MGX5181 International Business Strategy

Transcription

1 MGX5181 International Business Strategy Week 7 Corporate Level Strategy Configuration and coordination The international value chain

2 Objectives By the end of this session students should be able to: Understand the link between core competencies and the international value chain Identify the issues that influence how an organisation configures its operations and coordinates its various functions across national boundaries

3 Link between core competencies and value chain Before going international it is a good idea to review your core competencies and decide what you will give you a sustainable competitive advantage. You can then review potential and existing value chain activities to decide what activities will be done in-house and what can be outsourced to other organisations.

4 Core Competencies What a firm does... that is Strategically Valuable [Core competencies] are the essence of what makes an organization unique in its ability to provide value to customers. Leonard-Barton, Bowen, Clark, Holloway & Wheelwright McKinsey & Co. recommend identifying three to four competencies to use in framing strategic actions

5 Discovering Core Competencies Core Competencies Sources of Competitive Advantage Discovering Core Competencies Resources * Tangible * Intangible Capabilities Teams of Resources * * * * Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Non-substitutable

6 Core Competencies Valuable For a Strategic Capability to be a Core Competency, it must be: Rare Costly to Imitate Non-substitutable

7 What a firm does... Core Competencies that is Strategically Core competencies must be: Valuable Valuable Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralise threats in the environment

8 What a firm Does... Core Competencies that is Strategically Core Competencies must be: Valuable Valuable Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralise threats in the environment Rare Capabilities that are possessed by few, if any, current or potential competitors

9 What a firm Does... Core Competencies that is Strategically Core Competencies must be: Valuable Valuable Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralise threats in the environment Rare Capabilities that are possessed by few, if any, current or potential competitors Costly to Imitate Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

10 What Criteria Make Core Competencies Costly to Imitate? Unique Historical Conditions An unusual evolutionary pattern of growth may contribute to the development of competencies in a manner unique to those particular circumstances

11 What Criteria Make Core Competencies Costly to Imitate? Unique Historical Conditions An unusual evolutionary pattern of growth may contribute to the development of competencies in a manner unique to those particular circumstances Example: Disney created Mickey Mouse at a time when animated motion pictures were new

12 What Criteria Make Core Competencies Costly to Imitate? Unique Historical Conditions An unusual evolutionary pattern of growth may contribute to the development of competencies in a manner unique to those particular circumstances Example: Disney created Mickey Mouse at a time when animated motion pictures were new Causal Ambiguity This occurs when competitors are unable to detect how a firm uses its competencies as a foundation for competitive advantage

13 What Criteria Make Core Competencies Costly to Imitate? Unique Historical Conditions An unusual evolutionary pattern of growth may contribute to the development of competencies in a manner unique to those particular circumstances Example: Disney created Mickey Mouse at a time when animated motion pictures were new Causal Ambiguity This occurs when competitors are unable to detect how a firm uses its competencies as a foundation for competitive advantage Social complexity Occurs when the firm s capabilities are the result of complex social phenomena, such as interpersonal relationships, trust and friendships among managers or a firm s reputation with suppliers and customers

14 What a firm does... Core Competencies that is Strategically Core Competencies must be: Valuable Valuable Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralise threats in the environment Rare Capabilities that are possessed by few, if any, current or potential competitors Costly to Imitate Capabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity Non-substitutable Capabilities that do not have strategic equivalents, such as firmspecific knowledge or trust-based relationships

15 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage Valuable Rare Costly to Imitate Non-substitutable NO NO NO NO Competitive Consequences Competitive Disadvantage Performance Implications Below Average Returns

16 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage Valuable Rare Costly to Imitate Non-substitutable NO NO NO NO Competitive Consequences Competitive Disadvantage Performance Implications Below Average Returns YES NO NO YES/NO Competitive Parity Average Returns

17 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage Valuable Rare Costly to Imitate Non-substitutable NO NO NO NO Competitive Consequences Competitive Disadvantage Performance Implications Below Average Returns YES NO NO YES/NO Competitive Parity Average Returns YES YES NO YES/NO Temporary Competitive Advantage Aver./Above Average Returns

18 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage Valuable Rare Costly to Imitate Non-substitutable NO NO NO NO Competitive Consequences Competitive Disadvantage Performance Implications Below Average Returns YES NO NO YES/NO Competitive Parity Average Returns YES YES NO YES/NO Temporary Competitive Advantage Aver./Above Average Returns YES YES YES YES Sustainable Competitive Advantage Above Average Returns

19 Discovering Core Competencies Core Competencies Sources of Competitive Advantage Discovering Core Competencies Resources * Tangible * Intangible Capabilities Teams of Resources * * * * Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Non-substitutable

20 Discovering Core Competencies Core Competencies Sources of Competitive Advantage Discovering Core Competencies Resources * Tangible * Intangible Capabilities Teams of Resources * * * * Criteria of Sustainable Advantages Valuable Rare Costly to Imitate Non-substitutable Value Chain Analysis * Outsource

21 The Value Chain Definition The value chain is the chain of activities which results in the final value of a business s product. Value added, or margin, is indicated by sales revenue minus total costs ie the margin is the difference between the total value and collective cost of performing the value activities (Porter,1985). Value is added as a result of value adding activities and the linkages between them.

22 Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Value Chain Analysis helps to identify which resources and capabilities can add value Firm Infrastructure Support Activities Human Resource Management Technological Development Procurement Primary Activities

23 Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Value Chain Analysis helps to identify which resources and capabilities can add value Firm Infrastructure Support Activities Human Resource Management Technological Development Procurement Primary Activities

24 Value Chain Core Activities Certain activities or combinations of activities are likely to relate closely to the organisation s core competences. These are termed core activities. They are activities which: Add the greatest value Add more value than the same activities in competitors value chains Relate to and reinforce core competences

25 Value Chain Value chain analysis involves analysis of all the company s activities, and its internal and external linkages, in order to determine how the company s activities are currently organised and how they can be better organised so that competitive advantage can be achieved

26 Value Chain A Value Chain analysis will therefore include: A breakdown and analysis of all the activities of the organisation An examination of the match between configuration and current strategy (eg cost or differentiation based strategy) Identification of internal and external linkages between activities which result in additional added value Identification of blockages which reduce the organisation s competitive advantage.

27 Primary Activities Inbound Logistics These are activities concerned with the receipt and storage of materials (inputs), stock control, and distribution of inputs to those areas of the business concerned with operations. Operations Operations transforms inputs into final products or services. It may be concerned with manufacturing processes, assembly, testing etc.

28 Primary Activities Outbound Logistics This function is responsible for storage and distribution of finished goods to customers. It includes warehousing, order processing, transport and distribution. Marketing and Sales This includes activities concerned with analysis of markets and customers, persuading customers to buy the product, and making the product available via channels Service Concerns activities associated with installation of the product and after-sales service.

29 Procurement Support Activities Concerned with purchasing the resource inputs used in the organisation s activities. Some many be centralised to obtain economies and other decentralised for speed and flexibility. Technology Development Concerned with the product, process and resource development and improvement.

30 Support Activities Human Resource Management Concerned with obtaining, training and motivating appropriate employees. It covers recruitment, selection, training, rewards and motivation. Firm Infrastructure Includes management systems, planning, finance, accounting, information systems and quality management.

31 Using the Value Chain All primary and support activities contribute to the final value of the product. Must analysis each activity and linkages between to identify potential improvements (lower cost or increase value). Analysis helps up identify strengths and weaknesses and compare companies. The Value System Is the chain of activities from supply of resources through to final consumption of a product. Analysis allows you to see upstream linkages with suppliers and downstream linkages with distributors and customers.

32 Using the Value System Managing external relationships can provide a competitive advantage. Competitive advantages come from an organisation s core competences and core activities. Businesses become distinctive by the way they configure and coordinate their competences and value-adding activities. This is enhanced by distinctive relationships with suppliers, distribution channels and customers. Inter-company relationships must be coordinated.

33 To capitalise on the usefulness of the Value Chain concept it is important to recognise that:

34 Value Chains are part of a Total Value System Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain

35 Value Chains are part of a Total Value System Firm Value Chain Channel Value Chain Buyer Value Chain Supplier Value Chain Upstream Value Perform valuable activities that complement the firm s activities

36 Value Chains are part of a Total Value System Supplier Value Chain Firm Value Chain Buyer Value Chain Upstream Value Channel Value Chain Perform valuable activities that complement the firm s activities Each firm must eventually find a way to become a part of some buyer s value chain

37 Value Chains are part of a Total Value System Supplier Value Chain Firm Value Chain Channel Value Chain Upstream Value Perform valuable activities that complement the firm s activities Each firm must eventually find a way to become a part of some buyer s value chain Buyer Value Chain Ultimate basis for differentiation is the ability to play a role in a buyer s value chain This creates VALUE!!

38 Value Chains are part of a Total Value System Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain Upstream Value Perform valuable activities that complement the firm s activities Each firm must eventually find a way to become a part of some buyer s value chain Ultimate basis for differentiation is the ability to play a role in a buyer s value chain This creates VALUE!! Value chains vary for firms in an industry, reflecting each firm s unique qualities, such as: History Strategy Success at Implementation

39 The global value chain Configuration Relates to where and in how many nations each activity in the value chain is performed. Can takes advantage of global and local advantages Coordination Concerned with the management of dispersed international activities and the linkages between them. Because this is complex it provides considerable opportunity for competitive advantage.

40 Configuration Options Concentration of an activity in limited locations because of benefits such as local labour, location of materials, markets, government incentives. Dispersion of activities to many markets (eg if transportation costs are high or national markets differ significantly)

41 Co-ordination Complex configuration makes coordination more difficult. Methods include new structures, technology solutions Increased ability to coordinate activities enables you to handle more configurations thereby gaining a competitive advantage.

42 The link between strategy and configuration/ coordination In industries where downstream activities or other buyer tied activities are vital to competitive advantage, there tends to be a more multidomestic pattern of international competition. In industry where upstream and support activities such as technology development and operations are crucial to competitive advantage, global competition is more common. (Porter, 1986).

43 Multidomestic industries Multidomestic companies Configuration / coordination The international firm operates in what is effectively a series of separate national markets segregated by tariffs, trade barriers, differences of culture and buyer behaviour; hence the term multidomestic Competitive strategy emphasizes the advantages of national responsiveness (Doz (1986) differentiating and adapting the product to respond to country differences. This is a country centred strategy. National strategies are most appropriate in conditions of high national barriers and small national market size.

44 Multidomestic structure advantages and disadvantages The multi-domestic (multi-local) Essentially a decentralised federation of loosely integrated national subsidiaries Advantages Product focused to meet local market needs Local firms encouraged and have resources to engage in product development Local managers strongly committed to the local organisation Disadvantages Inability to exploit competitive interdependencies and gain global scale efficiencies Duplication of costly facilities New product diffusion across the organisation can be difficult as subsidiaries exert independence

45 Global companies Configuration/ Global company coordination Seek to coordinate or integrate activities on a world-wide basis. Aim is to gain competitive advantage through integrated international operations, whether based on cost (economies of scale) or based on differentiation eg global brand. Global strategies are appropriate in conditions of low national barriers and large national market size.

46 Global Company Advantages Global structure advantages and disadvantages Ability to standardise product offering to global customers Exploitation of global-scale efficiency Centralised functions enable resources to be concentrated and new products quickly developed and diffused Disadvantages Product standardisation does not sufficiently recognise local preferences Organisation dominated by single nation culture Centralised functions and power may prevent organisation reacting to external stimuli first identified in cross-border markets

47 International company International company Country based national subsidiaries with a dominant corporate centre based in the home country Advantages Able to transfer and leverage core competencies, knowledge, understanding and skills Centralised R&D avoids resource duplication Able to diffuse new products speedily to geographically diverse markets Disadvantages Product/services focus many overly focused on home country needs Home country managers tend to operate cross-border subsidiaries by adopting a custodial approach Dependent on home country leadership in key business areas

48 Co-ordinated international regional strategy Products standardised for region Advantages Product/service offer focuses on regional preferences Avoid costly duplication of facilities by configuring functions on a regional basis Achieve regional scale efficiencies Disadvantages Potential loss of contact with national markets Inability to gain global-scale efficiencies Organisational structures may become highly complex and potentially contradictory.

49 Dimensions Product/service offer Multi-local/Multi-domestic Developed for local markets International Centrally developed products, customised for local needs Co-ordinated international regional Product, standardised for the region, with minor modifications for national markets where necessary Global company Standardised product sold worldwide, with possible cosmetic changes for local markets

50 Dimensions Resources, responsibilities and control Multi-local/multi-domestic Resources largely decentralised to local organisation. Local organisations highly autonomous with little intervention from the corporate centre. International Greater dependence on corporate centre than muti-local but more autonomy than global. Core competencies centralised. Sophisticated management systems and specialist corporate staff to control subsidiaries. Co-ordinated international regional Key resource areas centralised on an international regional basis, with some relatively minor functions left with countrybased operations. Global company Centralised assets, resources and responsibilities. Overseas subsidiaries depend on HQ for resources and direction.

51 Dimensions Dominant power group and culture Multi-local Country based national managers, independent culture based on national organisations International Functional managers, especially technical and marketing. Parent company management often superior and parochial in attitude to international operations Co-ordinated international regional Regional product managers. Emerging culture of international regional interdependence Global company Centralised product divisions. Highly dependent culture based on parent company s home location.

52 Dimensions Research and development and innovation Multi-local National R&D facilitiesto support local product development International R&D facilities centralised and many likely to be located in the country of the corporate parent. Products developed centrally given to national subsidiaries to customise Co-ordinated international regional At least some R&D facilities regionally based Global company R&D facilities wholly centralised in home location. National subsidiaries unable independently to develop new products. New ideas need to be adopted by corporate centre.

53 Overall Multi-local Dimensions Each national subsidiary managed as an independent entity. Highly responsive national organisation. Independence of subsidiaries encourages innovation and development of new products to meet local needs. International Foreign subsidiaries often seen as appendages. Parent company seeks to leverage transfer of knowledge, understanding and skills to national subsidiaries. Co-ordinated international regional Strong co-ordination and integration of functions on a regional basis. Able to achieve regional scale. Little or no co-ordination between international regions. Global company Role of local units is to assemble and/or sell products developed centrally. National subsidiaries largely concerned with implementing plans and policies developed by corporate centre. Strength by global scale.

54 The Transnational The Transnational Can be considered to be an integrated network of interdependent elements within the corporation Based on dispersing assets and capabilities in a way which emphasises their interdependence, but recognises the varied contributions that different elements of the organisation can offer by assigning different tasks to individual subsidiaries and locations. For this integrated network to function effectively and efficiently, there is a need to integrate three key flows: Components and raw materials The flow of funds and skills, and Intelligence, ideas and knowledge