Strategy and opportunity assessment PDF

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Strategy and opportunity assessment
Lecturer: Dr Meghan Zhang...

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Week 7 - Strategy and opportunity assessment Chapter 12 – Strategy and organisation in the Firm Strategy: -

A planned set of actions that managers employ to make best use of the firm’s resources and core competencies to gain competitive advantages International strategy is carried out in two or more countries, in order to allocate a company’s sources and competences, and configure value-adding activities on a worldwide scale

Opportunity set: -

When developing strategies, managers examine the firm’s strengths and weaknesses, and the opportunities and challenges facing the firm. (SWOT)

Fitness/Tightness of strategy: -

They then decide which customers to target, what product lines to offer, how best to contend with competitors, and how generally to configure and coordinate the firm’s activities. (5 Forces)

Objectives of international strategy -

Global-scale efficiency: o Efficiency refers to lowering the cost of the firm’s operations and activities on a global scale  Efficiency = value of outputs / value of inputs  Cost of inputs lowered by global scale  Value of outputs increased by local adaptation

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Multinational flexibility: o The firm must develop worldwide flexibility to accommodate diverse country specific risks and opportunities o The firm structures its operations to ensure it can respond to specific customer needs in individual markets, especially those critical to company performance

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Worldwide learning: o The firm must create the ability to learn from operating in international environments and exploit this learning on a worldwide basis o Capturing ‘external’ diversity => new opportunities o Leveraging ‘internal’ variety => skills, capabilities, products, technologies, processes, innovations across the MNE network

Location economies -

Performing value-creating activities in optimal locations Constraints o Transportation costs o Trade barriers o Risk: politics, economics, laws, currency, culture, commercial o Need to maintain multinational flexibility

Scale economies -

Reduction in unit cost achieved through volume production Simultaneous ride ‘down the experience curve’ => learning effects => Cost savings from “learning by doing” & improved routines Barriers to new entrants

Scope economies -

Ability to share investments and costs across the same or different value chains

Multi-domestic industry: -

An industry in which competition takes place on a country-by-country basis Need to cater / adapt to local conditions (language, income level etc.) Unique set of competitors in each country E.g. food, consumer products, fashion, retailing, and publishing

Global industry: -

An industry in which competition is on a regional or worldwide scale Customer needs vary little from country to country Relatively standardised offerings across entire regions or throughout the world Usually a limited number of the same competitors who compete regionally or worldwide. Some level of local competition may also take place (e.g. car industry) E.g. aircraft, computers, chemicals, industrial equipment

Global integration: -

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Focused on maximising the efficiency of value chain activities on a worldwide scale Coordination of the firm’s value-chain activities across countries to achieve worldwide efficiency and synergy in order to take maximum advantage of similarities between countries Standardised products mass-produced in optimal locations Pressures for Global Integration: o Seek cost reduction through scale economies o Capitalize on converging consumer trends and universal needs o Provide uniform service to global customers o Conduct global sourcing of raw materials, components, energy, and labour o Monitor and respond to global competitors o Take advantage of media that reaches buyers in multiple markets

Local responsiveness: -

Management of the firm’s value-chain activities on a country-by-country basis to address diverse opportunities and risks Focused on maximising sales and market share by being highly responsive to local needs Local managers can decide on offerings, marketing, and practices to suit conditions in individual markets Possible to adapt to local tastes and preferences, distribution channels, host government demands etc Pressures for Local Responsiveness: o Leverage natural endowments available to the firm o Cater to local customer needs. o Accommodate differences in distribution channels o Respond to local competition o Adjust to cultural differences o Meet host government requirements and regulations

Four Strategies

Home replication strategy: -

An approach in which the firm views international business as separate from, and secondary to its domestic business Expansion abroad is an opportunity to generate incremental sales for domestic product lines o Products are designed for domestic customers, and international business is pursued mainly to extend the life of domestic products and to replicate home market success o Value is created by transferring skills / products to local markets where local competitors lack them. Little knowledge flow from foreign market is expected o Core competencies (e.g. R&D) centralised, others may be decentralised, but HQ exercises tight control

Multi-domestic strategy: -

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An approach to firm internationalization in which headquarters delegates considerable autonomy to each country manager, allowing him or her to operate independently and pursue local responsiveness Focus on local responsiveness o The firm develops affiliates in each of its foreign markets and appoints local managers to operate independently  Firm is a federation of autonomous subsidiaries  Country managers are often nationals of the host country o Knowledge/skill transfer & coordination difficult  Products and services are adapted to national conditions (R&D, production, marketing may all be local)  Duplication of activities  Difficult to achieve substantial scale economies

Global Strategy: -

An approach in which headquarters seeks substantial control over its country operations in order to minimize redundancy and maximize efficiency, learning, and integration worldwide o Focus on global integration and low costs o HQ seeks substantial control over all country operations in order to minimise redundancy and to achieve maximum efficiency, learning, and integration worldwide  Optimal manufacturing locations  &D and marketing often at HQ  Centrally coordinated and controlled o Ineffective where local responsiveness is critical o High sourcing risks (FX, politics & economics...) => Need to maintain a level of multinational flexibility

Transnational strategy: -

A coordinated approach to internationalization in which the firm strives to be relatively responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning o Exploit scale economies by sourcing from a reduced set of global suppliers and concentrating production in optimal locations o Organize production, marketing, and other value-chain activities on a global scale o Facilitate global learning and knowledge transfer o Coordinate global competitive moves— that is, deal with competitors on a global, integrated basis

Organisational Structure -

Reporting relationships inside the firm that specify the links between people, functions, and processes Describes the reporting relationships inside the firm or the “boxes and lines” that specify the links between people, functions, and processes that allow the firm to carry out its operations

Centralisation and decentralisation Centralisation: -

Facilitates coordination Ensures decisions are consistent with organisation’s objectives Avoids duplication of activities Top-level managers have means to bring about organisational change but may become overburdened

Decentralisation: -

Top management can focus on critical issues while delegating routine ones Greater flexibility and speedier response to environmental changes thanks to lesser hierarchy Good from the motivational perspective Better decisions – closer to the action Increased control when lower level managers are accountable

Typical core subsidiary & HQ contributions

Organisational Structures – Division into Subunits -

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Export department: A unit within the firm charged with managing the firm’s export operation o When export sales reach a substantial proportion of total sales, the firm will usually establish a separate export department charged with managing export operations o Associated with home replication strategy International division structure: An organizational design in which all international activities are centralized within one division in the firm, separate from domestic units Geographic area structure: An organizational design in which management and control are decentralized to the level of individual geographic regions o Consistent with multidomestic / multiregional strategy Product structure: An arrangement in which management of international operations is organized by major product line o Consistent with global strategy Functional structure: An arrangement in which management of the firm’s international operations is organized by functional activity, such as production and marketing o Consistent with global strategy Global matrix structure: An arrangement that blends the geographic area, product, and functional structures to leverage the benefits of a purely global strategy while keeping the firm responsive to local needs o Consistent with transnational strategy  But difficult to make work

Dimensions of a Successful Global Firm: -

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Visionary leadership: A quality of senior management that provides superior strategic guidance for managing efficiency, flexibility, and learning o International mind-set and cosmopolitan values: Openness to, and awareness of, diversity across cultures o Strategic vision: articulating what the firm wants to be in the future and how it will get there o Willingness to commit resources: financial, human, and other resources o Willingness to invest in human assets: Emphasizing the use of foreign nationals, promoting multi-country careers, and training to develop international ‘super managers’ Organizational culture: The pattern of shared values, behavioural norms, systems, policies, and procedures that employees learn and adopt o Sources:  Visionary leaders  National culture Organizational processes: Managerial routines, behaviours, and mechanisms that allow the firm to function as intended o Mechanisms to maintain culture:  Hiring and promotional practices  Reward strategies

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Strategy Organizational Structure

Culture and performance -

A ‘strong’ culture: o Where most individuals share a consistent set of values and norms o Not always beneficial  Certain behaviours like innovativeness may be discouraged by some cultures  Some cultures are slow to change – may constrain adaptation to a changed environment  context is important

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Adaptive cultures o Culture must match an organisation’s architecture, strategy, and environmental demands o Corporate cultures may not translate to different national cultures o Changing an established corporate culture is difficult

Organisational processes -

Managerial routines, behaviours, and mechanisms that allow the firm to function as intended Examples of processes for achieving international coordination o Global teams:  Internationally distributed groups charged with specific problem solving or best practice mandates that affect the entire firm o

Global information systems:  Global IT infrastructure, together with tools like intranets and electronic data interchange, provide virtual interconnectedness within the international firm

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Management networks:  A system of informal contacts between managers, enabling nonbureaucratic flow of information and knowledge and supported by an organisation culture that values teamwork and a cooperation. Developed through rotating managers through subunits, education programmes, etc

- Coordinated Federation Global strategy - Win at parent company

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Decentralized Federation Multidomestic strategy Win at individual subsidiaries

- Centralized Hub Home replication strategy - No local responsiveness

- The Integrated Network Transnational strategy - Win-Win-Win-Win

Chapter 13 – Global Market Opportunity Assessment Global market opportunity: -

Favourable combination of circumstances, locations, and timing that offers prospects for exporting, investing, sourcing, or partnering in foreign markets

The Six Tasks of Global Market Opportunity Assessment (GMOA) 1234-

Analyse organizational readiness to internationalize Assess the suitability of the firm’s products and services for foreign markets Screen countries to identify attractive target markets Assess the industry market potential or the market demand for the product(s) or service(s) in selected target markets 5- Choose qualified business partners, such as distributors or suppliers 6- Estimate company sales potential for each target market

Case Study – Week 7 – Lenovo: The global Challenger from an Emerging Market -

Second largest PC vendor in the world 21bn dollars in revenues Chinese company

Company Strategy -

Uses mergers and acquisitions to obtain needed knowledge and assets and for expansions Acquired IBM in 2005 o Established them as the 3rd biggest PC maker in the world Protect and Attack strategy o Protects home business in the Chinese market o Aggressively expands and grow market share in international markets  Smartphones and Tablets

Global Innovation -

IBM acquisition gave them valuable know how 6500 patents Constantly invests in R&D for breakthrough technology and innovation o Half tablet / notebook and ultrabooks A leader in green technologies o Recycled parts

Global Products and Branding -

Modular design o Same parts for multiple models Standardised products o Regional differences  Keyboards etc  Prices are adapted to regional buying power  Rural China

Global Human Resources -

Instilled Chinese work Culture across worldwide operations o Global Training programme o Career maps and training

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Young managers socialised into the organisational culture

Manufacturing and Value Chain Management -

China, Latin America and Poland o Economies of Scale

Case Study – Week 7 – Advanced Biomedical Devices: Assessing the Readiness to Export -

Headquartered in the eastern United States ABD plans to initiate exporting activities and just completed the process of assessing its readiness, using CORE (COmpany Readiness to Export) ABD’s product line includes several innovative devices called Speedheal that promote healing and also reduce postsurgical pain by keeping the wound area from swelling

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Thanks to high demand, Speedheal sales increased rapidly, primarily through medical product distributors that sold to hospitals and clinics throughout the United States Miniaturization thus remains one of Speedheal’s competitive advantages

Dreams of International Expansion -

One expected benefit was the opportunity for ABD to learn from global competitors and markets Though ABD’s plan to internationalize was in its early stages, management intended to expand beyond occasional export sales to target key world markets. Management also believed it could reduce ABD’s overall risks by diversifying sales to various foreign markets Internationalization would help pre-empt competitors in particular foreign markets

International Strategic Intent -

Top management will strongly commit to internationalization, and ABD will pursue foreign markets aggressively ABD will invest up to 20 percent of company earnings in export opportunities ABD will establish a marketing subsidiary in at least one foreign location within three to five years and hire salespeople who select and manage the distributors in their market area

Product Readiness for Export -

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Sales reps require training because they deal with doctors, nurses, and other professionals who are deeply involved in decision making about purchases of hospital supplies The issue of after-sales service, which can be challenging in foreign markets. Because ABD’s products were seldom defective, the solution for a defective product was to replace it rather than trying to make a repair While management well understood pricing in the United States, there was much it did not know about foreign. Concluded that ABD’s prices were not too high, particularly since no other firms offered similar products Because the devices were cheap to transport by air freight, distributors could replenish inventories quickly and economically, a significant benefit because they would not have to maintain much inventory to support sales ABD’s management realized the firm’s flexible packaging put them in a good position to enter foreign markets, and they were also prepared to modify the product in various ways to meet worldwide standards and regulations

Knowledge, Skills, and Resources -

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Management knew critical self-assessment was vital to long-term success, and internationalization would require additional working capital for foreign warehousing, longer shipping times, and larger inventories abroad. Other costs included legal help, freight forwarding, international transportation, customs duties, bank charges, rent for foreign offices, and approval for certain regulatory issues Competitive intelligence was another concern. A key incentive for venturing abroad was to learn more about foreign competitors. Some major medical device manufacturers marketed their products in the United States, while others were based strictly abroad

Week 7 – Reading - On the Rocky Road to Strong Global Culture – Levy et al -

As companies expand globally, corporate culture often lags behind; it frequently remains too headquarters-centric to pull together far flung operations, or it disintegrates under the turmoil of globalization o Few companies succeed at building an organizational culture that is globally integrated, yet flexible enough to accommodate local variations o core values often originate at corporate headquarters and fail to reflect and incorporate diverse cultural influences o This approach breeds scepticism about global culture among overseas employees, who may perceive headquarters' core values as ethnocentric and parochial

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While there are no pure types, our framework identifies four principal patterns of global culture that characterize many multinational companies: o Spearhead o Outpost o Disoriented o Global

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Spearhead Culture: o A set of core values and practices that are well articulated and widely shared within the corporate headquarters, whereas employees of overseas subsidiaries share these values weakly and are occasionally unaware of them altogether o Corporate headquarters is the dominant cultural force and core values are not open to local adaptations; if any adaptations are made, they are usually initiated by corporate headquarters and driven by frustration rather than a genuine respect for local ways o The Spearhead culture is not without merit as it allows companies to run a tightly con...