Slide strategic core concept and analytical approach 5e by thomson chapter7

STRATEGY Core Core Concepts Concepts and and Analytical Analytical Approaches Approaches Strategy – Core Concepts and Analytic Approaches 5e Arthur Arthur A A Thompson Thompson Authur A Thompson, The University of Alabama The The University University of of Alabama Alabama 5th 5th Edition Edition (2018-2019) (2018-2019) CHAPTER What Is Strategy and Why Is It Important? CHAPTER Strategies Strategies for for Competing Competing Internationally Internationally or or Globally Globally An Ane-book e-bookpublished publishedand anddistributed distributed by byMcGraw McGrawHill HillEducation, Education,Burr BurrRidge, Ridge,Illinois Illinois Copyright Copyright©©2018 2018by byArthur ArthurA A.Thompson, Thompson,Glo-Bus Glo-BusSoftware, Software,Inc Inc All Allrights rightsreserved reserved.Not Notfor fordistribution distribution You have no choice but to operate in a world shaped by globalization and the information revolution There are two options: Adapt or die Andrew S Grove former Chairman and CEO, Intel Corporation Copyright © 2018 by Glo-Bus Software, Inc 7–2 You not choose to become global The market chooses for you; it forces your hand Alain Gomez former CEO, Thomson, S.A Copyright © 2018 by Glo-Bus Software, Inc 7–3 [I]ndustries actually vary a great deal in the pressures they put on a company to sell internationally Niraj Dawar and Tony Frost Professors, Richard Ivey School of Business Copyright © 2018 by Glo-Bus Software, Inc 7–4 Learning Objectives  Learn why companies decide to enter foreign markets  Understand why competing across national borders makes strategy-making more complex  Learn the difference between multi-country competition and global competition  Gain command of the strategic options for establishing a competitive presence in foreign markets  Become familiar with the three main strategic approaches to competing internationally  Learn how multinational competitors can use their international operations to improve their competitiveness  Learn about profit sanctuaries and global strategic offensives Copyright © 2018 by Glo-Bus Software, Inc 7–5 Chapter Roadmap  Why Companies Decide to Enter Foreign Markets  Why Competing across National Borders Makes Strategy-Making More Complex  The Concepts of Multicountry Competition and Global Competition  Strategy Options for Entering and Competing in International and Global Markets  The Quest for Competitive Advantage in Global Markets  Profit Sanctuaries and Global Strategic Offensives Copyright © 2018 by Glo-Bus Software, Inc 7–6 Strategic Issues Unique to Competing across National Borders Whether to customize the firm’s offerings in different country markets to match local buyer preferences or offer mostly standardized products worldwide Whether to employ the same basic competitive strategy in all countries or to modify the strategy country by country to better match local market and competitive conditions Where to locate facilities, distribution centers, and service operations to to realize the greatest locational advantages When and how to efficiently transfer some of a firm’s competitively powerful resources and capabilities from its operations in some countries to its operations in one or more other countries in order to better spearhead the company’s strategic offensives to enter new country markets and to more effectively battle local rivals for sales and market share Copyright © 2018 by Glo-Bus Software, Inc 7–7 Competing Across National Borders Whether Whetherto to customize customizethe the firm’s firm’s offerings offeringsin ineach each country country market market or orto tooffer offeraa mostly mostlystandardized standardized product product worldwide worldwide Whether Whetherto toemploy employ the thesame samebasic basic competitive competitivestrategy strategyin in all all countries countries or or modify modify the thestrategy strategy country countryby by country country Strategic Strategic Issues Issues Unique Unique To To Where Where to to locate locatethe thefirm’s firm’soperations operations Competing CompetingAcross Across National National to to realize realizethe the greatest greatestlocation-related location-related Borders Borders advantages advantages When Whenand and how how to to transfer transfer some someof of aafirm’s firm’s competitively competitively powerful powerful resources resources and and capabilities capabilities from from its itsoperations operationsin in some somecountries countriesto toits its operations operationsin inone oneor ormore more other othercountries countries in in order orderto to compete compete more moreeffectively effectivelyagainst againstlocal local rivals rivals Copyright © 2018 by Glo-Bus Software, Inc 7–8 International Competitors versus Global Competitors—What’s the Difference?  A firm that competes in relatively few foreign countries is an international or multinational competitor  A global competitor has operations on several continents, is actively marketing its products or services in many different parts of the world, and is pursuing a strategy of expanding into additional countries  Typically, a firm will start to compete internationally by entering one or two foreign markets and then expand gradually or perhaps rapidly into the markets of other countries over time Copyright © 2018 by Glo-Bus Software, Inc 7–9 Why Companies Decide to Enter Foreign Markets To Togain gainaccess accesstoto new newcustomers customers To Tomeet meettheir theircustomers’ customers’needs needsabroad abroadand andretain retain To Toachieve achievelower lowercosts costsand andthereby therebybecome become their theirposition positionas asaakey keysupply supplychain chainpartner partner more morecost costcompetitiveness competitiveness To Tofurther furtherexploit exploitcompetitively competitivelyvaluable valuable To Tospread spreadbusiness businessrisk riskacross acrossaawider widermarket market competences, competences,capabilities, capabilities,and andresource resourcestrengths strengths base base Copyright © 2018 by Glo-Bus Software, Inc 7–10 Questions for Simulation Company Co-Managers  Is your company pursuing a global strategy or a strategy that is localized by geographic region?  Which of the following best characterizes your strategy? ► Think local, act local ► Think global, act global ► Think global, act local  Have you studied rival companies enough to know which of these three strategy options they are pursuing—most especially your closest rivals? Copyright © 2018 by Glo-Bus Software, Inc 7–52 Building Cross-Border Competitive Advantage  Ways to gain competitive advantage (or counteract disadvantages): ► Locate facilities and value chain activities in particular countries to lower costs or achieve greater product differentiation ► Do a better job than rivals of efficiently and effectively transferring competitively valuable competencies and capabilities across the borders of the countries in which it competes Copyright © 2018 by Glo-Bus Software, Inc 7–53 Strategic Strategic Insight Insight Companies that compete internationally or globally can pursue competitive advantages in world markets by locating their value chain activities in whatever nations prove most advantageous Copyright © 2018 by Glo-Bus Software, Inc 7–54 Using Location to Build Competitive Advantage  To use location to build competitive advantage, a firm must consider: ► Whether it is more advantageous to concentrate each activity it performs in a few select countries or to disperse performance of the activity to many nations ► In which countries to locate particular activities to boost the company’s competitiveness vis-à-vis rivals and facilitate achieving competitive advantage Copyright © 2018 by Glo-Bus Software, Inc 7–55 When to Concentrate Activities in a Few Locations  Activities should be concentrated when: ► The costs of manufacturing or other value chain activities are significantly lower in one location than in others ► Significant scale economies in production or distribution are associated with a particular location ► Sizable learning and experience benefits accrue from performing an activity at a particular location ► A certain location has superior resources, allows better coordination of related activities, or offers other valuable advantages Copyright © 2018 by Glo-Bus Software, Inc 7–56 When to Disperse Activities Across Many Locations  Activities should be dispersed when ► They need to be performed close to buyers ► High transportation costs, scale diseconomies, or trade barriers make it too expensive to operate from a central location ► It is strategically advantageous to disperse activities to hedge against exchange rate risks, supply interruptions due to weather, strikes or logistical delays, and adverse political developments Copyright © 2018 by Glo-Bus Software, Inc 7–57 Cross-Border Sharing and Transfer of Resources and Capabilities to Build Competitive Advantage  When a firm has succeeded in building a collection of competitively valuable resources and capabilities, it can: ► Use its competitively potent resources and capabilities to spearhead a strategic offensive to enter additional country markets or to compete more effectively aginst local rivals ► Pursue cross-border transfer of powerful brands, superior technology, core competencies, competitive capabilities, and key personnel to strengthen its global market position and boost its competitiveness vis-à-vis rivals in one or more countries ► Use its dominating strength in a competitively valuable capability, resource, or value chain activity as a basis for winning a sustainable competitive advantage over rivals lacking such resources and capabilities Copyright © 2018 by Glo-Bus Software, Inc 7–58 The Concept of Profit Sanctuaries  Profit sanctuaries are country markets (or geographic regions) where a firm earns substantial profits because of its strong or protected market position ► In most cases, a firm’s biggest and most strategically crucial profit sanctuary is its home market, but international and global companies may also enjoy profit sanctuary status in other nations where they have a strong competitive position, big sales volume, and attractive profit margins  Firms competing globally often have more profit sanctuaries than firms that compete in only a few country markets  A domestic-only competitor has only one profit sanctuary Copyright © 2018 by Glo-Bus Software, Inc 7–59 Core Core Concept Concept Firms with large, protected profit sanctuaries have an advantage in competing against firms that don’t have a protected sanctuary Firms with multiple profit sanctuaries have an edge in competing head to head against firms with a single sanctuary Copyright © 2018 by Glo-Bus Software, Inc 7–60 Profit Sanctuaries Are a Valuable Competitive Asset in Attacking Rivals  A company with multiple profit sanctuaries is well positioned to attack an important close rival when: ► It has more or bigger profit sanctuaries than the crival it is attacking ► It has competitively valuable resources and capabilities that it can divert from other countries to help power its offensive attack ► It can draw upon the financial strength of profit sanctuaries in other locations to help subsidize its razor-thin margins or even losses in the country market where the rival is being attacked—such tactics are called cross-market subsidization Copyright © 2018 by Glo-Bus Software, Inc 7–61 Core Core Concept Concept Cross market subsidization entails supporting competitive offensives in one market with resources and profits diverted from operations in another market Such a competitive tactic can be a powerful weapon against a rival with only one profit sanctuary or limited resources and capabilities Copyright © 2018 by Glo-Bus Software, Inc 7–62 Global Strategic Offensives: Option for Attacking an Important Rival  Attack a rival’s profit sanctuaries (maybe it biggest sancturary) and force the rival to take defensive actions that erode its financial resources by raising its costs or squeezing its profit margins  While attacking a rival’s profit sanctuary violates the principle of attacking competitor weaknesses instead of competitor strengths, such an attack can prove useful when it poses a serious threat to a rival’s business and forces it to devote added time and attention to defending a market that is important to its competitive well-being and overall profitability  When an important rival’s profits can be significantly eroded in its chief profit sanctuary, its financial resources may be sufficiently weakened to enable the attacker to gain the upper hand and build market momentum in geographic markets elsewhere, not just in the market where the offensive is being waged  The bigger the potential for such outcomes, the greater the appeal of attacking an important rival’s biggest profit sanctuary Copyright © 2018 by Glo-Bus Software, Inc 7–63 Global Strategic Offensives: Option for Attacking One or More Rivals  Dump goods at cut-rate prices in the markets of rivals ► Involves selling goods in other countries at prices that are either (1) well below the prices at which it normally sells elsewhere or (2) well below its full costs per unit ► Has appeal in two instances: • • When it drives down the price so far in the targeted country that local rivals are quickly put in dire financial straits When a firm with unused production capacity finds that it is cheaper to keep producing (as long as the selling prices cover average variable costs per unit) than to incur the costs associated with idle plant capacity ► Problem: Dumping strategies run a high risk of host government retaliation through the World Trade Organization on behalf of the adversely affected domestic firms Copyright © 2018 by Glo-Bus Software, Inc 7–64 Core Core Concept Concept A firm is said to be engaging in dumping when it sells its goods in certain countries at prices that are either well below the prices at which it normally sells elsewhere or else well below its full costs per unit Copyright © 2018 by Glo-Bus Software, Inc 7–65 Questions for Company Co-Managers  Should you make an effort to analyze which geographic regions/product segments your closest rivals are earning their biggest profits?  Then should you deliberately launch an offensive attack on one or more of these rivals in those geographic regions/product segments where they have big profit sanctuaries?  Is such an attack even more advisable if two or more of your close rivals’ profit sanctuaries happen to be in the same region or product segment and if your profit sanctuaries are elsewhere? Copyright © 2018 by Glo-Bus Software, Inc 7–66 ... worldwide Copyright © 2018 by Glo-Bus Software, Inc 7–12 Core Core Concept Concept The tension between the market pressures to localize a firm’s product offerings country by country and the competitive... meettheir theircustomers’ customers’needs needsabroad abroadand andretain retain To Toachieve achievelower lowercosts costsand andthereby therebybecome become their theirposition positionas asaakey... the world, and is pursuing a strategy of expanding into additional countries  Typically, a firm will start to compete internationally by entering one or two foreign markets and then expand gradually