MGRECON401 Economics of International Business and Multinationals LECTURE 5 Formulating 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 need an inefficiency Due to: Lower cost product Better product Because of: Better technology More creativity Unexploited economies of scale or scope 12-5 The Goal Choose a goal against which the firm can measure itself and judge its success. Nokia Double market share by the end of the decade Beat Motorolla Komatsu Beat Caterpillar 12-6 Statement of Scope A specification of: The business the firm is in What products and services it will offer What customers and market segments it will serve What activities it will undertake Where it will do these things What 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, ValueAdded. 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 Toyota Efficiency and quality Lower inventory cost 12-10 How Will You Realize Your Competitive 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?