Corporate Level and International Strategy

Transcription

1 Corporate Level and International Strategy

2 Corporate Level and International Strategy - Outline Product and geographical diversity Related and unrelated diversification Attractions of international markets Multidomestic and global strategies Effect of product and geographical diversity on performance Corporate parenting Portfolio management

3 Corporate Level Issues

4 The Multi-Business Organisation

5 Product/Market Diversity Diversification is a strategy which takes the organisation into new markets and products or services What is the extent and nature of products/services offered by the corporate parent? How does the parent create value?

6 Reasons for Diversification (1) Value creation Efficiency gains from applying existing resources/capabilities to new markets/products Economies of scope Benefits of synergy Applying corporate managerial capabilities to new markets/products/services Dominant logic Increased market power from diverse product/service range Cross subsidy Possible monopoly in long-run

7 Reasons for Diversification (2) Less obvious value creation In response to environmental change To defend existing value Or straying too far from dominant logic? To spread risk across range of businesses Investors can diversify more effectively? Important for private businesses In response to expectations of powerful stakeholders Pressure from financial analysts to produce constant growth

8 Exhibit 6.3 Related Diversification

9 Vertical integration Related Diversification Strategy development beyond current products and markets, but within the capabilities or value network of the organisation Backward integration into input activities Forward integration into output activities Horizontal integration Develop into activities complementary to existing ones Exploit strategic capabilities in new markets

10 Problems of Related Diversification Underestimating new capabilities required Overestimating synergies Time and cost of top manager attention Difficulties for business units to share resources/adapt policies

11 Unrelated Diversification Development of products/services beyond the current capabilities or value network Generally unfavourable No economies of scope Cost of headquarters Can succeed in some cases Exploit dominant logic In countries with underdeveloped markets

12 Diversity and Performance

13 Reasons for International Diversity Market-based Globalisation of markets & competition Following customers Bypass limitations in home market Utilise strategic capabilities Broaden market size Internationalise value-adding activities Enhance knowledge Exploit cultural/ geographic differences Cash in on differences in culture Administrative differences Specific geographical/ economic differences Economic benefits Economies of scale Stabilisation of earnings across markets

14 Factors for Market Selection and Entry (1) Macro-economic conditions Political environment Infrastructure Transport and communication Availability of local resources Tariff and non-tariff trade barriers

15 Factors for Market Selection and Entry (2) Cultural norms and social structures Political and legal risks Sovereign risk Absence of regulation and control Protection of intellectual property Corruption International risk Security risk

16 Entry Modes: Advantages and Disadvantages

17 Exporting Advantages No operations in host country Economies of scale Internet access for small firms Exporting Disadvantages No benefit from location advantages of host Limited local knowledge Dependence on intermediaries Exposure to trade barriers Transportation costs Slow response to customers Entry Modes (1) JV/Alliance Advantages Shared investment risk Complementary resources Possible government condition JV/Alliance Disadvantages Difficult to select and agree with partner Managing relationship Loss of competitive advantage through imitation Limits integration/coordination of activities across countries

18 Entry Modes (2) Licensing Advantages Contractually agreed income Limit financial/economic risk Licensing Disadvantages Difficult to select and agree with partner Loss of competitive advantage through imitation Limits benefit from location advantages of host FDI Advantages Control of resources/capabilities Integration/coordination of activities across countries Acquisitions rapid entry Greenfield state of art and government finance FDI Disadvantages Substantial investment financial exposure Problems of integration/ coordination of acquisitions Greenfield time consuming and unpredictable cost

19 International Value Network Internationalisation of value network FDI JVs Global sourcing Location advantages Cost advantages Unique capabilities Characteristics of national locations

20 Issues International Strategies Global-local Centralised/decentralised Generic Strategies Multi-domestic Value adding activities located in national markets Products/services adapted to local requirements Global Standardised products Produced in centralised location

21 Value-Adding Corporate Parents Envisioning Strategic Intent Central Services and Resources Focus Clarity to external stakeholders Clarity to business units Intervention at Business Level Investment Scale advantages Transferable management capabilities Expertise Monitor performance Action to improve performance Challenge/develop strategic ambitions Coaching/training Develop strategic capabilities Achieve synergies Provide expertise/services Knowledge creation/sharing Leverage Brokering linkages/accessing external networks

22 Value-Destroying Corporate Parents Bureaucracy Adds cost Hinders responsiveness Buffer from reality Financial safety net Diversity and size Lack of clarity on overall vision Managerial ambition Empire building

23 Portfolio managers, synergy managers and parental developers

24 Corporate Rationales Portfolio managers Synergy managers Parental developers Logic Agent for financial markets Synergy Competences used to create value in SBUs Limited SBU value creation Strategic requirements Acquire assets Divest assets Low strategic role in SBU Share resources/skills Identify bases for sharing Identify benefits SBUs below potential ( parenting opportunity ) Relevant central resources Suitable portfolio Organisational requirements Autonomous SBUs Small, low cost corporate staff Collaborative SBUs Corporate staff as integrators Understand SBUs ( feel ) Effective linkages SBU performancebased incentives Overcome resistance to sharing Corporate-based incentives SBUs autonomous SBU performancebased incentives

25 Value Adding Fundamentals of Corporate Rationales

26 Corporate Portfolio Management Portfolio balance Markets Organisation s needs Attractiveness of business units Profitability Growth rates Portfolio fit Synergies between business units Synergies with corporate parent

27 The Growth Share (or BCG) Matrix

28 Public Sector Portfolio Matrix Source: J.R. Montanari and J.S. Bracker, Strategic Management Journal, vol. 7, no. 3 (1986), reprinted by permission of John Wiley & Sons Ltd.

29 Indicators of SBU Strength & Market Attractiveness

30 Market Attractiveness/SBU Strength Matrix

31 Strategy Guidelines Based on Directional Policy Matrix

32 International investment opportunities based on the directional policy matrix Source: Harrel, G.D. and R.D. Kiefer (1993), Multinational market portfolio in global strategy development, International Marketing Review 10 (1); Phillips, C., I. Duole, and R. Lowe, International Marketing Strategy, Routledge 1994, pp

33 Ashridge Portfolio Display Source: Adapted from M. Goold, A. Campbell and M. Alexander, Corporate Level Strategy, Wiley This material is used by permission of John Wiley & Sons Inc.

34 Subsidiary Roles in Multinational Firms Source: Reprinted with permission of Harvard Business School Press. From Bartlett, C.A. and S. Ghoshal, Managing Across Borders: The Transnational Solution, Boston,1989 Copyright 2001 by the Harvard Business School Publishing Corporation; all rights reserved.

35 Key Points (1) Corporate parent Activities above business unit level Corporate strategy Decisions on product and international scope How to add value to business units Product diversity Related/unrelated diversification

36 Key Points (2) Benefits of international scale and scope Which markets, which elements of value chain, how much standardisation? Parenting roles Portfolio manager, synergy manager, parental developer Portfolio models BCG, DPM, Parenting Matrix, International Diversification