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Slide multinational management 3e cullen ch04

Chapter 4
Strategic Management in the
Multinational Company:
Content and Formulation

Copyright© 2004 Thomson Learning All rights reserved


Learning Objectives
••
••
••
••
••

Define
Define differentiation
differentiation and
and low
low cost
cost

Understand
Understand how
how low-cost
low-cost and
and differentiation
differentiation strategists
strategists
make
make money
money
Recall
Recall multinational
multinational examples
examples ofof use
use ofof generic
generic
strategies
strategies
Understand
Understand competitive
competitive advantage
advantage and
and value
value chain
chain
Understand
Understand offensive
offensive and
and defensive
defensive strategies
strategies
Copyright© 2005 South-Western/Thomson Learning All rights reserved


Learning Objectives
••
••

Understand
Understand basics
basics ofof multinational
multinational diversification
diversification
Understand
Understand how
how traditional
traditional strategy
strategy formulation
formulation
techniques
techniques apply
apply toto the
the multinational
multinational company
company
•• Realize
Realize both
both the
the convergence
convergence and
and divergence
divergence inin
strategies
strategies

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Basic Strategy for the
Multinational Company
•• Multinational
Multinational companies
companies use
use many
many ofof the
the same
same
strategies
strategies as
as domestic
domestic companies
companies

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Competitive Advantage and
Multinational Applications of
Generic Strategies
•• Generic
Generic strategies:
strategies: basic
basic ways
ways toto achieve
achieve and
and sustain
sustain
competitive
competitive advantage
advantage
•• Competitive
Competitive advantage:
advantage: when
when aa company
company can
can
outmatch
outmatch its
its rivals
rivals inin attracting
attracting and
and maintaining
maintaining its
its
targeted
targeted customers
customers

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Competitive Advantage and
Multinational Applications of
Generic Strategies (cont.)
•• Differentiation
Differentiation strategy:
strategy: providing
providing superior
superior value
value toto
customers
customers
•• Ex.:
Ex.: BMW
BMW competing
competing inin the
the world
world market
market by
by
providing
providing high-quality
high-quality and
and performance
performance sports
sports cars
cars
•• Low-cost
Low-cost strategy:
strategy: producing
producing atat aa lower
lower cost
cost than
than
competitors
competitors
•• Ex.:
Ex.: Korean
Korean semiconductor
semiconductor firms
firms
Copyright© 2005 South-Western/Thomson Learning All rights reserved


How Do Low-Cost and
Differentiation Firms Make
Money?
•• Differentiation
Differentiation
•• Customers
Customers often
often pay
pay aa higher
higher price
price for
for extra
extra value
value
•• Low-cost
Low-cost
•• Additional
Additional profits
profits come
come from
from cost
cost savings
savings

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Exhibit 4.1: Costs, Prices, and
Profits for Differentiation and
Low-Cost Strategies

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Focus Strategy
•• Strategies
Strategies can
can be
be further
further subdivided
subdivided on
on the
the basis
basis ofof
competitive
competitive scope
scope
•• Competitive
Competitive scope:
scope: how
how broadly
broadly aa firm
firm targets
targets its
its
products
products or
or services
services
•• Narrow
Narrow competitive
competitive scope
scope for
for certain
certain buyers
buyers or
or
geographic
geographic areas
areas
•• Broad
Broad competitive
competitive scope
scope when
when aa large
large range
range ofof
buyers
buyers are
are targeted
targeted
Copyright© 2005 South-Western/Thomson Learning All rights reserved


Exhibit 4.2: Porter’s Generic
Strategies

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Competitive Advantage and
the Value Chain
•• AAfirm
firm can
can gain
gain competitive
competitive advantage
advantage by
by finding
finding
differentiation
differentiation or
or low
low costs
costs inin its
its activities
activities
•• Value
Value chain
chain isis aa convenient
convenient way
way ofof looking
looking atat the
the firm’s
firm’s
activities
activities
•• Value
Value chain:
chain: all
all the
the activities
activities that
that aa firm
firm used
used toto design,
design,
produce,
produce, market,
market, deliver,
deliver, and
and support
support its
its product
product

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Exhibit 4.3: The Value Chain

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Components of the Value
Chain
•• Primary
Primary activities:
activities: physical
physical actions
actions ofof creating,
creating, selling,
selling,
and
and after-sale
after-sale service
service ofof products
products
•• Upstream:
Upstream: early
early activities
activities inin the
the value
value chain
chain
•• R&D
R&D
•• Dealing
Dealing with
with suppliers
suppliers

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Components of the Value
Chain (cont.)
•• Downstream:
Downstream: later
later value
value chain
chain activities
activities
•• Sales
Sales and
and dealing
dealing with
with distribution
distribution channels
channels
•• Support
Support activities:
activities: systems
systems for
for human
human resources
resources
management,
management, organizational
organizational design
design and
and control,
control, and
and
technology
technology

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Distinctive Competencies
•• Strengths
Strengths that
that allow
allow companies
companies toto outperform
outperform rivals
rivals
•• Ex.:
Ex.: Quality,
Quality, innovation,
innovation, customer
customer service
service
•• Resources:
Resources: inputs
inputs into
into the
the production
production or
or service
service
processes
processes
•• Ex.:
Ex.: Buildings,
Buildings, land,
land, equipment,
equipment, employees
employees

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Distinctive Competencies
•• Capabilities:
Capabilities: ability
ability toto assemble
assemble and
and coordinate
coordinate
resources
resources effectively
effectively
•• Resources
Resources provide
provide the
the organization
organization with
with potential
potential
capabilities.
capabilities.
•• For
For long-term
long-term success,
success, capabilities
capabilities must
must lead
lead toto
sustainable
sustainable competitive
competitive advantage.
advantage.

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Sustaining Competitive
Advantage
•• Sustainable:
Sustainable: strategies
strategies not
not easily
easily defeated
defeated by
by
competitors
competitors
•• Four
Four characteristics
characteristics ofof capabilities
capabilities that
that lead
lead toto
competitive
competitive advantage
advantage
•• Valuable
Valuable
•• Rare
Rare
•• Difficult
Difficult toto imitate
imitate
•• Non-substitutable
Non-substitutable
Copyright© 2005 South-Western/Thomson Learning All rights reserved


Exhibit 4.4: Relationships Among Resources,
Capabilities, Distinctive Competencies, and
Eventual Profitability

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Competitive Strategies in
International Markets
•• Competitive
Competitive strategies:
strategies: strategic
strategic moves
moves multinationals
multinationals
use
use toto defeat
defeat competitors
competitors
•• Offensive
Offensive competitive
competitive strategies:
strategies: direct
direct attacks
attacks toto
capture
capture market
market share
share
•• Defensive
Defensive competitive
competitive strategies:
strategies: attempts
attempts toto
discourage
discourage offensive
offensive strategies
strategies
•• Counter-parry:
Counter-parry: fending
fending off
off aa competitor’s
competitor’s attack
attack inin
one
one country
country by
by attacking
attacking inin another
another country
country
Copyright© 2005 South-Western/Thomson Learning All rights reserved


Offensive Strategies
•• Direct
Direct attacks:
attacks: price
price cutting,
cutting, adding
adding new
new features,
features, or
or
going
going after
after poorly
poorly served
served markets
markets
•• End-run
End-run offensives:
offensives: seeking
seeking unoccupied
unoccupied markets
markets
•• Preemptive
Preemptive competitive
competitive strategies:
strategies: being
being first
first toto obtain
obtain
particular
particular advantageous
advantageous position
position
•• Acquisitions:
Acquisitions: buying
buying out
out aa competitor
competitor

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Defensive Strategies
••
••
••

Attempts
Attempts toto reduce
reduce risks
risks ofof being
being attacked
attacked
Convince
Convince an
an attacking
attacking firm
firm toto seek
seek other
other targets
targets
Blunt
Blunt the
the impacts
impacts ofof any
any attack
attack
•• Exclusive
Exclusive contracts
contracts with
with best
best suppliers
suppliers
•• New
New models
models toto match
match competitor’s
competitor’s lower
lower prices
prices
•• Public
Public announcements
announcements about
about the
the willingness
willingness toto fight
fight

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Counter-parry
••
••

Popular
Popular strategy
strategy for
for multinationals
multinationals
Respond
Respond toto attack
attack by
by attacking
attacking competitor
competitor inin another
another
country
country
•• Ex.:
Ex.: Kodak—When
Kodak—When Fuji
Fuji attacked
attacked Kodak
Kodak inin the
the U.S.,
U.S.,
Kodak
Kodak retaliated
retaliated by
by attacking
attacking Fuji
Fuji inin Japan.
Japan.
•• Goodyear
Goodyear also
also attacked
attacked Michelin
Michelin inin Europe
Europe as
as
response
response toto attack
attack inin U.S.
U.S.
Copyright© 2005 South-Western/Thomson Learning All rights reserved


Multinational Diversification
Strategy
•• Business-level
Business-level strategies:
strategies: strategies
strategies for
for aa single
single
business
business operation
operation
•• Corporate-level
Corporate-level strategies:
strategies: how
how companies
companies choose
choose
their
their mixture
mixture ofof different
different businesses
businesses

Copyright© 2005 South-Western/Thomson Learning All rights reserved


Diversification
•• Related
Related diversification:
diversification: companies
companies acquire
acquire businesses
businesses
that
that are
are similar
similar inin some
some way
way toto their
their original
original or
or core
core
business
business
•• Ex.:
Ex.: Nike
Nike adding
adding clothing
clothing line
line toto its
its shoe
shoe operations
operations
•• Unrelated
Unrelated diversification:
diversification: firms
firms acquire
acquire businesses
businesses inin
any
any industry
industry
•• Main
Main concern
concern isis whether
whether it’s
it’s aa good
good financial
financial
investment
investment
Copyright© 2005 South-Western/Thomson Learning All rights reserved


Exhibit 4.5: Selection of Global Fortune
500 Diversified Multinationals

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