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© 2008 Pearson Prentice Hall
6-1
Chapter 6:Formulating Strategy
PowerPoint by
Hettie A. Richardson
Louisiana State University
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© 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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© 2008 Pearson Prentice Hall
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
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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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6-6
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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6-8
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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6-10
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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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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6-16
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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6-17
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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Entry Strategy Alternatives
International joint ventures Mittal Steel of India and Arcelor of France
Wholly owned subsidiaries Philip Morris and Jacob Suchard
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© 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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© 2008 Pearson Prentice Hall
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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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