BU491

Week 3 -
Developing transnational
strategies
1
International context – traditional strategic
postures

Global
Strategy Building strong and resourceful national
subsidiaries that are sensitive to local
market needs and opportunities and
Forces for on highly centralized,
Capitalizing allowing these subsidiaries to manage
Global
scale-intensive manufacturing and their local businesses by developing or
R&D operations and leveraging them adapting products and strategies to
Integration
through worldwide exports of respond to the powerful localizing forces
standardized global products Treats the world as a portfolio of national
Treats the world as a single opportunities
integrated strategic unit
Multinational
Strategy

Forces for National Responsiveness

2
Forces of local differentiation and
responsiveness
Adaptations to the Marketing Mix (4Ps):
1. Product
2. Price
3. Place
4. Promotion

3
Forces of local differentiation and
responsiveness

Examples of adaptations for internationalization:

Companies lost in Translation

Toyota English: MR2 French: Merde

Fiat Uno Finnish: Uuno =

Idiot
Pepsi Come alive with Thai: “Come out of
Pepsi the grave with
Pepsi”

4
International context – traditional strategic
postures

Exploiting technological forces by

Global new products and processes
creating
Strategy
in one’s home market effectively and
diffusing these innovations to foreign
Forces for affiliates sequentially
Global Treats overseas units as offshoots of
domestic strategy
Integration
International
Strategy
Multinational
Strategy

Forces for National Responsiveness

5
Traditional strategic postures with distinct
sources of competitive advantages

Strategy Source of competitive Organization Disadvantages

advantage
International Home-country Headquartered in
strategy innovations as source of technologically
competitiveness advanced countries
Great abilities to create
and leverage innovations
Multinational Differentiation as source Assets and resources
strategy of competitiveness widely dispersed
Focus on revenue site considerable local
(customer preferences, autonomy of
industry characteristics, subsidiaries
etc.)
Global strategy Global efficiency as Concentration of
source of value chain activities
competitiveness

6
Traditional strategic postures with distinct
sources of competitive advantages

Strategy Source of competitive Organization Disadvantages

advantage
International Home-country Headquartered in Suffered from deficiencies of
strategy innovations as source of technologically both efficiency and flexibility
competitiveness advanced countries
Great abilities to create
and leverage innovations
Multinational Differentiation as source Assets and resources Suffered problems of
strategy of competitiveness widely dispersed inefficiencies and an inability
Focus on revenue site considerable local to exploit the knowledge and
(customer preferences, autonomy of competencies of other units
industry characteristics, subsidiaries
etc.)
Global strategy Global efficiency as Concentration of Suffered from deficiencies in
source of value chain activities flexibility and learning
competitiveness Risks associated with
concentration
7
Traditional strategic postures with distinct
sources of competitive advantages

Past
Success was built on the fit between a companies specific
strategic capability and the dominant environmental force in
their industry

Today
Challenge is to achieve worldwide competitive advantage by
developing layers of competitive advantage that is, achieve
global efficiency, multinational flexibility, and worldwide
learning simultaneously

8
Layers of worldwide competitive
advantage – Goals
Global efficiency
Lower the cost of inputs / increase value of outputs

Multinational flexibility
The ability to manage risks and exploit opportunities arising from the
diversity and volatility of the global environment
• Risks include macroeconomic risks (e.g. changes in factor costs,
economic cycles), political risks, competitive risks (e.g. uncertainties
about competitors actions), resource risks (e.g. availability of raw
material)
• Opportunities might include market size, access to resources and
knowledge
Opportunities and risks vary over countries and change over time
This variance makes flexibility very important
• Firms need to scan environment to detect changes that create risks
and/or opportunities
• Create built-in flexibility to national changes (e.g. network of
subsidiaries)

9
Layers of worldwide competitive
advantage – Goals

Worldwide learning
Diverse environments expose firms to multiple learning
opportunities that allow the firms to develop diverse
capabilities and new stocks of knowledge

• Leverage internal variety

• Worldwide human resources and capabilities as potential
sources of competitive advantage
• Opportunity to leverage central and local innovations
• Create true global innovation by linking sensing, response,
and implementation capabilities

10
Layers of worldwide competitive
advantage – Means
National differences
Differences in factor costs: firms can gain advantage by configuring the
value chain so that each activity is located in the country that has the least
cost for its most intensively used factor
Differences in output market: market potential and output markets; size of
a market and growth prospects, distribution systems, government
regulations
Pay attention to the dynamics of national differences over time (e.g. labor
costs might rise in some countries, emerging middle class)

Scale economies
Learning and progressive cost reduction

Scope economies
Share investments and costs across the same or different value chains
Sharing can take place across segments, markets, or products and may
involve the joint use of different kinds of assets (e.g. production machinery,
ICT, marketing, etc.)

11
Layers of worldwide competitive
advantage – Means

Sources of Scope Economies

Product Diversification
Shared Factory automation with
physical flexibility to produce
assets multiple products (Ford)
Shared Using common distribution
external channels for multiple
relationships products (Panasonic)
Market Diversification
Global brand name
(Coca-Cola)
Servicing multinational
customers worldwide
(Citibank)

Shared Shared R&D in computer Pooling knowledge developed

learning and communications in different markets
business (NEC) (Procter & Gamble)
12
Layers of worldwide competitive
advantage – Means
Sources of Competitive Advantage
National Differences Scale Economies Scope Economies
Achieving Sharing of investments
Benefiting from differences Expanding and
efficiency in in factor costs – wages and exploiting potential and costs across
current cost of capital scale economies in markets and
operations each activity businesses

Managing Managing different kinds of

risks through risks arising from market- Balancing scale with Sharing of investments
or policy-induced changes strategic and e.g. in production
multinational in comparative advantages operational flexibility machinery
flexibility of different countries

Innovation, Learning from societal Benefiting from Shared learning across

learning & differences in experience – cost organizational
organizational and reduction and components in
adaptation managerial processes and innovation different products,
systems markets, or businesses

13
International context – traditional
industries and strategic postures

Global Transnational
Strategy Strategy

Developing global efficiency, multinational

Forces for
flexibility, and worldwide learning
Global
capability simultaneously to achieve
Integration International
worldwide competitive advantage
Strategy

Multinational
Strategy

Forces for National Responsiveness

14
National responsiveness and global
integration
For a product/industry: 1. Chocolate bars (e.g., KitKat)
2. Toothpaste (e.g., Sensodyne)
3. Cereal (e.g., Kellogg’s Special
What supports a global K)
strategy? What can be 4. Home furnishing (e.g., IKEA)
standardized? 5. Apparel (e.g., Zara)
6. Automobile (e.g., Toyota)
7. Dairy products (e.g., Danone)
What might make a 8. Online retailer/e-commerce
multinational strategy (e.g., Amazon)
necessary? What should be 9. Cosmetics (e.g., L’Oréal)
locally adapted? Examples? 10. Medical devices (e.g., GE
Healthcare)
11. Construction and mining
How could a Transnational equipment (e.g., Caterpillar)
Strategy look like? 12. Telecommunications (e.g.,
BlackBerry)
15
Layers of worldwide competitive
advantage – Strategic tasks

Developing worldwide competitive

advantage depends on the companies
current position and strategy

1) Protect domestic niches

2) Challenge the global leader

3) Defend worldwide dominance

16
Layers of worldwide competitive
advantage – Strategic tasks

1) Protecting domestic niches

• Defend against the competitors global advantage
e.g. influence consumer preferences, tying up key distribution
channels, preempting local sources of critical supplies
• Offset the competitors global advantage
e.g. lobby for tariff protection (potentially not very promising),
gain government sponsorship to develop equivalent global
capabilities through funding of R&D, subsidizing exports, and
financial capital investments
• Approximate the competitors advantage
e.g. by linking up in some form of alliance or coalition with a
viable global company, e.g. exchanging and pooling market
access, technologies, and production capacity

17
Layers of worldwide competitive
advantage – Strategic tasks

2) Challenging the global leader

• Step by step approach to building competitive position
• Initial toehold by focusing on a narrow niche
• Expand to a foothold by expansion along both product
and geographic dimensions with a focus on products and
markets that are not of central importance to the
established leaders in the business (stay ‘invisible’ to
competitors)
• Gradually building product portfolio, technological
capabilities, geographic scope, and marketing expertise
• Once the worldwide advantages are created companies
can move on to achieve a strong permanent position in
the worldwide business (e.g. through acquisitions)
18
Layers of worldwide competitive
advantage – Strategic tasks

3) Defend worldwide dominance

Complex balancing act of protecting existing advantages and
building new ones
• Multinational firms try to centralize certain activities
• Global firms try to disperse resource among subsidiaries
• Resulted in problems with host country governments (plant
closures) and trauma inside the companies
• Instead of radical restructuring and trying to imitate
competitors structure they can
• Defend and reinforce existing assets and capabilities by modifying and
modernizing existing facilities
• Approximate a competitors source of advantage by adopting more
flexible manufacturing technologies and upgrading technologies
• Global companies try to introduce flexibility by creating internal linkages
between their national sales subsidiaries and their centralized
development units

19
Managing differences – The central
challenge of global strategies

International business strategy is managing

differences
Standardization (scale economies) and local
responsiveness are both valid responses to
that challenge
Another functional response to the challenge
of cross-border integration is arbitrage

Ghemawat, P. (2007). Managing differences – The central challenge of global strategies. HBR. 20
Managing differences – The central
challenge of global strategies
The AAA Triangle – A New Framework for Global Integration
Adaptation: increase revenues and
market share by customizing
processes and offerings; in extreme
cases local units in each national
market carry out all the steps in the
supply chain
Aggregation: deliver economies of
scale through regional or global
operations; standardization of
product or service offerings
Arbitrage: exploitation of
differences between national and
regional markets; locating parts of
the supply chain in different places

21
Ghemawat, P. (2007). Managing differences – The central challenge of global strategies. HBR.
Managing differences – The central
challenge of global strategies
ADAPTATION AGGREGATION ARBITRAGE
Competitive To achieve local To achieve scale To achieve absolute
Advantage – why relevance through and scope economies through
should we globalize national focus while economies through international
at all? exploiting some international specialization
economies of scale standardization
Configuration – Mainly in foreign countries that are similar In a more diverse set of
Where should we to the home base, to limit the effects of countries, to exploit some
locate operations cultural, administrative, geographic and elements of distance
overseas? economic distance

Coordination – How By country, with By business, region, By function, with

should we connect emphasis on or customer, with emphasis on vertical
international achieving local emphasis on relationships, even across
operations? presence within horizontal organizational boundaries
borders relationships for
cross-border
economies of scale

22
Ghemawat, P. (2007). Managing differences – The central challenge of global strategies. HBR.
Managing differences – The central
challenge of global strategies

A, AA, and AAA Strategies

A Strategies
Focused pursuit of just one of adaptation, aggregation or arbitrage
AA Strategies
A company can win by beating competitors along two dimensions at
once
A company can win because it manages the tensions between the two
As better than competitors
AAA strategies
Complexity of attempting to win on three dimensions collides with
limited managerial bandwidth
A one culture mentality can get in the way of hitting multiple strategic
targets
External relationships can force focus on a particular dimension

23
Ghemawat, P. (2007). Managing differences – The central challenge of global strategies. HBR.
Managing differences – The central
challenge of global strategies

Broader Lessons
• Focus on one or two of the As.
• Make sure the new elements of a
strategy are a good fit organizationally.
• Employ multiple integration
mechanisms.
• Think about externalizing integration.
• Know when not to integrate.

24
Ghemawat, P. (2007). Managing differences – The central challenge of global strategies. HBR.
Leading change

What is the main thesis of the article?

25
Kotter, J.P. (2007). Leading Change – Why Transformation Efforts Fail. HBR.
Leading change

Error 1: Not establishing a great enough sense of urgency

Error 2: Not creating a powerful enough guiding coalition
Error 3: Lacking a vision
Error 4: Under-communicating the vision
Error 5: Not removing obstacles to the new vision
Error 6: Not systematically planning for, and creating, short-term
wins
Error 7: Declaring victory too soon
Error 8: Not anchoring changes in the corporation’s culture

26
Kotter, J.P. (2007). Leading Change – Why Transformation Efforts Fail. HBR.