McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights CHAPTER 10 Global Strategy McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Key Issues • What is the concept of strategy? • How can firms profit from global expansion? • What are the different strategies to compete globally? • How cost pressures and country differences influence global strategy? • How can firms use strategic alliances to support their global strategy? McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-1 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 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-2 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 McGraw-Hill/Irwin â 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-3 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 Experience curve B A Accumulated output McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-4 Pressures for Global Integration & Local Responsiveness High Global Integration Cost Reduction Pressures Low Low Ball bearings, wheat Cosmetics, food, household goods Local Responsiveness Pressures High Country Differences in consumer tastes/preferences infrastructure/practices distribution channels host government needs McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-5 Strategic Choice High “Global” Strategy “Transnational” Strategy “International” Strategy “Multidomestic” Strategy Cost Reduction (Global Integration) Pressures Low Low McGraw-Hill/Irwin Local Responsiveness Pressures High © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-6 Multidomestic MNC From: Bartlett and Ghoshal, Managing across borders, 1989 HK UK USA Chile India Japan Mexico Decentralized Federation Many key assets, responsibilities and decisions localized Personal Control Informal HQSub relationship, simple financial controls Multidomestic Mentality Management sees overseas operations as portfolio of independent businesses McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-7 International MNC HK UK From: Bartlett and Ghoshal, Managing across borders, 1989 Chile USA India Japan Mexico Coordinated Federation Many key assets, responsibilities and decisions localized Administrative Control Centralized HQ control, formal planning and control, tight HQSub linkage International Mentality Management sees overseas operations as appendages to a domestic operation McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-8 Global MNC HK UK From: Bartlett and Ghoshal, Managing across borders, 1989 Chile USA India Japan Mexico 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 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-9 Transnational MNC From: Bartlett and Ghoshal, Managing across borders, 1989 HK Chile UK USA Japan India Mexico 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 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-10 International Strategic Alliances • Cooperative agreements among competitors from different countries • Advantages – Facilitate entry into a foreign country – Allow sharing of fixed costs of new products/processes – Bring together complementary skills and assets that can not easily be developed independently – Help establish industry standards in technology – Reduce operating costs,e.g., shared training, purchasing • Disadvantages – Give competitors new technology / markets at low cost – Disproportional benefit accrual to partners McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-11 Making alliances work Which partner? • A suitable partner – Helps achieve strategic goals; brings needed, valuable capabilities – Shares the firm’s vision for the alliance’s purpose – Is not likely to exploit the alliance to its own ends • To select a partner – Do thorough background check from public sources – Collect information from third parties who have personal experience with the likely partner(s) – Spend a lot of face-to-face time with likely partner(s) McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-12 Making alliances work What Structure? • Protect technology/know-how that is not intended to be transferred • Draw a solid contract with safeguards against opportunism • Achieve equitable gain through agreed swaps of technology the other wants • Seek creditable, clearly articulated commitment to partner “behavior” a-priori McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-13 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 the opportunity for a common value system to emerge – Build an informal network of personal relationships • Learn from partners – Apply the knowledge within your own organization – Brief your employees on partner strengths McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights ... Companies, Inc., All Rights Slide 10-5 Strategic Choice High Global Strategy “Transnational” Strategy “International” Strategy “Multidomestic” Strategy Cost Reduction (Global Integration) Pressures... strategies to compete globally? • How cost pressures and country differences influence global strategy? • How can firms use strategic alliances to support their global strategy? McGraw-Hill/Irwin... global strategy? McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 10-1 Global Strategy • Strategy: “the action managers take to attain the goals of a firm” – General purpose: