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Introduction to Strategy;
Global Strategic Management;
Peculiarities
Components
Purpose
Value Creation;
Strategic Levels
Strategic Choices
Global Strategic Management process;
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What Is Strategy?
Strategy is a plan of action that channels anorganizations resources so that it caneffectively differentiate itself from competitorsand accomplish unique and viable goals.
Managers develop strategies based on theorganizations strengths and weaknessesrelative to the competition and assessingopportunities.
Managers decide which customers to target,what product lines to offer, and with whichfirms to compete.
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Concerned with deciding on strategy and planning how
that strategy is put into effect.
According to J. Paul Peter, Strategic management is a
continuous, iterative cross functional process aimed at
keeping an organization as a whole appropriately matched
to its environment.
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Strategy: actions that managers must take to attainthe goals of the firm
Main goal usually to maximize long-term profit (),
(EPS) Profitability defined by return on sales or return on
equity
Think strategic, not operational - this is what makes
a great CEO
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Strategy in an international context is a plan forthe organization to position itself vis-a-vis itscompetitors, and resolve how it wants to configureits value chain activities on a global scale.
Its purpose is to help managers create aninternational vision, allocate resources, participatein major international markets, be competitive,and perhaps reconfigure its value chain activitiesgiven the new international opportunities.
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Strategic management of a global company is distinctfrom that of domestic company due to its peculiarities.
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Flow of goods and/or services across the countries
Analysis of global environment
Integrated strategic management
Impact of present decision on the future Action oriented
Continuous and dynamic management
Integrated operations Other differences
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Distinctivecompetence
Scope ofoperations
Resourcedeployment
Synergy
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Distinctive Competence
Answers the question
What do we do exceptionally well, especially as
compared to our competitors?
Represents important resource to the firm
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Answers the question
Where are we going to conduct business?
May be defined by
Geographical region
Market or product niches within regions
Specialized market niches
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Answers the question
Given that we are going to compete in these markets,
how will we allocate our resources to them?
May be specified by
Product lines
Geographical lines
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Answers the question
How can different elements of our business benefit
each other?
Goal is to create a situation where the whole is
greater than the sum of the parts
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Bartlett and Ghoshal argue that managers shouldlook to develop, at one and the same time,global scale in efficiency, multinational flexibility,
and the ability to develop innovations and leverageknowledge on a worldwidebasis.
These three strategic objectives efficiency,flexibility, and learning must be sought
simultaneously by the firm that aspires to becomea globally competitive enterprise.
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In the final analysis, international businesssuccess is largely determined by the degree towhich the firm achieves the goals of efficiency,
flexibility, and learning. But it is often difficult to excel in all three areas
simultaneously. Rather, one firm may excel atefficiency, while another may excel at flexibility,
and a third at learning.
Sustainability over time is also a challenge.
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The difference between thevalue of the product tothe customers and the cost of producing thatproduct is referred to as Value Creation
Profit determined by : The amount of value customers place on firms goods or
services (V) Firms cost of production (C)
Consumer surplus occurs when price charged by afirm on a good or service is less than value placedon it by a customer
Firm creates profit by increasing value or loweringcost
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Realized by performing a value creation activity in an optimal location anywherearound the globe
Often arise due to differences in factor costs
It can lower costs of value to enable low cost strategy and/or
Help in differentiation of products from competitors
Global web: different stages of value chain are dispersed to those locations whereperceived value is maximized or costs of value creation are minimized
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Parts
PartsParts
Assembly
Advertising Design
Sales
Creating a Global Web
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The systematic reduction in production costs thatoccurs over the life of a product
First observed in aircraft industry where unit costs reduced by80% each time output was doubled
Caused due to
Learning effects
Economies of scale
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Cost savings that come from learning by doing
Arises due to increased worker productivity and
management efficiency
Significant in cases of technologically complex task asthere is a lot to be learned
Experienced during start-up phase, cease after two orthree years
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Refers to reduction in unit cost byproducing a large volume of a product
Reduces fixed costs by spreading itover a large volume
Ability of large firms to employ
increasingly specialized equipmentor personnel
Sources:
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The firm that moves down the experience curve mostrapidly has a cost advantage over its competitors
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Where does value come from-
Any firm is composed of a series of distinct value creating activities
Primaryactivities
Research & development Production
Marketing & sales
Service
SupportActivities
Materials management or logistics Human resource
Information systems, (this includes you accts)
Company infrastructure
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Language
Culture
Politics Economy
Governmental
interference Labor
Labor relations
Financing
Market research
Advertising Money
Transportation/
communication Control
Contracts
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Corporate Strategy
Business Strategy
Functional Strategy
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Single-Business Strategy
Related Diversification
Unrelated Diversification
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Differentiation
Overall Cost Leadership
Focus
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Financial
Marketing
Operations
Human Resource
R&D
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Try to come back in 6 min
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Four basic strategies to enter and compete in theinternational environment:
International strategy
Multi domestic strategy
Global strategy
Transnational strategy
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Intense in industries of standardized, commoditytype product that serve universal needs
Major competitors are based in low-costlocations
Consumers are powerful and face low switchingcosts
Liberalization of world trade and investment
environment ExamplesBulk chemicals, petroleum, steel, personal computers
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Differences in consumer tastes & preferences North American families like pickup trucks while in
Europe it is viewed as a utility vehicle for firms
Differences in infrastructure & traditional practices
Consumer electrical system in North America is based on110 volts; in India on 240 volts
Differences in distribution channels Germany has few retailers dominating the food market,
while in Italy it is fragmented
Host-Government demands Health care system differences between countries require
pharmaceutical firms to change operating procedures
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The firmviews international business as separate from, andsecondary to, its domestic business. Such a firm may viewinternational business as an opportunity to generate incrementalsales for domestic product lines.
Products are designed with domestic customers in mind, andinternational business is sought as a way of extending the productlifecycle and replicating its home market success.
The firm expects little knowledge flows from foreign operations.
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Headquarters delegates considerable autonomy to each country managerallowing him/her to operate independently and pursue localresponsiveness.
With this strategy, managers recognize and emphasize differences amongnational markets. As a result, the internationalizing company allowssubsidiaries to vary product and management practices by country.
Country managers tend to be highly independent entrepreneurs, oftennationals of the host country. They function independently and have little
incentive to share knowledge and experiences with managers elsewhere.
Products and services are carefully adapted to suit the unique needs ofeach country.
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With global strategy,the headquarters seeks substantial control overits country operations in an effort to minimize redundancy, andachieve maximum efficiency, learning, and integration worldwide.
In the extreme case, global strategy asks why not make the samething, the same way, everywhere? It favors greater centralcoordination and control than multi-domestic strategy, with variousproduct or business managers having worldwide responsibility.
Activities such as R&D and manufacturing are centralized atheadquarters, and management tends to view the world as one largemarketplace.
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A coordinated approach to internationalization in which the firmstrives to be more responsive to local needs while retaining sufficientcentral control of operations to ensure efficiency and learning.
Transnational strategy combines the major advantages of multi-domestic andglobal strategies, while minimizing their disadvantages.
Transnational strategy implies a flexible approach: standardize wherefeasible; adapt where appropriate.
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Some 90% of the product line is identical across more than twodozen countries. IKEA does modify some of its furnitureofferings to suit tastes in individual countries.
IKEAs overall marketing plan is centrally developed atcompany headquarters in response to convergence of productexpectations; but the plan is implemented with localadjustments.
IKEA decentralizes some of its decision-making, such aslanguage to use in advertising, to local stores.
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Most firms find it difficult to implement transnational strategy.
In the long run, almost all firms find that they need to include someelements of localized decision-making because each country hasidiosyncratic characteristics. Few people in Japan want to buy acomputer that includes an English-language keyboard.
While Dell can apply a mostly global strategy to Japan, it mustincorporate some multi-domestic elements as well. Even Coca-Cola,varies its ingredients slightly in different markets. While consumersin the U.S. prefer a sweeter Coca-Cola, the Chinese want less sugar.
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Organizational structure refers to the reporting relationshipsinside the firm the boxes and lines that specify the linkagesamong people, functions, and processes that allow the firm tocarry out its operations.
In the larger, more experienced MNE, these linkages are extensiveand include the firm's subsidiaries, affiliates, suppliers, and otherpartners.
A fundamental issue is how much decision-making responsibilitythe firm should retain at headquarters and how much it shoulddelegate to foreign subsidiaries and affiliates. This is the choicebetween centralization and decentralization.
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AH
B
C
D
E
F
SD
BD
CD
RD
Subsidiary Level NetworkS
: SuppliersR
: Regulatory institutionsB: Buyers C: Customers S
EBE
CE RE
SB
BB
CB
RB
SA BA
CA RA
SF BF
CF
RF
SC
BC
CC
RC
A: Home plantH: HeadquartersB F: Subsidiaries
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Analysis of existing Missions and goals
Organizational Analysis of a global business firm
Analysis of international Environment
Formulation of Alternative Corporate level strategies
Formulation of Alternative Business unit level strategies
Selection of best among the Alternative Strategies
Strategic Implementation
Strategy Evaluation and Control
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Company finds that thecurrent mission and
goals would beredundant when itsignificantly addsproduct and\or services
and\country portfoliosto the existing portfolio.
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Team or individual based Flat or tall
Organizational
Customers
4 PsMarketing
Sources of material Plant location
Production
Sources of Finance EPSFinance
Sourcing of Manpower Cost and culture of employees
HumanResource
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Govt. Controls Opportunities
Political-legalFactor
Various rates Per capita income
Economic Factors
Technological advancementTechnological
Factors
Values, traditions & patterns of behaviorSocial Factors
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Stability
Growth
Retrenchment
Combination
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The firm has noforeign manufacturingexpertise and requiresinvestment only indistribution.
Export
Whats the best solution?Situation Optimal Solution
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The firm needs tofacilitate the productimprovementsnecessary to enterforeign markets.
Licensing
Whats the best solution?Situation Optimal Solution
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The firm needs toconnect with anexperienced partneralready in the targetedmarket.
Strategic Alliance
Whats the best solution?Situation Optimal Solution
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The firm needs toreduce its risk throughthe sharing of costs.
Strategic Alliance
Whats the best solution?Situation Optimal Solution
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The firm is facinguncertain situationssuch as an emergingeconomy in itstargeted market.
Strategic Alliance
Whats the best solution?Situation Optimal Solution
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The firms intellectualproperty rights in anemerging economy arenot well protected, thenumber of firms in the
industry is growingfast, and the need forglobal integration ishigh.
Wholly-owned
Subsidiary
Whats the best solution?Situation Optimal Solution
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Cost ofproduction Cost of marketing
Low costleadership
strategy
Small market Specific market
Focus or NicheStrategy
Product policies Price policies
DifferentiationStrategy
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Boston Consultancy Group matrix the strategy with high industry growth rate and high relative market
share is best
General electric nine cell matrix the strategy with long term industry attractiveness and high business
strength is best
Directional Policy Matrix. the strategy with high business sector prospects and high competitiveability of the company is best
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Partner Selection
Organizational structure
Behavioral implementation
Marketing implementation
Financial implementation
Production implementation
Human Resource implementation
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Establish the standards of strategic managementprocess
Measure the performance of the process at
every stage
Compare the performance with the strategy
Observe the deviation
Take corrective steps
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