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IP_314International ManagementWEEK 6 Strategy choice in International ManagementWhat strategies do MNCs employ?Porter’s generic strategies as a basis, value chain, outsourcingAnalysis of industry and competitionMultinational strategiesMNCs’ networks and strategic alliancesOptional: Marketing strategy supporting the multinational strategy (in brief)
CentralEuropeanStudyProgramme
Ilya Bolotov, Ph.D., MBA
Outline• Strategy in international business
– Generic strategies– Value chain and Outsourcing– Distinctive competencies– Competitive strategies and Diversification
• Strategy formulation– Porter’s Five Forces model– Key success Factors– Competitor and situation analysis– Corporate strategy selection– Impact of globalization
• Multinational strategies– Multidomestic, Transnational, International, Regional
• Impacts of globalization• Networks and strategic alliances • Optional: Marketing strategy supporting business strategy
2
Basic Strategy for the Multinational Company (1)
Strategy: the central, comprehensive, integrated and externally oriented set of choices of how a company will achieve its objectives.
Source: [C1]
3
Basic Strategy for the Multinational Company (2)
• Important strategic areas– Arenas: a company needs to be able to decide
which businesses it wants to be in;– Vehicles: a properly stated strategy also needs
to include the vehicles a company will use to create a presence in specific markets or products;
– Differentiators/Economic Logic: a company also needs to decide what ways it will use to win over customers;
– Sequencing: a company also needs to decidein what sequence and at what pace major decisions will be made.
Source: [C1]
4
Basic Strategy for the Multinational Company (3)
Multinational companies use many of the same strategies as domestic companies.
Source: [C1]
5
Competitive Advantage and Multinational Applications of Generic Strategies (1)
• Generic strategies: basic ways to achieve and sustain competitive advantage.
• Competitive advantage: when a company can outmatch its rivals in attracting and maintaining its targeted customers.
Source: [C1]
6
Competitive Advantage and Multinational Applicationsof Generic Strategies (2)
• Differentiation strategy: providing superior value to customers:
– Ex.: BMW competing in the world market by providing high-quality and performance sports cars.
• Low-cost strategy: producing at a lower cost than competitors:
– Ex.: Korean semiconductor firms.
Source: [C1]
7
How Do Low-Cost and Differentiation Firms Make Money?
• Differentiation:– Customers often pay a higher price
for extra value.
• Low-cost:– Additional profits come from cost savings.
Source: [C1]
8
Exhibit: Costs, Prices, and Profitsfor Differentiation and Low-Cost Strategies
Source: [C1]
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Focus Strategy• Strategies can be further subdivided on the basis of
competitive scope.
• Competitive scope: how broadly a firm targets its products or services:
– Narrow competitive scope for certain buyers or geographic areas.
– Broad competitive scope when a large rangeof buyers are targeted.
Source: [C1]
10
Exhibit: Porter’s Generic Strategies
Source: [C1]
11
Competitive Advantageand the Value Chain
• A firm can gain competitive advantage by finding differentiation or low costs in its activities.
• Value chain is a convenient way of looking at the firm’s activities.
• Value chain: all the activities that a firm used to design, produce, market, deliver, and support its product.
Source: [C1]
12
Exhibit: The Value ChainSource: [C1]
13
Components of the Value Chain (1)
• Primary activities: physical actions of creating, selling, and after-sale service of products.
• Upstream: early activities in the value chain:– R&D,– Dealing with suppliers.
Source: [C1]
14
Components of the Value Chain (2)
• Downstream: later value chain activities:
– Sales and dealing with distribution channels.
• Support activities: systems for human resources management, organizational design and control, and technology.
Source: [C1]
15
Outsourcing (1)
• Outsourcing: a deliberate decision to have outsiders or strategic allies perform certain activitiesin the value chain.
• About half of U.S. manufacturing jobswill be outsourced to more than 28 emerging countries over the next 10 years.
• About 10% of U.S. service jobs may be outsourced.
Source: [C1]
16
Outsourcing (2)
• When should a multinational company outsource?
– Outsourcing makes sense if an outsidercan perform a value-chain task better or more cheaply.
– However, tasks that are outsourced shouldthe ones that are not crucial to the company’s ability to achieve competitive advantage.
Source: [C1]
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Exhibit: The Major Advantages and Disadvantagesof Outsourcing
Source: [C1]
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Distinctive Competencies• Strengths that allow companies to outperform
rivals:
– Ex: Quality, innovation, customer service.
• Resources: inputs into the production or service processes:
– Ex.: Buildings, land, equipment, employees.
Source: [C1]
19
Distinctive Competencies
• Capabilities: ability to assemble and coordinate resources effectively.
• Resources provide the organization with potential capabilities.
• For long-term success, capabilities must leadto sustainable competitive advantage.
Source: [C1]
20
Sustaining Competitive Advantage• Sustainable: strategies not easily defeated
by competitors.
• Four characteristics of capabilities that leadto competitive advantage:– Valuable,– Rare,– Difficult to imitate,– Non-substitutable.
Source: [C1]
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Exhibit: Relationships Among Resources, Capabilities, Distinctive Competencies, and Eventual Profitability
Source: [C1]
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Competitive Strategiesin International Markets
• Competitive strategies: strategic moves multinationals use to defeat competitors:
– Offensive competitive strategies: direct attacks to capture market share.
– Defensive competitive strategies: attemptsto discourage offensive strategies.
– Counter-parry: fending off a competitor’s attackin one country by attacking in another country.
Source: [C1]
23
Offensive Strategies• Direct attacks: price cutting, adding new features,
or going after poorly served markets.
• End-run offensives: seeking unoccupied markets.
• Preemptive competitive strategies: being firstto obtain particular advantageous position.
• Acquisitions: buying out a competitor.
Source: [C1]
24
Defensive Strategies• Attempts to reduce risks of being attacked.
• Convince an attacking firm to seek other targets.
• Blunt the impacts of any attack:
– Exclusive contracts with best suppliers.
– New models to match competitor’s lower prices.
– Public announcements about the willingness to fight.
Source: [C1]
25
Counter-parry• Popular strategy for multinationals.
• Respond to attack by attacking competitorin another country:
– Ex.: Kodak—When Fuji attacked Kodakin the U.S., Kodak retaliated by attacking Fujiin Japan.
– Goodyear also attacked Michelin in Europeas response to attack in U.S.
Source: [C1]
26
Multinational Diversification Strategy• Business-level strategies: strategies for a single
business operation.
• Corporate-level strategies: how companies choose their mixture of different businesses.
Source: [C1]
28
Diversification• Related diversification: companies acquire
businesses that are similar in some wayto their original or core business:
– Ex.: Nike adding clothing line to its shoe operations.
• Unrelated diversification: firms acquire businesses in any industry:
– Main concern is whether it’s a good financial investment.
Source: [C1]
29
What happened to the Vivendi conglomerate?https://youtu.be/HSNHfNJ0MSA
30
Outline• Strategy in international business
– Generic strategies– Value chain and Outsourcing– Distinctive competencies– Competitive strategies and Diversification
• Strategy formulation– Porter’s Five Forces model– Key success Factors– Competitor and situation analysis– Corporate strategy selection– Impact of globalization
• Multinational strategies– Multidomestic, Transnational, International, Regional
• Impacts of globalization• Networks and strategic alliances • Optional: Marketing strategy supporting business strategy
31
Strategy Formulation: Traditional Approaches• Strategy formulation: process by which managers
select the strategies to be used by their company.
• Popular analysis techniques:– Competitive dynamics of the industry,– Company’s competitive position in the industry,– Opportunities and threats faced by their company.– Company’s strengths and weaknesses.
Source: [C1]
32
Industry and Competitive Analysis
Porter’s five forces model: a popular technique that can help a multinational firm understand the major forces at work in the industry and the degree of attractivenessof the industry
Source: [C1]
33
Industry and Competitive Analysis
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.
Source: [C1]
34
Industry and Competitive Analysis
• Managers must understand their industry wellto formulate good strategies.
• Must understand economic characteristicsof industries and driving forces.
• Economic characteristics include:– Market size,– Ease of entry,– Opportunities for economies of scale.
Source: [C1]
35
Driving Forces
• The important changes that have potential to affect an industry:
- Speed of new product innovations,
- Technological changes,
- Changing societal attitudes and lifestyles.
Source: [C1]
36
Key Success Factors (KSFs)• Important characteristics of a company or its
product that lead to success in an industry:
– Innovative technology or products,
– Broad product line,
– Effective distribution channels,
– Price advantages,
– Effective promotion,
– Superior physical facilities or skilled labor.
Source: [C1]
37
Key Success Factors
– Experience of firm in business,
– Cost position for raw materials,
– Cost position for production,
– R&D quality,
– Financial assets,
– Product quality,
– Quality of human resources.
Source: [C1]
38
What is it important to know about Japanese KSFs?
https://youtu.be/oRIivxtgh4U39
Competitor Analysis (1)
• Profiles of competitor’s strategies and objectives,
• Four steps:1. Identify strategic intent of competitors,2. Identify current and anticipated generic
strategies,3. Identify current and anticipated offensive and
defensive competitive strategies,4. Assess current positions of competitors.
Source: [C1]
40
Competitor Analysis (2)
1. Strategic intent:
– Broad objectives of competitors.
2. Current and anticipated generic strategies:
– Helps determine key KSF.
3. Current and anticipated offensive and defensive competitive strategies.
4. Current positions.
Source: [C1]
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Exhibit: Hypothetical Competitive Profiles of Four Companiesin Different Countries (1)
Source: [C1]
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Exhibit: Hypothetical Competitive Profiles of Four Companiesin Different Countries (2)
Source: [C1]
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Company-Situation Analysis: SWOT
• Strengths: distinctive capability, resource or skill.
• Weaknesses: competitive disadvantage compared to competitors.
• Opportunities: favorable conditions in the environment.
• Threats: unfavorable conditions in the environment.
Source: [C1]
44
Multinational SWOT Analysis
• More complex than for domestic firms.
• Multinationals face more complex generaland operating environments.
• Environments vary by country.
Source: [C1]
45
Corporate Strategy Selection
• Diversified corporation has a portfolio of businesses.
• Major issue is which businesses to investin and which businesses to divest.
• The basic tool: matrix analyses.
• The most popular is the growth-share matrixof the Boston Consulting Group (BCG).
Source: [C1]
46
BCG Share Matrix• Division into four categories based on market
share and relative market share.
– Stars: the most successful firm.
– Dogs: businesses with low market sharesin low growth industries.
– Cash cows: businesses in slow-growth industries where company has strong market-share position.
– Problem children: businesses in high-growth industries where company has a poor market share.
Source: [C1]
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Exhibit: The BCG Growth Share Matrix
Source: [C1]
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Matrices• All matrices help answer basic strategy formulation
question such as:
– Are businesses in attractive industries?
– Are most businesses growing?
– Are there sufficient cash cows to financeother businesses?
– Is business portfolio well positioned for the future?
– Is the some strategic synergiesamong businesses?
Source: [C1]
49
Organizations Alike: Globalization and Convergence (1)• Convergence: increasing similarity
of management practices.
• Convergence is most apparent with transnational firms.
• Multinational firms competing in the same industry tend to have similar structures and strategies regardless of the location of the company’s headquarters.
Source: [C1]
50
Organizations Alike: Globalization and convergence (2)• How Globalization pushes organizations
to be more similar:
– Global customers and products,
– Growing levels of industrialization and economic development,
– Global competition and global trade,
– Gross-border mergers, acquisitions, and alliances,
– Cross-national mobility of managers,
– Internationalization of business education.
Source: [C1]
51
Organizations Alike: Globalization and convergence (3)
• National differences still affect the way many firms compete via their choices of strategies.
• Three important reasons to understand the national differences:– Managers in successful multinational firms must
understand and anticipate the strategies of rivals from other countries.
– Managers in successful multinational firms must understand the strategies of potential business partners.
– Strategies developed in one national context might be copied and modified to fit another national context.
Source: [C1]
52
The National Context and Organizational Strategy: Overview and Observations• The national context affects organizational design
and strategy formulation and content throughthe following processes:
– The social institutions and national and business cultures encourage or discourage certain forms of businesses and strategies in each nation.
– Social institutions and national culture serveas barriers to the easy transfer of competitive advantages among countries.
Source: [C1]
53
The National Context and Organizational Strategy: Overview and Observations
• Each nation must rely on its available factor conditions for developing industries andthe firms within industries.
• Social institutions and culture determinewhich resources are used, how they are used,and which resources are developed.
Source: [C1]
54
Indian MOFA Arun Jaitley promises corruption free, fair business environment
https://www.youtube.com/watch?v=oDH2Sk-ay1U55
Outline• Strategy in international business
– Generic strategies– Value chain and Outsourcing– Distinctive competencies– Competitive strategies and Diversification
• Strategy formulation– Porter’s Five Forces model– Key success Factors– Competitor and situation analysis– Corporate strategy selection– Impact of globalization
• Multinational strategies– Multidomestic, Transnational, International, Regional
• Impacts of globalization• Networks and strategic alliances • Optional: Marketing strategy supporting business strategy
56
Multinational Strategies: Dealing with the Global-Local Dilemma
• Local-responsiveness solution: customizeto country or regional differences.
• Global integration solution: conduct business similarly throughout the world.
• Global-local dilemma: choice between a local-responsiveness or global approachto a multinational’s strategies.
Source: [C2]
57
Multinational Strategies: Dealing with the Global-Local Dilemma
• Four broad multinational strategies:
• Multidomestic
• Transnational
• International
• Regional
Source: [C2]
58
Multidomestic Strategy
• Emphasizing local-responsiveness issues:
– Ex.: different packages, colors.
– Costs more to produce, need to charge higher prices to recoup.
– A form of the differentiation strategy.
– Not limited to large multinationals.
Source: [C2]
59
Transnational Strategy (1)
• Two goals get top priority:
– Seeking location advantages.
– Gaining economic efficiencies from operating worldwide.
• Location advantages: dispersing value-chain activities anywhere in the world where they can be done best or cheapest.
Source: [C2]
60
Transnational Strategy (2)
• Global platform: country location where a firm can better perform some of its value-chain activities.
• Comparative advantage: advantages of nations over other nations:– No longer only available to domestic firms.
• Location advantages can exist for all activitiesof the value chain.
Source: [C2]
61
International Strategy
• International strategy: selling global productsand using similar marketing techniques worldwide.
– A compromise approach.
– Limited adjustment in product offeringsand marketing strategies.
– Upstream and support activities remain concentrated at home country.
Source: [C2]
62
Regional Strategy
• Regional strategy: managing raw-material sourcing, production, marketing, and support activitieswithin a particular region:
– Another compromise strategy.
– Attempts to gain economic advantagesfrom regional network.
– Attempts to gain local adaptation advantagesfrom regional adaptation.
Source: [C2]
63
Exhibit: Content of the Four Basic Multinational Strategies
Source: [C2]
65
Outline• Strategy in international business
– Generic strategies– Value chain and Outsourcing– Distinctive competencies– Competitive strategies and Diversification
• Strategy formulation– Porter’s Five Forces model– Key success Factors– Competitor and situation analysis– Corporate strategy selection– Impact of globalization
• Multinational strategies– Multidomestic, Transnational, International, Regional
• Impacts of globalization• Networks and strategic alliances • Optional: Marketing strategy supporting business strategy
66
Resolving the Global-Local Dilemma: Formulating a Multinational Strategy
• Selection of strategy depends on degreeof globalization in an industry.
• Globalization drivers: conditions in a industrythat favor transnational or international strategies.
• Four categories of global drivers: markets, costs, governments, and competition.
Source: [C2]
67
Global Markets
• Are there common customer needs?
• Are there global customers?
• Can you transfer marketing?
Source: [C2]
68
Costs • Are there global economies of scale?
• Are there global sources of low-cost raw materials?
• Are there cheaper sources of highly skilled labor?
• Are product-development costs high?
Source: [C2]
69
Governments
• Do the targeted countries have favorable trade policies?
• Do the target countries have regulationsthat restrict operations?
Source: [C2]
70
The Competition
• What strategies do your competitors use?
• What is the volume of imports and exportsin the industry?
Source: [C2]
71
Competitive Advantagein the Value Chain (1)• Location of competitive advantage in value chain
determines choice of generic strategy.
• Upstream advantages: low-cost or high-quality design.
– Favor transnational strategy or an international strategy.
• Downstream advantages: marketing, sales, service.
– Favor multidomestic strategy.
Source: [C2]
73
Competitive Advantagein the Value Chain (2)
• Mixed conditions:
– Competitive strength downstream in industrywith strong globalization drivers.
– Competitive strength upstream in industrieswith local adaptation pressures:
• Both favor regional strategies.
Source: [C2]
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Exhibit: Pressures for Globalization vs. Localization
Source: [C2]
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Transnational or International: Which Way for the Global Company?• Select a transnational over an international
strategy when:
– Benefits of dispersing activities worldwide offset the costs of coordinating a more complex organization.
• Select an international strategyover a transnational when:
– Cost savings of centralization offset the lower costs of higher quality raw materials/laborfrom worldwide locations.
Source: [C2]
76
Outline• Strategy in international business
– Generic strategies– Value chain and Outsourcing– Distinctive competencies– Competitive strategies and Diversification
• Strategy formulation– Porter’s Five Forces model– Key success Factors– Competitor and situation analysis– Corporate strategy selection– Impact of globalization
• Multinational strategies– Multidomestic, Transnational, International, Regional
• Impacts of globalization• Networks and strategic alliances • Optional: Marketing strategy supporting business strategy
78
Strategic Alliances Issues
• Increasingly popular strategy to develop new product and to expand into new markets.
• However, strategic alliances are very risky and unstable.
• Failure rate of 30% to 60%.
• Even profitable alliances can be tornby conflict.
79
Source: [C3]
Exhibit: Implementing a Strategic-Alliance Strategy
80
Source: [C3]
Where to Link in the Value Chain• Alliance combining same value-chain
activities are to gain efficiencies, merge talents, or share risks.
• Upstream/downstream alliances serve the objective of low-cost supply/manufacturing.
• Operations/marketing alliances provide access to markets.
• Depends on the objective that the firm seeksto achieve.
81
Source: [C3]
Exhibit: Linking Value ChainsinStrategic Alliances: Some Examples
82
Source: [C3]
Exhibit: The Mixture of Value-Chain Links
83
Source: [C3]
Choosing a Partner: The Most Important Choice?
• Key criteria for picking an appropriate alliance partner:
– Seek strategic complementarity:• Understand objectives and seek
complementarity.
– Pick a partner with complementary skills:
• One that enhances but does not necessarily duplicate an alliance partner’s skills.
84
Source: [C3]
Criteria for Choosing Partners (1)
• Seek out companies with compatible management styles.
• Seek a partner that will provide the “right” level of mutual dependency.
• Avoid the “anchor” partner,• Anchor partner: a partner that holds back
the strategic alliance because it cannotor will not provide its share of the funding.
85
Source: [C3]
Criteria for Choosing Partners (2)• Be cautious of the “elephant-and-ant”
complex:– Occurs when two companies are greatly
unequal in size.
• Assess operating-policy differenceswith potential partners.
• Assess the difficulty of cross-cultural communication with a likely partner.
86
Source: [C3]
Outline• Strategy in international business
– Generic strategies– Value chain and Outsourcing– Distinctive competencies– Competitive strategies and Diversification
• Strategy formulation– Porter’s Five Forces model– Key success Factors– Competitor and situation analysis– Corporate strategy selection– Impact of globalization
• Multinational strategies– Multidomestic, Transnational, International, Regional
• Impacts of globalization• Networks and strategic alliances • Optional: Marketing strategy supporting business strategy
87
Marketing and Management
• Management ≈ running the company.• Marketing ≈ responding to customer’s needs / wants.
• Marketing is part of Management and at the same time Management should be based on marketing analyses.
• Management and marketing are interconnected.
• Both on B2C (Business to Consumer) andB2B (Business to Business) markets.
88
The evolution of strategic focus
• Production orientation
• Product orientation
• Sales orientation
• Marketing orientation
Source: [E]
89
Production orientation• Characteristics:
– Produce as cheaply as possible.– Keep prices low.– “People will buy anything as long as it’s cheap
enough”.
• Example: Dodge/GM’s and Ford’s first cars.
Source: [E]
90
Product orientation• Characteristics:
– Products are designed to have a lot of features that meet the needs of a large numberof customers.
– Take the view that if the product is right it will sell itself.
– Ultimately the cost of the product becomes too high as customers don’t want to pay for features they won’t use.
• Example: Ford’s T-model.
Source: [E]
91
Sales orientation• Characteristics:
– People will buy only if they are sold to.– High pressure sales pitches.– Often result in cancelled orders once the sales rep
has left the room!– Generally supply exceeds demand
so the organization has to sell what it’s made rather than what the customer wants.
• Example: Used cars.
Source: [E]
92
Marketing orientation• Characteristics:
– Look at what the customer wants/needs.– Act accordingly.– The customer is at the centre of everything
the organisation does- activities are co-ordinated around customer needs.
• Example: Toyota car.
• Market orientation is fundamental to the continuation and competitiveness of an organisation.
Source: [E]
93
International Marketing
“The marketing of goods and services across national frontiers, could also be Marketingin an internationally competitive environment, no matter whether the market is homeor foreign.”
American Marketing Association
Source: [M]
94
EP(R)G Model – Characteristics (1)Ethnocentric Polycentric Geocentric
Approach International operations are secondary
Each country is relatively independent
The world is one common market
Vision Centered on the domestic market
Each market is unique
Global vision of the world
Priority Searching for identical segments in foreign markets
Taking into consideration differences in foreign markets
Unifying differences in the world market
Planning center National headquarters
Subsidiary in each country
World headquarters
Structure International division
Division for each zone
Matrix structure
Source: [D]
95
EP(R)G Model – Characteristics (2)Ethnocentric Polycentric Geocentric
Staff Citizens from the domestic market
Citizens from each market
Most qualified
Marketing strategy
Extension Adaptation Extension, Adaptation, Creation
Management style
Centralized Decentralized Integrated and interactive
Production Domestic Local Low-cost sources of supply
Partnerships Agent, licensing Joint-ventures Strategic alliances
Performance measures
Domestic market share
Local market share
World market share
Source: [D]
96
MarketSegmentation
Identify and describemarket segments
MarketTargeting
Evaluate segmentsand decide whichto go after
MarketPositioning
Design a productor service to meeta segment’s needsand developa marketing mix that will create a competitive advantage in the minds of the selected target market
Market research Policy / Strategy
Marketing processSource: [M]
97
Thank you for your attention!Questions?
The slides are available athttp://cesp.vse.cz/academics/materials/
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Sources:• CULLEN, J. B. – PARBOTEEAH, P. Multinational management :
a strategic approach. 6th edition. Cincinnati, OH: South-Western/Cengage Learning, 2014. ISBN 978-1-285-09622-3.
• MACHKOVÁ, H. Mezinárodní marketing. Strategické trendy a příkladyz praxe. 4th edition. Prague : Grada Publishing, a.s, 2015. 200 pages. ISBN 978-80-247-5366-9.
• ACHKOVÁ, H., KRÁL, P., LHOTÁKOVÁ, M. et al. International Marketing. 1st ed. Prague: Nakladatelství Oeconomica, 2010. 192 pages. ISBN 978-80-245-1643-1.
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• Presentations:– South-Western / Thompson Learning. Multinational
strategies: Dealing with the global-local Dilemma. 2005. [C1]– South-Western / Thompson Learning. Multinational and
Participation Strategies: Content and Formulation. 2005. [C2]– South-Western / Thompson Learning. International Strategic
Alliances: Design and Management. 2005. [C3]– Katie Underhill. The Evolution of Marketing. 2010. [E]– Neeraj Bali. Introduction to International Marketing. 2011. [M]– Sine autor. Marketing Research Process. [R]– Maya Humbatova. Marketing Segmentation: Segmenting
Consumer Markets. 2010. [S]
• Other:– YouTube.– Internet.
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