Team 1:Alexa McDanielAllyson HatzBonnie LeeRafael GarciaMolly Moseley

FOUNDATIONS OF STRATEGY

Chapter 8: Global Strategies and Multinational Corporations

1 of the largest furniture markers and retailers in the world.

Established by Ingvar Kamprad, a Swedish entrepreneur in 1943.

In 2010 it had net profits of 2.7 billion and had 300 stores in 26 countries.

Known for its cost-minimizing approach and its associated capabilities in cost-efficient design, sourcing, and logistics. (Flat-packed furniture to minimize transportation costs.)

But, overseas expansion did not progress smoothly. 80% of sales came from Europe.

IKEA’S INTERNATIONAL STRATEGY

In the early years, their formula for international expansion was simple: they identified markets with the potential for high sales volumes and then purchased cheap land on the outskirts of a big city to build.

Kept its product catalogue and its management process the same.

Kept their Swedish roots.Pragmatic problem-solving style and egalitarian

approach to decision making.

PATTERNS OF INTERNATIONALIZATION

United States American tastes were different. Recognized the need to adapt to local demands. Made it possible for area managers to put forward

suggestions. China

IKEA is seen as an expensive brand by its target market of young professionals.

Cut prices significantly and sacrificed short-term profitability for long-term growth.

CHALLENGES OF INTERNATIONALIZATION

Sheltered Industries Served exclusively by indigenous firms from both imports and

inward direct investment by regulation, trade barriers, or because of the localized nature of the goods and services they offer.

Railroads, laundries, hairdressing, milk Trading Industries

Internationalization occurs through imports and exports. Aerospace, military hardware, diamond mining, agriculture.

Multi-domestic Industries Internationalize through direct investment because trade is not

feasible or because products are nationally differentiated. Packaged groceries, investment banking, hotels, consulting.

Global Industries Both trade and direct investment are important. Cars, oil, semiconductors, consumer electronics.

PATTERNS OF INTERNATIONALIZATION

Competitive Advantage: The ability of one firm to earn (or have the potential to earn) a persistently higher rate of profit than rivals who operate in the same market. Achieved when a firm matches its internal strengths in

resources and capabilities to the key success factors of the industry.

In international industries, competitive advantage depends on its national environment- in particular, the availability of resources within the countries where it does business.

ANALYZING COMPETITIVE ADVANTAGE IN AN INTERNATIONAL

CONTEXT

Comparative Advantage: A situation in which a country or a region can produce a particular good or service at a lower opportunity cost than its rivals

Bangladesh: Abundant supply of unskilled labor Comparative advantage: Products that make intensive use of

unskilled labor Clothing, handicrafts, leather goods

United States: Abundant supply of technological resources

Trained scientists and engineers, research facilities and universities Comparative advantage: technology-intensive products

Microprocessors, computer software, pharmaceuticals, medical equipment

If exchange rates are well behaved, comparative advantage translates into competitive advantage

NATIONAL INFLUENCES ON COMPETITIVENESS:

COMPARATIVE ADVANTAGE

• Factor Conditions:• “Home-grown” instead of endowed

• Related and Supporting Industries• Industry “clusters”• For each industry, closely related

industries are sources of critical resources and capabilities.

• Demand Conditions• Primary driver of innovation and

quality improvement• Switzerland- watches (punctuality)• Japan- cameras (photography)• Germany- cars (quality engineering

and autobahns)• Strategy, Structure, and Rivalry

• Intense domestic competition drives innovation, efficiency, and the upgrading of competitive advantage

PORTER’S NATIONAL DIAMOND

Criticism has mainly come from two different perspectives: The diamond model is omitting key factors

Fails to take into consideration the attributes of the home country’s largest trading partners

Isn’t applicable to most of the world’s smallest nations Ignores the role of multinational corporations in influencing the

competitive success of nations The diamond is so general that it lacks value

By trying to explain all aspects of trade and competition, it ends up explaining nothing

LIMITATIONS OF THE DIAMOND MODEL

Factor Conditions: Plentiful supply of timber Farmers would make furniture during the winter when they could not

farm Long tradition of design appreciation

Related and Supporting Industries: Favorable conditions for furniture making have produced a number of

furniture clusters in Sweden Demand Conditions:

Swedish customers are sensitive to environmental considerations IKEA argues that it goes for low costs, but not at the expense of the

environment Local Firm Strategy, Structure, and Rivalry

“Flat Pack” to reduce transportation costs

DOES IKEA GAIN A COMPETITIVE ADVANTAGE FROM BEING SWEDISH?

National resource conditions influence international strategies Where to locate productions activities How to enter a foreign market

Firms move beyond their national borders to access resources and capabilities

Decisions on where to produce are being separated from decisions on where to sell

APPLYING THE FRAMEWORK

National resource availability Where key resources differ between countries

Firm-specific competitive advantages Where resources and capabilities are situated

Tradability Difficulty in transport causes problems

Political consideration Government incentives, penalties, and restrictions

CHOOSING WHERE TO LOCATE PRODUCTION

Changing from Swedish to Polish sourcesProduct design remained in SwedenCompany moved headquarters to Netherlands with

logistics center in GermanySwedwood: IKEA’s own manufacturing subsidiarySuppliers chosen for ability to provide products at low

costs

GLOBALIZATION OF IKEA’S SUPPLY CHAIN

Firms enter markets in pursuit of profitabilityEntry by means of transactions or direct investment 5 key factors of entry modes

Is the firm’s competitive advantage based on firm-specific or country-specific resources

Is the product tradable and what are the barriers to trade Does the firm possess the full range of resources and

capabilities for establishing a competitive advantage in the overseas market

Can the firm directly appropriate the returns to its resources What transaction costs are involved

HOW SHOULD A FIRM ENTER FOREIGN MARKETS?

Private company with complex ownership INGKA Holdings: parent organization IKEA Systems BV: owns IKEA concept and trademarkOperates a franchise system: beneficial for companyCareful monitoring of each store keeps from

damaging IKEA brand

IKEA’S FOREIGN ENTRY STRATEGY

Global players win out over their national competitors for 2 reasons: Supplying the world market allows access to scale

economies in product development, manufacturing, and marketing.

The key barrier to exploiting these scale economies, locally differentiated customer preferences, are fast disappearing in the face of uniformity imposed by technology, communication and travel.

BENEFITS OF A GLOBAL STRATEGY

Cost Benefits of Scale and replication McDonald’s has developed its business system within the US and

replicated it across 200 countries. Serving Global Customers

In several industries, the primary driver of globalization has been the need to service global customers-the internationalization of car parts manufacturers has tended to follow the internationalization patterns of the car assemblers.

Exploiting National Resources Exploiting the efficiencies from locating different activities in

different places-quest for raw materials and low-cost labor. Learning benefits

Integration of knowledge from different locations and the creation of new knowledge through interacting with different national environments-IKEA adjusting to Japanese style and design preferences.

Competing Strategically Multinational companies can fight aggressive battles in individual

national markets using their resources from other national markets.

5 MAJOR BENEFITS OF GLOBAL STRATEGY

One of the greatest challenges of facing the the senior managers of MNCs is aligning organizational structures and management systems and their fit with the strategies being pursued.

STRATEGY AND ORGANIZATION WITHIN THE MULTINATIONAL

CORPORATION

International firms have adopted different strategies and different structural configurations

Structural configurations have tended to persist over time

Radical changes in strategy-structure are difficult

THE EVOLUTION OF MULTINATIONAL STRATEGIES AND STRUCTURES

Early 20 th century: era of the European multinational Decentralized Federations

Post-World War II: era of the American multinational Coordinated Federations

The 1970s and 1980s: the Japanese challenge Centralized Hubs

THREE ERAS IN THE DEVELOPMENT OF THE MNC

Changing Organizational Structure

New approaches to reconciling localization and global integration

Organizing R&D and new product development

RECONFIGURING THE MNC: THE TRANSNATIONAL CORPORATION