5StrategicManagementintheMultinationalCompany:ContentandFormulationLearningObjectives(1of2)DefinegenericstrategiesofdifferentiationandlowcostUnderstandhowlow-costanddifferentiationstrategistsmakemoney.Recallmultinationalexamplesoftheuseofgenericstrategies.Understandcompetitiveadvantageandthevaluechainandhowtheyapplytomultinationaloperations.Understandhowmultinationalfirmsuseoffensiveanddefensivestrategies.LearningObjectives(2of2)Understandthebasicsofmultinationaldiversification.Understandhowtoapplythetraditionalstrategyformulationtechniques,industryandcompetitiveanalysis,andcompanysituationanalysistothemultinationalcompany.Realizethatthenationalcontextaffectsbothconvergenceanddivergenceinthestrategiesusedbymultinationalcompanies.BasicStrategicContent

Appliedtothe

MultinationalCompany(1of2)Strategy:thecentral,comprehensive,integrated,andexternallyorientedsetofchoicesstructuringhowacompanyexploitsitscorecompetenciestoachieveitsobjectivesBasicStrategicContent

Appliedtothe

MultinationalCompany(2of2)Ideally,astrategymustaddressimportantareassuchas:whichbusinessesacompanywantstobeinhowthecompanywillcreatepresenceinamarkethowthecompanywillwincustomersMultinationalcompaniesusemanyofthesamestrategiespracticedbydomesticcompanies.CompetitiveAdvantageandMultinationalApplicationsofGenericStrategies(1of2)GenericStrategiesarebasicwaysforcompaniestoachieveandsustainacompetitiveadvantageCompetitiveAdvantage:whenacompany’sstrategycreatessuperiorvaluefortargetedcustomers,andistoodifficultorcostlyforcompetitorstocopyTwoprimarywaystogainacompetitiveadvantage:DifferentiationLowcostCompetitiveAdvantageandMultinationalApplicationsofGenericStrategies(2of2)DifferentiationStrategy:findingwaysofprovidingsuperiorvaluetocustomers(i.e.,exceptionalquality,uniquefeatures,rapidinnovation)Example:BMW’shigh-quality,high-performancesportscarsLow-costStrategy:Produceordeliverproductsorservicesequaltothoseofcompetitors,butatalowercostExample:Koreansemiconductorfirms’low-costandproductivelaborHowDoLow-CostandDifferentiationFirms

MakeMoney?Differentiation:CustomersoftenpayahigherpricefortheextravalueofasuperiorproductorserviceExample:SwisschocolatierTobler-Jacobschargesmoreforitsspeciallyproduced(notmass-produced)chocolateLow-costAdditionalprofitscomefromcostsavingsateverystepoftheprocessExhibit5.1:

Costs,Prices,&ProfitsforDifferentiation&Low-CostStrategiesFocusStrategyStrategiescanbefurthersubdividedonthebasisofcompetitivescope:Competitivescope:howbroadlyafirmtargetsitsproductsorservicesNarrowcompetitivescopeforlimitedproductsoronlycertainbuyersorgeographicareasBroadcompetitivescopewhenmanyproductsandalargerangeofbuyersaretargetedExhibit5.2:

Porter’sGenericStrategiesCompetitiveAdvantageandtheValueChainAfirmcangaincompetitiveadvantagebyfindingsourcesofdifferentiationorlowcostsinitsactivities.Thevaluechainisaconvenientwayoflookingatthefirm’sactivities.ValueChain:alltheactivitiesthatafirmusestodesign,produce,market,deliver,andsupportitsproductExhibit5.3:

TheValueChainComponentsof

theValueChain(1of2)Primaryactivitiesandsupportactivities:PrimaryActivities:thephysicalactionsofcreating,selling,andafter-saleserviceofproductsUpstream:earlyactivitiesinthevaluechain,includingResearch&Development(R&D)anddealingwithsuppliersDownstream:latervaluechainactivitiessuchassalesanddealingwithdistributionchannelsComponentsof

theValueChain(2of2)Primaryactivitiesandsupportactivities(cont’d):SupportActivities:systemsforhumanresourcesmanagement,organizationaldesignandcontrol,andafirm’sbasictechnologyUtilityofvaluechain:helpsdetermineinternalcoststructurebyassessingcostlevelsofdifferentactivitiesBenchmarkedagainstindustry&competitorstoknowifandwherecostadvantagesordisadvantagesexistOutsourcing(1of2)Outsourcing:adeliberatedecisiontohaveoutsidersorstrategicalliesperformcertainactivitiesinthevaluechainIncreasingly,MNCsoutsourceacrossborderstotakeadvantageoflowercostsinothercountries.Outsourcingisapopularandcontroversialwaytocorrectinternalcostdisadvantages.Outsourcing(2of2)Whenshouldamultinationalcompanyoutsource?Outsourcingmakessenseifanoutsidercanperformavalue-chaintaskbetterormorecheaply.However,outsourcedtasksshouldnotbeonesthatarecrucialtotheMNC’sabilitytoachievecompetitiveadvantage,ortheMNCcreatescompetitors.Thevaluechainidentifiesareasintheinput,throughput,andoutputprocesseswhereMNCscanfindsourcesoflowcostordifferentiationadvantages.DistinctiveCompetenciesDistinctiveCompetencies:StrengthsanywhereinthevaluechainthatallowcompaniestooutperformrivalsExamples:Quality,innovation,customerserviceDistinctiveCompetenciescomefromtwosources:ResourcesCapabilitiesResourcesandCapabilitiesResources:inputsintotheproductionorserviceprocesses.Ex.:Buildings,land,equipment,employeesResourcesprovidepotentialcapabilitiesCapabilities:

theabilitytoassembleandcoordinateresourceseffectivelyForlong-termsuccess,capabilitiesmustleadtoasustainablecompetitiveadvantage.Sustaining

CompetitiveAdvantageSustainableStragtegies:strategiesnoteasilyneutralizedbycompetitorsCapabilitiesleadingtocompetitiveadvantagemustbe:-Valuable-Rare-Difficulttoimitate-Non-substitutableExhibit5.4:

HowDistinctiveCompetencies

LeadtoSuccessfulStrategiesCompetitiveStrategiesinInternationalMarketsCompetitiveStrategiesarestrategicmovesmultinationalsusetodefeatcompetitors.-OffensiveCompetitiveStrategiesdirectlyattackrivalstocapturemarketshare.-DefensiveCompetitiveStrategiesattempttobeatbackordiscouragearival’soffensivestrategies.-Counter-parriesfendoffacompetitor’sattackinonecountrywhileattackingitinanothercountry.OffensiveStrategiesOffensivestrategiesinclude:DirectAttacks:pricecutting,addingnewfeatures,orgoingafterpoorlyservedmarketsEnd-runOffensives:avoiddirectcompetitionbyseekingunoccupied,ignored,orunderservedmarketsPreemptiveCompetitiveStrategies:beingfirsttoobtainparticularadvantageouspositionAcquisitions:buyingoutacompetitorDefensiveStrategiesDefensiveStrategiesattemptto:reducetheriskofbeingattackedConvinceanattackingfirmtoseekothertargetsBlunttheimpactsofanyattackMNCsmaydefendthemselvesatvariouspointsinthevaluechain,suchas:ExclusivecontractswithbestsuppliersNewmodelstomatchcompetitor’slowerpricesPublicannouncementsaboutthewillingnesstofightMultinational

DiversificationStrategyBusiness-levelStrategiespertaintotheoperationofasinglebusiness.Corporate-levelStrategiesconcernhowcompanieschoosetheirmixofdifferentbusinesses.InRelatedDiversification,firmsstartoracquirebusinessessimilartotheirown.Example:NikeaddedaclothinglinetoitsathleticshoeoperationRelatedDiversificationFirmschooserelateddiversificationfor3reasons:SharingactivitiesTransferringcorecompetenciesDevelopingmarketpowerUnrelatedDiversificationUnrelatedDiversification:firmsacquirebusinessesinanyindustryConcern:whetherit’sagoodfinancialinvestmentMayacquireasshorttermorlongterminvestmentsBenefits:easilyestablishglobalbrandnames,cross-subsidize,gainaccesstoresourcesCosts:liabilitiesofnewnessandforeignness,coordination,andadministrativecostsExhibit5.5:

ExamplesofDiversifiedMNCsStrategyFormulation:TraditionalApproachesStrategyformulationistheprocessbywhichmanagersselectthestrategiestobeusedbytheircompany.Popularanalysistechniqueshelpunderstandthe:CompetitivedynamicsoftheindustryCompany’scompetitivepositionintheindustryOpportunitiesandthreatsfacedbytheircompanyCompany’sstrengthsandweaknessesIndustryandCompetitiveAnalysisPorter’sFiveForcesModel:apopulartechniquethatcanhelpamultinationalfirmunderstandthemajorforcesatworkintheindustryandthedegreeofattractivenessoftheindustryIndustryand

CompetitiveAnalysis(1of2)Porter’sFiveForcesModel:ThedegreeofcompetitionamongexistingcompetitorsintheindustryThethreatofnewentrantsThebargainingpowerofbuyersThebargainingpowerofsuppliersThethreatofsubstitutesIndustryand

CompetitiveAnalysis(2of2)Managersmustunderstandtheirindustrywelltoformulategoodstrategies.Managersmustunderstanddominanteconomiccharacteristicsofindustriesanddrivingforces.Economiccharacteristicsinclude:-Marketsize-Easeofentryandexit-OpportunitiesforeconomiesofscaleDrivingForcesDrivingForcesaretheimportantchangesthathavepotentialtoaffectandchangeanindustryinthefuture:-Speedofnewproductinnovations-Technologicalchanges-ChangingsocietalattitudesandlifestylesKeySuccessFactors(KSFs)

(1of2)KeySuccessFactors(KSFs)areimportantcharacteristicsofacompanyoritsproductthatleadtosuccessinanindustry:-Innovativetechnologyorproducts-Broadproductline-Effectivedistributionchannels-Priceadvantages-Effectivepromotion-SuperiorphysicalfacilitiesorskilledlaborKeySuccessFactors(KSFs)

(2of2)KSFsimportantcharacteristics(cont’d)-Experienceofthefirminbusiness-Costpositionforrawmaterials-Costpositionforproduction-R&Dquality-Financialassets-Productquality-QualityofhumanresourcesCompetitorAnalysisCompetitorAnalysisisa4-stepprofileofacompetitor’sstrategiesandobjectives:IdentifyingthebasicstrategicintentofcompetitorsIdentifyingthegenericstrategiesusedandanticipatedtobeusedbycompetitorsIdentifyingtheoffensiveanddefensivecompetitivestrategiesusedortobeusedbycompetitorsAssessingthecurrentpositionsofcompetitorsExhibit5.6:

HypotheticalCompetitiveAnalysisofRivalsCompany-SituationAnalysis:SWOTManagersmustunderstandwhattheircompanycanandcannotdo,somustassess:Strengthsaredistinctivecapabilities,resources,skillsoradvantagesrelativetocompetitors;maycomefromtechnologicalsuperiority,marketing,etc.Weaknessesarethecompetitivedisadvantagesofafirmcomparedtoitscompetitors.Opportunitiesarefavorableconditionsintheenvironment.Threatsareunfavorableconditionsintheenvironment.SWOTAnalysisSWOTanalysisismorecomplexforMNCsthanfordomesticfirms.Multinationalsfacemorecomplexgeneralandoperatingenvironmentsastheyoperateinmorethanonecountry.Environmentsvarybycountry,soneedtodoacountrybycountrySWOT.CorporateStrategySelectionAdiversifiedcorporationhasaportfolioofbusinesses;theprimarygoalistoinvestinprofitablebusinesses.Themajorstrategicquestioniswhichbusinessesaretargetsforgrowthandinvestment,andwhicharetargetsfordivestmentorharvesting.Thebasictool:matrixanalysesThemostpopularisthegrowth-sharematrixoftheBostonConsultingGroup(BCG).BCGShareMatrixBCGShareMatrix:Divisionintofourcategoriesbasedonmarketshareandrelativemarketshare:Stars:themostsuccessfulfirmDogs:businesseswithlowmarketsharesinlow-growthindustriesCashcows:businessesinslow-growthindustrieswherecompanyhasstrongmarket-sharepositionProblemchildren:businessesinhigh-growthindustrieswherecompanyhasapoormarketshareExhibit5.7:

TheBCGGrowthShareMatrixforaDiversifiedMNCTheNationalContextandOrganizationalStrategy:

OverviewandObservations(1of2)Nationalcontextaffectsorganizationaldesign,strategyformulation,andcontentthroughthefollowingprocesses:Thesocialinstit