1.2 Corporate Strategy: International Perspective Flashcards
Strategy of a firm
The actions that managers take to attain the goals of the firm
The goals is to maxims the value of the firm for owners and shareholders
2 ways do maximize the value of the firm
Profitability and the rate of return of a firm from invested capital (ROI), end goal is reduced costs and added value + raised prices
Profit growth, end goal is to sell more in existing markets as well as entering new markets
ROI formula
Net profits / total invested capital
Profit growth
The measured percentage increase in net profits over time
Micheal Porter’s strategy
A firm should be explicit about its choice of strategic emphasis with regard to value creation and low cost, configure its internal operations to support that strategic emphasis, 3 steps
3 steps to Porter’s strategy
Pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice
Configure its internal operations (manufacturing, marketing, logistics, information systems, human resources) so that they support that position
Make sure that the firm has the right organization structure in place to execute its strategy (use value chain analysis)
Porter’s value chain analysis
To analyze how to design, produce, market, deliver, and support a product.service by analyzing the current actives in the business
Used to find what is most valued in the business and reduce costs/maximize profits
Porter’s value chain diagram
Support activities: firm infrastructure, human resource management, technology development, procurement
Primary activities: inbound logistics, operations, outbound logistics, marketing and sales, service
Margin: value created for the customer minus the cost of performing the activities
International firms have the ability to
Expand potential size of market for domestic products: have advantage to local companies
Realize “location economies”: finding value-creation actives to other location (outsourcing)
Experience curve economies: produce in bulk at a cheaper unit price
Leverage subsidiary skills: finding valuable skills on a global scale and apply them to their business, creating value
Main motives for foreign production (John Dunning)
Market seeking
Resource seeking
Efficiency seeking
Strategic asset seeking
Motive for foreign production: Market seeking examples
Market size and growth
Following key suppliers or customers to maintain business
Adapting products to local tastes
Transaction costs
Part of global strategy
Motive for foreign production: resource seeking examples
Oil, gas, rare earths, agricultural products
Cheap unskilled labor
Technological capacity, management or marketing expertise and organizational skills
Motive for foreign production: efficiency seeking examples
Rationalize their activities by concentrating value chain activities across a few favorable locations
Motive for foreign production: strategic asset seeking
Enhancing and complementing their international competitiveness
Capability/knowledge of highly skilled workers
Technology
Brands know how
What 2 pressures do international firms face
Cost reduction and local responsiveness
Cost reduction pressures
Seek cost reduction through economies of scale
Capitalize on converging customer trends and universal needs
Provide uniform service globally
Global sourcing of raw materials, components, energy and labor
Monitor and respond to competitors
Use media to reach buyers in multiple markets
Local responsiveness pressures
Leverage national unique talents
Cater to local needs
Accommodate differences in distribution channels
Respond to local competition
Adjust to cultural differences
Meet local regulations
Strategies for international competitiveness
2 axes: local responsiveness and cost reduction
Low/high: global strategy
Low/low: international strategy
High/high: transnational strategy
High/low: multi domestic strategy
Global standardization strategy
Low/high
Centralized approach to operations, not spread out but export instead
Build standardized but immediately recognizable brand
Lower costs, simplify product portfolio on what performs globally
Low cost strategy
Main goal: reduce costs coming from economies of scale, learning effects and location economies
Ex. IKEA
Multi-domestic/localization strategy
High/low
Local-first idea, then others
Best used when there are big differences in tastes across nations
Good if local costs are not too much
Limits ability to reduce costs as you cannot mass-produce a standardized product
Ex. McDonald’s
International strategy
Low/low
Standardizes as much as possible; colors, messaging, products and operations
Build repeatable and scalable processes
Products are developed for domestic markets and sold internationally with little customization
Everything produced domestically, lack of economies of scale
Ex. Microsoft
Transnational strategy
High/high
Operate with a central office and employ local subsidiaries internationally
Ex. Nestle
What strategies are popular when competitors emerge?
Global standardization and transnational strategies
The ones with high global integration/cost reduction
3 dimensions of organizational structure
Vertical differentiation = hierarchy + decision making
Horizontal differentiation = division of firm into subunits
Integrating mechanisms = used to achieve coordination between subunits
Organizational structure - Vertical differentiation
Hierarchy + decision making
Centralization and decentralization of decision making responsibilities
Centralization in organizational structure
All activities come together in a company such as planning, strategies or decision-making in the hands of one group
Facilitates coordination and integration of operations
Helps ensure that decision are consistent with organizational objectives
Gives top level mangers the means to bring change
Avoids the duplication of activities that occurs when similar actives are carried on by various subunits
Decntralization in organizational structure
Control of an activity is given to several local authorities rather than one
Gives top management time to focus on critical issues by delegating more to lower managers
Motivational research favors decentralization
permits greater flexibility
Can result in “better” decisions
Can increase control
Organizational structure - horizontal differentiation
Division of the firm into subunits
Domestic firms
functional structure = functional reflect the firm’s value creation activities (production, marketing)
Product divisional structure = each division is responsible for a distinct production line
International firms
Geographically organized but can be done in a few different ways:
Dual structure: domestic and international subunits, create conflict of coordination problems
Domestic structure based on functions
Domestic structure based on product divisions: helps overcome coordination problems
Global matrix structure based on product division and geographic area: complicated and bureaucratic, good for transnational strategy
Organizational structure - integrating mechanisms
Used to achieve coordination between subunits
Focused on ensuring that the actions of each subunits are consistent with the company’s overall objectives through
formal communication: meetings, letters, reports, presentations
Informal communication: oral or written casual chats [
Depending on strategy different levels of communication are needed, not needed for localization
Organizational controls - 4 control systems
Personal controls
Bureaucratic controls
Cultural controls
Output controls
Personal controls
Control via personal contact with subordinates
Used in small firms
Helps structure the relationship between managers at different levels in multinational enterprises
Bureaucratic controls
Rules and procedures are the way that actions are directed in subunits
Budget and capital spending rules are the most important in this control
Cultural controls
Employees adapt to norms and value systems of a firm and control their own behavior
If culture controls are strong then other controls are not needed
Output controls
Relatively objective performance metrics used such as profitability, productivity, growth, market share, and quality
Managers are judged by their ability to achieve these goals
Goals are made by negotiating with subunits and headquarters
Organizational incentives
Devices used to reward appropriate employee behavior
Often seen with output controls as they used those performance metrics
Need cooperation between managers in different subunits with adjustments for different cultures
Organizational processes
Look at how decisions are made and how work is performed through:
formulating strategy
Allocating resources
Evaluating new product ideas
Handling customer inquiries and complaints
Improving product quality
Evaluating employee performance
Efficient and effective processes can lower the costs of value creation and add additional value to a product
Many process cut across organizational boundaries, across subunits or nations
Organizational culture
Creating and maintaining organizational culture, founders and leaders have profound impact on culture
Maintained by hiring and promotional practices of the organization, reward strategies, socialization, communication
In a strong culture all managers share a consistent set of values and norms that have clear impact on work performance
Values are widely shared, members know what is import, employees fell pride in culture
Strong culture does not always mean good!
Localization strategy with architecture analysis:
Vertical differentiation -
Horizontal differentiation -
Need for coordination -
Integrating mechanisms -
Performance ambiguity -
Need for cultural controls -
Vertical differentiation - decentralized
Horizontal differentiation - worldwide area structure
Need for coordination - low
Integrating mechanisms - none
Performance ambiguity - low
Need for cultural controls - low
International strategy with architecture analysis:
Vertical differentiation -
Horizontal differentiation -
Need for coordination -
Integrating mechanisms -
Performance ambiguity -
Need for cultural controls -
Vertical differentiation - core competency, more centralized, rest decentralized
Horizontal differentiation - worldwide product divisions
Need for coordination - moderate
Integrating mechanisms - few
Performance ambiguity - moderate
Need for cultural controls - moderate
Global standardization strategy with architecture analysis:
Vertical differentiation -
Horizontal differentiation -
Need for coordination -
Integrating mechanisms -
Performance ambiguity -
Need for cultural controls -
Vertical differentiation - some centralization
Horizontal differentiation - worldwide product divisions
Need for coordination - high
Integrating mechanisms - many
Performance ambiguity - high
Need for cultural controls - high
Transnational strategy with architecture analysis:
Vertical differentiation -
Horizontal differentiation -
Need for coordination -
Integrating mechanisms -
Performance ambiguity -
Need for cultural controls -
Vertical differentiation - mixed, centralization and decentralization
Horizontal differentiation - informal matrix
Need for coordination - very high
Integrating mechanisms - very many
Performance ambiguity - very high
Need for cultural controls - very high
