Chapter 4
Chapte
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5
Strategic Management in the
Multinational Company:
Content and Formulation
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Learning Objectives (1 of 2)
• Define generic strategies of differentiation and low cost
• Understand how low-cost and differentiation strategists
make money.
• Recall multinational examples of the use of generic
strategies.
• Understand competitive advantage and the value chain
and how they apply to multinational operations.
• Understand how multinational firms use offensive and
defensive strategies.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives (2 of 2)
• Understand the basics of multinational diversification.
• Understand how to apply the traditional strategy
formulation techniques, industry and competitive
analysis, and company situation analysis to the
multinational company.
• Realize that the national context affects both
convergence and divergence in the strategies used by
multinational companies.
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Basic Strategic Content
Applied to the
Multinational Company (1 of 2)
• Strategy:
• the central, comprehensive, integrated, and
externally oriented set of choices structuring how a
company exploits its core competencies to achieve
its objectives
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Basic Strategic Content
Applied to the
Multinational Company (2 of 2)
• Ideally, a strategy must address important areas such
as:
• which businesses a company wants to be in
• how the company will create presence in a market
• how the company will win customers
• Multinational companies use many of the same
strategies practiced by domestic companies.
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Competitive Advantage and
Multinational Applications of
Generic Strategies (1 of 2)
• Generic Strategies are basic ways for companies to
achieve and sustain a competitive advantage
• Competitive Advantage:
• when a company’s strategy creates superior value for
targeted customers, and is too difficult or costly for
competitors to copy
• Two primary ways to gain a competitive advantage:
• Differentiation
• Low cost
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Competitive Advantage and
Multinational Applications of
Generic Strategies (2 of 2)
• Differentiation Strategy:
• finding ways of providing superior value to customers (i.e.,
exceptional quality, unique features, rapid innovation)
• Example: BMW’s high-quality, high-performance sports cars
• Low-cost Strategy:
• Produce or deliver products or services equal to those of
competitors, but at a lower cost
• Example: Korean semiconductor firms’ low-cost and
productive labo
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How Do Low-Cost and
Differentiation Firms
Make Money?
• Differentiation:
• Customers often pay a higher price for the extra value of a
superior product or service
• Example: Swiss chocolatier Tobler-Jacobs charges more
for its specially produced (not mass-produced) chocolate
• Low-cost
• Additional profits come from cost savings at every step of
the process
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Exhibit 5.1:
Costs, Prices, & Profits for
Differentiation & Low-Cost Strategies
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Focus Strategy
• Strategies can be further subdivided on the basis of
competitive scope:
• Competitive scope: how
oadly a firm targets its
products or services
• Na
ow competitive scope for limited products or
only certain buyers or geographic areas
• Broad competitive scope when many products and a
large range of buyers are targeted
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Exhibit 5.2:
Porter’s Generic Strategies
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Competitive Advantage and
the Value Chain
• A firm can gain competitive advantage by finding
sources of differentiation or low costs in its activities.
• The value chain is a convenient way of looking at the
firm’s activities.
• Value Chain:
• all the activities that a firm uses to design, produce,
market, deliver, and support its product
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 5.3:
The Value Chain
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Components of
the Value Chain (1 of 2)
• Primary activities and support activities:
• Primary Activities: the physical actions of creating,
selling, and after-sale service of products
• Upstream: early activities in the value chain,
including Research & Development (R&D) and
dealing with suppliers
• Downstream: later value chain activities such as
sales and dealing with distribution channels
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Components of
the Value Chain (2 of 2)
• Primary activities and support activities (cont’d):
• Support Activities:
• systems for human resources management,
organizational design and control, and a firm’s basic
technology
• Utility of value chain: helps determine internal cost
structure by assessing cost levels of different activities
• Benchmarked against industry & competitors to know if
and where cost advantages or disadvantages exist
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Outsourcing (1 of 2)
• Outsourcing:
• a deliberate decision to have outsiders or strategic
allies perform certain activities in the value chain
• Increasingly, MNCs outsource across borders to take
advantage of lower costs in other countries.
• Outsourcing is a popular and controversial way to
co
ect internal cost disadvantages.
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Outsourcing (2 of 2)
• When should a multinational company outsource?
• Outsourcing makes sense if an outsider can perform a
value-chain task better or more cheaply.
• However, outsourced tasks should not be ones that are
crucial to the MNC’s ability to achieve competitive
advantage, or the MNC creates competitors.
• The value chain identifies areas in the input, throughput,
and output processes where MNCs can find sources of low
cost or differentiation advantages.
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Distinctive Competencies
• Distinctive Competencies:
• Strengths anywhere in the value chain that allow
companies to outperform rivals
• Examples: Quality, innovation, customer service
• Distinctive Competencies come from two sources:
• Resources
• Capabilities
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Resources and Capabilities
• Resources:
• inputs into the production or service processes.
• Ex.: Buildings, land, equipment, employees
- Resources provide potential capabilities
• Capabilities:
• the ability to assemble and coordinate resources effectively
• For long-term success, capabilities must lead to a
sustainable competitive advantage.
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Sustaining
Competitive Advantage
• Sustainable Stragtegies:
• strategies not easily neutralized by competitors
• Capabilities leading to competitive advantage must be:
- Valuable
- Rare
- Difficult to imitate
- Non-substitutable
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Exhibit 5.4:
How Distinctive Competencies
Lead to Successful Strategies
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Competitive Strategies in
International Markets
• Competitive Strategies are strategic moves
multinationals use to defeat competitors.
- Offensive Competitive Strategies directly attack
ivals to capture market share.
- Defensive Competitive Strategies attempt to beat
ack or discourage a rival’s offensive strategies.
- Counter-pa
ies fend off a competitor’s attack in one
country while attacking it in another country.
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Offensive Strategies
Offensive strategies include:
• Direct Attacks: price cutting, adding new features, or
going after poorly served markets
• End-run Offensives: avoid direct competition by
seeking unoccupied, ignored, or underserved markets
• Preemptive Competitive Strategies: being first to obtain
particular advantageous position
• Acquisitions: buying out a competito
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Defensive Strategies
• Defensive Strategies attempt to:
• reduce the risk of being attacked
• Convince an attacking firm to seek other targets
• Blunt the impacts of any attack
• MNCs may defend themselves at various points in the
value chain, such as:
• Exclusive contracts with best suppliers
• New