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?