Lecture 2. Types of international Strategy Flashcards
Global Competition vs. Global business
- Global competition occurs when countries cross-subsidize national market share battles in pursuit of global brand and distribution positions.
- Global business in which minimum volume required for cost efficiency is not available in the company’s home market.
Global scale and scope rationalize value chain. - Global companies (a combination), which have distribution system in key foreign market that enable cross-subsidization, international retaliation and world scale volume.
Product adaptation vs. product misx(S)
Product strategies consist of the choices regarding a company ’s product line in different geographical markets and the choice of which products should the company offer across the geographical markets they serve. Product strategies and organizational capabilities (what an MNC does in response to multicounty or global markets).
Matrix based on product portfolio (product mix and change of the same product to Taylor fit local tastes (product adaptation) The choice of tailoring to local taste or standardizing).
Global competitive strategies and rationals for each a) building global presence B) defending domestic position, C) overcoming national fragmentation (Hamel & Prahalad 1985)
Build global presence
• Achieve capability to make and sell globally
• Cross-subsidize important markets (reduce competitors’ margins to kill out the budget for R&D) and gain first mover advantage.
Defend domestic position
• Gain ability to retaliate (attack back in the competitors key markets)
- The US competition in the television market ability to lower costs, and compete with the Japanese threat.
Overcome national fragmentation
• Rationalize R&D and production
• Distribute decision-making among subsidiaries (the dutch example of Philips)
The Japanese TV-producers used cross subsidization in their move into the American and European television markets. They represent the example of companies that enabled to build global presence because of their low-cost manufacturing advantage and superior technology along with the competitive advantages gained from location, world-scale volume and global brand distribution. The US competition first responded by matching costs, amortize world-scale investments and gain retaliatory capabilities. In Europe Philips reduced costs at its national subsidiaries, rationalized the manufacturing and shift focus of strategic responsibilities.
Global competitive strategies and rationals for each a) building global presence B) defending domestic position, C) overcoming national fragmentation (Hamel & Prahalad 1985)
Build global presence
• Achieve capability to make and sell globally
• Cross-subsidize important markets (reduce competitors’ margins to kill out the budget for R&D) and gain first mover advantage.
Defend domestic position
• Gain ability to retaliate (attack back in the competitors key markets)
- The US competition in the television market ability to lower costs, and compete with the Japanese threat.
Overcome national fragmentation
• Rationalize R&D and production
• Distribute decision-making among subsidiaries (the dutch example of Philips)
What is retaliation?
Retaliation, which refers to the minimum market share the company needs in a particular country to be able to influence the behavior of key global competitors. For example, with only a 2% or 3% share of the foreign market, a company may be too weak to influence the pricing behavior of its foreign rival.
What is retaliation?
Retaliation, which refers to the minimum market share the company needs in a particular country to be able to influence the behavior of key global competitors. For example, with only a 2% or 3% share of the foreign market, a company may be too weak to influence the pricing behavior of its foreign rival.
Regional Strategies (5 different types, first three most pivotal to know) (Ghemawat 2005)
Semi-globalization / regionalization
- As the exhibit “trade regional or global” shows, the surge of trade in the second half of the twentieth century was driven more by activity within regions than across regions.
- NAFTA, EU, ASEAN
- Country-level numbers suggests that increasing cross-border integration has been accompanied by high or rising level of regionalization.
- Toyota has applied a complete regional strategy.
The home base strategy is applied by most firms when they expand abroad. As a matter for fact, Toyota’s international sales came exclusively from direct exports from centuries. Trackman the Danish producer of sports equipment is another good example of a firm that relies on the home base strategy. So is Zara with its enhanced customer appeal and reduced incidence of markdowns, which has more than off-set the costs of producing in Europe instead of Asia. Fashion sensitive items do not travel easily from the Spanish hub (has to go air travel as Zara does on the racks - which is highly expensive) therefore it is more favorable for Zara to serve the European region. For other companies the region might be global in fact. This happens to be the case of Trackman that exports to more than 40 countries.
The portfolio strategy involves setting up or acquiring operations outside the home region that report directly to the home base. It is usually the first strategy adopted by companies seeking to establish a presence outside the markets they can serve from home. The advantages of this approach include faster growth in non-home regions, significant home positions that generate large amounts of cash and the opportunity to average out economic shocks and cycles across regions. Toyota again is a good example here with their expansion into the US. Toyota built manufactoring facilities in the US in this move. The Company’s distinct competitive advantage of the Toyota production systems could be applied overseas as well. It can be very costly and time consuming to implement such strategy. Toyota did it initially in a joint venture with GE.
The Hub Strategy involves building bases, or hubs, that provide a variety of shared resources and services to local (country) operations. Hubs spreads costs across countries with a region. The logic is that such resources may be hard for any one country to justify, but economies of scale or other factors may make them practical from a cross-country perspective. Hubs strategies often involve transforming a foreign operation into a stand-alone unit. Simply put, the hubs strategy is a multi-regional version of the home base strategy which enables some product tailoring to the regional preferences. If zara where to implement a hub in Asia to serve the entire Asian market, it would become a multiregional hubber. The challenge in executing a hub strategy is achieving the right balance between customization and standardization.
The platform strategy is the step further from the hub strategy. It involves spreading fixed costs across regions. This can add further value in terms of economies of scale and scope in the firm. Toyota has gone from eleven to six platforms and has invested in global car brands such as the Camry and the corolla. It is important to emphasize that the idea behind platforming is not to reduce the amount of product variety on offer but to deliver variety more cost-effectively by allowing customization atop common platforms explicitly engineered for adaptability and thus is platform strategy almost invisible to customers.
The mandate strategy is the cousin to the platform strategy as it focuses on economies of specialization as well as scale. Companies that adopt this strategy ward certain regions broad mandates to supply particular products or perform particular roles for the whole organization (COE). For example Toyota’s innovative international multi-purpose vehicle (IMV) project funnels common engines and manual transmissions for pickup trocks SUVs and minivans from Asian plants to four assembly hubs there and in Latin America and africa and then on to almost all the major markets
Multicountry vs. global competitive strategy
Global:
Products are sold internationally
Cutomers served internationally
corporate integration coordinated approach
same competitors in all major market? yes
scale of competition, global
HQ not country specific
Value chain functions performed at optimal locations
Multicountry:
products are sold internationally.
Customers served country or regional
corporate integration, autonomous country subsidiaries
Same competitors in all major market? not necessarily
Scale of competition, country by countrry
HQ, highlt country specific
Value chaon functions performed at, most in the home country (R&D, finance, strategic planning, marketing). Manufacturing may be at international locations.
