Subsidiary Level

Strategy
Global Strategic Development

Objectives

Identify and describe the level of Global strategy

Identify and describe strategic roles
Discuss the advantage and disadvantage of different
subsidiary roles
Identify and discuss the generic strategies

Introduction

In multinational firms strategies are initiated at

two distinct level:

Corporate Level Strategy: Strategy

for the
multinational firm and all its subsidiaries. Corporate
level strategy fundamentally is concerned with the
selection of businesses in which the company should
compete and acquisition and allocation of resources
to its different subsidiaries.
Subsidiary Level Strategy: Strategy for each subsidiary.

Introduction

Subsidiary level strategy refers to the game plan of

each subsidiary means the strategic issues are less
about the coordination of operating units and more
about developing and sustaining a competitive
advantage for the goods and services that are
produced.
positioning the business against rivals
anticipating changes in demand and technologies
and adjusting the strategy to accommodate them
Crafting strategy that is congruent with the CLS.

Strategic Role of Subsidiaries

Strategic role of subsidiaries varies from passive

implementers of headquarters developed strategy to
active developer and implementer of strategy tailored to
specific subsidiary.
The degree of interdependence is determined by:

Environmental condition: high/ low uncertainty

Requirement for complex and special knowledge
Needs to adapt to local conditions

Types of Subsidiary Level Strategy

Support & Implementation

Mini-Replica Role
Global Product Mandate

Support & Implementation

Characteristics:

Multinational firms have dominant corporate strategy

Customers usually have same preference thus firms
could avoid the pressure as well as temptation to
produce completely different products for different
markets
The minor but critical role of subsidiaries is
Localization of production. Subsidiaries are involved
more in localization than in adaptation.

Support & Implementation

Support & Implementation is appropriate when little

strategizing is needed as subsidiaries are facing similar
competitive environment and use standard process.

Support & Implementation does not mean total

centralized authority, some strategic element of global
corporate strategy are dispersed across multiple
subsidiaries.

Support & Implementation

Advantages:

Performance level is improved

Common standard design eliminates the source
of additional cost through economies of scale
Creates cost advantage through faster
organization learning
Standard global strategy can enhance efficiency
Gain strength in pursuing operational efficiency

Support & Implementation

Disadvantages: the strategy is not suitable

High environmental uncertainty

Customers are increasingly more demanding
Customers are less willing to accept global
products
When
company
implements
non-routine
production technology that require complex and
specific knowledge located at the subsidiary.

Mini-Replica Role

Subsidiaries select their own strategies as well as define

their own goals with little interference from the corporate
headquarter.

Key challenge is to decentralize the strategy making

process without hampering the global integration
between the corporate parent and the subsidiaries.

P&Gs operations in approximately 80 countries produce brands that touch

the lives of consumers all over the world

Our unique organizational structure offers the global

scale benefits of an international company and the local
focus to be relevant for consumers in roughly 180
countries where our brands are sold. P&Gs five regions
fuel our ability to respond faster to local consumer needs
and dynamic market demands.

Mini-Replica Role

Characteristics

Suitable for Highly uncertain business environment

When company implements non-routine production
technology that requires complex and specific knowledge.
Difference in customer tastes
Highly diversified headquarter
Authoritarian subsidiary heads
Allocation of resources- weak subsidiaries are allotted
primary shares
Retain their own identity

Mini-Replica Role

Advantages:

Ability to fit the unique business environment through

tailored strategy.
Leads to better decision at the subsidiary level
Mini-Replica approach speeds up decision making
Mini-Replica approach also causes subsidiaries to accept
responsibility and be accountable for their strategy and
action.

Mini-Replica Role

Drawbacks:

Very costly approach as products are designed for

specific market
Too many product varieties
Cooperation between subsidiaries are minimal
Sub optimally small production runs /reduced capacity
utilization
Higher level of investment in advertising and marketing
Global convergence of customer preferences

Global Product Mandate

World/ Global Product Mandate are defined as the full

development, production and marketing of a product line
in a subsidiary of a multinational firm.
This approach grants subsidiaries the power and
authority to undertake high value added activities.
Thus subsidiaries act more like equal partner of the
corporate parent.

Global Product Mandate

Key reason:
This approach is granted when tariff to operate in
certain countries are very high
This approach is granted when firms have to pursue
local production.

Global Product Mandate

Key Characteristics:
Global Product Mandate grants subsidiaries the
power and responsibility to act beyond its market.
The subsidiaries have external oriented strategy
unlike
Mini-Replica
approach,
where
each
subsidiaries produce multiple products for different
segments
Subsidiaries have relatively great freedom to enter
an leave markets in a timely fashion

Global Product Mandate

Implications:

R&D,
production,
marketing
and
strategic
management will be located at the subsidiary level
Subsidiaries following global product mandate
approach have unique control within the multinational
for certain products thus their level of global
integration are very high.
Subsidiaries are autonomous as they have high
degree of independence over strategic product
related decision

Global Product Mandate

Pros and Cons of GBM:

GBM is similar to Mini Replica Strategy but with a

mandate to develop, produce and market a
specific product.

Global Generic Strategy

A firms relative position within an industry is given by its

choice of competitive advantage. In order to gain
competitive advantage managers need to focus on how
value is created.
There are two basic types of Competitive Advantage

Cost leadership
Differentiation

Michael Porter has distinguished four generic strategies

that firms can pursue to create value within their
organization.

Global Generic Strategy

Global Generic Strategy

These are called generic strategies because they are not firm
or industry dependent, they can be employed in any type of
business in any industry.

Cost Leadership

The main aim is to become the lowest cost producer

relative to local or other foreign rivals in the same
market.
This strategy appeal to price sensitive customers.

There are three main ways to pursue this strategy

Achieving a high asset turnover. In service industries, this may

mean for example a restaurant that turns tables around very
quickly, or an airline that turns around flights very fast. In
manufacturing, it will involve production of high volumes of
output.

Cost Leadership

Achieving low direct and indirect operating costs.

offering high volumes of standardized products,
offering basic no-frills products
limiting customization and personalization of service.
Production costs are kept low by using fewer
components, using standard components, and limiting
the number of models produced to ensure larger
production runs.
Overheads are kept low by paying low wages, locating
premises in low rent areas, establishing a costconscious culture, etc.

Cost Leadership

Control over the supply/procurement chain to

ensure low costs.

bulk buying to enjoy quantity discounts,

squeezing suppliers on price,
instituting competitive bidding for contracts,
working with vendors to keep inventories low using
methods such as Just-in-Time purchasing or VendorManaged Inventory.

Cost Leadership

Situations:

Standardized products
Cut throat price competition
Price sensitive buyers
Less
possibilities
to
achieve
differentiation
Switching cost of buyers are low

product

Differentiation Strategy
Differentiation is aimed at the broad market that involves
the creation of a product or services that is perceived
throughout its industry as unique.

The

company or business unit may then charge a

premium for its product. This specialty can be associated
with design, brand image, technology, features, dealers,
network, or customers service.

Focused Strategies

Focused Low Cost: its a market niche strategy,

concentrating on a narrow, specific, and recognizable
customer segment and competing with lowest prices, a
strategy which requires the subsidiary to be the cost
leader in its niche.
Focused Differentiation: its a market niche strategy,
concentrating on a narrow, specific, and recognizable
customer segment and offer its target market something
they value highly and which is better suited than other
firms products to their specific and unique requirements

Generic Strategy & HeadquarterSubsidiary Support

Generic Strategies

Support from Headquarters

Cost Leadership Strategy

Strong support from HQ to reduce cost

Strong cooperation between subsidiaries to share bets
practices to reduce cost

Differentiation Strategy

Very Strong support from HQ to maintain quality and

innovation
Very Strong cooperation between subsidiaries to maintain
quality and innovation

Focused Cost Leadership

Low support from HQ

Very low support from and
subsidiaries

Focused Differentiation

Very Strong support from HQ to maintain quality of

products and services
Very Strong cooperation between subsidiaries to maintain
quality of products and services

cooperation

between

Stuck in the Middle

Hybrid Strategy/ Integrated strategy

Hybrid strategy leads to mediocrity

Criticism

Sustainable competitive advantage rests on the hybrid

strategy.
Turbulent global business environment requires firms to
adopt flexible combination of strategies
Hybrid strategy deals with may inherent disadvantages
of cost leadership and differentiation strategy.