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Strategic Planning in Global Management (Reasons for companies to go…
Strategic Planning in Global Management
Strategic Content Applied to MNC
What is strategy?
It is the central, comprehensive, integrated, and externally oriented set of choices structuring how a company exploits its core competencies to achieve its objectives.
MNCs usually use many of the same
strategies practiced by domestic companies.
A strategy needs to address impt areas such as:
How the company will win customers
Which business the company wants to be in
What the company will use to create presence in a market
For MNCs, a major question is which country to enter at what time or what products to produce
Strategy Implementation
Tactical Plans are one to three year plans formulated
for implementing strategic goals
Operational Plans are very short-term (less than one year)
plans that support annual goals
Strategic Plans are long-term plans (five or more years)
for achieving strategic goals
Reasons for companies to go international
Seek opportunities for growth through diversification
Earn higher margins and profits
Gain new ideas about products, services and business methods
Serve key customers better that have relocated abroad
Be closer to supply resources, benefit from global sourcing advantages, or gain flexibility in product sourcing
Gain access to lower-cost or better-value factors of production
Develop economies of scale in sourcing, production, marketing & R&D
Invest in potentially rewarding relationship with a foreign partner
Competitive Advantage and Multinational Applications of Generic Strategies
Generic Strategies are basic ways for companies to
achieve and sustain a competitive advantage (broad market)
Low Cost Strategy
It is by producing products or services equal to those of competitors at a lower cost. It can occur anywhere from the creation of the product to its final sale. Eg. Sources of cheaper raw materials, Employing cheaper labour, More efficient production methods (Korean semiconductor firms)
Differentiation Strategy
It is based on finding ways to provide superior value to
customers. Eg Exceptional product quality, unique product features, or high quality service that leads to increased cost (BMW)
Focus Strategy
It is the application of a differentiation or low cost strategy to a narrow market niche based on competitive scope
Cost Focus
Differentiation Focus
Competitive Advantage and Value Chain
Value Chain represents all the activities that a firm uses to design, produce, market, deliver, and support its product
Support activities include systems for human resources management, organisational design and control, and a firm's basic technology
Primary activities involve the physical actions of creating (or serving), selling, and providing after-sale service of products
Upstream refers to early activities such as R&D
Downstream refers to later activities such as sales
Competitive Advantage is when a company's strategy creates superior value for targeted customers, and is too difficult or costly for competitors to copy.
A firm can gain competitive advantage by finding sources of lower cost or differentiation in any of its activities
Distinctive Competencies
They are strengths that allow companies to outperform rivals
Resources
It inputs into the production or service processes (tangible or intangible)
Capabilities
Ability to assemble and coordinate resources effectively (ways that lead to lower costs or differentiated output)
Sustaining Competitive Advantage
Sustainable - characteristic of strategies that are not easily defeated by competitors
Capabilities that lead to competitive advantage must have four characteristics:
Valuable capabilities create demand for a company’s services or products or give companies cost advantages
Rare capabilities are those that a company possess but no or few competitors possess
Difficult-to-imitate capabilities are not easily copied by competitors
Non-substitutable capabilities have no strategic equivalent for competitors
Offensive and Defensive Competitive Strategies in International Markets
Competitive strategies – moves multinational firms use to defeat competitors
In offensive strategies, companies directly target rivals from whom they wish to capture market share. It includes direct attacks, end-run offenses, pre-emptive strategies, and
acquisitions
Direct attacks are price cutting, adding new features, comparison advertisements that show lesser quality in competitor’s products
End-run offensives means avoiding direct competition and seeking unoccupied markets
Pre-emptive competitive strategies means being the first to gain some advantageous position
Acquisitions: firm buys its competitors
In defensive strategies, companies seek to beat back or discourage their rival’s offensive strategies. It attempts to reduce the risks of being attacked, to convince an attacking firm to seek other targets, or to blunt the impact of any attack.
Counter-parry – fending of a competitor's attack in one country by attacking them in another country, usually the competitor's home country
Multinational Diversification Strategy
Business-level strategies are those for a single business operation
Corporate-level strategies are how companies choose their mixtures of different businesses
Diversifications
Related diversification
It's a mix of businesses with similar products and markets.
Three reasons to choose related diversification: sharing activities, transferring core competencies, and developing market power
Unrelated diversification
It is a mix of businesses in any industry. Main concern is only whether an acquisition is a good financial investment
Like domestic companies, multinationals also pursue diversification strategies
Allows coordination and use of resources from different businesses located anywhere
Can more easily to establish global brand names for different but related products
A quick way to gain a presence