Global Strategy

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

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

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

B A

Experience curve

Accumulated output

Pressures for Global Integration & Local Responsiveness

High
Cost Reduction (Global Integration) Pressures Low Low

Ball bearings, wheat

Cosmetics, food, household goods High

Local Responsiveness Pressures

Differences in - consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs/requirements

Strategic Choice
High Cost Reduction (Global Integration) Pressures International Strategy Low Low Multidomestic Strategy Global Strategy Transnational Strategy

Local Responsiveness Pressures

High

Multidomestic MNC
HK UK USA 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 India Chile

International MNC
HK UK USA Japan Mexico Coordinated Federation - Key assets, responsibilities 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 India Chile

Global MNC
HK

UK
USA Japan Mexico

Chile

India

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

Transnational MNC
HK UK USA Chile

Japan
Mexico

India

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

International Strategic Alliances

Cooperative agreements between competitors from different countries

Advantages

Facilitate entry into a foreign country Allow fixed costs of new products and processes to be shared Bring together complementary skills and assets Help establish industry standards in technology Allow reduction of operating costs,e.g., shared training, purchasing Give competitors a low cost route to new technology / markets Disproportional benefit accrual to partners

Disadvantages

Making alliances work which partner?

A suitable partner
Helps achieve strategic goals

Adds needed, valuable capabilities Shares the firms vision for purpose of the alliance Is not likely to exploit the alliance to its own ends

Steps to select a partner

Thorough background check via public sources Advice from third parties who have personal

experience with likely partner(s) A lot of face-to-face time with likely partner(s) in their environment

Making alliances work - What Structure?

Protect Draw

technology/know-how that is not intended to be transferred a solid contract with safeguards against opportunism equitable gain through agreed swaps of technology the other wants creditable, clearly articulated commitment to partner behavior a-priori

Achieve Seek

Making alliances work - How 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 a common value system

Build informal network of personal relationships

Learn from partners

Apply the knowledge within your own

organization
Brief your employees on partner strengths