Chapter 6:
Formulating Strategy
PowerPoint by
Hettie A. Richardson
Louisiana State University
© 2008 Pearson Prentice Hall
6-1
Opening Profile: Wal-Mart’s
Formula Doesn’t Fit
 Wal-Mart’s
attempts to apply its
strategy internationally have not all
been successful
Germany, South Korea
 Difficulty dealing with labor unions
 Lack of scale
 Inability to compete with established
discounters

© 2008 Pearson Prentice Hall
6-2
Opening Profile: Wal-Mart’s
Formula Doesn’t Fit
 Wal-Mart
is learning from its mistakes
Greater acquisitions
 Asda, Seiyu, Bompreço
 Smiling clerks in Germany
 12% growth internationally

© 2008 Pearson Prentice Hall
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Strategic Planning and Strategy
 Strategic planning: The process by which a
firm’s managers evaluate the future prospects
of the firm and decide on appropriate
strategies to achieve long-term objectives
 Strategy: The basic means by which the firm
competes
© 2008 Pearson Prentice Hall
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Reasons for Going International
 Reactive (defensive) reasons
 Globalization of competitors
 Trade barriers
 Regulations and restrictions
 Customer demands

Some foreign customers may demand that their supplying
company operate in their local region so that they have better
control over their supplies.

For example, McDonald’s asks it domestic suppliers to follow it
to foreign ventures.
© 2008 Pearson Prentice Hall
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Reasons for Going International
 Proactive (aggressive) reasons
 Economies
of scale
 Growth opportunities
 Resource access and cost savings
 Incentives
© 2008 Pearson Prentice Hall
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Strategic Formulation Process:
In reality, the stages depicted in this slide are rarely so linear. Instead, the process
in continuous and intertwined.
© 2008 Pearson Prentice Hall
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Mission and Objectives
 Marketing

Worldwide,
regional, national
market share
 Production
 Finance
Tax burden
 Capital structure

 Profitability

ROA, ROE, ROI
Production volume
 Economies of
R&D
scale
 Global patents

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External & Internal Analysis
 Key success factors:
 Technological
capability: Microsoft
 Distribution channels: Wal-Mart
 Promotion capabilities: Disney
© 2008 Pearson Prentice Hall
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Competitive Analysis
 Distinctive competencies

Example: Sony’s ability to miniaturize
 SWOT analysis

Competitive position analysis
© 2008 Pearson Prentice Hall
6-14
Global Strategy
 Treating the world as an undifferentiated
worldwide marketplace
 The force:
Regional trading blocs
 Declining tariffs
 Information technology explosion

© 2008 Pearson Prentice Hall
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MNCs
 Examples of Stategies:

Coca-cola: “To put a Coke within ‘arm’s reach’
of every consumer in the world” (…in greifbarer
Nähe für alle Verbraucher auf der Welt)

PepsiCo.: “to be the world’s premier consumer
products company focused on convenient
foods and beverages.” (…sich konzentrieren
auf Fertiggerichte & Getränke…)
© 2008 Pearson Prentice Hall
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Regionalization/Localization
 Local markets are linked together within a
region, allowing local responsiveness
 The impetus:
Unique consumer preferences
 Domestic subsidies
 New production technologies

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Global Integrative Strategies
 Full vertical and horizontal integration
 Example: Dell
 Factories in Ireland, Brazil, China, etc.
 Assembly and delivery system from 47
locations around the world
 Little inventory, ability to change operations
quickly
© 2008 Pearson Prentice Hall
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Study Question 2: What is the strategic
management process?
 Analysis of industry and environment:


Assessment of macro environment:
 Technology.
 Government.
 Social structures and population
demographics.
 Global economy.
 Natural environment.
Analysis of industry environment:
 Resource suppliers.
 Competitors.
 Customers.
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Figure 9.3 SWOT analysis of strengths,
weaknesses, opportunities,and threats.
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Study Question 3: What types of strategies are used
by organizations?

Questions addressed by different strategic
level (e.g. GE – General Electric Company):
 Corporate strategy


Business strategy


In what industries and markets should we
compete?
How are we going to compete for
customers in this industry and market?
Functional strategy

How can we best utilize resources to
implement our business strategy?
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Figure 9.5 Three levels of strategy in organizations —
corporate, business, and functional strategies.
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Study Question 3: What types of strategies are used
by organizations?
 Growth and diversification strategies:
 Growth strategies


Seek an increase in size and the expansion
of current operations.
Types of growth strategies:


Concentration strategies (e.g./z.B. McDonald’s,
Starbucks)
Diversification strategies



Related diversification (e.g. PepsiCo.buys
Tropicana)
Unrelated diversification (e.g. GE.)
Vertical integration
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Study Question 3: What types of strategies are used
by organizations?

Retrenchment Strategies – alternative
Rückzugsstrategien


Correcting weaknesses by making changes to
current operations.
Alle alternative Rückzugsstrategien bei der
Bewältigung von Krisen (performance Problems)
einer Organisation:


.
Liquidation – Liquidierung (e.g. Hotel Industry – Sale and
Lease-back after 1980’s)
Restructuring - Restrukturierung – der umfassende Wechsel
der Organisationsstruktur - mit dem Ziel der Verbesserung der
Leistungsergebnisse
 Downsizing and rightsizing
 Divestiture – der Verkauf von Unternehmensteilen
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Study Question 3: What types of strategies are used
by organizations?

Global strategies:

Globalization strategy (e.g. Gillette Rasierer)



Multidomestic strategy (e.g. Unilever)



World is one large market; standardize products and
advertising as much as possible.
Ethnocentric view.
Customize products and advertising to local markets
as much as possible.
Polycentric view.
Transnational strategy (e.g. IBM)


Balance efficiencies in global operations and
responsiveness to local markets.
Geocentric view.
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Study Question 3: What types of strategies are used
by organizations?

Cooperative strategies

Strategic alliances — two or more
organizations partner to pursue an area
of mutual interest.

Types of strategic alliances:

Outsourcing alliances

Supplier alliances

Distribution alliances
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Study Question 3: What types of strategies are used
by organizations?

E-business strategies

The strategic use of the Internet to
gain competitive advantage.

Popular e-business strategies

Business-to-business (B2B) strategies

Business-to-customer (B2C) strategies
(e.g. Otto Versand, Intershop)
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Study Question 4: How are strategies formulated?
 Opportunities for achieving
sustainable competitive advantage
:
(Chancen für nachhaltigen Wettbewerbsvorteil)

Cost and quality

Knowledge and speed

Barriers to entry

Financial resources
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Study Question 4: How are strategies formulated?
 Porter’s generic strategies model – "Strategie-
Rahmenkonzept“

Business-level strategic decisions are driven by:




Market scope – Marktumfang/die Marktbreite
Source of competitive advantage - die
Wettbewerbsvorteile kennzeichnen
Market scope and source of competitive advantage
combine to generate four generic strategies.
Porter's "Strategie-Rahmenkonzept" (generic strategies
framework) kombiniert den Marktumfang/die Marktbreite (market
scope) und Variable, die Wettbewerbsvorteile kennzeichnen, um
vier generische Strategien zu entwickeln, die Organisationen
verfolgen können, um strategische Vorteile zu erlangen.
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Figure 9.6 Porter’s generic strategies framework:
automotive & soft-drink industry examples.
Toyota
VW geg. BMW
Tata Nano
Porsche
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Study Question 4: How are strategies formulated?
 Porter’s generic strategies for
gaining competitive advantage:

Differentiation strategy

Cost leadership strategy

Focused differentiation strategy

Focused cost leadership strategy
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Study Question 4: How are strategies formulated?
 BCG matrix – Boston Consulting Group Matrix
(als unterschiedliche strategische Geschäftschancen, denen sich
ein Unternehmen gegenübersehen kann).

Ties strategy formulation to analysis of business
opportunities according to …

Industry or market growth rate


Low versus high
Market share

Low versus high
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Figure 9.7 The BCG matrix approach to corporate
strategy formulation.
Fragezeichen
(arme) "Hunde"
Management 9/e - Chapter 9
Stars
"Milchkühe”
29
Study Question 4: How are strategies formulated?
 BCG matrix — business conditions
and related strategies:

Stars
High share/high growth businesses.
 Preferred strategy — growth.


Cash cows
High share/low growth businesses.
 Preferred strategy — stability or modest
growth.

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Study Question 4: How are strategies formulated?
 BCG matrix—business conditions
and related strategies (cont.):

Question marks
Low share/high growth businesses.
 Preferred strategy — growth for promising
question marks and restructuring or
divestiture for others.


Dogs
Low share/low growth businesses.
 Preferred strategy — retrenchment by
divestiture.

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Chapter 7:
Global Alliances and
Strategy Implementation
PowerPoint by
Hettie A. Richardson
Louisiana State University
© 2008 Pearson Prentice Hall
7-1
Strategic Alliances
 Partnerships between two or more firms that
combine financial, managerial, and
technological resources and their distinctive
competitive advantages to pursue mutual
goals
 Also referred to as cooperative strategies
© 2008 Pearson Prentice Hall
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Categories of Alliances
 Joint Ventures:
An international joint venture (IJV) is a joint
venture among companies in different countries. The JV form for a firm
may comprise a majority (more than 50% equity), a minority (less than
50% equity), or may be 50-50 (equal equity).

PSA Peugeot-Citroen Group and Toyota
 Equity strategic alliances:
two or more partners have
different relative ownership shares in the new venture.
© 2008 Pearson Prentice Hall
7-3
Categories of Alliances
 Non-equity strategic alliances:
ownership sharing.


agreements are carried out through contract rather than
suppliers, distributors, or manufacturers, but they also may be for the purposes of
marketing and information sharing. A
UPS, which has a non-equity alliance with Nike. Nike contracts with UPS to manage
its entire supply chain from factory, to warehouse, to customer, to repair.
 Global strategic alliances:

working partnerships between two or more companies across
national boundaries and/or industries.
Alliances also can be formed between companies and
governments.
 Alliances may comprise full global partnerships (e.g., joint ventures
in which two or more companies retain their national identities but
develop a common, long-term strategy)
 they may be more narrow and specific (e.g., aimed at production,
marketing, or research and development).
 Covisint: a common electronic marketplace


an e-business exchange developed by Daimler-Chrysler AG, Ford,
General Motors, Nissan, and Renault.
© 2008 Pearson Prentice Hall
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E-global or E-local?
 Going e-global makes sense when:

Trade is global in scope:

e.g. steel, plastics, and electronic components
Business does not involve delivering
orders
 When the business model can be easily
hijacked by local competitors

© 2008 Pearson Prentice Hall
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Entry Strategy Alternatives
 Exporting

Jordan Toothbrush (in Norway)
 Licensing:


useful in countries where entry by other means is prohibited and
for products in the mature phase of the life-cycle—when competition is
intense, margins decline, and production is relatively standardized
useful for firms with rapidly changing technologies, diverse product
lines, and small firms with few financial and managerial resources
for direct investment abroad.
 Example: Anheuser-Busch,
 Franchising

Holiday Inn, McDonald, Subway, etc.
© 2008 Pearson Prentice Hall
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Entry Strategy Alternatives
 Joint ventures – Gemeinschaftsunternehmen: eine
gemeinsame Tochtergesellschaft von mindestens zwei rechtlich
und wirtschaftlich getrennten Unternehmen. Strategische
Allianzen
 VW in China, started its connection in 1978.
 1st joint venture with Shanghai Volkswagen Automotive
Co., Ltd., in October 1984.
 2nd, FAW-Volkswagen Automotive Co., Ltd. was
established in Changchun in February 1991
 China, the statement noted, was now VW's largest market,
accounting for more than one in five of all vehicles sold.
 Oct. 2009, Nine-month sales in China jumped 37 percent.

Foreign subsidiaries - ausländischer Tochtergesellschaften
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Motivations and Benefits of Global
and Cross-Border Alliances
 To avoid import barriers, licensing requirements, and other
protectionist legislation
 To share costs of research and development

Toshiba
 To gain access to markets that favor domestic companies
 To reduce political risk
 To gain rapid entry into a new or consolidating industry
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Challenges in Implementing
Global Alliances
 Many alliances fail or end up in takeover
 Choosing the right form of governance
 The benefits of cooperation vs. the dangers
of new competition
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Guidelines for Successful
Alliances
 Choose a partner with compatible strategic goals and
objectives
 Seek complementary skills, products, and markets
 Work out how each partner will deal with proprietary
knowledge or competitively sensitive information

Trust – contractual agreements
 Recognize that most alliances only last a few years
© 2008 Pearson Prentice Hall
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Strategic Implementation
 Involves putting decisions about global
alliances and entry strategies into action
 Successful implementation requires creating
a “system of fits” - The structure, systems, and
processes of the firm should be coordinated and mutually
reinforce one another. Creating such a system may require
altering some of its elements to make them work—such as
changing the organizational structure.
 Resources must be allocated

Leadership is key
© 2008 Pearson Prentice Hall
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Implementing a Global Sourcing
Strategy
 Examine your reasons for outsourcing
 Evaluate the best outsourcing model
 Gain the cooperation of management and staff
 Consult your alliance partners
 Invest in the alliance
© 2008 Pearson Prentice Hall
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Managing Performance in IJVs
 IJV control: Ensures that the way a joint
venture is managed conforms to the
parent company’s interests
© 2008 Pearson Prentice Hall
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Managing Performance in IJVs
 Choice of partner
 strategic freedom - the relative amount of decision-making
power that a JV will have, relative to the parents, when choosing
suppliers, product lines, customers, etc.


Who makes decisions in daily operations.
Management control of local manager has considerable
management control

problems—such as staffing friction, blocked communication, and
blurred organizational culture.
 Organizational design
© 2008 Pearson Prentice Hall
7-16
Managing Performance in IJVs
 Three complementary dimensions of IJV
control:
The scope of activities over which parents
have control
 The extent or degree of control
 The mechanisms of control

© 2008 Pearson Prentice Hall
7-17
Knowledge Management in IJVs: the
active management of creating, disseminating, evolving, and applying knowledge to
strategic ends. Tranfering, transformation, and harvesting knowledge among parents and the
IJV.
:
© 2008 Pearson Prentice Hall
7-18
Chapter 8:
Organization Structure and
Control Systems
PowerPoint by
Hettie A. Richardson
Louisiana State University
© 2008 Pearson Prentice Hall
7-19
Changing Structures in Emerging
Markets
 Expansion
modes in emerging
markets may not fit the mainstream
MNC model
Many are “born global”
 Competition is limited in niche
businesses
 They thrive in old-economy industries
abandoned by established MNCs

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Domestic Structure Plus Foreign
Subsidiary
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International Division
 Organized along functional, product, or
geographic lines
 IBM World Trade
 Pepsi Cola International
© 2008 Pearson Prentice Hall
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Global Functional Structure
 Designed on the basis of the company’s
functions
 Allows for functional specialization and
economies of scale
© 2008 Pearson Prentice Hall
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Global Product (Divisional) Structure
• Advantages:
• market concentration,
innovation, &
responsiveness to new
opportunities in a
particular environment.
• facilitates diversification
and rapid growth.
• Disadvantages:
• create difficulties in the
coordination of widely
dispersed operations.
© 2008 Pearson Prentice Hall
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Global Geographic (Area) Structure - the
most common form of organizing foreign operations
Focusing on marketing and adapting products to local requirements.
e.g. Nestle - produce a range of products that can be marketed through
similar channels of distribution to similar customers.
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Comparative Management in Focus:
The Overseas Chinese Global Network
 “Chinese commonwealth”
 Overseas Chinese
 Control $2 trillion in liquid assets
 Contribute 80% of the capital for the PRC
 Contribute 70% of the private sector in
Malaysia, Thailand, Indonesia, and the
Philippines
© 2008 Pearson Prentice Hall
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Comparative Management in Focus:
The Overseas Chinese Global Network
 The Overseas Chinese business culture
Business largely confined to family and
trusted friends—guanxi
 Adherence to patriarchal authority
 Thrift and a high savings level
 Investment in tangible goods
 Wary outlook

© 2008 Pearson Prentice Hall
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Management Focus: Proctor and
Gamble’s Structure
 P&G/Gillette merger: Gillette adopts P&G’s
organizational structure
 P&G’s structure:
Global Business Unit (GBU)
 Market Development Organization (MDO)
 Global Business Services (GBS)

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Emergent Structural Forms
 Interorganizational networks

The network framework makes clear that the company’s operating
units link vastly different environmental and operational contexts
based on varied economic, social and cultural milieus

Royal Philips Electronics


Philips has operating units in sixty countries. These units range
from large subsidiaries to very small single-function operations.
Some have centralized control at Philip’s headquarters; others
are autonomous.
Intel

2005, developed a structural focus called “Platformisation,”
which is customizing a range of chips in a combination suitable
for a particular target market as a response to the need for
speed adaptation
© 2008 Pearson Prentice Hall
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Emergent Structural Forms - global
e-corporation network structure
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When is Change Needed?
 Clashes among divisions, subsidiaries, or
individuals over territories or customers
 Duplication of administrative or personnel
services, sales offices, account executives
 An increase in overseas customer service
complaints
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When is Change Needed?
 A shift in operational scope
 Conflict between overseas and domestic staff
 Centralization leads to excessive and, thus,
misused or misunderstood data
 Unclear reporting relationships
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Locus of Decision Making
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Monitoring Systems
© 2008 Pearson Prentice Hall
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Direct Coordinating
Mechanisms
 McDonald’s in Moscow
 Problem: Quality control
 Solution: Built processing plant in Moscow and
provided managerial training
 sent Russian managers for five months of training
in Canada.
 Other options: Visits by head-office personnel
and regular meetings
© 2008 Pearson Prentice Hall
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Indirect Coordinating Mechanisms
 Examples: sales quotas, budgets, and
financial tools and reports
 Three financial statements
 One for accounting standards in host
country
 One for the standards in the home country
 One for consolidation
© 2008 Pearson Prentice Hall
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Evaluation Variables across
Countries
 Adjust statements to reflect variables unique
to each country
 Take nonfinancial measures into account
© 2008 Pearson Prentice Hall
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