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?