Strategy – A View From the Top Chapter 8 – Global Strategy Formulation

1. Team #1: Chris Athens Ben Baker Chris Bolinger Josh Carver Jordan Guenther Jeff Ward Strategy – A View From the TopChapter 8 – Global Strategy Formulation

2. General Idea of “Going Global” Transnational or Global Posture Multinational Organization Modest International Presence Increased Exports

3. McDonald’s Goes Global 2007 1954

4. Aspects hidden by the gradual process of globalization • Key changes in: • Company’s Mission • Core Competencies • Structure • Processes • Culture “Going Global”

5. Small-business • Utilize e-commerce with international shipping options • Mid-size to large business • Host small foreign subsidiaries • Forge numerous alliances Various Levels of “Going Global”

6. To create a global vision, companies must define what globalization means for their company • Industry • Products/Services • Requirements for global success

7. Globalization and Industrial Clustering • Industrial Clustering • Porter’s National Diamond • Factor Conditions • Home Country Demand • Related and Supporting Industries • Competitiveness of the Home Industry • Public Policy and Chance • Industry Drivers • Market • Cost • Competitive • Government Main Points

8. Global Strategy Formulation • Global Strategy Dimensions • Market Participation • Standardization/Positioning • Activity Concentration • Decision Making Coordination • Nonmarket Factors • Entry Strategies • Region/Country Analysis • Wal-Mart Global Growth • Global Strategy & Risks Main Points (cont.)

9. Clustering Works in Some Industries • natural comparative advantage • Relative advantage • Close to primary customers • decreases transportation cost • Acts as a magnet for “like” industries • creates technological interdependencies • Attracts suppliers • Clustering Doesn’t Work in Others or Isn’t Required • high transportation cost • Clustering Isn’t Required • increased technology = increased efficiency • flexible manufacturing techniques Industrial Clustering

10. PORTER’S NATIONAL DIAMOND

11. Factor Conditions (Endowments) • The degree to which a country’s endowments match the requirements of the industry • Natural (climate, minerals) • Created (capital, skill levels, infrastructure) • If industries are highly profitable and with low barriers to entry, imitation and diffusion spread across international borders • Japan in US industries • Korea in Japan industries • Central Europe in Western Europe industries PORTER’S NATIONAL DIAMOND

12. Home Country Demand • Large home markets give the industry the experience and wisdom to begin the global expansion process. • Once the home market is saturated, then the industry has the motivation to extend their boundaries. • Global industries reflect the fundamental design of their home market needs PORTER’S NATIONAL DIAMOND

13. Related and Supporting Industries • Interdependencies are formed of “like” industries Example – Merkel, Texas is a prime example. This small town started with just a few farmers. Over the years, it grew to be a productive cotton farming community. The local business and labor force were centered around cotton farming, ginning and shipping. Over the years, technology changes have caused the town to stagnate. PORTER’S NATIONAL DIAMOND

14. Competitiveness of the Home Industry • Summarizes the Five Forces Model • The more competitive rivalry in the home market, the more successful firms can effectively compete on a global level. Ex: The German pharmaceutical companies and Japanese automobile companies face fierce competition at home. Because the competition is so strong, these companies become a formidable force in the global market. PORTER’S NATIONAL DIAMOND

15. PORTER’S NATIONAL DIAMOND • The final two components of the model are: • Public Policy • Government policy can nurture global industries through: • Infrastructure • Incentives • Subsidies • Temporary protection • Chance • Random events • Scientific breakthroughs, entrepreneurial initiative

16. INDUSTRY GLOBALIZATION DRIVERS

17. MARKET DRIVERS • Evolution of customer needs • Primary reason many companies need to strengthen their global posture • Meeting customer expectations is reason to strengthen global posture • Global customers • Global channels • Transferability of marketing; global branding will become increasingly important • Global distribution and Internet based purchasing are causing further convergence • Global sourcing- selecting the best offer from anywhere around the world- is becoming the norm in a growing number of industries

18. COST DRIVERS • The minimum sales volume required for cost efficiency is simply no longer available in a single country or region • Ex: Pharmaceutical Industry • Economies of Scale and Scope/location • Critical to global success because of the nature of industry • Differences in country costs

19. COMPETITIVE DRIVERS • The globalization potential of an industry also is influenced by competitive drivers such as: • The degree to which total industry sales are made up by export or import volume • The diversity of competitors in terms of their national origin • The extent to which major players have globalized their operations and created an interdependence between their competitive strategies in different parts of the world • High levels of trade, competitive diversity, and interdependence ten to increase competition and the potential for industry globalization

20. Competitors • An analysis of global competitive drivers should focus on whether competition is primarily waged at the local or regional level or whether it has evolved into a coordinated global pattern • Do we mainly face the same principal competitors in different parts of the world? • Do competitors employ similar strategies in different arenas? Competitive Drivers

21. GOVERNMENTAL DRIVERS • Trade Restrictions and Barriers • Policies, standards, regulations, government-operated or subsidized competitors • Ex: Steel Industry, Telecommunications Industry • As politics and economies of global competition become more closely intertwined, companies are paying greater attention to the nonmarket dimensions of their global strategies

22. GLOBAL STRATEGY FORMULATION • A multinational or multidomestic approach is used when customer needs and industry conditions vary considerably from country to country. • This approach allows more decisions to be made at the local level. • Ex: Nestlé • An international strategic posture- is common in high-tech industries in which exploiting home country innovation is key to global value creation. • First, effectively develop new products in the home market • Second, diffuse these innovations to foreign markets through affiliated organizations

23. GLOBAL STRATEGY FORMULATION • A global or transnational strategic posture is appropriate when some degree of standardization in products and services, in marketing, and in other aspects of strategy in possible • Ex: Coca-Cola and McDonald’s • The objective of these approaches is to achieve global efficiencies while preserving local responsiveness.

24. GLOBAL STRATEGY DIMENSIONS • Market Participation • Standardization/Positioning • Activity Concentration • Coordination of Decision Making • Nonmarket Factors • The objective of these assessments is to make thoughtful decisions about which strategy elements can and should be globalized and to what extent

25. MARKET PARTICIPATION • Each company must choose which markets are best for them. Even the largest companies must decide between “must” markets and “nice-to-be-in” markets. • “must” markets- markets in which a company must compete in order to realize its global ambitions • “nice-to-be-in” markets- markets in which participation is desirable but not critical • Ex: Motorola, General Electric

26. MARKET PARTICIPATION • Developing a global presence also takes time and requires substantial resources. • Ideally the pace of international expansion is dictated by customer demand. • Strategic alliances have made vertical or horizontal integration less important to profitability and shareholder value in many industries. • Alliances boost contribution to fixed cost while expanding a company’s global reach. • At the same time, they can be powerful windows on technology and greatly expand opportunities

27. STANDARDIZATION/POSITIONING • As globalization advances, many companies are seeking opportunities to standardize core products and services. • Reducing cost and enhancing quality are primary motivations for standardization. • However, some components must be customized. • Ex: Sony • Adopting a more global market positioning is another form of standardization. • This does not necessarily mean standardizing all elements of the marketing mix or the process by which marketing mix or the process by which marketing decisions are made. Rather, by applying a global, cost-benefit approach to formulating marketing strategy, companies seek balance flexibility with uniformity.

28. Identifies four generic global strategies • Global Matrix • Global Offer • Global Message • Global Change Global Branding Strategy Matrix

29. GLOBAL BRANDING MATRIX

30. ACTIVITY CONCENTRATION • Which parts of the value-creation process they should perform themselves and what to outsource. • Whether they can eliminate duplicate operations in different parts of the world and reduce the number of manufacturing sites • Whether they can relocate value-added activities to more cost-effective locations.

31. COORDINATION OF DECISION MAKING/NONMARKET DIMENSIONS • Coordination of Decision Making • Ultimately, the degree to which decision making- about which markets to participate in, how to allocate resources and how to compete- is coordinated on a global scale defines the extent to which globalization has been implemented successfully. • Nonmarket Dimensions • Increasingly, global corporate success is influenced by nonmarket factors that are governed by social, political, and legal arrangements. • Different countries have different political, economic, and legal systems and are at different stages of economic development.

32. ENTRY STRATEGIES • Exporting- Low risk, also entails substantial costs and limited control • Licensing- reduces costs and also involves limited risk • Strategic alliances/joint ventures- Allows companies to share the risks and resources required to enter international markets • Acquisition/Greenfields- Acquisition is faster, but starting new, wholly owned subsidiary might be the preferred option if no suitable acquisition candidates can be found

33. REGION/COUNTRY ANALYSIS • Political & Social Systems- A country’s political system affects its product, labor, and capital markets • Ex. China is socialist & South Africa supports transfer of assets • Openness- the more open a country’s economy, the more likely it is that global intermediaries can freely operate there • Ex. America • Product Markets- Multinational companies struggle to get accurate information about customers in developing countries

34. REGION/COUNTRY ANALYSIS Labor Markets- Recruiting local managers and other skilled workers in developing countries can be difficult Capital Markets- Capital and financial markets often lack sophistication

35. How Wal-Mart Went Global • Wal-Mart’s decision to “go global” was driven by the need to grow. • Decided in 1991 to “go global” • By staying in a domestic market they would be missing out on 96% of the world’s potential customers. • Used its buying power and knowledge of, management, technology, Suppliers, logistics and merchandising skills to gain entry

36. Wal-Mart & Target Markets • Couldn’t break into all markets at once • Mexico, Canada and South America were excellent choices because of their geographical location (1991-1996) • Asia was Wal-Mart’s next venture in 1996 when they felt stronger on their global experience • Low cost strategy important due to poor markets • Sold goods to Japanese retailers • Opened 3 “value club” membership stores in Hong Kong • Europe is a mature market making it hard to break in

37. Wal-Mart Mode of Entry • Wal-Mart found a point of entry through acquisition Canada (1991). • Moved into Mexico by creating a 50-50 joint venture with Cifra, Mexico’s largest retailer • Targeted Brazil & Argentina in South America • Brazil was another joint venture with Lojas Americana. • Success experiences in Brazil led to entering Argentina through a wholly owned subsidiary.

38. Wal-Mart & Transfer of Skills • Wal-Mart Acquired Woolco (Canada) • Wal-Mart sent transition teams to Canada for Woolco’s 15,000 employees. • Updated and renovated stores • Wal-Mart Stores • Sam’s Club • Supercenter’s • Leveraged their high brand recognition & “everyday low prices” • Employee rewards for decreased employee petty theft • Provided high customer service, broad mix of merchandise and high in-stock position

39. Wal-Mart Local Adaptation • Transition to China was a filled with challenges • 1990-1995 retail sales grew 11% percent due to new found liberalization and pent up demand. • Wal-Mart eased the transition by testing merchandise, forecasting local demand, and using smaller satellite stores to further meet the consumers needs. • Product Sourcing- purchasing more than 75% of its merchandise targeted for the Chinese market in China.

40. In implementing its global strategy, Wal-Mart used several approaches to take on local competitors in different markets: • Acquiring a dominant player: • In Germany, Wal-Mart acquired the Wertauf hypermarket chain of 21 stores which was one of the most profitable chains in the country • Wal-Mart decided that building new hypermarkets in Germany would be ill advised due to the maturity of the European market Local Competition

41. Acquiring a weak player: • This is an effective approach provided the global company (Wal-Mart) has the ability to quickly transform the weak player • Wal-Mart used this strategy in Canada when they acquired Woolco Local competition (Cont)

42. Launching a frontal attack on the incumbent: • Attacking dominant local competitors head-on is feasible only when the global company can bring a significant competitive advantage to the host country • Wal-Mart’s entry into Brazil illustrates the potential and the limitations of a frontal attack Local competition (Cont)

43. Not all of Wal-Mart’s global moves have been successful, and this is a continuing source of frustration to investors • Wal-Mart’s purchase of the British grocery chain Asda has not provided continuous profits • Furthermore, Wal-Mart’s exist from the German market came at a hefty loss financially • International outlets account for about 40 percent of the company’s total of 6,600 stores Gains and setbacks

44. Even with the best planning, global strategies carry substantial risks and costs • As a consequence, before deciding to enter a foreign country or continent, companies should carefully analyze the risks involved: • Political Risk • Legal Risk • Financial/Economic Risk • Societal/Cultural Risk Global strategy and risk

45. Political risk relates to politically induced actions and policies initiated by a foreign government • Its assessment involves an evaluation of the stability of a country’s current government and its relationship with other countries • A high level of risk affects ownership of physical assets and intellectual property Political risk

46. Legal risk is risk that multinational companies encounter in the legal arena in a particular country • An assessment of legal risk requires analyzing the foundations of a country’s legal system and determining whether the laws are properly enforced • Companies must become familiar with a country’s enforcement agencies and their scope of operation Legal risk

47. A nation’s currency competitiveness and fluctuation are important indicators of a country’s stability, both financial and political, and its willingness to embrace changes and innovations • Financial risk assessment should consider such factors as how well the economy is being managed and the level of the country’s economic development Financial/economic risk

48. Societal/Cultural risk is associated with operating in a different sociocultural environment • For example, it might be beneficial to analyze: • Specific ideologies • The relative importance of ethnic, religious, and nationalist movements • The country’s ability to cope with changes due to foreign investment Societal/cultural risk

49. Exploits opportunities to standardize some aspects of the value creation process… While it differentiates the company or brand from rivals on others. The best global strategy…