Strategic Management in the Multinational Company:

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4

• Strategic Management in the Multinational
  Company
• Content and Formulation

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Basic Strategy for the Multinational Company

• Multinational companies use many of the same
  strategies as domestic companies
• Two Important Concepts
• Competitive advantage when a company can
  outmatch its rivals in attracting and maintaining
  its targeted customers
• Generic strategies basic ways to achieve and
  sustain competitive advantage

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Generic Strategies for Competitive Advantage

• Differentiation strategy providing superior
  value to customers
• Ex. BMW competing in the world market by
  providing high-quality and performance sports
  cars
• Customers often pay a higher price for extra
  value
• Low-cost strategy producing at a lower cost than
  competitors
• Ex. Korean semiconductor firms
• Additional profits come from cost savings
• Focus Strategy Based on the competitive scope or
  how broadly a firm targets its products or
  services

4
The Value Chain and Competitive Advantage

• A firm can gain competitive advantage by finding
  differentiation or low costs in its value chain
  activities
• Value chain is a convenient way of looking at all
  the firms activities used to design, produce,
  market, deliver, and support its product
• (See Exhibit 4.3 p. 129)
• Primary vs. Support Activities
• Upstream vs. Downstream activities

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Distinctive Competencies

• Are internal STRENGTHS that allow companies to
  outperform rivals based on quality, innovation,
  efficiency, and customer service.
• Resources inputs into the production or service
  processes
• Capabilities ability to assemble coordinate
  resources effectively
• (See Exhibit 4.4)

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Sustaining Competitive Advantage

• Sustainability means that strategies will not
  easily be defeated by competitors
• There are four characteristics of resources
  capabilities that lead to competitive advantage
• Valuable
• Rare
• Difficult to imitate
• Non-substitutable

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Competitive Strategies in International Markets

• Competitive strategies are strategic moves
  multinationals use to defeat competitors
• Offensive competitive strategies direct attacks
  to capture market share
• Defensive competitive strategies attempts to
  discourage offensive strategies
• Counter-parry fending off a competitors attack
  in one country by attacking in another country

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Offensive Strategies

• Cut prices and/or add new features to the product
  (Direct attacks)
• Seek unoccupied markets (End-run offensives)
• Try to be the first to obtain particular
  advantageous position (Preemptive competitive
  strategies)
• Buy out a competitor (Acquisitions)

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Defensive Strategies

• Attempts to reduce risks of being attacked,
• Convince an attacking firm to seek other targets,
  or
• Blunt the impacts of any attack by
• Exclusive contracts with best suppliers
• Develop new models to match competitors lower
  prices
• Make public announcements about the willingness
  to fight

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Counter-parry

• Popular strategy for multinationals where firm
  respond to attack by counter attacking competitor
  in another country
• Ex. KodakWhen Fuji attacked Kodak in the U.S.,
  Kodak retaliated by attacking Fuji in Japan.
• Goodyear also attacked Michelin in Europe as
  response to attack in U.S.

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Multinational Diversification Strategy

• Related diversification companies acquire
  businesses that are similar in some way to their
  original or core business
• Ex. Nike adding clothing line to its shoe
  operations
• Unrelated diversification firms acquire
  businesses in any industry
• Main concern is whether its a good financial
  investment

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Traditional Approaches for Strategy Formulation

• Strategy formulation is the process by which
  managers select the strategies to be used by
  their company
• Popular analysis techniques
• Competitive dynamics of the industry
• Companys competitive position in the industry
• Opportunities and threats faced by their company
• Companys strengths and weaknesses

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1) Industry and Competitive Analysis

• Managers must understand their industry well to
  formulate good strategies including the economic
  characteristics and the driving forces in the
  environment.
• Economic characteristics include
• Market size
• Ease of entry
• Opportunities for economies of scale
• Driving forces are important changes that have
  potential to affect an industry such as
• Speed of new product innovations
• Technological changes
• Changing societal attitudes and lifestyles

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Know the Industry Key Success Factors

• Innovative technology or products
• Broad product line
• Effective distribution channels
• Price advantages
• Effective promotion
• Superior physical facilities or skilled labor

• Experience of firm in business
• Cost position for raw materials
• Cost position for production
• RD quality
• Financial assets
• Product quality
• Quality of human resources

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2) Competitor Analysis

• Develop profiles of competitors strategies and
  objectives
• Four steps
• Identify competitors strategic intent
  (Understand the broad objectives of competitors)
• Identify the current and anticipated generic
  strategies of competitors
• Identify the current and anticipated offensive
  and defensive competitive strategies of
  competitors
• Identify what are competitors current
  competitive position in the industry

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2) Company-Situation Analysis SWOT

• More complex than for domestic firms since
  Multinationals face more complex general and
  operating environments and environments vary by
  country
• Strengths distinctive capability, resource or
  skill
• Weaknesses competitive disadvantage compared to
  competitors
• Opportunities favorable conditions in the
  environment
• Threats unfavorable conditions in the environment

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Corporate Strategy Selection

• Diversified corporation has a portfolio of
  businesses and must decide in which businesses to
  invest in and which businesses to divest
  (Resource Allocation)
• The basic tool matrix analyses help answer basic
  strategy formulation question such as
• Are businesses in attractive industries?
• Are most businesses growing?
• Are there sufficient cash cows to finance other
  businesses?
• Is business portfolio well positioned for the
  future?
• Is the some strategic synergies among businesses?
• The most popular is the growth-share matrix of
  the Boston Consulting Group (BCG).

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BCG Share Matrix

• Division into four categories based on market
  share and relative market share
• Stars the most successful firm
• Dogs businesses with low market shares in
  low-growth industries
• Cash cows businesses in slow-growth industries
  where company has strong market-share position
• Problem children (Question Mark) businesses in
  high-growth industries where company has a poor
  market share