social Sciences and Technology. The main terms used in context of Digitalisation are :

Computerisation (through computers) Electronisation (conversion of physical data into

electronic data) Digitisation (conversion of analogue electric signals to digital signals)These 3 are supported by other two components of networking and telecommunication that create a phenomenon of convergance.

Digitalisation within and beyond Organisations Computerisation of Records etc. Interconnectivity through Computers Evolution of Telecommunication Intranet connectivity Digitalisation Electronisation {e-banking, e-trading etc.} Digitisation

Principles Underpinning Digitalisation StrategiesAccording to Larry Downes and Chunka Mui, there are

three stage process for adoption strategies of Digitalisation. In the 1st stage, organisations must consider reshaping

the competitive landscape, like1. Outsourcing to the customer by letting them perform

many of the service functions on their own.2. Cannibalising their markets before their competitors do

it.3. Treating each customer as a market through mass

communication.4. Creating communities of value by creating groups of like

minded people in cyber space.

In the 2nd stage , the organisations must build new connections by linking closely to the customer.

1. Replacing human interfaces with learning interfaces through customer operated facilities.

2. Ensuring continuity for the customer by using E-commerce, that helps the customers perform their own service functions.

3. Giving Away as much information to the customers.4. Structuring every transaction as a joint venture with the

customer. In the 3rd stage, the organisations must redefine their interiors.

1. Treating physical assets as liabilities to be replaced as virtual assets.

2. Destroying one’s value chain.3. Managing innovation as portfolio to minimise risk.4. Hiring children who instinctively understand digital

technologies.

Digitilisation, Value Chain & Value SystemDigitalisation transforms the value chain and value system in several different as below:

Deconstruction: Services can be delivered digitally (like service manuals)

Disintermediation: Some process in the value chain are eliminated (like online ticket booking)

Re-intermediation: Process in the value chain are supplemented by 1 or more intermediaries (like online shopping sites)

Industry morphing: Traditional boundaries of business are changed and transformed by morphing (like banks online banking)

Cannibalisation: Set of activities performed in value chain are replaced by new set of activities (replacement of travel agents with internet booking)

Techno-intensification: Intensive use of technology and decreased use of human resources (outsourcing,3rd party alliances etc)

Re-channeling: More focus on services, marketing, selling etc. of value chain process through online.

The Digitalisation StrategiesAccording to Ravi Kalakota and Marcia Robinson the 3 phases of digitalisation strategies are

Choosing among the e-business patterns Choosing the e-business models Choosing the e-business designs

The five patterns of e-business are E-channel pattern Click and Brick pattern E-portal pattern E-market or Net market pattern Pure e-digital products pattern

Digitalisation Strategies in Indian Organisations Most banks in India converted from traditional

Banking to Hightech Banking. (ATMs, Internet Banking, TeleBanking, Mobile Banking etc.)

Conversion of paper documents to e-documents. (Bills, Recepits in E-form in insurance companies etc.)

Communications through teleconferencing, emails, sms in medical fields, pharma etc.

E-portal pattern in Railways(IRCTC), Airlines etc.