corporate level and international strategy - unext.insession notes)/strategy in... · corporate...
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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
Product/Market Diversity
• What is the extent and nature of
products/services offered by the corporate
parent?
• How does the parent create value?
Diversification is a strategy which takes the
organisation into new markets and products or
services
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
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
Related Diversification
• Vertical integration
– 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
Strategy development beyond current products and
markets, but within the capabilities or value network of the
organisation
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
Unrelated Diversification
– Generally unfavourable
• No economies of scope
• Cost of headquarters
– Can succeed in some cases
• Exploit dominant logic
• In countries with underdeveloped markets
Development of products/services beyond the
current capabilities or value network
Reasons for International Diversity
Market-based Exploit cultural/
geographic differences
Globalisation of markets &
competition
Cash in on differences in culture
Following customers Administrative differences
Bypass limitations in home market Specific geographical/
economic differences
Utilise strategic capabilities Economic benefits
Broaden market size Economies of scale
Internationalise value-adding
activities
Stabilisation of earnings across
markets
Enhance knowledge
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
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
Entry Modes (1) Exporting Advantages JV/Alliance Advantages
No operations in host country Shared investment risk
Economies of scale Complementary resources
Internet access for small firms Possible government condition
Exporting Disadvantages JV/Alliance Disadvantages
No benefit from location
advantages of host
Difficult to select and agree with
partner
Limited local knowledge Managing relationship
Dependence on intermediaries Loss of competitive advantage
through imitation
Exposure to trade barriers Limits integration/coordination of
activities across countries
Transportation costs
Slow response to customers
Entry Modes (2) Licensing Advantages FDI Advantages
Contractually agreed income Control of resources/capabilities
Limit financial/economic risk Integration/coordination of activities
across countries
Acquisitions – rapid entry
Greenfield – state of art and
government finance
Licensing Disadvantages FDI Disadvantages
Difficult to select and agree with
partner
Substantial investment – financial
exposure
Loss of competitive advantage
through imitation
Problems of integration/
coordination of acquisitions
Limits benefit from location
advantages of host
Greenfield – time consuming and
unpredictable cost
International Value Network
• Internationalisation of value network
– FDI
– JVs
– Global sourcing
• Location advantages
– Cost advantages
– Unique capabilities
– Characteristics of national locations
International Strategies
• Issues
– 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
Value-Adding Corporate Parents
Envisioning Strategic Intent Central Services and Resources
Focus
Clarity to external stakeholders
Clarity to business units
Investment
Scale advantages
Transferable management
capabilities
Intervention at Business Level 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
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
Corporate Rationales
•SBUs below potential
(‘parenting opportunity’)
•Relevant central
resources
•Suitable portfolio
•Share
resources/skills
•Identify bases for
sharing
•Identify benefits
•Acquire assets
•Divest assets
•Low strategic role
in SBU
Strategic
requirements
•Competences used to
create value in SBUs
•Synergy •Agent for financial
markets
•Limited SBU value
creation
Logic
Parental developers Synergy managers Portfolio
managers
•Understand SBUs
(‘feel’)
•Effective linkages
•SBUs autonomous
•SBU performance-
based incentives
•Collaborative SBUs
•Corporate staff as
integrators
•Overcome resistance
to sharing
•Corporate-based
incentives
•Autonomous SBUs
•Small, low cost
corporate staff
•SBU performance-
based incentives
Organisational
requirements
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
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.
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. 137–8.
Ashridge Portfolio Display
Source: Adapted from M. Goold, A. Campbell and M. Alexander, Corporate Level Strategy, Wiley 1994.
This material is used by permission of John Wiley & Sons Inc.
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.
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