Part 5
Global Strategy, Structure, & Implementation
Chapter 11
The Strategy of International Business
Group 02
Dayaratne.DGSG0
Devaki.K
Banadara.RMJB
Dissanayake.BSJ
07-6938
07-6890
07-6972
07-6899
Learning Objectives
To examine the idea of industry structure, firm
strategy, and value creation.
To profile the features functions of the value
chain framework.
To appreciate how managers configure and
coordinate a value chain.
To identify the dimensions that shape how
managers develop strategy.
To profile the types of strategies firms use in
international business.
INTRODUCTION
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External Influences
Industry structure and
drives
Competitive dynamics
Economic conditions
Political, legal, and
regulatory environment
Technology standards and
trends
Cultural orientations
Customer expectations
Management Vision
Strategy
Value creation
Firm performance
In theoretical terms these forces make up the
environment of international business
In applied terms they represent the system outside the
international firms boundaries that influence the
actions of its managers.
How managers as agents of their firms, devise
strategies to engage international markets in ways that
sustain the company’s growth & boost its profitability.
Strategy is the framework that managers apply to determine
the competitive moves and business approaches that run the
company.
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This chapter will help us to identify
the environmental factors that influence managers’ strategic analyses,
the concepts that anchor manager’s evaluation of strategy,
the tools that support their strategic choices,
and the process that managers use to ultimately convert their analyses into
strategies that create superior value in international markets.
Strategy is management’s idea on how to best
Attract customers
Stake out a market position
Conduct operations
Compete effectively
Achieve goals
Create value
INDUSTRY, STRATEGY, AND FIRM PERFORMANCE
Some fundamental features of strategic management,
specifically the ideas of, and relationships among industry,
strategy, and firm performance will be looked into.

In general the forces in the MNE’s environment that have
routinely have the greatest impacts on its strategy are in its
immediate industry and competitive industry.
Eg: BMW worries how trends in interest rates, change in political
leadership, and innovations in communication technologies
will affect its profitability, but BMW is far more sensitive
because it directly affects their competitive position and
profit performance, to the actions of fellow industry
members like Toyota, Goodyear, and Bosch.
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A model of strategy-IO model
Perfect competition

Many buyers and sellers such
that no individual affects
price or quantities.

Developed in the industry organization
paradigm.
Presumes that the markets are perfectly
competitive.
It reports that risk-adjusted rate of return
should be constant across firms and industrieseffectively, over time no one firm or industry
should consistently outperform others.
In the long run the firms will attract new firms
enter the market freely, creating more
competition that lowers prices and lowers the
firm’s profits.
The model holds that the performance of a firm
is a function of its market conduct, which in
turn is determined by the structure of its
industry…….supported by researches.
Within the theoretical context of perfect
competition, the performance of any firm is
largely determined by industry characteristics

Perfect information for both
producers and consumers.

Few, if any, barriers to market
entry and exit.

Full mobility of resources

Constraints on IO model
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Many industries exhibited
imperfect competition.
Studies have identified that
many firms were outstanding
performers in their industry.
Eg: Dell in computers, Toyota in
automobiles
Bright managers find ways to
create value that are no easily
matched or copied by rivals

Industry structure is not
necessarily deterministic of firm
performances.

Firm performance was
influenced by the presence of
bright, motivated managers and
their keen sense of developing
innovative products for new and
existing markets.
Great managers who developed
better strategies and built better
companies outperformed their
counterparts

Outcomes of the strategic management research

Two important relationships
01. Although competition may not be necessarily
perfect, industry structure directly influences a
company’s performance.
02. The reality that competition may not be necessarily
perfect creates the potential for a company to convert an
innovative strategy into superior competitiveness.
The idea of Industry Structure
Industry structure is an explanation of the functions, form and interrelationships
among,

Suppliers of inputs

Buyers of outputs

Substitute products

Potential new entrants

Rivalry among competing sellers
This model develops the picture of the structure and competition in an industry
that prepares managers to figure out what fundamental forces shape strategic
conduct, how strong each force is, what forces are driving changes in the
industry, what strategic moves rivals are likely to make next, and what key
factors are for future competitive success.
The assessment of industry structure provides the basis for estimating
the kinds of strategic moves that companies in the industry are likely to use
The idea of Industry Structure contd….
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A global industry is one in
which a firm’s competitive
position in one country is
significantly affected by its
position in other countries
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Globalization in the financial services industry
demonstrates the interpretative power of the five
forces model.
This evolution means a firm’s competitive advantage
depends on how well it can achieve economies of scale
& economies of scope across countries.
These developments have prompted companies change
the way they compete.
Eg: Citibank-prospered

Deutche Bank-scrambled
The growing profits of the global financial services
industry attract new entrants.
Launch of new strategies and products have change the
competition
Emergence of new markets in Asia and Central Europe
brought many buyers & suppliers of all sort of financial
products & changed the competition in the industry
Growing number of options in the search for the best
deal
THESE FORCES HAVE CHANGED THE STRUCTURE OF THE
GLOBAL FINANCIAL INDUSTRY, AND IN THE PROCESS,
CHANGED THE POTENTIAL FOR PROFITABILITY
FORINDUSTRY MEMBERS.
THE FIVE FUNDAMENTAL FORCES MODEL
Industry Change
The
structure of industries is continually in flux.
new products, new firms, new markets, new managers trigger new developments in rivalry, pricing,
substitutes, buyers and suppliers.
These developments change a minor feature of the industry.
Hence
the industry members have the option of continuing to operate as they
had.
At this time the managers must identify the forces of the particular change,
estimate the impact it may have on their industry and company and determine an
effective response.
The types of forces that can transform an industry’s structure include
changes in the long term industry growth rate
new technologies, new consumer buying and usage patterns ,the diffusion of business,
change in government regulations, the entry or exit of major firms
While
many forces of change may be in play in a given industry, generally no
more than a few command the power to reset the basic structure.
Manager’s task is to separate major factors from minor ones and the best position
the firm to compete and create value in the likely new industry.
Strategy and Value
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There are thousands of views of the standards of a great strategy.
A great strategy defines the perspective and tools managers use to
appraise the company’s present situation, identifies the direction the
company should go, and determines hoe the company will get there.
Ultimately each one references the fundamental principle of strategy;
the value.
Value can be defined in various ways but fir our purpose value can be
defined as the measure of the firm’s capability sell what it makes for
more than the cost incurred to make it.
THEREFORE THE STRATEGY IS THE EFFORTS OF MANAGERS TO BUILD
AND STRENGHEN THE COMPANT’S COMPETITIVE POSITION WITHIN ITS
INDUSTRY IN ORDER TO CREATE VALUE.
Creating Value

Value is what is left after
all expenses have been
deducted from the
revenues of the firm.
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Low-cost leadershipemphasizes high
production volumes, low
costs, and low prices to
attract customers.
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Companies create value either by making their
products for a lower cost than any other firm in
their industry or making these products that
consumers are willing to pay a premium price
for.
Firms that choose this strategy strive to be the
low-cost producer in an industry for a given
level of quality.
It pushes a firm to sell its products either at an
average industry prices to earn a profit higher
than that of rivals or below the average industry
prices to capture market share.
A cost leadership strategy is a key advantage in
highly competitive industries.
In the event of a price war, the low cost leader
can cut its prices, thereby imposing intolerable
losses on competitors, yet still earning some
profits.
The cost leadership strategy usually targets a
broad market
Eg;Chinese companies are using this approach to
create value.
Differentiation

Differentiation spurs the
company to provide a unique
good or service that its rivals
find hard, if not impossible, to
match or copy
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Firms choose this strategy aspire to
develop products that offer unique
attributes.
The value added by the uniqueness of
the product allows the firm to charge a
higher price.
Eg; SAP, Rolex create value via
differentiation strategies
Companies that engage a
differentiation strategy must
continually find ways to develop
products that have unique features
that, in turn, lead buyers to prefer their
goods and services versus those
provided by rivals.

The value creation potential of its strategy ultimately is
a function of the amount of the value, whether actual
or perceived, that customers attribute to its products
and the cost the firm incurs to make it.

For both the low-cost leadership or differentiation
strategies, the firm earns higher profits than its rivals
when it creates more value for its customers and is
able to charge them a price that rewards it
The Firm as a Value Chain
The Value Chain is the set of interlinked, value – creating
activities the company performs to design, produce,
market, deliver, and support a product.
Represents a frame work that lets managers deconstruct
the general idea of “create value” into the series of
discrete activities that their company actually does to
create value.
Value Chain Analysis helps managers understand the
behaviour of costs and the existing & potential sources of
differentiation.
Figure: The value chain framework
Cont’d…..
Technically, a Value Chain has four organizing dimensions:
 Primary Activities
 Support Activities
 Profit Margin
 Orientation:
-Upstream & Downstream
Primary Activities: Involved in the physical movement of raw
materials and finished goods & services, and in the
marketing, sales, and subsequent services of the outputs of
the business.
Inbound Logistics: Receiving, warehousing, and inventory control
of production inputs from company’s suppliers.
Operations:
product.
Processes that transform inputs into finished
Outbound Logistics: Moving the finished product in to the supply
chain from factory to wholesalers, retailers, or the final consumer.
Marketing & Sales: Getting buyers to buy the product by using
the marketing mix & advertising.
Services: Customer support in terms of installation, after sales
service, complaints handling, training and so on.
Support Activities: Makeup the managerial infrastructure
of the firm that supports carrying out the primary
activities.
Procurement: Purchasing the raw materials, components, and
other inputs used throughout the value chain.
Technology & Systems Development: R&D, process automation,
telecom and wireless systems, and other technology used to
support value activities.
HRM: Recruiting, development, compensating, and retaining
employees as well as labour relation activities.
Firm Infrastructure: Activities related to general management,
accounting, and finance, legal and regulator affairs, safety and
security, MIS, and other “overhead” functions.
Profit Margin: The process of the value chain is to show
how a firm creates value.
Total Revenue
Total Costs of
Profit Margin = generated by
the activities
sales
Orientation: The final element of a value chain is
orientation – namely , whether the particular activity takes
place upstream or downstream.
Upstream: Activities such as inbound logistics, R&D, and
manufacturing which gather and process the inputs that
the company uses to make a product.
Downstream: Activities such as outbound logistics,
marketing, and service, that deal more directly with the
end customer.
Using the Value Chain
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♣
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The value chain helps managers integrate the
knowledge and skills of employees around the world in
the way that lets them best leverage the company’s
global reach.
Value chain analysis anchors and guides managers’
effort to build expertise in those value activities that
are critical to reducing costs or improving
differentiation.
Value chains identify the format and interactions
between different activities of the company.
Value Chain Configuration
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♣
♣
Configuration is the way that managers arrange the
activities of the value chain.
Every MNE (small or large) looks to establish elements
of its value chain in the best spots in the world.
The key caveat for location decisions is the notion that
configuration should be optimize “given prevailing
economic, legal, political, and natural conditions”.
Cont’d…..
Several conditions shape how managers configure value
chains world wide. They are:
 Cost factors
 Business environments
 Cluster effects
 Logistics
 Economies of scale
 Buyers’ needs
Cost Factors
Cost factors in countries directly shape where
international companies choose to locate value
activities.
Manufacturing cost vary from country to country due to
wage rates, work productivity, resource availability, and
fiscal and monetary policies.
Examples:
Labour costs China Vs US in 2003 Average hourly
compensation ( including benefits) for production workers
$0.80 Vs $25.5
 Footwear companies locate the upstream activities (like
sourcing & manufacturing) of their value chain in China and
the downstream activities of their value chain (like
marketing & service) in US.

Cluster Effects
A peculiarity of value creation is the cluster effect;
in which a particular industry gradually clusters
more & more related value creation effects in a
specific location.
Example:
oWall street is a center for global finance.
o Baden-Wurttemberg – Cars & electrical engineering.
oSilicon Valley – Technology
oHollywood – Mass media
oMumbai – Business process outstanding
Logistics

Logistics is the how companies obtain,
produce, and exchange material and services in
the proper place and in proper quantities for
the proper value activity.
Economies of Scale
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
The residuals in unit cost achieved by
producing a large volume of a product.
Economies of scale occur in industries with
high capital costs in which those costs can
be distributed across a large number of
production, thereby resulting in lower per
unit costs.
Buyers’ Needs
Buyer – related activities, such as distribution to
dealers, sales and advertising, and after sales
service, usually take place close to buyers.
Value Chain Coordination
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Coordination is the way that managers connect
the discrete activities of the value chain.
The task of coordinating the different activities
that go into making and moving a product
around the world has emerged as the basis of
the superior performance that separate good
from great MNEs.

Eg: Zara’s strategy of rapid response to everchanging fashion trends demands lots of
coordination.
Core Competency
Outlook,
skill, capability or technology that
creates unique value for the firm by creating an
acknowledged thread that runs through all of the
firm’s value activities.
A company’s core competency is:
 The
unique skills and/or knowledge that is better
that its competencies.
 Essential to its competitiveness.
Core Competency Cont’d……
Examples of core competencies.
 Wal-Mart’s sophisticated information management and
product distribution systems.
 3M’s legacy of product innovation.
 Intel’s design of complex semiconductors.
 MBNA’s customer orientation.
 Honda’s expertise in engine technology management
systems.
 Proctor & Gamble’s marketing-distribution skills and R&D
capabilities.
 Apple’s eye for products design and ability to translate its
ideas into innovative products.
Core Competency Cont’d……

A core competency can emerge from various
factors:
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Product development
Employee productivity
Manufacturing expertise
Marketing imagination
Executive leadership
Factors influencing the value chain
coordination
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Operational obstacle
National cultures
Learning effects
Subsidiary networks
Operational Obstacles
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
MNEs regularly run into problem when trying to get the
various links of their global value chain to deal to each
other.
 Communication challenges.
Ex: Language, miscommunication.
 Currency & measurement systems.
Ex: Metric Vs Decimal.
Well-planned coordination preempts these threats, thereby
letting workers worry less about what is supposed to
happen with material transfers and product delivery and
worry more about creating value.
National Cultures


The globalization of a company’s value chain presses
managers to understand how foreign cultures
influence coordination.
National cultures can impose higher hurdles in
coordinating a transaction from one stage of the
value chain with another.
Learning Effects
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
Learning effects refers to the cost savings that
follow from learning by doing an activity.
The matter of learning shapes how both
manufacturing and service MNEs coordinate
value chains.
Subsidiary Networks
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The current culmination of globalization trends is a
world marked by real-time connectivity among the
subsidiaries of an MNE.
Skills, ideas, and technologies can be created
anywhere within an MNE’s global network of
subsidiaries.
Vital task of managers is to coordinate the company’s
value chain So that it can leverage the competencies
developed within any subsidiary and apply them
whether they can create value within the firm’s global
network.
Value Chains & Change

Once built, a firm’s value chain is not fixed in
stone.
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The features and functions of products that
consumers judge most critical change over time
the basis of value creation in an industry evolves.
The configuration and coordination of a firm’s
value chain should reflect changes in its bases for
value creation, including:
• customers and their needs
• competitors
• industries
• environments
GLOBAL INTEGRATION VERSUS LOCAL RESPONSIVENESS
The
asymmetry between global and local pressures
puts contradictory demand on how the firm configures
and coordinates its value chain.
Companies that operate internationally face two
asymmetric forces ;Pressures for global integration and
pressures for local responsiveness.
That is ,it should be standardized all activities of its
value chain to achieve economies of scale or it should
be customized all local activities to the particular
demands of each country
Pressures for Global Integration
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Globalization of business is growing, presently global
markets produce and consume more than 20 percent
of world output and it will be 80 percent in 2025
Global markets in Products are chemicals, credit card,
financial services, accounting, food, health care. Mass
media, forest products, information technology,
automobiles, telecommunication etc..
Two pressures for global integration;
1.The globalization of markets
2.The efficiency gains of standardization
1.The globalization of markets


Increasingly supported by global buying patterns and
companies’ strategies, suggests that consumers seek
and accept standardized Global products
Two conditions compel the globalization of markets
1.The intrinsic function of money; it is hard to
acquire, difficult to save and always in scarce supply.
2.Seek to maximize their purchasing power :buying
the highest quality good for the lowest possible price
2.The efficiency gains of standardization
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Worldwide standardization
of an MNE’s products,
purchases, methods and policies can significantly reduce
the cost of its operations.
The company can also realize economies in other value
activities: eg R&D ,Advertising etc..
Standardization pressures have steadily increased as more
counties have joined the global economy in general and the
WTO in particular eg. acceptance of uniform code of
international trade regulations
These new entrants escalate cost pressure in a industry that
then compels companies to minimize their costs by
standardizing components of their value chain via global
integration.
Pressures for Local Responsiveness
International companies face several pressures and
issues to tailor their to local market condition, they
are the influence of the external environment,
government influence on trade, regional economic
integration,
product
standards,
financial
regulations, distribution channels, human resources
etc….
Need to be emphasized tow primary pressures for
local responsiveness; consumer divergence and
host- government policies.
consumer divergence:
Fundamental divergences in consumer tastes and
preference across countries have and will continue
to exert strong pressure for local responsiveness.
Consumers prefer goods that are sensitive to their
way of life.
Cross-national divergence presses international
companies to side with local responsiveness doing
such things as designing and making a product
,adopting marketing practices, using marketing
practices ,adapting to local co

host- government policies.
There is great variability of political, legal and economic
situations
in
markets
around
the
world
the sources of many of these variations are the policies and
sometime, the lack thereof, mandated by host-country
governments.
Eg; privatization, economic freedom, legal uniformity etc…
The international company moves from country to country,
these exceptions typically push the from to determine how
to best configure and coordinate its value chain so that it
provides the necessary degree of local responsiveness
without jeopardizing its capability to create value
eg the pharmaceutical industry.
Interaction
The interaction of the pressures for global integration
and pressures for local responsiveness, in terms of how
they gear upon an MNE, is expressed in the integration
responsiveness grid.
Figure: The Integration/ Responsiveness Grid
and Industry Types
Strategy Types
1.
2.
3.
4.
International Strategy
Multi-domestic Strategy
Global Strategy
Transnational Strategy
Why are Strategy types important?
Multi National Enterprises ( MNEs) look at
international markets for,
 growth opportunities
 cost reductions
 risk diversification
with the aim of,


satisfying the competing demands of global
integration and local responsiveness.
deciding how to run their operations to meet the
organizational goals.
TRANSNATIONAL
GLOBAL
H
I
G
H
•Views the world as a
single market. Tightly
controls global operations
from headquarters to
perceive focus on
standardization
•Flexible value chain
enables local
responsiveness. Complex
coordination mechanisms
enable global integration.
INTEGRATION- RESPONSIVE
GRID
L
O
W
INTERNATIONAL
Uses existing core
competences to exploit
opportunities in foreign
markets
LOW
MULTIDOMESTIC
•Foreign subsidiaries
operates autonomous units
to customize products &
processes to local markets’
needs
HIGH
Integration-responsiveness grid
identifies,

General conditions that shape the decision
of when to use which strategy.
These strategies differ in terms of,
 where managers put value activities
and how they try to run them
Characteristics of International Strategy :

Leverages a company’s core competencies in
foreign markets.

It relies on local subsidiaries in each country to
administer business as instructed by headquarters
though, some subsidiaries may have freedom to adapt
products to local conditions as well as to set up some
light assembly operations or promotion programs

E.g. Yahoo! Develops the core architecture underlying
its Web products in San Jose, Californiaheadquarters. But it allows national
subsidiaries to customize minor aspects of its
Web pages to deal with local differences in
language and alphabet.



This strategy greatly facilitates the transfer of skills,
expertise & products from the parent company to its
subsidiaries. Hence, it tries to create value by transferring
core competencies & unique products to those foreign
markets where rivals are unable to develop, match or
sustain them.
Enables headquarters to translate their control over &
expertise in important activities into powerful positions to
command foreign operations to follow their lead.
An international strategy creates moderate operational
costs and enables great amounts of profits, if a firm has a
core competence that local competitors in other markets
lack and, if industry conditions do not push the firm to
improve its cost controls or local responsiveness.

Limitations:


The headquarters’ ethnocentric orientation- one way
view from the home office to the rest of the world- can
lead to missed market opportunities & a realization
among foreign operations that international activity is
secondary to whatever happens in the home market.
Thus, this hinders identifying & responding to local
conditions.
It is costly when other companies emphasize
customizing their goods and services to local
conditions
E.g. Carrefour in the U.S.A. tried shifting its strategy to better
deal with local tastes & preferences, but this eventually
proved too costly & the company closed its U.S.operations
Characteristics of Multi-domestic
Strategy/Locally Responsive Strategy


Adjusts products, services, and business practices to meet the
needs of individual countries and regions. i.e., this strategy
allows each of its foreign-country operations to act fairly
independently.
 E.g. Johnson & Johnson differentiates products &
services to meet different local demands ( customer
preferences, local culture) and adapts org. policies to
conform to different governmental ( legal-political) &
market demands( economic environment)
Decentralize decision making - local executives have the
authority to manage their responsibilities

Management believes in responding to the
unique conditions prevailing in different
markets- Polycentric point of view ( people who
are close to the market ought to run the
business)
 E.g. Managers in the backpack factory in
Singapore have the right to decide what
sort of backpack they want to make even if
the size, shape & style differ from those
made in the U.S.A.
Benefits of the Multi-Domestic Strategy
Very useful in the face of high need for local responsiveness & low
need to reduce costs via global integration.
 Other benefits include, minimized political risk given the local
standing of the company, reduced exchange rate risk given the
low need to repatriate funds to the home office, greater prestige
given its national prominence, higher potential for innovative
products from local R&D and higher growth potential due to
entrepreneurial spirit.


E.g.The R&D unit at Japanese subsidiary of Procter & Gamble, which
responses to the low storage space situation in the typical Japanese
home, invented technology that reduced the thickness of an infant’s
diaper without any loss of absorbency. This innovation created
immense value for P&G in Japan and for P&G worldwide
Disadvantages of Multi-domestic strategy

Distributing decision-making responsibilities of value
activities to local subsidiaries imposes high costs
 i.e., this strategy leads to widespread duplication
of management, design, production & marketing
activities. So, each local subsidiary must build the
necessary value chain operations to meet local
demands. Hence, the strategy is economically
impossible in industries that have intense cost
pressures.
 Decentralizing
control of value activities to local decision
makers can create unusually powerful subsidiaries that
tend to behave as autonomous units.
 i.e.,
they may opt not to follow headquarters’
policy, instead maintaining that it does not work with
their situation and/ or that
it
must
be
extensively adjusted to fit their local market.
Headquarters has to persuade the subsidiary with power
in lieu of direct command to effect change, which is very
costly.
 E.g.
Johnson & Johnson launched Tylenol 1960 as an overthe-counter pain reliever in the U.S.A. Although it was
available to local operating units shortly thereafter, the
Japanese unit did not begin selling it until 2000.
Characteristics of Global Strategy
Global Strategy champions worldwide consistency and
standardization. It chooses to respond directly to pressure to
maximize integration.
 Pushes companies to think in terms of creating products for a
world market ( one market), manufacturing them on a global
scale in a few highly efficient plants, and marketing them through
a few, focused distribution channels.

E.g. Computer parts – manufactured in various countries and assembled
at one country

Companies see the world as one market and assume that there
are either no differences among countries with regard to
consumer tastes and preferences or, if there are, then
consumers will sacrifice them if given the opportunity to buy a
comparatively higher quality product for a lower price.




Faces strong pressures for cost reductions but weak
pressure for local responsiveness.
A fully optimized value chain conceivably will locate
each activity( R&D, production, marketing etc) in the
best possible place( most favourable locations). This
enhances the efficiency of the global strategy.
Formal linkages coordinate the dispersed activities of
the value chain.
Executives at the centralized world headquarterswho are responsible for standardizing practices and
processes of the company- monitor the value chain
activities .
Limitations
 The
cost-sensitivity of the global strategy doesn’t give
MNEs any freedom to customize their products or
systems to local conditions. Instead, the global firms
strive to make, market & service a standardized product
worldwide that lets them convert global efficiency into
price competitiveness and value creation.
 i.e., customizing a product or process to particular
market situations increases costs at each stage in the
value chain- different material for different product
designs, has to adjust marketing programs, needs
new distribution channels, etc.
Advantages

Global strategy enables a one-time transaction that
exploits a worldwide distribution network,
standardized financial controls, and universal
messages.
 E.g. Lucasfilm released Star Wars: Episode IIAttack of the Clones- on the same day in nine
countries and a day later in another large
group of countries. The movie had the 3rd
highest opening weekend of revenue in movie
history.
Characteristics of Transnational Strategy
This strategy simultaneously exploits location economies,
leverages/ influences core competencies and pays attention to
local responsiveness.
 It is the most direct response to the growing globalization of
business.
 The MNE applying a transactional strategy differentiates
capabilities & contributions from country to country, finding ways
to systematically learn from its various environments, and then
ultimately integrating & diffusing this knowledge throughout its
global operations which enables “ global learning” and knowledge
sharing for the companies.

Advantages


Rather than the top-down ( headquarters to foreign subsidiary)
or bottom-up ( foreign subsidiary to headquarters) flow of ideas,
the transactional strategy has a flow from the ideas generator
to idea adopters, no matter where one or the other happens to
be.
Transferring capabilities and resources strengths across borders
contributes to developing more powerful core competencies
E.g.
the global learning capability helps an MNE to develop internal
capabilities that can respond in a multitude of ways to changing
environments , to leverage internal resources with external networks of other
companies
and to integrate subsidiaries without imposing more
bureaucracy.
 Transactional
strategy aims to make the relentless renewal,
enhancement, and exchange of ideas across the basis of value
creation.
 E.g.1) General Electric made ideas, constantly renewed,
enhanced and exchanged within the expanding context of
globalization, the basis of its value creation. Thus it claims
that better ideas, better designs, better production
methods etc no matter where in the world the activity took
place , they makes more profitable decisions.
2) Also, integration happens more efficiently
and
responsiveness happens effectively and new ideas
emerged more regularly in General Electricals as
knowledge flow from one manager to another in one
part of the value
chain to counterparts in far-flung
parts of the company.
Limitations

Difficult to build, poses serious challenges (esp. in
coordinating value activities) and is prone to
shortfalls.

E.g. for every General Electric, there are many
Phillips, Matsushitas, Nokia, and Acers that fell
short applying a transactional strategy.
Which sort of firms should adopt this strategy?

A firm which faces high pressures for cost
reductions, high pressures for local
responsiveness and where there are
opportunities to leverage core competencies
extensively throughout the company’s global
network.
Thank you!