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MidTermReview&TheGlobalManagersToolboxforStrategicDecisionMaking
23RD April2015ProfessorJoydeepChatterjee
MIDTERMREVIEWBBUS480GLOBALENVIRONMENTOFBUSINESS SPRING2015
TheMidTermExam
Themidtermexamisscheduledtotakeplaceduringthefirst
30minutesofclassonTuesdayApril28(ArriveEarly!!!)
Theexamisclosedbook
Everythinguptoandincludingthecontentoftodaysclass
couldappearontheexam
Thereare4questionsandyouwillhave30minutestoanswer
them Theexamismeanttohelpmeensurethatpeopleare
absorbingthekeyconceptualideas Itisworth15%ofyourgrade
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HowtoPrepareforExam
Makesureyouvereadallcoursematerials(cases&readingsinyourcoursepackaswellastheslidesandnoteswhichareavailableonCANVAS)
Makesureyouunderstandtheconcepts&frameworkswediscussedinclass
Usetheseconcepts&frameworkstoimproveyourthinkingNOT
tosubstituteforit
Learnfromtheclassdiscussionofindividualcasesasyouprepare
Whenyoureadthecase,whatdidyouthink?
Howdidthatchangeasyouheardtheclassdiscussionevolve?
Whatmightyousayifyouhadanotherchancetodiscussthe
case?
IntheExam,dontforgetto1.
Beginbyreadingthebriefscenariodescription(!)and
allofthequestions2. Answerthequestions3.
Applyconceptsintroducedinthecoursetohelp
organizeyouranalysis(nottosubstituteforit)4.
Makeyourassumptionsclear5. Useanalyticallogic
howyougottotheansweris
important nomentaljumps6. Observethespacelimitforeachanswer7.
WritelegiblysothatIcangradeeasily8. ANSWERTHEQUESTIONS!
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FirmResourcesandCapabilities>LiabilityofForeignness???
Multinationalscompetewithlocalfirmswhodonotfacethefollowingcosts:
Lowerknowledgeaboutlocalmarketconditions
Legal,Institutional,Social,Cultural,Languagediversities
CommunicatingandOperatingatadistance
TogetherthesecostsarereferredtoasLiabilityofForeignness
Thefirmspecificadvantagemustleadtohigherrevenuesand/orlowercoststooffsetcostsofoperatinginaforeignlocation
GlobalFirmAnalysis
FirmLevelTool
FundamentalChallengesofGlobalStrategicManagement
IndustryNationRegion/World
DynamicFitovertime?
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IntegrationResponsivenessFramework
FirmLevelTool
AdaptedfromBartlett,1986
High
LowLow High
Globa
lIntegration
NationalorLocalResponsiveness
GettingtheBalanceRight PressurestoIntegrate
Scaleeconomies Standardizedproducts Transferablemarketing
R&Dintensiveproducts Globalcustomers Distributedknowledge
GlobalCompetition
PressurestoRespond Differencesintaste Differencesinstandards
Distributionaldifferences Advertisingandpromotion
Differencesinlevelsof
economicdevelopment Lawsandregulations
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GenericGlobalStrategies
FirmLevelTool
AdaptedfromBartlett,1986
High
LowLow High
PureGlobal Transnational
MultidomesticInternationalGlob
alInt
egratio
n
NationalorLocalResponsiveness
GenericGlobalStrategies EmphasisonGlobal
Integration Scaleeconomies Standardizedproducts
Transferablemarketing R&Dintensiveproducts Globalcustomers
Distributedknowledge GlobalCompetition
CoordinationacrossCountries
EmphasisonLocalResponsiveness LocalManufacturing
CustomizedProducts Tailored
Advertisements/Promotion LocalService/Support LocalExpertise
Local/RegionalCustomers
AdaptationwithinCountries
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GenericGlobalStrategiesPureGlobal:Highly
integratedcrosscountrystrategythatcapitalizesonhighcoordinationofactivitiessuchasscaleintensivemanufacturingortransferablemarketingtoserveglobalmarketsInternational:Neitherhighlyintegratednorhighlyresponsive;mayexploitsomecompetitiveadvantagethatdoesntdependonthebenefitsofeitherhighglobalcoordinationorhighlocalresponsivenessinoverseasmarkets(e.g.newtechnology,rawmaterials)Multidomestic:Highly
responsivecountrybycountrystrategythatcapitalizesonstrongandresourcefulsubsidiariesthatareresponsivetolocalmarketneedsandopportunitiesthroughhighcustomizationofactivities
Transnational:Exploitsboth
thecoordinationefficienciesassociatedwithglobalintegrationinsomeactivities(e.g.,economiesofscale)and
thecustomizationcapabilitiesassociatedwithlocalresponsivenessinotheractivities(e.g.,localmarketing)
MappingGlobalStrategies
FirmLevelTool
AdaptedfromBartlett,1986
High
LowLow High
PureGlobal Transnational
MultidomesticInternationalGlob
alInt
egratio
n
NationalorLocalResponsiveness
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InternationalStrategyCountry Activities
A
B
C
****
Z
R & D Design SellingMarketingManufacturingPurchasing
Selling
Selling
Selling
PureGlobalStrategyCountry Activities
A
B
C
****
Z
R & D
Design
Selling
Assembly
Manufacturing
Purchasing
Selling
Selling
Selling
Selling
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MultidomesticStrategyCountry Activities
A
B
C
****
Z
R & D Design SellingMarketingManu-facturing
Purchasing Distrib-ution
Service
R & D Design SellingMarketingManu-facturing
Purchasing Distrib-ution
Service
R & D Design SellingMarketingManu-facturing
Purchasing Distrib-ution
Service
GlobalStrategicManagement
AdaptedfromTallman&Yip,2009
MotivationsforgoingGlobal
IndustryGlobalizationPotential
FirmResourcesandCapabilities
GlobalIntegration&LocalResponsiveness
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GlobalIndustryAnalysisGlobalizationPotential YipFramework
Adapted from: G. S. Yip, Global Strategy in a World of Nations?
Sloan Management Review 31(1) (Fall 1989), pp. 29-41.
IndustryGlobalizationPotential
MarketDrivers
CostDrivers GovernmentDrivers
CompetitiveDrivers
Economiesofscaleandscope Learningandexperience
Sourcingefficiencies Favorablelogistics
Differencesincountrycostsandskills HighProductdevelopmentcosts
Homogeneouscustomerneeds Globalcustomers
Globaldistributionchannels Transferablemarketing
Favorabletradepolicies(lowtradebarriers)
Compatibletechnicalstandards Commonmarketingregulations
Commondistributionalregulations Interdependenceofcountries
GlobalizedorGlobalizingcompetitors Industrylevel
tool
Swatch RoleofNationsinGlobalCompetition
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ComparativeAdvantageofNations PortersDynamicDiamond
FactorConditions
ContextforFirmStrategy,Structure,Rivalry
DemandConditions
RelatedandSupportingIndustries Countrylevel
tool
PortersDynamicDiamond
FactorConditions
ContextforFirmStrategy,Structure,Rivalry
DemandConditions
RelatedandSupportingIndustries
Accesstocapable,locallybasedsuppliers andfirmsin
relatedfields
Presenceof clusters insteadofisolatedindustries
Sophisticatedanddemandinglocalcustomer(s)
Localcustomerneedsthatanticipatethoseelsewhere
Unusuallocaldemandinspecializedsegments
thatcanbeservednationallyandglobally
Alocalcontextandrulesthatencourageinvestment
andsustainedupgrading
Meritocraticincentivesystemsacrossallmajorinstitutions
Openandvigorouslocalcompetition
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PortersDiamond
Switzerland1.FactorsSkilledlabourAvailabilityofhomeworkers.Willingtoworkbecausecouldextractonlymodestrevenuesfromfarming.Butevenmorecrucialthattheyhadbeeneducatedthroughacloseknitsystemofcommunityschools
Technicalworkers
Swissinvestedheavilyinresearch(CEH),educationandtrainingtoovercomeearlyBritishsupremacyestablishingwatchmakingacademiesabroad(andwatchrepairschoolsinmajorforeignmarkets).
2.Demand
SophisticatedSwissdemandformediumandluxurywatchesandjewelryAbout50%ofdomesticdemandwastouristsrichpeoplecomingtoSwitzerlandonholiday
3.RivalryGenevaversusNeuchtelRivalrywithBritishtooCompaniespursuedastrategyoftechnologicalleadership,makingimportantadvancesinprocesstechnology,settingupworldsfirstmechanizedfactoryby1839(Britishleftfarbehindduetogovernmentprotectionism)becauseofdevelopmentsinstandardization
4.RelatedandSupportingIndustriesGenevahadbeenacentreofjewelrymakingandwithJohnCalvinsSittenmandateedictsgoldsmithsappliedtheirskillsinjewelrymakingandartisticflairtowatchmakingMachinetoolsComponentsAssembly
GlobalIndustryAnalysisWatchIndustryGlobalizationPotential
YipFramework
Adapted from: G. S. Yip, Global Strategy in a World of Nations?
Sloan Management Review 31(1) (Fall 1989), pp. 29-41.
IndustryGlobalizationPotential
HIGH
MarketDrivers
CostDrivers GovernmentDrivers
CompetitiveDrivers
LargeEconomiesofscale Learningandexperienceeconomies
Sourcingefficiencies Lowtransportationcosts
Differencesincountrycostsandskills HighProductdevelopmentcosts
Homogeneouscustomerneeds Anywhereyougo246060rule
SimilarGlobaldistributionchannels Transferablemarketingknowhow
Favorabletradepolicies(tradebarriersdeclining)
Compatibletechnicalstandards Commonmarketingregulations
Compatibletaxes
SomeGovt.mandateddistributionalregulations(e.g.SwissMade)
Interdependenceofcountries Crossborderstrategicmoves
Crossborderlearning GlobalizedorGlobalizingcompetitors
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MappingGlobalStrategiesSwatch
FirmLevelTool
AdaptedfromBartlett,1986
High
LowLow High
PureGlobal Transnational
MultidomesticInternationalGlob
alInt
egratio
n
NationalorLocalResponsiveness
TakeawaysfromSwatchCompetitionisveryGlobalinthewatchindustryandleadingfirmscompetewithPureGlobalStrategiesHoweverHistoricallysomeoftheleadingglobalwatchmakersweregeographicallyconcentratedinafewnationsWhenleadershipshifted,itmovedfromonenationtoanother(Switzerland,USA,Japan)showingthateveninhighlyglobalindustries,homelocationmatters!!!
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InsightsfromSwatch
Theoriginsofclusterswithinparticularcountriesreflecthistorical
circumstancesandareofteninfluencedbychanceaswellaseffort
Clustersareselfreinforcing:
Homelocationinfluencescompetitiveadvantageoverlongperiodsoftime
Homelocationcanturnfromadvantagetodisadvantagewhendiscontinuouschangesinbusinessactivityoccur
Butfirmspecificresourcesandcapabilitiesremaincrucial,especiallyintimesofchange:
Strongfirmsmaybenefitdespite andeventransform
anunfavorablehomelocation
CEMEX
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GlobalIndustryAnalysisCementGlobalizationPotential
YipFramework
Adapted from: G. S. Yip, Global Strategy in a World of Nations?
Sloan Management Review 31(1) (Fall 1989), pp. 29-41.
IndustryGlobalizationPotential
LOW/MEDIUM
MarketDrivers
CostDrivers GovernmentDrivers
CompetitiveDrivers
Economiesofscalenotimportantglobally Hightransportationcosts
Differencesincountrycostsandskills
NoProduct/ProcessInnovationinthepast20years
Homogeneouscustomerneeds FewGlobalcustomersyet
Transferablemarketingknowhowoflimitedusefulness
Protectionismisaconcern(e.g.US)
SomeGovt.dictatedforeignownershipconcerns(e.g.Indonesia)
Limitedroleforadvertisement/R&D
Majordifferencesinconcentrationacrossnations
Crossborderstrategicmoves GlobalizedorGlobalizingcompetitors
EvolutionofCEMEXsGlobalStrategy
LowLow High
Glob
alIntegration
High
NationalorLocalResponsiveness
Emphasisonsystematizationofbestpracticesandtheirintegrationacrossglobaloperations
BeginswithentryintoUS,thenSpain.Emphasisonrespondingtolocalconditions
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TheOLIFramework Ownership:
HowtoOperate?Howcanweorganizetotakeadvantageoffirmspecificresources/capabilities(e.g.patent,technology,process,organizationalroutines)?
Location:
WheretoLocatewhilegoingabroad?(Accesstolowcostinputs;bypasstariffs;innovativemilieu)
Internalization:
WhentoInternalize?Whichmodeofentrytochoosewhileenteringforeignmarkets(Greenfield,Alliance,JV,WhollyownedsubsidiarythroughM&A)?
FirmLeveltool
TheOLIFrameworkappliedtoCEMEX
Ownership:
DoesCEMEXhavesourcesofcompetitiveadvantagethatcanbeexploitedinternationally?
Location:
Whataretheadvantages&disadvantagesofoperatinginlocationsoutsideofMexico?
Internalization:
HowshouldCEMEXundertakeinternationalexpansiontoensureitreapsitsrewards?
WhataccountsforCEMEXsSuccesstodate?
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OLI Ownership:Ithassucceededincreatingintangibles,that
aredifferentfromthetraditionalones(R&D/marketing),whichcreatearationaleforitsglobalstrategy
Location:Givenhightransportationcosts,ithastobepresentindifferentlocationstoexploittheseadvantages;thatpresencealsoallowsittoarbitragedifferencesinfinancingcostsacrosscountries
Internalization:Almostimpossibletoexploititsadvantages,especiallyO
advantages,througharmslengthcontracts
CountrytoCountryAnalysisCAGEDistanceFramework
CulturalDistance
AdministrativeDistance
GeographicDistance
EconomicDistance
Attributes Languages Ethnicities Religions Socialnorms
Social
networks
Colonialties Shared
monetaryandpoliticalties
Politicalstability Government
policies Institutional
Infrastructure
Physicaldistance
Commonborders
Climates Transportation
links
Consumerincomes
Resourceendowments
Knowledgeandinformation
Source:P.Ghemawat,DistanceStillMatters,HBR,Sep.2001
CountrytoCountrytool
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PickingHostCountriesCEMEX
Untilthelate1990s,largelyexplicableusingtheCAGEframework
Cultural(language,religion) Administrative(colonialties,tradeareas)
Geographic(US,Caribbean,L.America)
Economic(mostlydevelopingcountries)
ButIndonesiaandEgyptweremoredistantCultural Administrative
Geographic Economic
USA
Spain
Venezuela
Colombia
Philippines
Indonesia
Egypt
TakeAwaysfromCEMEX Foundations:
Eveninindustrieswithapparentlylowglobalizationpotential,companiessometimespursueaggressiveglobalstrategies
Butsuchglobalstrategiesrequirelocalresponsiveness
Andtocompetesuccessfullyagainstdomesticplayers,globalcompaniesmusthavefirmspecificresourcesandcapabilitiesthatenablethemtoovercometheirliabilitiesofforeignness
Tocompetesuccessfullyagainstotherglobalplayers,theymustalsothinkcarefullyabouttheirOperational,Location,andInternalizationdecisions
Location:Thesuccessofglobalstrategiesdependsonhostcountrychoices
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InsightsfromCEMEX
Designingaglobalstrategyisnotamechanicalexercise itisa
creativeresponsetotheglobalpotentialofanindustry
Understandingthatdistanceandproximityhavevaried
meaningscanprovideimportantinsightinthedesignofglobalstrategy
Innovativeglobalstrategies,basedonnovelownershipadvantages,cansometimesworkin,andeventuallytransform,industrieswithapparentlylowglobalpotential
However,weshouldalwaysaskhowparticularglobalstrategiesgeneratesustainablecompetitiveadvantage
thefactthatcompaniespursuesuchstrategiesdoesntnecessarilymeantheydo.
Distancematters
butwhenthinkingabouthowdistancematterstoourfirm,weneedtoconsiderourfirmspecificresourcesandcapabilities.
GlobalManagersoftendisplayexcessiveconfidenceintheirowndistinctivecapabilities
MappingGlobalStrategies:SimplifiedExamplesGlobal Industry
Analysis Companys Global StrategyWATCHES:
pressuresfavorPureGlobalstrategies highintegration:
Globaleconomiesofscaleinproduction Homogeneouscustomertastes
Lowtransportationcosts
lowresponsiveness: Sameproductsindifferentcountries
Similarmarketingindifferentcountries
SWATCH: PureGlobalstrategy highintegration:
Centralizedefficientproduction CentralizedR&D
Globalbrandingetc
lowresponsiveness
Localstoresbutsameproducts,samebranding/marketingstrategies,etc
CEMENT:
pressuresfavorlocalresponsivenessMultidomesticorTransnationalstrategieshighresponsiveness:
Hightransportationcosts
National/regionalnotglobaleconomiesofscale Governmentbarriers
lowintegration: Ifletlocaloperationsfunctionindependently
highintegration
Ifmakelocaloperationsfunctioninterdependently
CEMEX:Transnational strategy highresponsiveness:
Localplants Localgovernment relationships Biglocalpresence
highintegration
Standardizedmanagementprocessesacrosscountries(PMI,IT,HR,reportingsystems)
CemexbrandingonallplantsandproductsHOLCIM:Multidomesticstrategy
highresponsiveness
AsforCemex lowintegration
Managementprocessesdifferacrosscountries(e.g.,IT,HR)
Brandsonplantsandproductsoftenlocal
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SESSION7 DispersionandCoordinationofActivities ACER
FactorConditions
ContextforFirmStrategy,Structure,Rivalry
DemandConditions
RelatedandSupportingIndustries
Accesstocapable,locallybasedsuppliersandfirmsin
relatedfields
ClosetieswithUniversitiesandGovt.R&D Hsinchu
SciencePark(1979)
ClosetieswithSiliconValley Chinese/Taiwanese
Diaspora
Alocalcontextthatencourages
smallentrepreneurialfirms(governmentpolicy)andsustainedupgradingoftechnology
FamilyOwnership Openandvigorous
localcompetition
TaiwansStrengthsinITProducts
PresenceofHighQuality/SpecializedInputsavailabletofirms
Educated/TalentedWorkers LowWages
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FundamentalChallengesofGlobalStrategicManagement
So far the focus was
Does the strategy fit the environment? The Industry (Mondavi)
The National Location (Swatch &
Switzerland)
Regional & Global Distance (Cemex)
Now the focus is
Does the organization fit the strategy? Acer Philips &
Matsushita P&G Japan
HowtoOrganizeaGlobalFirm?
Source: Saloner, Shepard, Podolny: Strategic Management 2001,
John Wiley & Sons, Inc.
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ARC ArchitectureIncludeshowthehowfirmisdividedinsubunits;
thereportingamongthem,hierarchicalstructure;formalrolesandresponsibilities,compensation;
RoutinesGenerallyacceptedmethodsfordoingthings(manytimesorganizedasprocessesinvolvingprojectteams,taskforces,committees,adhocgroups)
CultureCommonlyheldvaluesandbeliefsofindividualswithintheorganization(thesmelloftheplace)
GlobalOrganizationStructures
EmphasisonLocalResponsiveness
Emph
asis
onGl
obal
Integration
High
LowLow High
Product Matrix
AreaInternationaldivision(s)
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GlobalOrganization&GlobalStrategy
Thecriticalchallengeistoalignyourglobalorganizationwithyourglobalstrategy,sotheyfiteachother
Therearemanagerialguidelinesforgettingtheorganizationalstructuresright(Intldivision,Product,Area,Matrix,etc.)
Butorganizationhasmultipledimensionsincluding:
Structure(Formallinesofreportingandaccountability)
Systems(Rewardsystems,CareerMgmt.,etc.)
Culture(thewaywedothingsaroundhere)
StrategicAlignment
Thecriticalchallengeistoalignyourglobalorganizationwithyourglobalstrategy,sotheyfiteachother
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ACERsproblemsinthelate1980s
Partlyduetoexternalconditions(marginsdropped10%)
Partlyduetointernalproblems
ShihhandedovermanagementtoLiu,exIBMmanager
Strategicinitiatives(positioninhighendmarket)failed
AcquisitionofAltos,minicomputers
Organizationalinitiatives(professionalizethecompany)struggled
IntroducedSBU/RBU P/Lresponsibilities Layoffs
Newstrategytooambitiousforoldorganization
ACERsGlobalStrategy
ThePCmanufacturingindustryhashighglobalizationpotential
Marketdrivers:standardizedproduct
Costdrivers:globaleconomiesofscale
Highlevelofglobalintegrationisrequiredtoachievelowcostsandconsistentquality
ShiftingassemblytoRBUswasasensiblestrategyforincreasinglocal
responsivenesswithoutdecreasingglobalintegration(i.e.costandquality)
ShiftingproductdevelopmenttoRBUswassensibleforincreasinglocalresponsivenessbutcameattheexpenseofglobalintegration
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EvolutionofACERsGlobalStrategy
LocalResponsiveness
Globa
lIntegration
High
LowLow High
1986
1992
1978
3 major initiatives
- International Expansion- Global Brand- Tech Innovation
StanShihsClientServerModel
FastFoodConceptStansSmilingCurve
1990-Lius SBU/RBUGrowing Global Power of SBUs
TakeawaysfromACER
Tomanageglobalorganizationssuccessfully,managersmustpayattentionto
organizationalculture,systems, andstructure
Managingthealignmentbetweenglobalstrategyandglobalorganizationisanongoingchallenge
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TakeawaysfromACER
Tomanageglobalorganizationssuccessfully,managersmustpay
attentiontoorganizationalculture,systems,andstructure
Internationalexpansionheightenstheattentionrequiredas:
Culturesbecomemorediverseorclash Systemsbecomemorecomplex
Formalstructuresbecomemoreunavoidable
Managingthealignmentbetweenglobalstrategyandglobalorganizationisanongoingchallenge
Bothstrategiclogic&organizationallogicmustmakesense
Dontexpectspontaneousfit mustbeactivelymanaged
Allthebestwithpreparations!!!