Part III:

3.1 Strategy:
Strategy is a plan of action that channels an organizations resources so that it can effectively
differentiate itself from competitors and accomplish unique and viable goals. Managers
develop strategies based on the organizations strengths and weaknesses relative to the
competition and assessing opportunities. Managers decide which customers to target, what
product lines to offer, and with which firms to compete.
Strategy in an international context is a plan for the organization to position itself vis-a-vis its
competitors, and resolve how it wants to configure its value chain activities on a global scale
The objective of international strategies is to achieve and maintain a unique and valuable
competitive position, a position that has been termed as competitive advantage- ability to
achieve higher rates of profits than its competitors.
3.2 Importance of Strategy in Organization:

Strategy can be helpful to organizations in a global business in the following ways.
a. Creation of Value:
Strategy helps manager to create value of the firm to the owners. The value creation is done
by increasing the profit of the organization. Profit can be increased by using strategies of
either low cost or differentiation. Reducing the cost of the product or service offered can
increase profitability of the firm. Similarly, by adopting differentiation strategy, research and
development activities can be carried out and the firm can come up with new, differentiated
product for which customers are ready to pay more. This will again increase profitability of
the firm and maximize value of the firm.
b. Survival:
Survival in this globally competitive business world is a must. With the globalization
challenges to the modern organizations have been increased to maintain its profitability and
survival. For this firms adopt various strategies to counter competitors attack and respond to
the change immediately so that their market share is safe and are not out of business.
c. Competitive Advantage:
Organizations have their core competencies which they have to mobilize and earn higher
profit margins thereof. Exploiting their core competencies and taking advantage of this
competitive advantage can help them beat their competitors and rule over the market.
Continuous working on the adoption of best strategy and making changes accordingly can
help businesses gain from competition in the global arena.
d. Growth and Expansion:
Firms in todays world can take advantage of big market place and so go on diversifying and
expanding their business. But a good strategy is required in order to achieve such growth.
Right strategy at the right time to expand and operate can lead to growth and expansion of
firms whereas poor strategy leads to business closure.
e. Advantage of Location Economies:
Location economies arise from performing a value creation activity in the optimal location for
that activity, wherever in the world that might be. Making the right strategy while choosing
the right location helps in value creation. And, it can have one of two effects: It can lower the
cost of value creation and help the firm to achieve a low cost position, or it can enable a firm
to differentiate its product offering from those of competitors.
3.3 Types of Strategies
There are mainly four strategies that global firms adopt which has to be aligned with the value
chain in the global market accordingly. They are defined in terms of trade off between
pressure for global integration and pressure for national responsiveness in Integration-
Responsiveness (IR) grid. The four major strategies are:
a. International strategy
b. Multi domestic strategy
c. Transnational strategy
d. Global strategy

The following diagram shows the four strategies.

Figure 1: Integration Responsiveness (IR) Grid: Strategy Types
These strategies are described later in 3.5 with their relation with value
chain.
3.4 Value Chain
The fundamental principle of strategy is creating value. Value may be in the form of economic
vale, market value, pro forma value, book value, insurance vale, use value, par value,
replacement value, etc. Also, value can be defined from a number of perspectives, such as
those of customers, employees, stakeholders, or shareholders.
Value in general business term is defined as the measure of a firms capability to sell what it
makes for more than the costs incurred to make it. Therefore, strategy is the efforts of
managers to build and strengthen the companys competitive position within its industry to
create value.
Value chain represents a straightforward framework that lets managers deconstruct the general
idea of create value into a series of discrete activities their company actually does to create
value. Value chain analysis helps the manager understand the behavior of costs and the
existing and potential sources of differentiation. Thus, value chain is the set of linked value
creating activities the company perform to design, produce, market, deliver and support a
product.
A value chain disaggregates a firm into primary activities (that create and deliver the product)
and support activities (that aid the individuals and groups engaged in primary activities). The
various dimensions of the value chain as per Michael E. Porter are shown in the diagram
below:

Figure 2: Value Chain

3.5 Relationship of Strategy and Value Chain:
The success of the international business depends highly on the managers capability to align
value chain of the organization with its strategy. A firms strategy can be defined as the
actions that managers take to attain the goal of the firm. The most important goal is to
maximize profitability and thus increase the value of the firm for its owners. Strategy defines
the perspective and tools managers use to appraise the companys present situation, identifies
the direction the company should go, and determines how the company will get there.
Strategy in an international context is a plan for the organization to position itself vis-a-vis its
competitors, and resolve how it wants to configure its value chain activities on a global scale.
Its purpose is to help managers create an international vision, allocate resources, participate in
major international markets, be competitive, and perhaps reconfigure its value chain activities
given the new international opportunities. Analyzing the significance of strategies and the
value associated, the four major types of strategies mentioned above and their relationship
with value chain have been individually described below.
a. International Strategy:
In international strategy also known as home replication strategy, products are designed with
domestic customers in mind, and international business is sought as a way of extending the
product lifecycle and replicating its home market success. This model relies on local
subsidiaries in each country to administer business as instructed by headquarters. Some
subsidiaries may have right to sell the product and also in some cases they may make slight
changes in assembly or promotion programs as per the need of local, but the managers at head
office has the ultimate control. A company chooses this strategy when it aims to leverage its
core competency by expanding in the global market for exploring opportunities. International
firms include the likes of McDonald's, Kellogg, Google, Haier, Wal-Mart, and Microsoft.
Firms that pursue an international strategy try to create value by transferring core
competencies and unique products to those foreign markets where rivals are unable to
develop, match, or sustain them. The international strategy, therefore, facilitates the transfer of
skills, expertise, and products from the parent company to its subsidiaries. Headquarters can
translate their expertise in and control over important activities into powerful positions to
command foreign operation to follow their lead. This expertise and control can take place in
manufacturing processes or general management skills. The value chain must focus on the
distribution and outbound logistics and human resource management International strategy is
appropriate and creates moderate operational costs accompanied by high profits when the firm
has a core competence that local competitors in other markets lack and if industry conditions
do not compel the firm to improve its cost control or local responsiveness.
b. Locally Responsive Strategy:
With, locally responsive strategies, also known as multi domestic strategy managers recognize
and emphasize differences among national markets so product and services are tailored to
local market. As a result, strategy and operating decisions are decentralized to strategic
business units (SBU) in each country and these business units in each country are independent
of each other such that the subsidiaries are allowed to vary product and management practices
by country. Johnson & Johnson and Procter & Gamble has followed this strategy.
Companies applying a multi-domestic strategy customize their products, marketing, and
service programs of their value chain to local conditions. So, the value chain for a multi-
domestic company must be able to provide freedom to its local subsidiaries to respond with
the various changes in the local environment like local cultural, legal-political, and economic
environments. This strategy requires huge investment in research and development to cater the
changing needs of local people. The drawback in this strategy is that each local subsidiary
builds value chain operations in a customized way to meet local demands that lead to
duplication of management, design, production, sales and marketing activities and thus
increase in costs.
c. Global Strategy:
Firms adopting global strategy pursue a low cost strategy by selling standardized product at
selected locations where pressure for local responsiveness is low. With this strategy, the
headquarters seeks substantial control over its country operations in an effort to minimize
redundancy, and achieve maximum efficiency, learning, and integration worldwide. The
companies that adopt this strategy thus see the world as one market and assume there are no
differences among countries with regard to consumer tastes and preferences or, if there are.
Then consumers will sacrifice them if given the opportunity to buy a comparatively higher
quality product for a lower price. Apple ipods, Motorola sets, Kodak photo films, Gillete
razors follow this strategy.
In regards to the value chain, R&D, production, and marketing activities are concentrated in
the most favourable location (often in headquarter) in global standardization strategy;
however the locations need not be in the same country for all these functions. The dispersing
activities of the resulting value chain are then coordinated by formal linkages. Strategic
business units (SBU) are assumed to be interdependent and so require resource sharing and
coordination across borders which also make it difficult to manage. The strategy creates value
by emphasizing economies of scale and converting global efficiency into price
competitiveness.
d. Transnational Strategy:
Transnational strategy is a coordinated approach to internationalization in which the firm
strives to be more responsive to local needs while retaining sufficient central control of
operations to ensure efficiency and learning. This strategy combines the major advantages of
locally responsive and global strategies, while minimizing their disadvantages. It implies a
flexible approach: standardize where feasible; adapt where appropriate. The key philosophy of
a transnational organization is adaptation to all environmental situations and achieving
flexibility by capitalizing on knowledge flows.
Transnational strategy implies organizing production, marketing, and other value-chain
activities on a global scale. It facilitates in global learning and knowledge transfer which is
also a basis of value creation. The strategy is useful in exploiting scale economies by sourcing
from a reduced set of global suppliers and concentrating the production of offerings in
relatively few locations where competitive advantage can be maximized. Thus, a transnational
strategy finds ways to configure a value chain by simultaneously exploiting location
economies, leveraging core competencies and paying attention to local responsiveness.