Global Strategy

Global Strategy
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

Activity Value Chain

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

Global Expansion Benefits

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

Experience curve

B
A

Accumulated output

Pressures for Global Integration

& Local Responsiveness
High
Cost Reduction
(Global Integration)
Pressures
Low
Low

Local
Responsiveness
Pressures

Ball bearings,
wheat
Cosmetics, food,
household goods
High

Differences in
- consumer tastes/preferences
- infrastructure/practices
- distribution channels
- host government needs/requirements

Strategic Choice
High
Cost Reduction
(Global Integration)
Pressures

Global
Strategy

Transnational
Strategy

International
Strategy

Multidomestic
Strategy

Low
Low

Local Responsiveness Pressures

High

Multidomestic MNC
HK
UK
USA

Chile

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

International MNC
HK
UK
USA

Chile

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

Global MNC
HK
UK

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

Transnational MNC
HK

Chile

UK
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

International Strategic Alliances

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 firms 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 face-

to-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