Post on 04-Jan-2016
MGRECON401
Economics of International Business and Multinationals
LECTURE 5Formulating a Global Strategy
12-2
Lecture Focus
Review a framework for thinking about a firm’s strategy
Discuss what is different about a global strategy
Formulating a Strategy
John Roberts, The Modern Firm
12-4
The Starting Point
A business opportunity: an unmet needan inefficiency
Due to:Lower cost productBetter product
Because of:Better technologyMore creativityUnexploited economies of scale or scope
12-5
The Goal
Choose a goal against which the firm can measure itself and judge its success.
NokiaDouble market share by the end of the decadeBeat Motorolla
KomatsuBeat Caterpillar
12-6
Statement of Scope
A specification of:The business the firm is inWhat products and services it will offerWhat customers and market segments it will serveWhat activities it will undertakeWhere it will do these thingsWhat technology it will use
Statement of scope clearly indicates what a firm will not do
12-7
Statement of Scope
Nokia: Focused, Global, Telecom-Oriented, Value-Added.Consumer oriented cell phones
12-8
Statement of Competitive Advantage
Indication of how the firm strategy will lead others to deal with it on terms that will allow it to realize its goals
How will it attract a profitable market?
How will it create value: generate a willingness to pay by customers that exceeds cost of serving them?
Will it offer a better product?
Will it offer a lower quality product for less?
12-9
Statement of Competitive Advantage
ToyotaEfficiency and qualityLower inventory cost
12-10
How Will You Realize YourCompetitive Advantage?
How will a firm sustain a price that exceeds its cost?
What will keep actual and potential customers from eroding its margins and stealing its customers?
What will ensure that suppliers or customers do not manage to appropriate all the value created?
What is a Global Strategy?
12-12
Important Features of a Global Strategy
Successful Multinational Strategy will balance three objectives:
Global Efficiency
Local Responsiveness
Worldwide Learning
12-13
Global Efficiency
Location to minimize cost
Achieve scale economies
A flexible global network is a source of competitive advantage
Earn a greater return from a firm’s distinctive skills
Example: Caterpillar Tractor
12-14
Local Responsiveness
Arise from:
Differences in consumer tastes and preferences
Differences in infrastructure and traditional practices
Differences in distribution channels
Host government demands
Example: McDonald’s
12-15
Worldwide Learning
Multinationals create knowledge at various points of the organization
Key to success of a multinational is to leverage its knowledge
How do you get knowledge to flow horizontally across the organization (product development in Brazil to the UK)How do you get knowledge to flow vertically within the organization (sales to R&D to sales)
12-16
Worldwide Learning
Use all global resources to pursue common goals: globally linked.
Know what everybody is doing and make accessible to all: globally leveraged.
Elaborate mechanisms to facilitate worldwide learning: direct contact, liason, teams.
Example: Matsushita (Panasonic)
12-17
Komatsu
What are the sources of Komatsu’s success?
How was this company able to challenge Caterpillar when so many larger and better established companies--companies like International Harvester, John Deere, and J. I. Case--had failed?
How are environmental forces and industry changes likely to affect Komatsu’s competitive position vis-à-vis Cat? What recommendations do you have for Komatsu? For Cat?