© 2008 pearson prentice hall 6-1 chapter 6: formulating strategy powerpoint by hettie a. richardson...

© 2008 Pearson Prentice Hall

6-1

Chapter 6:Formulating Strategy

PowerPoint by

Hettie A. Richardson

Louisiana State University

© 2008 Pearson Prentice Hall

6-2

Opening Profile: Wal-Mart’s Formula Doesn’t Fit

Wal-Mart’s attempts to apply its strategy internationally have not all been successful

Germany, South Korea Difficulty dealing with labor unions Lack of scale Inability to compete with established

discounters

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6-3

Opening Profile: Wal-Mart’s Formula Doesn’t Fit

Wal-Mart is learning from its mistakes Greater acquisitions Asda, Seiyu, Bompreço Smiling clerks in Germany 12% growth internationally

© 2008 Pearson Prentice Hall

6-4

Strategic Planning and Strategy

Strategic planning: The process by which a firm’s managers evaluate the future prospects of the firm and decide on appropriate strategies to achieve long-term objectives

Strategy: The basic means by which the firm competes

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6-5

Reasons for Going International

Reactive (defensive) reasons Globalization of competitors Trade barriers Regulations and restrictions Customer demands

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Reasons for Going International

Proactive (aggressive) reasons Economies of scale Growth opportunities Resource access and cost savings Incentives

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6-7

Management Focus: Mexico’s Cemex

Is aggressively growing via worldwide acquisitions

Bid $12.8 billion in 2006 for the Rinker Group of Australia

Has operations on five continents with 2005 sales of $15.3 billion

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Mission and Objectives

Marketing Worldwide,

regional, national market share

Production Production volume Economies of

scale

Finance Tax burden Capital structure

Profitability ROA, ROE, ROI

R & D Global patents

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6-9

Environmental Assessment

Environmental scanning: The process of gathering information and forecasting trends, competitive actions, and circumstances that will affect operations

Global, regional, national

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Environmental Scanning

Political instability Example: Upheaval in the Middle East

Currency instability Example: 1998 devaluation of the Mexican

Peso

Nationalism

International competition

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6-11

Sources of Environmental Information

In the US there are more than 2000 business information databases

Clipping services

Internal sources Mitsubishi employees 60,000 market analysts

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6-12

Internal Analysis

Key success factors: Technological capability: Microsoft Distribution channels: Wal-Mart Promotion capabilities: Disney

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6-13

Competitive Analysis

Distinctive competencies Example: Sony’s ability to miniaturize

SWOT analysis Competitive position analysis

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6-14

Global Strategy

Treating the world as an undifferentiated worldwide marketplace

The impetus: Regional trading blocs Declining tariffs Information technology explosion

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6-15

Regionalization/Localization

Local markets are linked together within a region, allowing local responsiveness

The impetus: Unique consumer preferences Domestic subsidies New production technologies

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Global Integrative Strategies

Full vertical and horizontal integration

Example: Dell Factories in Ireland, Brazil, China, etc. Assembly and delivery system from 47

locations around the world Little inventory, ability to change operations

quickly

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E-global or E-local?

Going e-global makes sense when: Trade is global in scope Business does not involve delivering

orders When the business model can be easily

hijacked by local competitors

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6-18

E-global or E-local?

Going e-local makes sense when: Production and consumption are regional

in scope Customer behavior and market structures

differ across regions, but are similar within a region

Supply-chain management is very important to success

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6-19

Entry Strategy Alternatives

Exporting Jordan Toothbrush

Licensing Anheuser-Busch

Franchising Holiday Inn

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6-20

Entry Strategy Alternatives

Contract manufacturing Nike

Offshoring Toyota in the US

Service sector outsourcing GE, Accenture, Oracle, Conseco

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6-21

Entry Strategy Alternatives

Turnkey operations Fiat

Management contracts

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6-22

Entry Strategy Alternatives

International joint ventures Mittal Steel of India and Arcelor of France

Wholly owned subsidiaries Philip Morris and Jacob Suchard

© 2008 Pearson Prentice Hall

6-23

Comparative Management Focus: Strategic Planning for the EU

In 2004 and 2007 the EU added 12 new countries

The euro eliminates currency risk, but cultures and tastes remain varied UPS in Europe

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6-24

Comparative Management Focus: Strategic Planning for the EU

Some believe the EU will adversely affect US organizations by limiting access and/or demanding reciprocal access to the US

Others feel the EU provides considerable opportunity and many US companies are well-established in Europe

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6-25

Comparative Management Focus: Strategic Planning for the EU

Many companies use joint ventures to deal with the EU strategic dilemma

Nonetheless, operating in Western Europe can be cost prohibitive

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6-26

Timing Entry and Scheduling Expansions

China and Japan have longer-term time horizons than the US

High uncertainty avoidance cultures (e.g., Latin American, African countries) prefer non-equity modes of entry

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6-27

Timing Entry and Scheduling Expansions

High power distance cultures (e.g., Arab countries and Japan) tend to use more equity modes of entry abroad