MNGT 420 - Chapter 5, 6, 8

Firms choose related diversification for 3 reasons:

* Sharing activities * Transferring core competencies * Developing market power

Capabilities leading to competitive advantage must be:

* Valuable * Rare * Difficult to imitate * Non-substitutable

The most popular is the growth-share matrix of the _____.

Boston Consulting Group (BCG)

Examples of resources

Buildings, land, equipment, employees

Organizational Design

How organizations structure subunits and use coordination and control mechanisms to achieve their strategic goals

Second basic question involved in designing an organization

How shall we coordinate and control the efforts of the units we create?

First basic question involved in designing an organization

How shall we divide the work among the organization's subunits?

Low-cost Strategy

Producing products or services equal to those of competitors at a lower cost

Foreign Subsidiaries

Subunits of the multinational company that are located in another country

The Global-Local Dilemma: MNCs face

* A local responsiveness solution * A global integration solution

Formulating an Entry-mode Strategy must take into account several issues:

* Basic functions of each entry-mode strategy * Strategic considerations re company, strategic intent, products, and markets * How best to support company's multinational strategy

Multinational Diversification Strategy

* Business-level Strategies * Corporate-level Strategies * In Related Diversification

Parts of Unrelated Diversification

* Concern * Benefits * Costs

Two primary ways to gain a competitive advantage:

* Differentiation * Low cost

Offensive strategies include:

* Direct Attacks * End-run Offensives * Preemptive Competitive Strategies * Acquisitions

The most common intermediaries:

* Export management company (EMC) * Export trading company (ETC)

Entry-Mode Strategies (Options for entering foreign markets and countries)

* Exporting * Licensing * International Strategic Alliances * Foreign Direct Investment

How do Low-Cost and Differentiation firms make money?

* Focus strategy * Competitive scope

Approaches to Formulating and Implementing Strategy

* Focusing on the economic imperative * Addressing the political imperative * Emphasizing the quality imperative * Implementing an administrative coordination

Main structures

* Functional * Product and Geographic * Worldwide Geographic * Hybrid and Worldwide Matrix * Transnational Network

Four categories of Global Drivers

* Global Markets * Costs * Governments * Competition

After moving beyond passive exporting, two strategies:

* Indirect * Direct

Key Success Factors (KSFs)

* Innovative technology or products * Broad product line * Effective distribution channels * Price advantages * Effective promotion * Superior physical facilities or skilled labor * Experience of the firm in business * Cost position for raw materials * Cost position for production * R&D quality * Financial assets * Product quality * Quality of human resources

To manage political risk, consider:

* Insurance from private or government agencies if available and affordable * Rely on local partners to mitigate political risks

Some Special Licensing Agreements

* International franchising * Contract manufacturing * Turnkey operation

Economic characteristics include:

* Market size * Ease of entry and exit * Opportunities for economies of scale

Four broad multinational strategies offer solutions to the Global-Local dilemma:

* Multidomestic * Transnational * International * Regional

Different types of Competitive Strategies

* Offensive Competitive * Defensive Competitive Strategies * Counter-parries

A strategic planning helps an MNC coordinate and monitor its far-flung operations and deal with:

* Political risk * Competition * Currency instability

Key areas of concern over control are:

* Product quality in the manufacturing process * Product price * Advertising * Other promotional activities * Where the product is sold * After market service

Distinctive Competencies come from two sources:

* Resources * Capabilities

Porter's Five Forces Model

1. The degree of competition among existing competitors in the industry 2. The threat of new entrants 3. The bargaining power of buyers 4. The bargaining power of suppliers 5. The threat of substitutes

Passive Exporter

A company that treats and fills overseas orders like domestic orders

Licensing

A contractual agreement between a domestic licensor and a foreign licensee

Unrelated Diversification

A mix of businesses in any industry

Economic Imperative

A worldwide strategy based on cost leadership, differentiation, and segmentation

Regional Strategy

An approach that manages raw material sourcing, production, marketing, and support activities within a particular region

Generic Strategies

Basic ways that both domestic and multinational companies keep and achieve competitive advantage

Entry-mode Strategies &Multinational Strategies question #4

Are local government regulations favorable or not?

Entry-mode Strategies &Multinational Strategies question #6

Are there significant cultural differences between the firm and the markets?

Sustaining Competitive Advantage

Capabilities leading to competitive advantage must be: - Valuable - Rare - Difficult to imitate - Non-substitutable

Globalization Drivers

Conditions in an industry that favor transnational or international strategies over multidomestic or regional strategies

International Strategic Alliances

Cooperative agreements between firms from different countries to participate in business activities

Forms of TQM

Cross-train personnel to do jobs of all members in work group. Process reengineering designed to help identify and eliminate redundant tasks and wasteful effort. Reward system designed to reinforce quality performance.

Deciding on an Export Strategy, managers should ask: #2

Does company have financial and human resources to create positions to manage export operations?

Deciding on an Export Strategy, managers should ask: #3

Does company have resources to design and execute international promotional activities in foreign language?

Deciding on an Export Strategy, managers should ask: #4

Does company have resources to support extensive international travel or possibly an expatriate sales force?

Deciding on an Export Strategy, managers should ask: #5

Does company have time and expertise to develop its own overseas contacts and networks?

Deciding on an Export Strategy, managers should ask: #1

Does management need to control foreign sales, customer credit, and sale of the product to the customer?

Driving Forces

Forces that direct behavior away from the status quo

Corporate-level Strategies

How companies choose their mixture of different businesses

Total Quality Management (TQM)

Implementation of management practices designed to make quality improvement an ongoing process

Indirect Exporting

Intermediaries or go-between firms provide knowledge and contacts overseas.

Foreign Direct Investment (FDI)

Investment made by a foreign company in the economy of another country.

Entry-mode Strategies &Multinational Strategies question #2

Is the strategic intent to learn the market or to become immediately profitable?

Political Risk

It refers to the impact of political decisions or events on the business climate in a country such that a multinational's profitability and feasibility of its global operations are negatively affected.

Customer-focused organization structure

MNCs are adopting such structures because of Pressures to reduce costs and Subsidiary coordination

Defensive Strategies attempt to:

MNCs may defend themselves at various points in the value chain

Administrative Coordination

MNC makes strategic decisions based on the merits of the individual situation rather than a predetermined economic or political strategy

The basic tool

Matrix analyses

Hybrid Structures

Mixes functional, geographic, and product units

Advantages of Foreign Direct Investment (FDI)

Multinational companies can use FDI to set up, from scratch, any kind of subsidiary (R&D, sales, manufacturing, etc.) in another country.

Offshoring

Outsourcing to a foreign country

Competitor Analysis

Profile of a competitor's strategies and objectives

Takes two interdependent paths * Change in attitudes and raising of expectations * Implementation of management practices designed to make quality improvement an ongoing process

Quality Imperative

A Transnational Strategy adopts two priorities:

Seeking location advantages: Gaining economic efficiencies from operating worldwide

International Strategy

Selling global products and using similar marketing techniques worldwide

Acquisition Investments

Starting foreign operations by purchasing a local company

Greenfield Investments

Starting foreign operations from scratch

Political Imperative

Strategic formulation and implementation utilizing strategies that are country-responsive and designed to protect local market niches

Competitive Strategies

Strategic moves multinationals use to defeat competitors

Business-level Strategies

Strategies for a single business operation

Sustainable Strategies

Strategies that are easily defeated by competitors

Differentiation Strategy

Strategy based on finding ways to provide superior value to customers

Distinctive Competencies

Strengths that allow companies to outperform rivals

Multidomestic Strategy

The MNC attempts to offer products or services that attract customers by closely satisfying their cultural needs and expectations

Direct exporting

The MNC takes on duties of intermediaries and make direct contact with customers in the foreign market.

SWOT analysis

The analysis of an organization's internal strengths and weaknesses and the opportunities or threat from the environment

Strategy

The central, comprehensive, integrated, and externally oriented set of choices determining how a company will achieve its objectives

Outsourcing

The deliberate decisions to have outsiders or strategic allies perform certain activities in the value chain

Disadvantages of Foreign Direct Investment (FDI)

The parent companies in FDI do not create a separate legal entity.

Strategic Management

The process of: * Determining an organization's basic mission and long-term objectives * Implementing a plan of action for pursuing the mission and attaining the objectives

Entry-mode Strategies &Multinational Strategies question #3

What are the company's resources in finances and international expertise?

Entry-mode Strategies &Multinational Strategies question #7

What is the firm's need for control in this instance?

Entry-mode Strategies &Multinational Strategies question #5

What is the geography of the area? Is there a long distance between markets?

Competitive Advantage

When a company can outmatch its rivals in attracting and maintaining its targeted customers

Entry-mode Strategies &Multinational Strategies question #1

Which entry-mode strategy best serves the firm's objectives for being in the country or region?

Deciding on an Export Strategy, managers should ask: #6

Will time and resources affect domestic operations?

A country with cheaper or better-educated labor has an _____ over other nations.

absolute advantage