Chapter Strategic Management in the Multinational Company: Content and Formulation Copyright© 2004 Thomson Learning All rights reserved Learning Objectives •• •• •• •• •• Define Define differentiation differentiation and and low low cost cost Understand Understand how how low-cost low-cost and and differentiation differentiation strategists strategists make make money money Recall Recall multinational multinational examples examples ofof use use ofof generic generic strategies strategies Understand Understand competitive competitive advantage advantage and and value value chain chain Understand Understand offensive offensive and and defensive defensive strategies strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved Learning Objectives •• •• Understand Understand basics basics ofof multinational multinational diversification diversification Understand Understand how how traditional traditional strategy strategy formulation formulation techniques techniques apply apply toto the the multinational multinational company company •• Realize Realize both both the the convergence convergence and and divergence divergence inin strategies strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved Basic Strategy for the Multinational Company •• Multinational Multinational companies companies use use many many ofof the the same same strategies strategies as as domestic domestic companies companies Copyright© 2005 South-Western/Thomson Learning All rights reserved Competitive Advantage and Multinational Applications of Generic Strategies •• Generic Generic strategies: strategies: basic basic ways ways toto achieve achieve and and sustain sustain competitive competitive advantage advantage •• Competitive Competitive advantage: advantage: when when aa company company can can outmatch outmatch its its rivals rivals inin attracting attracting and and maintaining maintaining its its targeted targeted customers customers Copyright© 2005 South-Western/Thomson Learning All rights reserved Competitive Advantage and Multinational Applications of Generic Strategies (cont.) •• Differentiation Differentiation strategy: strategy: providing providing superior superior value value toto customers customers •• Ex.: Ex.: BMW BMW competing competing inin the the world world market market by by providing providing high-quality high-quality and and performance performance sports sports cars cars •• Low-cost Low-cost strategy: strategy: producing producing atat aa lower lower cost cost than than competitors competitors •• Ex.: Ex.: Korean Korean semiconductor semiconductor firms firms Copyright© 2005 South-Western/Thomson Learning All rights reserved How Do Low-Cost and Differentiation Firms Make Money? •• Differentiation Differentiation •• Customers Customers often often pay pay aa higher higher price price for for extra extra value value •• Low-cost Low-cost •• Additional Additional profits profits come come from from cost cost savings savings Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 4.1: Costs, Prices, and Profits for Differentiation and Low-Cost Strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved Focus Strategy •• Strategies Strategies can can be be further further subdivided subdivided on on the the basis basis ofof competitive competitive scope scope •• Competitive Competitive scope: scope: how how broadly broadly aa firm firm targets targets its its products products or or services services •• Narrow Narrow competitive competitive scope scope for for certain certain buyers buyers or or geographic geographic areas areas •• Broad Broad competitive competitive scope scope when when aa large large range range ofof buyers buyers are are targeted targeted Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 4.2: Porter’s Generic Strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved Strategy Formulation: Traditional Approaches (cont.) •• Popular Popular analysis analysis techniques techniques •• Competitive Competitive dynamics dynamics ofof the the industry industry •• Company’s Company’s competitive competitive position position inin the the industry industry •• Opportunities Opportunities and and threats threats faced faced by by their their company company •• Company’s Company’s strengths strengths and and weaknesses weaknesses Copyright© 2005 South-Western/Thomson Learning All rights reserved Industry and Competitive Analysis •• Managers Managers must must understand understand their their industry industry well well toto formulate formulate good good strategies strategies •• Must Must understand understand economic economic characteristics characteristics ofof industries industries and and driving driving forces forces •• Economic Economic characteristics characteristics include include •• Market Market size size •• Ease Ease ofof entry entry •• Opportunities Opportunities for for economies economies ofof scale scale Copyright© 2005 South-Western/Thomson Learning All rights reserved Driving Forces •• The The important important changes changes that that have have potential potential toto affect affect an an industry industry •• Speed Speed ofof new new product product innovations innovations •• Technological Technological changes changes •• Changing Changing societal societal attitudes attitudes and and lifestyles lifestyles Copyright© 2005 South-Western/Thomson Learning All rights reserved Key Success Factors •• Important Important characteristics characteristics ofof aa company company or or its its product product that that lead lead toto success success inin an an industry industry •• Innovative Innovative technology technology or or products products •• Broad Broad product product line line •• Effective Effective distribution distribution channels channels •• Price Price advantages advantages •• Effective Effective promotion promotion •• Superior Superior physical physical facilities facilities or or skilled skilled labor labor Copyright© 2005 South-Western/Thomson Learning All rights reserved Key Success Factors •• Experience Experience ofof firm firm inin business business •• Cost Cost position position for for raw raw materials materials •• Cost Cost position position for for production production •• R&D R&D quality quality •• Financial Financial assets assets •• Product Product quality quality •• Quality Quality ofof human human resources resources Copyright© 2005 South-Western/Thomson Learning All rights reserved Competitor Analysis •• •• Profiles Profiles ofof competitor’s competitor’s strategies strategies and and objectives objectives Four Four steps steps •• Strategic Strategic intent intent •• Current Current and and anticipated anticipated generic generic strategies strategies •• Current Current and and anticipated anticipated offensive offensive and and defensive defensive competitive competitive strategies strategies •• Current Current positions positions Copyright© 2005 South-Western/Thomson Learning All rights reserved Competitor Analysis (cont.) 1.1.Strategic Strategic intent intent 1.Broad 1.Broad objectives objectives ofof competitors competitors 2.2.Current Current and and anticipated anticipated generic generic strategies strategies 1.Helps 1.Helps determine determine key key KSF KSF 3.3.Current Current and and anticipated anticipated offensive offensive and and defensive defensive competitive competitive strategies strategies 4.4.Current Current positions positions Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 4.6: Hypothetical Competitive Profiles of Four Companies in Different Countries Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 4.6: Hypothetical Competitive Profiles of Four Companies in Different Countries Copyright© 2005 South-Western/Thomson Learning All rights reserved Company-Situation Analysis: SWOT •• •• •• •• Strengths: Strengths: distinctive distinctive capability, capability, resource resource or or skill skill Weaknesses: Weaknesses: competitive competitive disadvantage disadvantage compared compared toto competitors competitors Opportunities: Opportunities: favorable favorable conditions conditions inin the the environment environment Threats: Threats: unfavorable unfavorable conditions conditions inin the the environment environment Copyright© 2005 South-Western/Thomson Learning All rights reserved SWOT Analysis •• •• More More complex complex than than for for domestic domestic firms firms Multinationals Multinationals face face more more complex complex general general and and operating operating environments environments •• Environments Environments vary vary by by country country Copyright© 2005 South-Western/Thomson Learning All rights reserved Corporate Strategy Selection •• •• •• •• Diversified Diversified corporation corporation has has aa portfolio portfolio ofof businesses businesses Major Major issue issue isis which which businesses businesses toto invest invest inin and and which which businesses businesses toto divest divest The The basic basic tool: tool: matrix matrix analyses analyses The The most most popular popular isis the the growth-share growth-share matrix matrix ofof the the Boston Boston Consulting Consulting Group Group (BCG) (BCG) Copyright© 2005 South-Western/Thomson Learning All rights reserved BCG Share Matrix •• Division Division into into four four categories categories based based on on market market share share and and relative relative market market share share •• Stars: Stars: the the most most successful successful firm firm •• Dogs: Dogs: businesses businesses with with low low market market shares shares inin lowlowgrowth growth industries industries •• Cash Cash cows: cows: businesses businesses inin slow-growth slow-growth industries industries where where company company has has strong strong market-share market-share position position •• Problem Problem children: children: businesses businesses inin high-growth high-growth industries industries where where company company has has aa poor poor market market share share Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 4.7: The BCG Growth Share Matrix Copyrightâ 2005 South-Western/Thomson Learning All rights reserved Matrices All All matrices matrices help help answer answer basic basic strategy strategy formulation formulation question question such such as as •• Are Are businesses businesses inin attractive attractive industries? industries? •• Are Are most most businesses businesses growing? growing? •• Are Are there there sufficient sufficient cash cash cows cows to to finance finance other other businesses? businesses? •• IsIs business business portfolio portfolio well well positioned positioned for for the the future? future? •• IsIs the the some some strategic strategic synergies synergies among among businesses? businesses? Copyright© 2005 South-Western/Thomson Learning All rights reserved ... Strategy formulation: formulation: process process by by which which managers managers select select the the strategies strategies toto be be used used by by their their company company Analyses Analyses... and the Value Chain •• AAfirm firm can can gain gain competitive competitive advantage advantage by by finding finding differentiation differentiation or or low low costs costs inin its its activities... Support Support activities: activities: systems systems for for human human resources resources management, management, organizational organizational design design and and control, control, and and