> Academy of Management Executive, 1995 Vol. 9 No. 2

Understanding strategic intentin the global marketplace

Michael A. Hitt, Beverly B. Tyler, Camilla Hardee, and Daewoo Park

Executive Overview In this article we underscore how important it is for corporate players in theworld's competitive arena to understand the strategic orientation and intent ofcompetitors, partners, and one's own often nationally diverse managementteam. We offer several examples to illustrate what it takes to succeed in thisarena, and include some advice for companies interested in revising theirperceptual maps. Such revisions have become imperative as competition inglobal industries intensifies, as more companies learn to manage across borders,and as the economies of nation states become interlinked.

"When you understand your competitors and yourself, you will always win."Sun Tzu

The Art of War

Although Sun Tzu was referring to enemies in battle, the ancient militarystrategist could have just as easily been analyzing Japan's success in U.S.markets. Indeed, Japan's global competitiveness has been attributed to itsvisceral understanding of customers, suppliers, partners, regulators, influencepeddlers, and competitors.' A case in point is Komatsu Limited, now the world'ssecond-largest earth moving equipment company. In the 1950s, protected fromoutside competition by the Japanese Ministry of International Trade andInvestment (MITI), there was little incentive for Komatsu to augment its productline or to improve product quality. In the early 1960s, however, the MITIbelieved that Japan did not have a competitive advantage in the earth movingequipment industry and opened it to foreign capital investments to protect theemerging Japanese auto and electronics industries. When Caterpillar TractorCo., the world's largest earth moving equipment company, proposed aMitsubishi-Caterpillar joint venture, Komatsu's president, Yashinari Kawai,pressured the MITI to delay the project two years. The company's survivaldepended on his ability to quickly take advantage of the Japanese government'spolicies requiring that foreign companies help Japanese companies in return foraccess to Japan's markets. Thus, Komatsu entered into licensing arrangementswith three U.S. companies: International Harvester, Bucyrus-Erie, and CumminsEngine.

Kawai understood Komatsu's customers and employees as well. He realized thatJapanese companies would prefer quality products, and Komatsu's currentproducts did not meet international standards. He knew as well that, as thirdworld countries began to industrialize, price would become more important inthe marketplace, a plus for his firm because Japanese employees were willingto work for lower wages than U.S. employees. He also knew how to use theturbulence and crisis within the company to encourage employee participationand commitment, focused on the desire to "Maru C" (surround Caterpillar).

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In this era of rapidglobalization, nocompany can afford tolimit its competitoranalysis to the past orcurrent experiences.

Komatsu understood the motives and intentions of its government, customers,competitors, partners and employees. The Japanese government wantedindustries that would compete in world markets, customers wanted qualityproducts and services at a reasonable price, employees desired job security,participative leadership, and a sense of achievement, and competitors andpartners wanted access to the Japanese markets. By understanding theorientations of each of these players, Komatsu was able to position itself so thatit could become a world-class player.^

Understanding CompetitorsRelying too heavily on a static analysis of one's competitors generally does notprovide insight into their direction or speed^ and provides little basis forunderstanding a competitor's strategic intent or basic orientation for developingcompetitive positions.*

Komatsu decided to compete with Caterpillar on its home soil in Japan, and inthe U.S. Komatsu carefully studied and understood Caterpillar's strategicorientation and intent.^ Its move into the U.S. market was deliberate, withcareful attention paid to its competitors and customers. UnderstandingCaterpillar's competitive strengths, including its dealer network, qualityproducts, and product support, Komatsu began to imitate Caterpillar bybuilding its dealer network and studying customer concerns. Komatsu built aplant in Chattanooga, Tennessee, to begin manufacturing some of the largeequipment sold in the U.S. because of the strong sense of protectionism in theU.S. and pressure to buy U.S. made goods. Concurrently, changes in the valueof the dollar and the yen made it more cost effective to build in the U.S. insteadof shipping products from Japan.

Samsung, a South Korean firm, has also shown an uncanny ability tounderstand the strategic intent and orientation of its competitors. It became theleading manufacturer of memory chips by matching its Japanese competitors onquality and delivery and besting them on price. Samsung executives suggestthat they have learned from their competitors' successes and shortcomings. Forexample, they avoided the short-sightedness of U.S. manufacturers whosignificantly reduced their capital expenditures for production equipment duringcyclical downturns and had inadequate capacity when the demand for chipsincreased.^

These two examples illustrate the importance of understanding competitors. Inthis era of rapid globalization, no company can afford to limit its competitoranalysis to the past or current experiences. Rather, companies must seekinformation regarding competitor's government support (e.g., tariffs, subsidies),potential options for action and reaction (e.g., plant locations, technologicalcapabilities, tacit skills) and probable partnerships (e.g., licensing agreements,joint ventures, technological alliances). In short, they must develop adequateinformation to predict competitors' strategic orientation and intent.

Understanding PartnersCooperative strategies are becoming common in domestic and internationalmarkets. For example, large and small corporations have joined with startups todevelop leading-edge technology, and U.S. companies have aligned withforeign concerns to penetrate international markets. General Electric Co. boastsof over 100 such partnerships, IBM has joined in over 400 strategic alliances,and AT&T has had partners in the Netherlands, Italy, Spain, South Korea,Taiwan, and Japan since 1980. Forfune reports that "alliances are so central to

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Many U.S. companies. . . were deceived bypartners who obtainedtechnology andmarket knowledgeonly to use it tocompete againstthem.

Coming's strategy that the corporation now defines itself as a 'network oforganizations'."^ However, several of these partnerships have not beensuccessful. Executives sometimes conclude deals without adequateconsideration of the potential consequences and find that their partner'smanagement style, motivations, or commitment conflict with their own. Two ofthe primary reasons these relationships go astray are: failure to agree inadvance on how to run the business, and inflexible contractual agreements thatcannot be changed as the business evolves. Other problems arise from thetendency of partners to think their own technology is best, lack of trust betweenthe partners, and the desire to control rather than collaborate.^

Painful LessonsCareful planning, negotiation, and contracting are necessary to avoid suchproblems in cooperative partnerships. Many U.S. companies still remember thepainful lessons learned in the 1970s and 1980s, when they were deceived bypartners who obtained technology and market knowledge only to use it tocompete against them. Even contracted sales restrictions can be annulledthrough government intervention. A case in point was Komatsu's decision in theearly 1980s to become a full-line supplier of earth moving equipment. Thisrequired a reevaluation of its licensing relationships with technology suppliersBucyrus-Erie and International Harvester. Komatsu appealed to Japan's fairtrade commission to support objections to contractual terms restricting theexport of two new products using Bucyrus-Erie technology. The commissionagreed that the terms constituted a restrictive business practice that impairedcompetition and allowed Komatsu to buy its way out of the contract. Soonthereafter, it also bought out its obligations to International Harvester. AKomatsu senior manager said "Komatsu had digested its licensed technologyand had established its own technology. Therefore, we just got out of thevarious licensing agreements."^

While Komatsu has been successful in dealing with its competitors and somepartners, some of its partnership arrangements have soured. For example, in itsdesire to "Maru C" it developed a joint venture with U.S.-based DresserIndustries. The intent was to form a joint venture with equal ownership, basedon the principles of shared and equal management. Products were to besupplied by Komatsu and Dresser plants in North and South America. The dealwas expected to help Komatsu gain a greater foothold in the North and SouthAmerican markets. Dresser was mired in a downturn in its industry and hadexcess production capacity. While Komatsu wanted to increase its production inthe U.S., Dresser needed to upgrade its plant and equipment. Komatsu injected$200 million and provided production engineers to help in modernizing sevenDresser production facilities. Originally, Komatsu was supposed to shift 60percent of its production for the U.S. market to the joint venture plants. The twofirms were supposed to merge their manufacturing, engineering and financeoperations. The Komatsu and Dresser product lines were intended to remaindistinct and sold through their separate dealership networks. They ended upcompeting, however, and numerous clashes erupted between the approachesused by Japanese and American executives in the joint venture. Dresserexecutives felt excluded from Komatsu decision making. One managersuggested that top Japanese executives often made crucial decisions duringFriday evening sessions (held in Japanese) and he learned about the decisionsfrom Japanese subordinates on Monday morning. Some executives charged thatKomatsu made the joint venture pay up to 15 percent above market value for itsgoods. But, Dresser executives refused to provide product information to their

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. . . alliances becometroubled because thepartners . . . areunable tocommunicate clearlywith managers from adiiferent culture.

Komatsu counterparts because they were afraid of losing sales. As a result ofthe problems. Dresser hired an industrial consultant to teach its employees howto deal with the Japanese. Furthermore, it sent employees to Japan to learnmore about the Japanese culture and work habits. To date, this joint venture haslost market share, but may still pay dividends.^"

Communication GapsOften, alliances become troubled because the partners do not clearlyunderstand each other's intent—their strategy, goals and purposes—becausethey are unable to communicate clearly with managers from a different culture.Such communication gaps often lead to an atmosphere of frustration andmistrust. This problem is exemplified by the partnership of GM and Daewoo, aKorean firm. In 1984, GM and Daewoo signed an agreement to invest $199million each in a factory to produce the Pontiac LeMans subcompact car. Theautomobile would utilize GM's German-based technology responsible for theOpel Kadett. The Daewoo Group didn't have the engineering expertise to designor manufacture a LeMans-class car, and GM's U.S. manufacturing operationscouldn't produce the LeMans profitably in the numbers needed. Therefore, thispartnership looked like a match made in heaven. Not only did GM's Europeanaffiliate, Opel, provide the car design, but Opel engineers also set up Daewoo'sassembly line plant to manufacture the Pontiac LeMans.

The venture went beyond joint manufacturing of the LeMans in Korea. The twofirms also opened three auto parts ventures to make steering gears, axles,brakes, radiators, and air conditioning components. Also, GM tookresponsibility for the North American marketing of the Daewoo manufacturedPontiac LeMans automobile. Daewoo was hoping to take advantage of GM'sengineering, financing and marketing strengths to gain market share from oneof its chief Korean competitors, Hyundai.

Unfortunately, multiple problems began to develop. Sales of the LeMans felldramatically short of projected targets. While Daewoo blamed GM for failing topromote the car, GM blamed Daewoo for quality and supply problems. The GMmanagement expert sent to Korea to correct the problems stated that theKoreans had neither the manufacturing heritage nor an adequate understandingof the auto industry. While Daewoo had the capacity to produce up to 278,000cars per year, annual combined sales in the U.S. and Korean markets reachedonly 100,000. Daewoo felt that the LeMans was not a priority product for GM.Furthermore, Daewoo wanted to invest aggressively to take advantage ofKorea's booming domestic auto market which was growing at an average of 60percent per year. However, GM was not interested in additional investments totake advantage of this market. As a result, Daewoo sought help from otherfirms, including Japan's Suzuki Motor Company, to develop an automobile thatwould sell well in the Korean market.

Sales of the LeMans continued to decline to slightly over 39,000 autos in the U.S.in 1990. There were numerous management clashes and operational disputesbetween the two firms. Daewoo wanted to make decisions and move quickly,and GM's methodical approach prolonged decision making and created conflict.Neither party fully understood the other's strategic goals nor its strengths andweaknesses. Thus, what was now an obvious mismatch in strategic orientationand intent had not even been considered as a possibility by either party prior toforming the venture." As a consequence, GM and Daewoo went through a bitterdivorce. Each company acknowledged that both underestimated obstacles faced

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by their venture, including different cultures, languages and businessaspirations. One executive noted that the two partners never learned to walktogether before trying to run together. These partners did not understand oneanother before or during the venture and therefore, the venture failed. '^

One execufive notedthat the two partnersnever learned to walktogether before tryingto run together.

Even though many cooperative partnerships have proven unsuccessful, thenumber of such partnerships, including equity ownership, licensingagreements, joint ventures, strategic alliances, and other types of contractualagreements, has increased exponentially over the past decade. As industriesglobalize, industry players, large and small, are creating strategic alliances inorder to survive the competitive shakeout. The desire for lower sourcing costsserved as one of the earliest motivations for cooperative relationships. Anumber of U.S. firms moved manufacturing facilities to foreign locations, oftenin Asia or Latin America, in an effort to save on labor costs. In so doing, severalhave formed joint ventures, such as General Motors and Daewoo, or havepurchased equity positions, such as Ford's 25 percent position in Mazda, 10percent position in Kia Motors of Korea and 75 percent position in Aston MartinLagonda.^^ However, this strategy must be implemented carefully. The negativeexperiences of companies such as General Motors with Daewoo serve asreminders of the obstacles to success.^'*

Understanding a Nationally Diverse Management TeamMichael Porter argues that "Firms can no longer view the domestic and foreignspheres as separate and different but must see the whole—how to conceive andimplement overall strategies for competing globally."^^ It has becomeincreasingly evident that the old ways of competing internationally havebecome obsolete. Currently, firms are confronted with a bewildering array ofcompetitive and management problems in implementing their own intrafirmagreements. '̂ Kenichi Ohmae describes the borderless world with aninterlinked economy, toward which he believes we are moving. He believes thaton a competitive map—as compared to a political map—showing the actualflows of financial and industrial activity, boundaries between countries havelargely disappeared. In this world, global citizenship is no longer only a phrasebut a reality."

Perhaps equally as critical as understanding one's competitors and partners is afirm's understanding of the strategic orientations of its nationally diversemanagement team. Many multinational firms are evolving into almost statelesscorporations, whereby executives come from multiple countries with diversecultures, and decisions are made without regard to national boundaries. Inthese firms, differences in managers' strategic orientations should beunderstood, appreciated and utilized to the advantage of the

It is imperative that firms with international operations understand their ownmanagers' strategic orientations and intent. If a firm has operations in Korea,for example, it is important to understand the potential strategic actions thatmight be undertaken by top managers of that unit. This is particularly importantin multinational companies because of the need to provide autonomy to thesenational units to that they can be responsive to the local markets and competeeffectively. It is also critical to coordinate among the separate units in order tobuild cost advantages through centralized global operations. Coordinationrequires effective communication and integration that can only be achieved ifmanagement understands how various managers think, what they value andhow they are likely to respond. To illustrate this point, when we examined how

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It is imperative thatiirms withinternationaloperations understandtheir own manager'sstrategic orientationsand intent.

top U.S. and Korean executives evaluate an acquisition decision,^significant variation in the decision criteria.

we found

As shown in Table 1, U.S. executives considered projected demand for the targetfirm's product to be the most important criterion, followed by cash flow, returnon investment, attractiveness of the industry in which the firm operated,management talent, and the expected synergy between the two firms. On theother hand, the Korean executives regarded attractiveness of the target firm'sindustry as the most important criterion, followed by the target firm's salesrevenue, market share, and capabilities in manufacturing and research anddevelopment. Among the top criteria for each group of executives, only industryattractiveness was common to both.

While decisions of executives from both the U.S. and Korea were determinedprimarily by the objective criteria on which each target firm was evaluated, U.S.executives' decisions varied more by individual than those of their Koreancounterparts. The Koreans' strategic decision criteria reflected the morehomogenizing influences present in the Korean culture. The Korean culturalheritage fosters a form of management Chandler called "group capitalism."^"

In addition, while U.S. executives placed heavy weight on financial criteria, theKoreans focused more on current market position and capabilities. By and large,U.S. executives focus on financial criteria, such as cash flow and return oninvestment (ROD, because of emphasis on maximizing shareholder wealth. Onthe other hand, Korean executives pursue ROI for the purpose of marketexpansion and growth. U.S. firms are financed largely through the capitalmarket, whereas Korean firms are often financed through government-guidedbank loans. U.S. executives often feel pressure to meet stockholder demands forhigh dividends, and thus may focus more on profitability than potential growthopportunities. In contrast, Korean executives are less sensitive to short-termprofitability and more sensitive to long-term growth strategies.^'

Table 1Top Five Criteria Used in Strategic Acquisition Decisions

U.S. Executives Korean Executives

1. Projected Demand for Target Firm'sProduct(s)

2. Discounted Cash Flow3. Return on Investment4. Attractiveness of Target Firm's

Industry(ies)5. Management Talent/Expected Synergy

1. Attractiveness of Target Firm's Industry(ies)

2. Sales Revenue3. Market Share4. Manufacturing Capabilities

5. R&D Capabilities

Revising Perceptual MapsFirms moving into global markets will have to revise their perceptual maps ofcompetitors and markets. Undoubtedly, movement from a domestic to a globalmarket opens a new arena for competition. Furthermore, the markets andnetwork of competitors are clearly more complex. Thus, while it becomes evenmore important to understand the strategic orientation and intent of yourcompetitors, partners and nationally diverse management team, it also becomesmore difficult to do so.̂ ^

While there are several ways that firms might attempt to examine their

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competitors, potential partners and their own managers, we recommend thefollowing actions:

To Understand Your Competitors

• Go beyond standard static analyses of competitors.• Examine their national history (e.g., dominant religion,

government-business relationships, level of economic development, etc.).• Analyze their managerial values, goals and strategy.• Profile their strategic orientations and predict their strategic intent.

To Understand Your Potential Partners

• Analyze their corporate culture, structure and operating systems to combinewith information on top executives' strategic orientation.

• Analyze how the specific alliance fits into the partner's overall strategy.• Analyze partner's costs and benefits from the alliance, both tangible and

intangible.• Predict partner's strategic intent for the alliance.

To Understand Diverse Members of Your Management Team

• Examine the culture of their country of origin and its other relevantcharacteristics.

• Analyze the types and amount of experience they have achieved.• Analyze their previous major strategic decisions.• Use this information to profile their strategic orientation.

Endnotes ' F.S. Worthy, "Keys to Japanese Success inAsia," forfune, October 7, 1991, 157-169.

^ C.A. Bartlett and U.S. Rangan, KomatsuLimited, Harvard Business School, case#9-385-277, 1985; Bartlett, Komatsu Limited,Harvard Business School, teaching note#5-388-130, 1988; U.S. Rangan and C.A. Bartlett,CaferpiJJar Tractor Co., Harvard BusinessSchool, case #9-385-276, 1985.

^ G. Hamel and C.K. Prahalad, "StrategicIntent," Harvard Business Review, May-June1989, 63-76.

•• Hamel and Prahalad, op. cif.; D. Park andM.A. Hitt, "Executive Effects on StrategicDecision Models: Examination of StrategicIntent," paper presented at the StrategicManagement Society, Toronto, Canada,October, 1991.

* B. Kelly, "Komatsu in a Catfight," Sales andMarket Management, April 1986, 50-53.

^ L. Nakarmi and N. Gross, "Masters of theClean Room: How Samsung Upstaged Japan toBecome Number One in ORAMS," BusinessWeek, September 27, 1993, 107-108.

' J.B. Levine and A. Byrne, "Corporate OddCouples," Business Week, July 21, 1986, 100-104;S. Sherman, "Are Strategic Alliances Working?"Fortune, September 21, 1992, 76-78.

® Bartlett and Rangan, Komatsu Limited,op.cit.; Levine and Byrne, op.cif,; Sherman,op.cit.

^ Bartlett and Rangan, Komatsu Limited,op.cit.

'° J. Mullich, "Heavy Equipment VenturePacks Powerful Punch," Business Marfcefing,March 1993, 10; K. Kelly, "A Dream MarriageTurns Nightmarish," Business Week, April 29,1991, 94-95; W.G. Krizan and N. Usui, "Dresser,Komatsu Strike Deal," ENR, February 11, 1988,7; "Dresser, Komatsu Form North American JointVenture," Engineering and Mining Journal,October 1988, 53.

" L. Nakarmi, L. Armstrong and J.B. Treece,"Is the GM-Daewoo Deal Running on Empty?"Business Week, September 12, 1988, 55; J.B.Treece, "Why GM and Daewoo Wound Up onthe Road to Nowhere," Business WeeJc,September 23, 1991, 55; P.A. Eisenstein, "InchonLanding," Chilton's Automotive Industries,February 1990, 116-118.

'̂ D. Darlin and J.B. White, "Failed Marriage:GM Venture in Korea Nears End, BetrayingFirm's Fond Hopes," Wall Street Journal,January 16, 1992, A-1, A-12.

" Park and Hitt, op.cif.; K. Kell, O. Port, J.Treece, G. DeGeorge, and Z. Schiller, "Learningfrom Japan," Business Week, January 27, 1992,52-60.

'•* Strategic alliances can be successful. Forexample. Coming obtained more than half of its$133.3 million in net income in 1985 from nearlytwo dozen alliances. Corning executives argue

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that the company's success with corporatelinkups comes from working with a long-termperspective. They seek lifetime associationsbecause of the enormous energy it takes to makea partnership work. Corning works hard to avoidthe pitfalls of many U.S. companies that aretrying to gain the upper hand. Above all. Comingwants to establish a feeling of mutuality andtrust. To do this it seeks partners withcompatible values, presses for 50-50 ownership,installs good managers, and sets the ventureapart from both parents. See endnote 6, op.cif.

'̂ M.E. Porter, Compefifion in GlobalIndustries (Boston, MA: Harvard BusinessSchool Press, 1986).

'̂ Porter, op.cif., 1-2." K. Ohmae, The Borderless World (New York,

NY: Harper Perennial, 1991).'= W.J. Holstein, S. Reed, J. Kapstein, T. Vogel

and J. Weber, "The Stateless Corporation,"Business Week, May 14. 1990, 98-105.

'̂ A detailed discussion may be found inM.A. Hitt, B. Tyler and D. Park, "AGross-Cultural Examination of StrategicDecision Models: Comparison of Korean andU.S. Executives," Proceedings of Academy ofManagemenf, August 1990, 111-115.

^° C.A. Bartlett and S. Ghoshal, ManagingAcross Borders: The Transnational Solution(Boston, MA: Harvard Business School Press,!

^' K.H. Chung and H.C. Lee, "NationalDifferences in Managerial Practices," in K.H.Chung and H.C. Lee (eds.) Korean ManagerialDynamics (New York, NY: Praeger, 1989),l!63-180.

^ W. Boeker, "Strategic Changes: The Effectsof Founding and History," Academy ofManagement Journal, 32, 1989, 489-515; J.ileontiades, "Going Global: Global Strategiesversus National Strategies," Long RangePlanning, 19, 1986, 96-104.

About the Authors Michael A. Hitt holds the Paul M. and Rosalie Robertson Chair in Business Administration at TexasA&M University. He received his Ph.D. from the University of Colorado and previously served on thefaculty at Oklahoma State University and University of Texas at Arlington. He is the author orcoauthor of several books, book chapters and numerous articles in such journals as the Academy ofManagement Journal, Strategic Management Journal,Science, and Academy of Management Executive. He

Journal of Applied Psychology, Organizationis the former editor of the Academy of

Management Journal and is Vice President and Program Chair of the Academy of Management. Heis coauthor of a new book entitled Downscoping: How to Tame the Diversified Firm (OxfordUniversity Press).

Beverly B. Tyler is an assistant professor of strategic management in the School of Business atIndiana University, Bloomington. Her research, teaching and consulting activities focus on corporatestrategic cognitive and decision processes as they relate to innovation and change, cooperation andglobal integration. Her work has been published in the Strategic Management Journal, Research inPersonnel and Human Resources Management, and tlie High Technoiogy Managemenf ResearchSeries.

Camilla A. Hardee is vice president of marketing for jWoodbine Development Corporation, a realestate company associated with Hunt Oil Company of Dallas. Prior to joining Woodbine in 1991, shewas manager of corporate communications for Hunt Oil, where she had worked since 1980. A magnacum iaude graduate of Trinity University, San Antonio, she earned a bachelor's degree in journalismand worked for several years as a reporter and editor for Dallas/Fort Worth Business Journal,Arlington Citizen-Journal, the Jackson (Tenn.) Sun and Norfh San Antonio Times. She later earned anMBA with a marketing emphasis from the University of Texas at Arlington.

Daewoo Park (Ph.D., Texas A&M University, Organizational Behavior) is an assistant professor oforganizational behavior and strategy at Xavier University, Cincinnati, Ohio. His primary researchinterests are in the application of macro organizationjal psychological theories to the implementationof organizational innovation and globalization. For his research and teaching, he has worked withmany corporate executives of Fortune 500 companies [(e.g., Procter & Gamble, Cincinnati Milacron,General Electric) and Japanese companies (e.g., Andrew Jergens, Toyota).

For permission to reproduce this article, contact: Academy of Management, P.O. Box 3020, Briarcliff Manor, NY 10510-8020

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