Ppt Strategy in the Global Environment by ere51680

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									               Strategy Formulation in a
                  Global Environment

              Lecture on May 9, 2005
               International Strategic
             Prof. Dr. Michael Dowling

                             Bartlett & Goshal
Global Integration

      Goal of global              Transnational

                                     Goal of

                       Local Responsiveness
           Global Efficiency

Ratio of value of outputs to inputs
– increase value of outputs or
– lower value of inputs or
– both

        Multinational Flexibility

Ability to scan broad environment and
detect changes that present new risks
and opportunities
Side bets to cover contingencies
          Worldwide learning

Internalization of international diversity
creates potential for enhanced learning
Organization must exploit potential!
– Develop mechanisms and organizations
  worldwide to sense customer needs and
  market opportunities


          Multinational Strategy
Focus on national differences
Focus on revenues rather than cost
Differentiation of products in response to
customer preferences, industry
characteristics, and government regulation
Local resources to meet local needs
Local autonomy
Inability to exploit knowledge from other
national units
– E.g. Unilever, Philips, Nestle

          International Strategy

Development of home innovations to
develop competitive positions abroad
Often involves attempt to transfer
products, processes, or strategies from
developed home market to less
developed ones
Weakness in both efficiency and
E.g. in US - Kraft, Pfizer, P&G, GE
            Global Strategy

Emphasis on efficiency through global
economies of scale
Compromises on both flexibility and
High transport costs and exchange rate
Reduced learning through centralized
– E.g. Japan - Toyota, Canon, Komatsu,

        Transnational Strategy

Both efficiency and flexibility important
Costs and revenues must be managed
Innovation can be found in many parts
of organization
Capabilities and resources must be in
part centralized and in part
Examples of a Transnational - Asea
         Brown Boveri

1987 merger of Asea AB of Sweden
and BBC Brown Boveri Ltd of
world leader in power generation and
transmission equipment
also supplier of process automation,
robotics, locomotives, pollution control

local organization - 1300 separate
 – customer strategies
 – regional results
 – day to day management
 – relationships with local government
Business Areas - 65 global
 – world-wide strategy and results
 – R&D and product development
 – purchasing coordination
 – transfer of know-how
 – acquisitions and divestments

        Hout, Porter & Rudden

Change industry by
– Exploiting economies of scale through
  global volume
– preempting competitor positions through
  large investments in innovation
– managing interdependently to achieve
No reliance on “world product”
                     Hamel & Prahalad

      Best defense is a good offense!
       – Use cash flow at home to attack home
         markets of foreign competitors
             good example - Goodyear´s counterattack on
             Michelin in Europe
             bad example - RCA with TVs in the US

                Yip - Developing a Total
                    Global Strategy
Develop core
                            Core Business Strategy

the strategy

Globalize the      Country Country Country Country Country
strategy             A       B       C       D       E
    Framework of Global Strategy Forces

Position and resources
of business and                                                Benefits/
parent company                                                 costs of
                          Appropriate setting for global
                          strategy levers                       global
                          • Major market participation         strategy
                          • Product standardization
                          • Activity concentration
Industry globalization    • Uniform marketing
drivers                   • Integrated competitive moves
• Market factors
• Cost factors
• Environmental factors
• Competitive factors
                                                  Organization´s ability to
                                                implement a global strategy

                    Market Participation

   Multidomestic                      Global
     – stand alone potential           – potential for global
       for profits                       benefits
     – patterns of                     – e.g. home market of
       investments accrue                competitor
       from local advantage            – pattern developed for
                                         global advantage
              Product Offering

Multidomestic           Global
– tailored to local      – standardized core
  needs                    product with
                           minimum on local

    Location of Value Added Activities

Multidomestic           Global
– value chain            – value chain activities
  reproduced in each       located in country
  country                  with low cost for that
           Marketing Approach

Multidomestic          Global
– tailored to each     – uniform approach

            Competitive Moves

Multidomestic          Global
– made specific to a   – integrated across
  country                countries
 Main Benefits of a Global Strategy

Cost reduction
– economies of scale
– lower factor costs
– flexibility to seek lowest cost
– enhance bargaining power to reduce input
Improved quality
– fewer products mean usually better quality
– e.g. Toyota vs.. GM

Enhanced Customer Preference
– better to establish brand name - e.g. Coca
Increased competitive leverage
– more points for counterattack of
     Downside of Global Strategy

Significant management costs for
coordination, staff, etc.
Product standardization may not satisfy
all customers!
Increase currency risks by activity
Integrated competition may lead to
losses in particular countries

            Ideal Strategy!

Find a balance between level of
strategy globalization and globalization
potential of the industry
Balance also depends on limitations of
organization such as structure, culture,
people, etc.
      Globalization Potential of Industry versus
               Globalization Strategy

High                        National strategic
                                                                   Business C
Globalization of strategy

                            Business D

                                             Balanced global and
                                             national strategic

                                                              Business B

                                                              Global strategic
                             Business A
 Low                                                          disadvantage

                            Low     Globalization potential of industry High

   Strategy Implementation in a
        Global Environment
                                                         Early Research

                             John Stopford, late 1960s
                               – 187 largest US-based MNCs
                               – number of products sold internationally (diversity)
                               – importance of international sales
                             World wide companies adopt different
                             organizational structures at different phases
                             of development.
                             End result often a “matrix” structure

                                              Stopford and Well`s International Structural Stages Model

Foreign Product Diversity

                            Division                                   Global Matrix
                                                                       (or „Grid“)

                                       Alternate Paths
                                       of Development

                            International                             Division

                                            Foreign Sales as a Percentage of Total Sales
            Bartlett and Goshal:
     Adapting to Administrative Heritage

 Every company is influenced by its
 development path
 – history
 – management culture

   Organizational Configuration Models
(a) Decentralized Federation -
common to European multinational strategy
                                       (capital out;
                                       dividends back)

             Loose, Simple Controls;
             (strategic decisions
(b) Coordinated Federation -
common to US international strategy

                                           (technology products,
                                           processes, systems)

       Formal System Controls;
       (planning, budgeting,
       replicating parent company
       administrative system)

  (c) Centralized Hub
  - common to Japanese global strategy

                                    Mainly Flows
                                    of Goods

                                    Tight, Simple Controls;
                                    (key strategic decisions
                                    made centrally)
  Solution: Building Organizational

Formal structure not enough!
MNC must develop multiple
organizational capabilities:
– administrative systems
– communication systems
– interpersonal relationships

        Integrated Network Model -
         the Transnational Solution

                                        Distributed, Specialized
                                        Resources and Capabilities

                                          Large Flows of
                                          Componets, Products,
                                          Resorces, People,
                                          and Information among
                                          Interdependent Units
    Complex Process of Coordination
    and Cooperation in an Environment
    of Shared Decision Making
     The “Biological Model” of the
– line structures for formal relationships,
  but task forces and committees for
  additional decision making forums
– Information flows, including informal
– Importance of meetings, trips,
  committee assignments

– corporate values and beliefs
– vision and mission
– behavior and public actions of senior
– personnel policies, practices, systems
   Problems with Matrix structures

Positive Theory
– managers report both to area and
  functional supervisors
– multiple channels of communication
Negative practice
– raised level of disagreement and conflict
– dual reporting led to confusion and conflict
– cultural differences heightened problems

International Cooperative Strategy
Typical Day for McKinsey Consultant –
             David Ernst
Gas pumped into his car is a product of an
alliance between Royal/Dutch Shell and
Credit card to pay is co-branded with Shell
and Mastercard
Starbucks Coffee sold in airport through a JV
with Marriott Corp.
Airline he uses part of a group of several
international carriers.
– „For most companies the basis of competition has
  shifted to groups of companies competing against
  groups of companies.“
           Other Examples

Oracle software has 15-16.000
IBM has announced $30 billion in
alliances since May 1999 including Dell
and Cisco Systems
Average large company has 30


Networks                    Loose
Contracts, e.g. for R&D
Joint Ventures
Minority Investments        Tight

 risk sharing
 scale economies
 access to markets
 access to technology
 converging markets

Why alliances can make more sense than
     acquisitions (Business Week 10/99)
 Flexibility and informality promote efficiencies
 Access to new markets and technologies
 Ability to create and disband projects easily
 Multiple parties share risks and expenses
 Partners can retail their independent brand
 Working with partners possessing multiple skills can
 create major synergies
 Rivals can often work harmoniously together
 Alliances can take multifarious forms, from simple
 R&D deals to huge projects
 Ventures can accommodate dozens of participants
 Antitrust laws can shelter cooperative R&D activities

Product goals
– Cost reductions
– Product range additions
Knowledge goals
– transfer of capabilities

 Risks - Giving away your future?


Difficulty in merging cultures
Failure rate
– Andersen Consulting:
    “61% of corporate partnerships are either
    outright failures or seen as ´limping´along.”

      Management of Alliances
       (Bartlett and Goshal)

Choice of Partner
Managing Boundaries
Structure of Alliance
Managing Knowledge Flows
Guideline for strong and lasting Alliances

 Compatibility and Responsibility
 Equal contributions
 Strong management
 Separate Culture

       Management of Alliances
       (Gomes-Casseres - HBS)
       Global Logic of Alliances
           Kenichi Ohmae
Globalization makes them essential
– restatement of Triad power
Dispersion of Technology
– no one company can be expert at everything
Need to spread fixed costs
Danger of building internally through equity
Focus on ROS not ROA

      Collborate with Competitors and Win
              Hamel, Doz, Prahlad

Based on research on 15 alliances
– four European-US
– two intra-European
– two European-Japan
– seven US-Japan
In part in response to HBR article by
Robert Reich, “Joint Ventures with
Japan Give Away our Future”

Alliances with Asian companies not
always one sided
Collaboration is a form of competition
Harmony not the most important
measure of success
Cooperation has limits

Japanese firms
– make major effort to learn from partners
Western firms
– enter alliances to avoid investments,
  reduce risks
– many “alliances” just outsourcing
– e.g. Honda-Rover: Rover used Honda
  technology to avoid investments in design
  for new cars.
Conditions under which partners both can

 Strategic goals converge even as
 competitive goals diverge: e.g. Siecor
 Size and market power of partners is
 modest compared to industry leaders
 Each partner believes it can learn from
 other but still protect proprietary skills

       Secure Defenses Important

 Defenses depends on type of skills
  – danger of tranfer is greater when
      easily transported (in drawings, etc)
      workers can leave with knowledge
      independent of cultural context
  – Asian companies contribute complex
    process skills (hard to tranfer), Western
    companies often contribute technology
    (easier to transfer).
Written agreements important
– limited in scope
     e.g. single technology rather than a whole group of
     time limit
– specific performance requirements
– careful control of gatekeepers of information (informal
too much collegiality is dangerous!
     Western managers and engineers too open.
     Japanese managers more closed.
       – “We don´t feel any need to reveal what we know. It is not an
         issue of pride for us. We are glad to sit and listen. If we´re
         patient we usually learn what we want to know.”
physical separation sometimes important

        Enhance learning capabilities

  Western companies must become more receptive
  to learning from partners
   – Japanese executive
        “Our Western partners approach us with the attitude of
        teachers. We are quite happy with this, because we have the
        attitudes of students”
  Top management must be committed to learning
  Lower level employees must be trained to be
  observant and learn.
Proceed with Care -
   but Proceed

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