Global Business Strategy: Design & Implementation :Global Business Strategy: Design & Implementation GEB 6365 - INTERNATIONAL BUSINESS EXECUTIVE MBA November 03, 2006


What is strategy? :What is strategy? A Creative thought, an idea, a concept, or a plan that uses the natural laws to its advantage to turn a potential loss into victory. It is a plan or a series of maneuvers for obtaining a specific goal or result.


Slide 3:IT HAS ALWAYS BEEN VIRGIN’S POLICY TO ENCOURAGE YOU TO FLY TO LONDON FOR AS LITTLE AS POSSIBLE. SO ON JUNE 10 WE ENCOURAGE YOU TO FLY BRITISH AIRWAYS As for the rest of the year, we look forward to seeing you aboard Virgin Atlantic. For the best service possible. For the lowest possible fare.


Sun Tzu: The Art of War --- 500 B.C. :Sun Tzu: The Art of War --- 500 B.C. Consists of 13 short chapters with titles such as “estimates,” “terrain,” “offensive strategy,” “employment of secret agents.” Written in form of short stories or verses averaging 30-40 per chapter Example: Victory is the main object in war… We have not yet seen a clever operation that was prolonged…for there has never been a protracted war from which a country has benefited.


Slide 5:Art of Offensive Strategy When ten to the enemy’s one, surround him… When five times his strength, attack him… If double his strength, then divide him… If equally matched, you may engage him… If weaker numerically, be capable of withdrawing… And if in all respects unequal, be capable of eluding him…


Slide 6:To foresee a victory which the ordinary man can foresee is not the acme of skill… The skillful commander takes up a position in which he cannot be defeated and misses no opportunity to master his enemy… Thus a victorious army wins its victories before seeking battle: an army destined to defeat, fights in the hope of winning


Who are Strategists? :Who are Strategists? People who understand the natural laws and the outcomes they govern, and can creatively use the same in their favor.


What has History Taught Us? :What has History Taught Us? Strategy is about seeking an “unfair” advantage in situations where it is the outcome and not the game that counts. Formulating strategy requires that you know the laws that govern the outcomes of the particular competition.


What has History Taught Us? :What has History Taught Us? Specific knowledge of the competitors and the situation are needed to produce real, implementable strategies. Creating strategies that win is a skill that can be learned.


Importance of Competition :Importance of Competition Strategy cannot be formulated in vacuum. Competition determines the appropriateness of a firm’s strategic actions, and hence, is at the core of the success or failure of firms.


Competition, Competitive Strategy, and Competitive Advantage :Competition, Competitive Strategy, and Competitive Advantage A firm’s strategy cannot be formulated in vacuum Competition is at the core of the success or failure of firms Competition determines the appropriateness of a firm’s activities that contributes to its performance Competitive strategy is the search for a favorable competitive position in an industry.


Competitive Advantage :Competitive Advantage The set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition.


SustainableCompetitive Advantage :SustainableCompetitive Advantage An advantage that cannot be copied by the competition.


Industry Structure Analysis :Industry Structure Analysis The essence of formulating a CS is relating the firm to its environment The key aspect of a firm’s environment is the industry in which it competes


Industry Structure Analysis The five competitive forces :Industry Structure Analysis The five competitive forces


Barriers to Entry :Barriers to Entry Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Other advantages Patents Government subsidies


Continuum of competition :Continuum of competition Number ofsellers Productdifferences Importance ofmarket mix Large numberof sellers Similar products Distribution isimportant Large numberof sellers Unique butsubstitutable Pricing isimportant A few largecompetitors Similarproducts Promotion iskey to achieveperceivedproductdifferences Singleproducer Unique andunsubstitutable Unimportant BASIS OFCOMPARISON PURECOMPETITION MONOPOLISTICCOMPETITION OLIGOPOLY MONOPOLY Number of sellers Many One


Number of Sellers and Differentiation :Number of Sellers and Differentiation


Types of Competition :Types of Competition Direct © PhotoDisc


Types of Competition :Types of Competition Direct Indirect © PhotoDisc


Types of Competition :Types of Competition Direct Indirect General (Budget) © PhotoDisc


Levels of Competition :Levels of Competition Share of the Mind Share of the Wallet Generic Competition Product Category Product Form Direct to Indirect


Defining the Competitive Set :Defining the Competitive Set Levels of Marketing Competition Product Form based competition – Diet Colas Product Category based competition – Soft Drinks Generic or “need-based” perspective - Beverages Rivalry or “Budget-based” competition – Food, Entertainment, etc.


Defining the Competitive Set :Defining the Competitive Set Identifying Competitors SIC categories Substitutability Managerial Judgment Customer Purchase based measures Brand Switching Data Cross-Elasticity of Demand Customer Judgment based measures


Basic Competitive Strategies :Basic Competitive Strategies Cost Leadership Differentiation Focus (Niche)


How will you compete? :How will you compete? On Cost (lowest cost supplier) On Value (Differentiation) Cost Position Low High


Cost Leadership :Cost Leadership Objectives - Lowest cost and price across the industry Profitability through volume and market share Advantage - Cost leaders are survivors. Profitable under a wide range of conditions industry price wars economic downturns Disadvantages - Costly - takes a long time to achieve Tends to be unstable (not sustainable) - can be emulated (lower cost producers)


Sources of Cost Leadership :Sources of Cost Leadership Minimized Service Southwest Airlines Wal-Mart Scale Economies McDonald's Henry Ford Technology Dell (business model) Cost leadership is not the same as “cheap!”


Value/Differentiation :Value/Differentiation Objectives - Unique ability to satisfy a consumer want across an industry High perceived value relative to cost Profitability through price premium, volume, and share Advantage - Highly profitable Disadvantages - Hard to sustain Vulnerable to competitive emulation. Market drives out non-essential differentiation over life cycle


Sources of Differentiation :Sources of Differentiation Service, Support IBM Caterpillar Unique Technology Apple (pre-Windows) Palm Ubiquity Hertz AT&T Technological leadership alone is not the basis of a sustainable strategy!


Four Generic Competitive Strategies … Cost, Differentiation, Focus :Four Generic Competitive Strategies … Cost, Differentiation, Focus Focus strategies - flanking attacks - guerrilla tactics Broadly targeted strategies (frontal assault)


Focus Strategies :Focus Strategies Objectives - Find a limited segment where you can compete on either cost leadership or differentiation and ignore the rest. Advantages - Less costly - don't need a competitive advantage across the industry Unattractive target Less competition Disadvantages - Could become "too successful" and attract broadly targeted firms Highly dependent on health of industry, economy


Examples of Cost Focusers :Examples of Cost Focusers


Examples of Differentiation Focusers :Examples of Differentiation Focusers


Worst possible position . . . :Worst possible position . . . Cost Position Market Share Broad Narrow Low High Low Cost Position Differentiation Cost Focus Differentiation Focus Cost, Differentiation, Focus Broadly targeted strategies (frontal assault) Stuck in the Middle Focus strategies - flanking attacks - guerrilla tactics


Stuck In The Middle . . :Stuck In The Middle . . NEITHER COST NOR DIFFERENTIATION LEADERSHIP ALL THINGS TO ALL PEOPLE LOW PROFIT MARGINS DECLINING SHARE


Can two or more players occupythe same space at the same time? :Can two or more players occupythe same space at the same time? Cost Position Scope (Market Share) Broad Narrow Low High


Can two or more players occupythe same space at the same time? :Can two or more players occupythe same space at the same time? Cost Position Scope (Market Share) Broad Narrow Low High


Strategy is…. :Strategy is…. making tradeoffs in competing ... choosing what not to do” Southwest Airlines Continental Lite


Industry Analysis :Industry Analysis Can help reveal industry structure& competitive strategies firm’s strategic challenges market opportunities But, firm’s ability to create world-wide advantage will be greatly influenced and constrained by existing asset configurations its historical definition of management responsibilities ingrained organizational norms


Administrative Heritage :Administrative Heritage A firm’s organizational history, the values, norms and practices of its management, & its management culture It can be, at the same time the firm’s greatest assets -- the underlying source of its key competencies and also a significant liability, since it resists change and thereby prevents realignment or broadening of strategic capabilities


Factors Governing Global Competition :Factors Governing Global Competition Country-Specific Advantages Government Policies Industry Structure Organizational Structure & Strategic Attributes of the Firms


Management Orientation :Management Orientation Ethnocentric Polycentric Geocentric Regiocentric


What are You….International, Multinational, Global or Transnational? :What are You….International, Multinational, Global or Transnational? International Strategy is to transfer skills and products (derived from core competencies) to markets where indigenous competitors lack those skills and products. Multinational Strategy is to target independent markets and to maximize local responsiveness


Slide 45:Global Strategy is to target the global market place, thereby achieving cost reductions that come from experience curve and economies of scale.


Slide 46:Forces Driving Global integration Manufacturing Efficiency Scale Economies Cross Subsidization Synergistic benefits Forces Driving National Responsiveness Consumer Tastes and Preferences Local Competitors Host Government Policies Market Infrastructure


Industry Globalization Drivers :Industry Globalization Drivers Market Drivers Common Customer Needs Global Customers & Channels Transferable Marketing Mix Lead Countries Cost Drivers Global Economies of Scale & Scope Steep Learning & Experience Curve Effects Favorable Logistics Shortening PLC, Rising R&D & Development Costs Fast Changing Technology


Industry Globalization Drivers :Industry Globalization Drivers Government Drivers Favorable Trade Policies Compatible Technical Standards Common Marketing Regulations Government as a Customer & Competitor Competitive Drivers Presence of Global Competitors Presence of Strong Local Competitors Competitive Interdependence across markets


International Marketing Decisions :International Marketing Decisions Global Product Strategies Standardization versus Customization Multinational Diffusion Global Communications Differences in Distribution Systems


International Product Strategy :International Product Strategy Factors Encouraging Standardization Economies of scale Increasing size of homogenous segment Consistent image Time to Market Modular Vs. Core Product Approach


Slide 51:Factors Encouraging Adaptation/Customization Mandatory adaptation Discretionary adaptation Environmental Differences Meeting Consumer Needs


Multinational Diffusion :Multinational Diffusion How do consumers in different countries react to a new product/service? What role does culture play in influencing consumers’ reactions to new product introductions? Is it possible to forecast sales and the time it would take for a product to achieve a certain level of market penetration?


Multinational Diffusion :Multinational Diffusion The diffusion of a new product/service is a culture-specific phenomenon. Differences in the adoption process can be explained by country-specific factors. (Gatignon, Eliashberg, and Robertson (1989)) Differences in the rate of diffusion between high Vs. low context cultures (Takada and Jain, 1991)


Multinational Diffusion :Multinational Diffusion Existence of a lead-lag effect in cross-national diffusion patterns, i.e., the later a product gets introduced in a country, the faster will be the adoption. (Takada and Jain, 1991) Rogers (1983) attributes of an innovation that can potentially accelerate adoption relative advantage of the new product compatibility with the needs of adopters Complexity; Observability & Trialability


Learning Effect - The Concept :Learning Effect - The Concept When a new product/technology is introduced first in one country and with a time lag in subsequent countries, there exists an opportunity for consumers in the lag countries to learn from the experience of the lead country adopters. This Phenomenon is what is referred to as the “learning effect.” (Ganesh &Kumar 1996). Such a learning has the potential to reduce the risk associated with adopting the new product, thus contributing to an accelerated diffusion of the product in the lag countries.


Slide 56:Learning Effect Between Lead & Lag Markets Geographical Proximity Cultural Similarity Economic Similarity Time Lag Type of Innovation Technical Standard Faster Adoption in Lag Markets Manufacturers’ Actions in Lag Markets


Slide 57:The smaller the geographical distance is between the lead and lag markets, the stronger will be the learning effect. The more similar the lead and lag markets are culturally, the stronger will be the learning effect. The more similar the lead and lag markets are economically, the stronger will be the learning effect.


Slide 58:The time lag between the introduction of an innovation in the lead and lag markets is positively related to the learning effect. In the case of continuous innovations, the learning effect will be stronger when compared with discontinuous innovations. The existence of an industry standard for the technology enhances the learning effect; conversely, a lack of a technical standard weakens the learning effect.


Factors Influencing Intl. Advertising Strategy :Factors Influencing Intl. Advertising Strategy Product-Market Conditions Culture Govt. Laws & Regulations


Communication Objectives :Communication Objectives Educate the Consumer? Create Awareness? Induce Trial? Induce Loyalty Behavior?


Product-Market Conditions :Product-Market Conditions Economic Similarity Stage in PLC Competitive Intensity Infrastructural Facilities


Infrastructural Facilities :Infrastructural Facilities Media Availability & Usage Outdoor ads. (Bolivia 48%) Cinema ads. (common in Nigeria) Radio (popular in Nepal & Mexico) Print (Norway 97%; Oman 100%) TV (Peru 88%; Costa Rica 78 %)


Laws Affecting Promotions :Laws Affecting Promotions Most controversial element of international marketing, advertising and sales promotion Laws pertain to: message media truthfulness use of models ban on certain sensitive products


Govt. Laws & Regulations :Govt. Laws & Regulations Government Regulations governing Media & Message Sweden - ban on TV ads Germany - only 15-20 mins per day France, Belgium etc. - ban on comparative advertisements Saudi Arabia - ban use of women U.S. - ban use of fortune tellers Canada, Japan, France - ban use of cartoon characters in ads to children


Slide 65:Government Regulations on Certain Promotions Government Regulations on Certain Products Tobacco Alcoholic beverages Slimming products (Australia & France)


Slide 66:Toothpaste Aspirin Investments & savings Contraceptives Detergents


Gray Market :Gray Market Unauthorized middlemen who circumvent authorized marketing channels by buying in low-price markets and reselling in high-price markets Cameras Watches Toothpaste


Japan’s Distribution System :Japan’s Distribution System Multi-layered complex channels of distribution special relationships between channel members - “Keiretsu” Inefficient Distribution Exclusionary business practices Structural Impediments Initiative (SII)


Keiretsu :Keiretsu alignments or combination of companies, more or less closely related & coordinated, that do business with one another on a regular and often quite intimate basis Capital Keiretsu Enterprise Keiretsu Distribution Keiretsu