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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!!!