COURSE: GLOBAL BUSINESS MANAGEMENT
MGT610
DR. DIMITRIS STAVROULAKIS
PROFESSOR OF HUMAN RESOURCE MANAGEMENT
DEPT OF ACCOUNTING
TEI OF PIRAEUS
Unit 3: MNC Strategy
Training Material:
- Textbook: pp 175-180.
-Video: “Facebook’s Competitive Advantage” (3.24 min).
Business Strategy
Proverbs
 “If you don’t know where you are heading,
you are likely to end-up anywhere”
(English proverb)
 Unless you change your direction, you are
likely to end-up where you are heading”
(Chinese proverb)
What is Strategy?
 Greek origin, strategos: stratos = army,
agos = leader
Strategy as “the basic characteristics of the
match
an organization
achieves
with its of
Strategy
as “the basic
characteristics
environment.”
(Hofer
& Schendel,
1978, with
the match an
organization
achieves
Strategy
formulation:(Hofer
Analytical
concepts;
its environment”
& Schendel,
the field’s
first textbook)
1978, Strategy
Formulation: Analytical
Concepts; the field’s first textbook).
Strategy
Strategyis
is“the
“thegreat
greatwork
workof
ofthe
the
organization.
In
situations
of
life
organization. In situations of lifeor
or
death,
it
is
the
Tao
of
survival
or
death, it is the Tao of survival or
extinction.
extinction.Its
Itsstudy
studycannot
cannotbe
be
neglected.”
(Sun
Tzu,
approx.
neglected.” Sun Tzu (400-300 500
b.c.)BC)
“Everyone
‘till they
“Everyonehas
hasaaplan
strategy
untilget
you get
punched
in
the
mouth.”
(Mike
Tyson)
punched in the mouth” (Mike Tyson).
Strategy
Strategyas
as“plan,
“plan,pattern,
pattern,position,
position,
perspective,
and
ploy.”
(Henry
perspective, and ploy” (Henry
Mintzberg,
Mintzberg,1987,
1987,Five
FiveP’s
P’sfor
forStrategy)
Strategy).
Strategy as a “pattern of objectives, purposes, or
goals,
andasmajor
policies
and plans for
achieving
Strategy
a “pattern
of objectives,
purposes,
or
those
stated
in suchand
a way
as for
to define
what
goals,goals,
and major
policies
plans
achieving
business
the company
is in or
is toas
betoindefine
and the
those goals,
stated in such
a way
what
kind
of company
it is or is
is in
to or
be.”
(Kenneth
business
the company
is to
be in and the
Andrews,
1971, The
concept
corporate
strategy)
kind of company
it is
or is toof
be”
(Kenneth
Andrews,
1971, The Concept of Corporate Strategy).
Strategy preconditions
 Strategy has been defined as “the match an organization
achieves between
internal resources and skills […] and
 the opportunities and risks created by its external
environment.”
 its
“Know yourself, know your opponents;
encounter a hundred battles, win a hundred
victories !”
Sun Tzu, “The Art of War”, approx. 500 BC
Source: Hofer, C. W. & Schendel, D. (1978). “Strategy formulation: Analytic concepts”, St. Paul, MN: West: 12.
Winning Strategy Template
o Is strategy compatible with the company mission statement?
o Does the strategy fit the company’s external environment ?
o Is strategy feasible and within the potential of company
resources ? Is it compatible to personnel values?
o Does strategy lead to sustainable
competitive advantage?
o Will the company strategy beat the market ?
o Does strategy boost company performance?
o Does strategy put the company ahead of trends?
o Does the company strategy embrace uncertainty?
o Has risk & competition been assessed ?
o Is strategy compatible with the life-cycle of company products ?
Competitive Advantage (CA)
 The set of unique features of a company and its products that are
perceived by the target market as significant and superior to the
competition.
 An advantage over competitors is gained by offering consumers
greater value than competitors.
 When two or more firms compete within the same market, one
firms possesses a CA over its rivals when it earns a persistently
higher rate of profit (or has the potential to earn a persistently
higher rate of profit) (Grant, 2000).
 Can be achieved either by exploiting resources and developing
competencies, or by exploiting opportunities at the external
environment (internal or external strategy).
Competitive Advantage (CA) (cont)
 CA has to be recognizable and to be translated to customer
value (e.g. lower pricing due to exceptional contract with key
suppliers). Advantages that do not add to customer value are
not going to last (e.g. unexploited qualified personnel, as in the
Greek public sector). National CA (abundance of Greek
scientists/professionals).
 Sustaining CA requires erecting barriers against the
competition. “A good strategist seeks not only to ‘win the hill’,
but hold on to it.” (S. Jain).
 In order to be sustainable, CA has to be embedded in the firm
over time in the form of culture, expertise, resources etc. CA
has to be durable against competitors’ attacks, as well as
against environmental changes.
 It may be achieved either through cost leadership (Greece), or
through differentiation, or focus on a particular segment of the
market.
Sources of Competitive Advantage
COST
ADVANTAGE
COMPETITIVE
ADVANTAGE
DIFFERENTIATION
ADVANTAGE
Features of Cost Leadership and
Differentiation Strategies
Generic strategy
COST
LEADERSHIP
DIFFERENTIATION
Key strategy elements
Resource & organizational
requirements
Scale-efficient plants.
Access to capital. Process
Design for manufacture.
engineering skills. Frequent
Control of overheads &
reports. Tight cost control.
R&D. Avoidance of
Specialization of jobs and
marginal customer
functions. Incentives for
accounts.
quantitative targets.
Emphasis on branding
Marketing. Product
and brand advertising,
engineering. Creativity.
design, service, and
Product R&D, Innovation, KM.
quality.
Human resources
and incentives. Strong
cross-functional
coordination.
Porter’s generic strategies
 Cost leadership: Lower cost producer.
Use of technology, reduction of distribution cost, government
assistance, reduction of labor costs, economies of scale, global approach
to the market (EasyJet, Samsung, Wal-Mart).
 Differentiation: Takes advantage of unique features (brand name,
technical excellence, quality, packaging).
Possibilities for creating new product lines for different market
segments (Toyota Lexus Camry). Identification of strategic customers
and competitors. Achievement of hard loyalty.
Control of costs ! (Savoy Hotel, London: 3 employees per guest, guests
may call a waiter, maid, or valet any moment by pressing a button –
less than 1% annual profit in 2009). Friday’s (personal waiter, called by
first name).
 Focus: on specific market segments (IKEA, Porsche, Godiva). Possibly
differentiate later on through vertical integration (Gucci, Germanos,
Babyland etc).
Combination of cost & differentiation strategies: e.g. in the clothing
industry (Benetton, Diesel, Zara etc). Porter : Danger of being caught in
the middle (average prices & nothing exceptional).
Cost Leadership Strategy
An integrated set of actions taken to produce goods or services
with features that are acceptable to customers at the lowest cost,
relative to that of competitors with features that are acceptable
to customers. Preconditions:
 Relatively standardized products
 Features acceptable to many customers
 Lowest competitive price
Cost saving actions required by this strategy:
 Tightly controlling production costs and overheads
 Minimizing costs of sales, R&D and service
 Building efficient scale & manufacturing facilities
 Monitoring costs of services provided by subcontractors
 Simplifying production processes
Cost Leadership Strategy
 Competitive Risks:
 Processes used to produce and distribute
good or service may become obsolete due to
competitors’ innovations
 Focus on cost reductions may occur at
expense of customers’ perceptions of quality
and differentiation
 Competitors, using their own core
competencies, may successfully imitate the
cost leader’s strategy
Differentiation Strategy
An integrated set of actions taken to produce goods or services (at
an acceptable cost) that customers perceive as being different in
ways that are important to them. Features:
 Non-standardized products
 Customers value differentiated features more than they value
low cost
Cornerstones:
 Quality
 R&D and innovation
 Fit to customers’ needs and demands
 Cost proximity. Differentiation does not mean indifference to
costs, instead costs ought to remain near competition
Differentiation may concern both tangible and imaginary,
intangible features of a product (image, status & value for
money).
Competitive Risks of Differentiation
 The price differential between the
differentiator’s product and the cost leader’s
product becomes too large
 Differentiation ceases to provide enough value
for which customers are willing to pay
 Experienced customers scrutinize the value of
differentiated features
 Counterfeit goods replicate differentiated
features of the firm’s products
Focus Strategies
 An integrated set of actions taken to produce goods or
services that serve the needs of a particular
competitive segment. Preconditions:
 Particular buyer groups (e.g. youths or senior citizens)
 Different segments of a product line (e.g. conventional
customers versus do-it-yourselfers - IKEA)
 Different geographic markets
 Types of focused strategies:
 Focused cost leadership strategy
 Focused differentiation strategy
Competitive Risks of Focus Strategies
 A focusing firm may be “outfocused” by its competitors
 A large competitor may set its sights on a firm’s niche
market
 Customer preferences in a niche market may shift to
the broader market
 Can involve compromises:
 Becoming neither the lowest cost nor the most
differentiated firm
 Becoming “stuck in the middle”:
 Lacking the strong commitment and expertise of
firms following either a cost leadership or a
differentiated strategy
Economies of scale: Obtained through mass production
and negotiations of costs with suppliers.
Economies of scope: Obtained through synergistic
utilization of resources (tangible or intangible), e.g.
knowledge, patents, innovations with regard to new
markets, products, or services.
Competitive Advantage within the International Context
FIRM RESOURCES
& CAPABILITIES
THE INDUSTRY ENVIRONMENT
-- Financial resources
-- Physical resources
-- Technology
-- Reputation
-- Functional capabilities
-- General management
capabilities
Key Success Factors
COMPETITIVE
ADVANTAGE
THE NATIONAL ENVIRONMENT
-- National resources and capabilities (raw materials;
national culture; human resources; transportation,
communication, legal infrastructure
-- Domestic market conditions
-- Government policies
-- Exchange rates
-- Related and supporting industries
Resources
 Are the source of a firm’s capabilities
 Cover a spectrum of individual, social and
organizational phenomena
 Alone, do not yield a competitive advantage
 Comprise a firm’s assets, including people and the
value of its brand name
 Represent inputs into a firm’s production process,
such as:
 Capital equipment
 Skills of line employees
 Brand names
 Financial resources
 Talented managers
Resources
 Are the source of a firm’s capabilities
 Cover a spectrum of individual, social and
organizational phenomena
 Alone, do not yield a competitive advantage
 Comprise a firm’s assets, including people and the
value of its brand name
 Represent inputs into a firm’s production process,
such as:
 Capital equipment
 Skills of line employees
 Brand names
 Financial resources
 Talented managers
Steps of Resource Imitability
Cannot be imitated:
Patents
Unique location
Unique assets
(e.g. Mineral rights)
Can be Imitated (but may not be):
Capacity
Economies of Scale
Easy to Imitate:
Cash
Commodities
Source: Collins & Montgomery, Corporate Strategy: Resources and the Scope of the Firm (1996).
VRIO Framework – Four questions to evaluate
firm’s key resources (Barney)
–Value: Does it provide customer value and
competitive advantage?
–Rareness: Do other competitor possess it?
–Imitability: Is it costly for competitors to imitate?
–Organization: Is the firm properly organized to
exploit the resource?
It is not enough for an organization to possess
valuable resources, it must have also the capacity to
appropriately exploit them !
.
524
Strategic Audit: SWOT Analysis
 Purpose: SWOT aims at the identification of a
company-specific strategic model that will match
company resources to the demands of the
environment.
Strengths & Weaknesses: Internal, within the company
Opportunities & Threats: External, outside the company
 Strengths: E.g. international experience, skilled
personnel, distribution network, long-term contracts.
 Weaknesses: E.g. outdated technology, inefficient
customer service, bureaucracy, inexperienced execs.
 Opportunities: E.g. appearance of new markets,
economic growth, perspectives for business alliances.
 Threats: E.g. emergence of new competitors, rising oil
prices, unstable political environment, inflation.
Business Strategy