Global Business Strategy: Design & Implementation

GEB 6365 - INTERNATIONAL BUSINESS EXECUTIVE MBA November 03, 2006

What is strategy?
A Creative thought, an idea, a concept, or a plan that uses the natural laws to its advantage to turn a potential loss into victory. It is a plan or a series of maneuvers for obtaining a specific goal or result.

IT HAS ALWAYS BEEN VIRGINS POLICY TO ENCOURAGE YOU TO FLY TO LONDON FOR AS LITTLE AS POSSIBLE.
SO ON JUNE 10 WE ENCOURAGE YOU TO FLY BRITISH AIRWAYS
As for the rest of the year, we look forward to seeing you aboard Virgin Atlantic. For the best service possible. For the lowest possible fare.

 Consists of 13 short chapters with titles such as estimates, terrain, offensive strategy, employment of secret agents. Written in form of short stories or verses averaging 30-40 per chapter Example: Victory is the main object in war We have not yet seen a clever operation that was prolongedfor there has never been a protracted war from which a country has benefited.

Sun Tzu: The Art of War --- 500 B.C.

 Art of Offensive Strategy

When ten to the enemys one, surround him When five times his strength, attack him If double his strength, then divide him If equally matched, you may engage him If weaker numerically, be capable of withdrawing And if in all respects unequal, be capable of eluding him

 To foresee a victory which the ordinary man can foresee is not the acme of skill The skillful commander takes up a position in which he cannot be defeated and misses no opportunity to master his enemy Thus a victorious army wins its victories before seeking battle: an army destined to defeat, fights in the hope of winning

Who are Strategists?

People who understand the natural laws and the outcomes they govern, and can creatively use the same in their favor.

What has History Taught Us?

Strategy is about seeking an unfair advantage in situations where it is the outcome and not the game that counts.

Formulating strategy requires that you know the laws that govern the outcomes of the particular competition.

What has History Taught Us?

Specific knowledge of the competitors and the situation are needed to produce real, implementable strategies.

Creating strategies that win is a skill that can be learned.

Importance of Competition
Strategy cannot be formulated in vacuum. Competition determines the appropriateness of a firms strategic actions, and hence, is at the core of the success or failure of firms.

Competition, Competitive Strategy, and Competitive Advantage

A firms strategy cannot be formulated in vacuum Competition is at the core of the success or failure of firms Competition determines the appropriateness of a firms activities that contributes to its performance Competitive strategy is the search for a favorable competitive position in an industry.

Competitive Advantage
The set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition.

Sustainable Competitive Advantage

An advantage that cannot be copied by the competition.

Industry Structure Analysis

The essence of formulating a CS is relating the firm to its environment

The key aspect of a firms environment is the industry in which it competes

Industry Structure Analysis The five competitive forces

Potential entrants
Threat of new entrants
Bargaining power of suppliers Industry competitors

Suppliers
Rivalry among existing firms Threat of substitute products or services

Buyers
Bargaining power of Buyers

Substitutes

Barriers to Entry
Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Other advantages
Patents Government subsidies

Continuum of competition
Many
BASIS OF COMPARISON Number of sellers Product differences Importance of market mix PURE COMPETITION Large number of sellers Similar products Distribution is important

Number of sellers
MONOPOLISTIC COMPETITION Large number of sellers Unique but substitutable Pricing is important OLIGOPOLY A few large competitors Similar products Promotion is key to achieve perceived product differences

One

MONOPOLY Single producer Unique and unsubstitutable Unimportant

Number of Sellers and Differentiation

Differentiation Number of sellers
Low Pure monopoly Low Pure competition Monopolistic competition High Oligopoly

High

Types of Competition
Direct

Nike Vs Reebok Vs Adidas

PhotoDisc

Types of Competition
Direct

Indirect

McDonalds vs. Pizza Hut vs. Arbys vs. Chinese takeout

PhotoDisc

Types of Competition
Direct

Indirect

Competing for the same dollars

General (Budget)
PhotoDisc

Levels of Competition
Share of the Mind Share of the Wallet Generic Competition Product Category Product Form

Defining the Competitive Set

Levels of Marketing Competition

Product Form based competition Diet Colas Product Category based competition Soft Drinks Generic or need-based perspective - Beverages Rivalry or Budget-based competition Food, Entertainment, etc.

Defining the Competitive Set

Identifying Competitors

SIC categories Substitutability Managerial Judgment Customer Purchase based measures

Brand Switching Data Cross-Elasticity of Demand

Customer Judgment based measures

Basic Competitive Strategies

Cost Leadership Differentiation Focus (Niche)

How will you compete?

On Cost
(lowest cost supplier) On Value (Differentiation)

Low Cost Position

High

Cost Leadership
Objectives Lowest cost and price across the industry Profitability through volume and market share

Advantage - Cost leaders are survivors. Profitable under a wide range of conditions
industry price wars economic downturns

Disadvantages Costly - takes a long time to achieve Tends to be unstable (not sustainable) - can be emulated (lower cost producers)

Sources of Cost Leadership

Minimized Service
Southwest Airlines Wal-Mart

Scale Economies
McDonald's Henry Ford

Technology
Dell (business model)

Cost leadership is not the same as cheap!

Value/Differentiation
Objectives Unique ability to satisfy a consumer want across an industry High perceived value relative to cost Profitability through price premium, volume, and share

Advantage - Highly profitable Disadvantages Hard to sustain Vulnerable to competitive emulation. Market drives out non-essential differentiation over life cycle

Sources of Differentiation
Service, Support
IBM Caterpillar

Unique Technology
Apple (pre-Windows) Palm

Ubiquity
Hertz AT&T

Technological leadership alone is not the basis of a sustainable strategy!

Four Generic Competitive Strategies Cost, Differentiation, Focus

Broad Low Cost Position Differentiation
Broadly targeted strategies (frontal assault)

Market Share
Cost Focus Narrow Low Cost Position High Differentiation Focus
Focus strategies - flanking attacks - guerrilla tactics

Focus Strategies
Objectives - Find a limited segment where you can compete on either cost leadership or differentiation and ignore the rest. Advantages Less costly - don't need a competitive advantage across the industry Unattractive target Less competition

Disadvantages Could become "too successful" and attract broadly targeted firms Highly dependent on health of industry, economy

Examples of Cost Focusers

Strategy Oil Retailing Long Distance Calling Home, Small Office Computing Regional Air Travel Example Mapco "Dial-Arounds" White Box (unbranded) PC builders Airtran Targeted At Exxon, Shell, etc. AT&T, MCI, Sprint Branded PC mfrs (Compaq, Dell, etc.) Major Carriers

Examples of Differentiation Focusers

Strategy High-End Touring Cars Scientific/ Technical Computing Financial Services Analysis software Example BMW Sun Targeted At Cadillac, Lincoln IBM

Boutique (personalized) advisors @RISK

Merrill-Lynch

Excel

Worst possible position . . .

Cost, Differentiation, Focus Broad Low Cost Position Differentiation Broadly targeted strategies (frontal assault)

Market Share
Cost Focus Narrow Low

Stuck in the Middle Differentiation

Focus

Focus strategies - flanking attacks - guerrilla tactics

High Cost Position

Stuck In The Middle . .

NEITHER COST NOR DIFFERENTIATION LEADERSHIP ALL THINGS TO ALL PEOPLE LOW PROFIT MARGINS DECLINING SHARE

Can two or more players occupy the same space at the same time?
Broad Scope (Market Share)

Narrow Low Cost Position High

Can two or more players occupy the same space at the same time?
Broad Scope (Market Share)

Narrow Low Cost Position High

Strategy is.
making tradeoffs in competing ... choosing what not to do

Southwest Airlines

Continental Lite

Industry Analysis
Can help reveal
industry structure& competitive strategies firms strategic challenges market opportunities

But, firms ability to create world-wide advantage will be greatly influenced and constrained by
existing asset configurations its historical definition of management responsibilities ingrained organizational norms

Administrative Heritage
A firms organizational history, the values, norms and practices of its management, & its management culture It can be, at the same time
the firms greatest assets -- the underlying source of its key competencies and also a significant liability, since it resists change and thereby prevents realignment or broadening of strategic

Factors Governing Global Competition

Country-Specific Advantages Government Policies Industry Structure Organizational Structure & Strategic Attributes of the Firms

Management Orientation
Ethnocentric Polycentric Geocentric Regiocentric

What are You. International, Multinational, Global or Transnational?

International
Strategy is to transfer skills and products (derived from core competencies) to markets where indigenous competitors lack those skills and products.

Multinational
Strategy is to target independent markets and to maximize local responsiveness

 Global
Strategy is to target the global market place, thereby achieving cost reductions that come from experience curve and economies of scale.

 Forces Driving Global integration

Manufacturing Efficiency Scale Economies Cross Subsidization Synergistic benefits

Forces Driving National Responsiveness

Consumer Tastes and Preferences Local Competitors Host Government Policies Market Infrastructure

Industry Globalization Drivers

Market Drivers
Common Customer Needs Global Customers & Channels Transferable Marketing Mix Lead Countries

Cost Drivers
Global Economies of Scale & Scope Steep Learning & Experience Curve Effects Favorable Logistics Shortening PLC, Rising R&D & Development Costs Fast Changing Technology

Industry Globalization Drivers

Government Drivers
Favorable Trade Policies Compatible Technical Standards Common Marketing Regulations Government as a Customer & Competitor

Competitive Drivers
Presence of Global Competitors Presence of Strong Local Competitors Competitive Interdependence across markets

International Marketing Decisions

Global Product Strategies Standardization versus Customization Multinational Diffusion Global Communications Differences in Distribution Systems

International Product Strategy

Factors Encouraging Standardization
Economies of scale Increasing size of homogenous segment Consistent image Time to Market Modular Vs. Core Product Approach

 Factors Encouraging Adaptation/Customization

Mandatory adaptation Discretionary adaptation Environmental Differences Meeting Consumer Needs

Multinational Diffusion
How do consumers in different countries react to a new product/service? What role does culture play in influencing consumers reactions to new product introductions? Is it possible to forecast sales and the time it would take for a product to achieve a certain level of market penetration?

Multinational Diffusion
The diffusion of a new product/service is a culture-specific phenomenon. Differences in the adoption process can be explained by country-specific factors.
(Gatignon, Eliashberg, and Robertson (1989))

Differences in the rate of diffusion between high Vs. low context cultures (Takada and Jain, 1991)

Multinational Diffusion
Existence of a lead-lag effect in cross-national diffusion patterns, i.e., the later a product gets introduced in a country, the faster will be the adoption. (Takada and Jain, 1991) Rogers (1983) attributes of an innovation that can potentially accelerate adoption relative advantage of the new product compatibility with the needs of adopters Complexity; Observability & Trialability

Learning Effect - The Concept

When a new product/technology is introduced first in one country and with a time lag in subsequent countries, there exists an opportunity for consumers in the lag countries to learn from the experience of the lead country adopters. This Phenomenon is what is referred to as the learning effect.
(Ganesh &Kumar 1996).

Such a learning has the potential to reduce the risk associated with adopting the new product, thus contributing to an accelerated diffusion of the product in the lag countries.

Geographical Proximity Cultural Similarity Economic Similarity Learning Effect Between Lead & Lag Markets Faster Adoption in Lag Markets

Time Lag
Type of Innovation Technical Standard

Manufacturers Actions in Lag Markets

 The smaller the geographical distance is between the lead and lag markets, the stronger will be the learning effect. The more similar the lead and lag markets are culturally, the stronger will be the learning effect. The more similar the lead and lag markets are economically, the stronger will be the learning effect.

 The time lag between the introduction of an innovation in the lead and lag markets is positively related to the learning effect.

In the case of continuous innovations, the learning effect will be stronger when compared with discontinuous innovations.
The existence of an industry standard for the technology enhances the learning effect; conversely, a lack of a technical standard weakens the learning effect.

Factors Influencing Intl. Advertising Strategy

Product-Market Conditions
Culture Govt. Laws & Regulations

Communication Objectives
Educate the Consumer?
Create Awareness? Induce Trial? Induce Loyalty Behavior?

Product-Market Conditions
Economic Similarity Stage in PLC Competitive Intensity Infrastructural Facilities

Infrastructural Facilities
Media Availability & Usage
Outdoor ads. (Bolivia 48%) Cinema ads. (common in Nigeria) Radio (popular in Nepal & Mexico) Print (Norway 97%; Oman 100%) TV (Peru 88%; Costa Rica 78 %)

Laws Affecting Promotions

Most controversial element of international marketing, advertising and sales promotion Laws pertain to:
message media truthfulness use of models ban on certain sensitive products

Govt. Laws & Regulations

Government Regulations governing Media & Message
Sweden - ban on TV ads Germany - only 15-20 mins per day France, Belgium etc. - ban on comparative advertisements Saudi Arabia - ban use of women U.S. - ban use of fortune tellers Canada, Japan, France - ban use of cartoon characters in ads to children

 Government Regulations on Certain Promotions Government Regulations on Certain Products

Tobacco Alcoholic beverages Slimming products (Australia & France)

 Toothpaste Aspirin Investments & savings Contraceptives Detergents

Gray Market
Unauthorized middlemen who circumvent authorized marketing channels by buying in low-price markets and reselling in highprice markets
Cameras Watches Toothpaste

Japans Distribution System

Multi-layered complex channels of distribution special relationships between channel members - Keiretsu Inefficient Distribution Exclusionary business practices Structural Impediments Initiative (SII)

Keiretsu
alignments or combination of companies, more or less closely related & coordinated, that do business with one another on a regular and often quite intimate basis Capital Keiretsu Enterprise Keiretsu Distribution Keiretsu