 Strategy:
“the action managers take to attain the goals of a firm”
– General purpose: maximize/make profit
 Differentiate products, increase price: add value, features, quality, service
 Achieve low cost
– Key means: allocation of scarce resources to attain goals

 Firm as a chain of discrete value creating activities
– Primary
 upstream activities, manufacturing
 downstream activities: marketing, sales, after sales service
– Support
 infrastructure (general and administrative)
 human resources
 research and development




Earn greater return from distinctive skills, core competences
– Inimitable or difficult to imitate skills in value chain
Realize location economies
–
–
Choice of FDI location
Create multinational network of activities (global web)
Realize greater experience curve economies, which reduce the cost of value creation
– Learning effects, economies of scale
Unit costs
B
A
Experience curve
Accumulated output

Pressures for Global Integration
& Local Responsiveness
High
Cost Reduction
(Global Integration)
Pressures
Low
Low
Ball bearings, wheat
Cosmetics, food, household goods
High
Local
Responsiveness
Pressures
Differences in
- consumer tastes/preferences
- infrastructure/practices
- distribution channels
- host government needs/requirements

High “Global”
Strategy
“Transnational”
Strategy
Cost Reduction
(Global Integration)
Pressures
“International”
Strategy
“Multidomestic”
Strategy
Low
Low
Local Responsiveness Pressures High

HK
UK Chile
USA
India
Japan
Mexico
Decentralized Federation - Many key assets, responsibilities and decisions localized
Personal Control - Informal HQ-Sub relationship, simple financial controls
Multidomestic Mentality - Management sees overseas operations as portfolio of independent businesses

HK
UK Chile
USA
India
Japan
Mexico
Coordinated Federation - Key assets, responsibilities decisions localized
Administrative Control - Centralized HQ control, formal planning and control, tight HQ-Sub linkage
International Mentality - Management sees overseas operations as appendages to a domestic operation

UK
HK
Chile
USA
India
Japan
Mexico
Centralized Hub - Most strategic assets, resources, responsibilities and decisions centralized
Operational Control - Tight HQ control of decisions, resources, information
Global Mentality - Management sees overseas operations as delivery pipelines to a unified global market

HK
UK Chile
USA
Japan India
Mexico
Networked Organization - Distributed, specialized resources and capabilities
Interdependent Units - large flows of components, products, resources, people, and information
Transnational Mentality - Complex process of coordination and cooperation in an environment of shared decision making

 Cooperative agreements between competitors from different countries
– Advantages

Facilitate entry into a foreign country

Allow fixed costs of new products and processes to be shared
 Bring together complementary skills and assets
 Help establish industry standards in technology
 Allow reduction of operating costs,e.g., shared training, purchasing
– Disadvantages
 Give competitors a low cost route to new technology / markets

Disproportional benefit accrual to partners

Making alliances work which partner?
 A suitable partner
– Helps achieve strategic goals
–
–
 Adds needed, valuable capabilities
Shares the firm’s vision for purpose of the alliance
Is not likely to exploit the alliance to its own ends
 Steps to select a partner
–
–
Thorough background check via public sources
Advice from third parties who have personal experience with likely partner(s)
– A lot of face-to-face time with likely partner(s) in their environment

Making alliances work - What Structure?
 Protect technology/know-how that is not intended to be transferred
 Draw a solid contract with safeguards against opportunism
 Achieve equitable gain through agreed swaps of technology the other wants
 Seek creditable, clearly articulated commitment to partner “behavior” a-priori

Making alliances work - How to manage?
 Show sensitivity to cultural differences that explain different managerial styles
 Build trust
– Set up framework for formal and informal faceto-face meetings to create a common value system
– Build informal network of personal relationships
 Learn from partners
– Apply the knowledge within your own organization
– Brief your employees on partner strengths