BASIC STRATEGY BASIC STRATEGY CONTENT AND THE CONTENT AND THE

MULTINATIONAL MULTINATIONAL COMPANYCOMPANY

• Strategy content includes the strategic options available to companies–multinational companies use many of the same strategies as domestic companies

STRATEGY Cont.STRATEGY Cont.Strategic plan • Articulate values • Mission statement • SWOT analysis • Establish realistic goals and

objectives• Formulate strategies • Implement strategies

CORPORATE CORPORATE STRATEGYSTRATEGY

• How companies choose their mixtures of different businesses

• Contrasts with business level strategy

• Diversification–related –unrelated

COMPETITIVE COMPETITIVE ADVANTAGE AND ADVANTAGE AND

GENERIC GENERIC STRATEGIESSTRATEGIES

• Competitive advantage –When a company can out match its rivals in attracting and maintaining its targeted customers

• Sustained competitive advantage

Competitive Competitive advantage and advantage and

generic strategies, generic strategies, continuedcontinued

• Generic strategies–basic ways to keep and achieve competitive advantage

DIFFERENTIATIONDIFFERENTIATION

• Providing superior value to customers

LOW COSTLOW COST

• Produce or deliver products or services equal to those of competitors WHILE–producing or delivering products or services more efficiently than competitors

SOURCES OF SOURCES OF PROFIT FOR LOW PROFIT FOR LOW

COST AND COST AND DIFFERENTIATIONDIFFERENTIATION

• Differentiation –customers often pay a higher price for extra value

• Low cost –additional profits come from cost savings

0102030405060708090

AverageCompetitor

Low CostStrategy

DifferentiationStrategy

$

Cost

Price

Profit

COMPETITIVE COMPETITIVE SCOPESCOPE

• How broadly a firm targets its products or services

EXHIBIT 5.2EXHIBIT 5.2 PORTER’S GENERIC PORTER’S GENERIC

STRATEGIESSTRATEGIES

Scope ofCompetitive Target

Source of Competitive Advantage

Lower Cost Differentiation

Broad Market General CostLeader

GeneralDifferentiator

Niche Market Focused CostLeader

FocusedDifferentiator

THE VALUE CHAINTHE VALUE CHAIN

• Michael porter uses the term value chain to represent all the activities that a firm uses ".. To design, produce, market, deliver, and support its product" (Porter 1985: 36)

InputLogistics

Operations

Marketingand Sales

Service

SUPPORT ACTIVITIES

PRIMARY ACTIVITIES DOWNSTREAMUPSTREAM

R&D OutputLogistics

COMPONENTS OF COMPONENTS OF THE VALUE CHAIN THE VALUE CHAIN

• Primary activities• Support activities• Upstream and downstream

SOURCES OF COMPETITIVE ADVANTAGE

• Distinctive competencies• Resources• Capabilities

SUSTAINABLE COMPETITIVE ADVANTAGE

• Firm capabilities that are:–valuable– rare–difficult to imitate–nonsubsitutable

LOW COST LABORLOW COST LABOR

• Most imitated sources of lower costs in the international market

• Quickly copied by competitors

COMPETITIVE COMPETITIVE STRATEGIES IN STRATEGIES IN

INTERNATIONAL INTERNATIONAL MARKETSMARKETS

• Offensive• Defensive

COUNTERPARRYCOUNTERPARRY

• Fends off a competitor's attack in one country by attacking them in another country –a popular strategy for multinationals

–e.g., Kodak versus Fuji

MULTINATIONAL MULTINATIONAL DIVERSIFICATIONDIVERSIFICATION

• A quick way to gain a market presence

• Coordinate and use resources from any location

• Establishes global brand names• Cross subsidization

Company (Headquarters Location)

Major Business Lines

GE (U.S.A.)

Aircraft engines, aerospace, appliances communications and services, electrical distribution and control, financial services, industrial and power systems, lighting, medical systems, motors, NBC, plastics, transportation

Nestlé (Switzerland)

Drinks, dairy products, chocolate and confectionery, culinary products, frozen food and ice cream, food service products, hotels and restaurants, instant food and dietetic products, pet foods, pharmaceutical products and cosmetics, refrigerated products

Philips (Netherlands)

Lighting, components, consumer electronics, domestic appliances and personal care, medical systems, industrial and electric acoustic systems, information systems, communication systems

STRATEGY FORMULATION: STRATEGY FORMULATION: TRADITIONAL TRADITIONAL APPROACHESAPPROACHES

STRATEGY STRATEGY FORMULATIONFORMULATION

• The process by which managers select the strategy to be used by their company

ANALYSIS ANALYSIS TECHNIQUESTECHNIQUES

• Help managers understand–company's competitive position in the industry

–opportunities and threats faced by their company

–company's strengths and weaknesses

INDUSTRY INDUSTRY EFFECTS ON EFFECTS ON

STRATEGY STRATEGY SELECTIONSELECTION

• Market size• Ease of entry and exit• Whether there are economies of

scale in production • Driving forces of change • Nature of competition in

industry

EXAMPLE KEY EXAMPLE KEY SUCCESS SUCCESS

FACTORSFACTORS

• Innovative technology• Broad product line• Distribution channel

effectiveness• Price advantages • Promotion effectiveness

• Superior physical facilities• Experience of firm in business• Cost position for raw materials

Example key Example key success factors, success factors,

continuedcontinued

FORMULATING FORMULATING THE BEST THE BEST

STRATEGIESSTRATEGIES

• Know the industry and KSFs• Understand and anticipate your

competitors' strategies

COMPETITOR COMPETITOR ANALYSISANALYSIS

• A competitor analysis develops profiles of your competitors' strategies and objectives

FOUR STEPSFOUR STEPS For major competitors, assess:For major competitors, assess:

(1) Strategic intent(2) Current and anticipated

generic strategies(3) Current and anticipated

offensive and defensive competitive strategies

(4) Current positions

KEY POINTS FOR KEY POINTS FOR MULTINATIONAL MULTINATIONAL

MANAGEMENTMANAGEMENT

• Use a country by country competitive analysis

• Plan distinct competitive strategies by competitors and countries

• See exhibit 5.6 for examples

COMPANY COMPANY SITUATION SITUATION ANALYSISANALYSIS

• The most common tool: the SWOT –strengths–weaknesses–opportunities–threats

KEY POINT FOR KEY POINT FOR MULTINATIONAL MULTINATIONAL

MANAGEMENTMANAGEMENT

• The SWOT analysis for the MNC is more complex

• Each country provides its own operating environment

• A country-by-country SWOT is probably most prudent