TRANSNATIONAL MANAGEMENT: Lecture 5

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TRANSNATIONAL MANAGEMENTLecture 5

• Strategies strategic orientations of
  internationally active companies
• 9th December 2009

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1. What we mean by strategy?

• What is strategy?

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Defining strategy

• Strategy is a pattern or plan, which integrates
  the key goals, policies and sequence of actions
  into a coherent manner, directed towards a
  certain goal or objective.
• WHERE are we NOW?
• WHERE do we want to be?
• Markets
• Regions
• Consumers
• HOW will we get there?

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Strategy

• Coming from a military context (Greek word for
  general)
• Strategy vs. Tactics?
• Tactic conduct of an engagement
• Strategy how different engagements are linked

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What strategy is NOT!
http//www.youtube.com/watch?vibrxIP0H84M
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Porters generic strategies
http//www.youtube.com/watch?vmYF2_FBCvXw
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I. Global cost leadership

• an innovative warehousing system,
• an emphasis on everyday low prices,
• basing store design on consumer studies,
• effective use of superstores,
• using size to negotiate for the best price on
  brand-name items, and
• an industry leading inventory control system

http//www.youtube.com/watch?vS4_RGUu9BM4
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Wal-Mart

• "There are only two ways to lower prices Lower
  the cost of goods sold through improved supplier
  relationships while holding gross margin
  percentage constant, or, lower the retail prices.
  Increasing the range of merchandise requires
  either increasing merchandise intensity per
  square foot, or, increasing store size. Wal-Mart
  has been pushing both these initiatives
  relentlessly over the past 10 years. By lowering
  gross margins and reducing costs of goods sold,
  Wal-Mart has been able to strengthen its price
  and value image
• http//www.worldhistoryblog.com/2006/09/how-did-wa
  l-mart-attain-cost.html

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Wal-Mart selling soap in India
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II. Global Differentiation

• Differentiation
• Strategically focusing on how to deliver products
  that are perceived to be valuable and different
• A low-volume, high-margin approach in targeting
  smaller, well-defined customer segments willing
  to pay premium prices.
• Research/development and marketing/sales are
  important functional areas.
• The less a differentiator resembles its rivals,
  the more protected its products are

• The Strategic Requirement
• Differentiated products must have truly or
  perceived unique attributes such as quality,
  sophistication, prestige, and luxury
• The Challenge
• To identify these attributes and deliver value
  centered on them for each market segment.

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Example Global Automobile Industry
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(No Transcript)
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• Drawbacks
• A differentiator can have difficulty sustaining
  the basis of its differentiation over the long
  run
• Customers may decide that the price differential
  between the differentiators and cost leaders
  products is not worth paying for
• The differentiator also has to confront
  relentless efforts of competitive imitation
• As the overall quality of the industry increases,
  brand loyalty to differentiators may decline
• The IBM PC was a differentiated product
  commanding a premium in 1984. PCs became a
  low-profit commodity and IBM sold its PC division
  to Lenovo, a Chinese firm, in 2004

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Example Swatch
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III. Global segmentation (focus)

• Focus Strategy
• Serving the needs of a particular segment or
  niche of an industry such as a geographical
  market, type of customer, or product line
• A specialized differentiator has a smaller,
  narrower, and sharper focus than a large
  differentiator
• A specialized cost leader deals with a narrower
  segment compared with the traditional cost leader
• Focusing may be successful when a firm possesses
  intimate knowledge about a particular segment

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Example Vipp
http//www.youtube.com/watch?vH1Hz79weRq8
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Start knowing your competitive advantage

• Sources of competitive advantage
• Physical assets (factories, locations,
  equipment)
• Intellectual property (patents, brands.)
• Knowledge
• Skills
• Abilities
• Organizational culture
• Managing
• Leadership
• Other???

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Other typologies of strategy
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What are the competitive advantages of PG?
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Levels of strategy
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I. Corporate strategy
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Example Corporate scope
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Corporate parenting
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II. Business strategy

• How a business seeks to compete in its product
  market?
• Create competitive strategy
• Large range of businesses
• Develop sustainable competitive advantage
• Existing rivals same game
• Inventing new ways new game

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(No Transcript)
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Example Yamaha piano
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Back to business strategy
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III. Functional strategy
BUSINESS STRATEGIES
Bi-directional
Human resources
Finance
FUNCTIONAL STRATEGIES
Logistics
Marketing
Operations
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Example Zara logistics
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4 Key functional areas
DESIGN
SOURCING and MANUFACTURING
SALES
DISTRIBUTION
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Design

• Each product line (female, male in childrens)
  with its own design team (designerprocurement
  specialistdeveloper/RD)
• These creative teams simultaneously work on the
  current season and next years season
• Top management Zara is not run by maestros, but
  a flat design organization structure and a
  focused interpretation of fashion trends for the
  masses
• Regular visits to fashion fair and shows in
  Paris, Milan, New York clippings from luxury
  catalogues and a close collaboration with
  in-store managers
• Media clippings and the use of so called TRAND
  SPOTTERS (universities, discos)
• Big focus on information and IT system and
  regular talks with in-store employees
• A few dozen new design created every day 1/3
  make to the shelves
• Pre-testing on key locations
• Only 1 failed creations (10 industry average)
• Design as a bridge between merchandizing and
  manufacturing

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Procurement manufacturing 1/2

• Procurement offices in Barcelona and Hong Kong
• Comtidel the heart of procurement and sourcing
  linking over 200 suppliers for so called grey
  products
• About 50 of grey products enabling greater
  flexibility
• 40 finished products produced internally, 60
  external suppliers (2/3 Europe and North Africa)
• Most important and most risky pieces produced
  internally in small batches
• Basic products (more price sensitive) outsourced
• 20 key suppliers represent cca. 70 of all
  supplies
• Zara has long term business relationships with
  suppliers, but with minimal formal obligations to
  them!

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Procurement manufacturing 2/2

• Internal production in 20 own production
  facilities, 18 in Galicia
• Zaras factories highly automated, specialized
  according to fabric, focused on prints and
  cutting and on finishing and control
• Vertical integration in production started in
  1980, by 1990 the JIT system was implemented in
  collaboration with Toyota
• Even within own production cut fabrics sent to
  external seamstress networks in local areas (450
  seamstress shops with 20-30 employees) totally
  dependent on Zara
• Zara offering TECHNOLOGY, LOGISTICS and FINANCIAL
  SERVICES
• Every product labeled with a code

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Distribution

• On of the key levers of Zaras and Inditex
  success
• Focus on information, flexibility and vertical
  integration
• The heart of the distribution system a 400.000
  m2 distribution center (Arteixo) and satellite
  distribution centers in Argentina, Brasil and
  Mexico
• Highly sophisticated distribution tracking system
  based on EAN codes (45.000 pieces per hour),
  linked directly to hand held computers in stores
• 2x a week orders in normal seasons and 3x a week
  in peak seasons
• Loren Alba distribution center as a hub for
  products, not as a warehouse
• Most clothes leave the DC in a couple of hours,
  none stay longer than 72 hours
• Shipments according to time zones
• Ca. 75 road shipments and 25 air shipments
• Supply times 24-36 hours in Europe and 24-48
  hours elsewhere
• 2003as second DC built near Madrid to meet
  growing business

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Sales

• Sophisticated shops, boutique interiors na prime
  locations
• Main communication and information channels
• Merchandizing
• Multiple, frequently changing product lines and
  collections
• High focus on design
• Reasonable but not excessive quality
• Relatively high margins despite lower prices due
  to internal efficiencies
• Only 0,3 of sales go for advertising (3-4
  industry average)
• Emphasis on location, store outlook and
  word-of-mouth marketing
• Creating a sense of rareness and scarcity
• Owned locations or 10-20 year rentals
• Average shopper visits Zara 17-times annually
  (3-4 for industry average)
• Sales people as consultants