Chapter 4

Strategic Management in the

Multinational Company:
Content and Formulation
 Basic Strategy for the
Multinational Company

• Multinational companies use many of the same

strategies as domestic companies
• Two Important Concepts:
• Competitive advantage: when a company can
outmatch its rivals in attracting and maintaining its
targeted customers
• Generic strategies: basic ways to achieve and
sustain competitive advantage
 Generic Strategies for
Competitive Advantage

• Differentiation strategy: providing superior value to customers

• Ex.: BMW competing in the world market by providing high-
quality and performance sports cars
• Customers often pay a higher price for extra value
• Low-cost strategy: producing at a lower cost than competitors
• Ex.: Korean semiconductor firms
• Additional profits come from cost savings
• Focus Strategy: Based on the competitive scope or how
broadly a firm targets its products or services
 The Value Chain and
Competitive Advantage

• A firm can gain competitive advantage by finding

differentiation or low costs in its value chain activities
• Value chain is a convenient way of looking at all the
firm’s activities used to design, produce, market,
deliver, and support its product
(See Exhibit 4.3 – p. 129)
• Primary vs. Support Activities
• Upstream vs. Downstream activities
 Distinctive Competencies

• Are internal STRENGTHS that allow companies to

outperform rivals based on quality, innovation,
efficiency, and customer service.
• Resources: inputs into the production or service
processes
• Capabilities: ability to assemble & coordinate
resources effectively
• (See Exhibit 4.4)
 Sustaining Competitive
Advantage

• Sustainability means that strategies will not easily be

defeated by competitors
• There are four characteristics of resources &
capabilities that lead to competitive advantage
• Valuable
• Rare
• Difficult to imitate
• Non-substitutable
 Competitive Strategies in
International Markets

• Competitive strategies are strategic moves

multinationals use to defeat competitors
• Offensive competitive strategies: direct attacks to
capture market share
• Defensive competitive strategies: attempts to
discourage offensive strategies
• Counter-parry: fending off a competitor’s attack in
one country by attacking in another country
 Offensive Strategies

• Cut prices and/or add new features to the product

(Direct attacks)
• Seek unoccupied markets (End-run offensives)
• Try to be the first to obtain particular advantageous
position (Preemptive competitive strategies)
• Buy out a competitor (Acquisitions)
 Defensive Strategies

• Attempts to reduce risks of being attacked,

• Convince an attacking firm to seek other targets, or
• Blunt the impacts of any attack by:
• Exclusive contracts with best suppliers
• Develop new models to match competitor’s lower
prices
• Make public announcements about the willingness
to fight
 Counter-parry

• Popular strategy for multinationals where firm respond

to attack by counter attacking competitor in another
country
• Ex.: Kodak—When Fuji attacked Kodak in the U.S.,
Kodak retaliated by attacking Fuji in Japan.
• Goodyear also attacked Michelin in Europe as
response to attack in U.S.
 Multinational Diversification
Strategy

• Related diversification: companies acquire businesses

that are similar in some way to their original or core
business
• Ex.: Nike adding clothing line to its shoe operations
• Unrelated diversification: firms acquire businesses in
any industry
• Main concern is whether it’s a good financial
investment
 Traditional Approaches for
Strategy Formulation

• Strategy formulation is the process by which managers

select the strategies to be used by their company
• Popular analysis techniques
• Competitive dynamics of the industry
• Company’s competitive position in the industry
• Opportunities and threats faced by their company
• Company’s strengths and weaknesses
 1) Industry and Competitive
Analysis
• Managers must understand their industry well to formulate good
strategies including the economic characteristics and the driving forces in
the environment.
• Economic characteristics include:
• Market size
• Ease of entry
• Opportunities for economies of scale
• Driving forces are important changes that have potential to affect an
industry such as:
• Speed of new product innovations
• Technological changes
• Changing societal attitudes and lifestyles
 Know the Industry Key
Success Factors

• Innovative technology • Experience of firm in

or products business
• Cost position for raw
• Broad product line materials
• Effective distribution • Cost position for
channels production
• Price advantages • R&D quality
• Financial assets
• Effective promotion
• Product quality
• Superior physical • Quality of human
facilities or skilled labor resources
 2) Competitor Analysis

• Develop profiles of competitor’s strategies and objectives

• Four steps:
1. Identify competitors’ strategic intent (Understand the
broad objectives of competitors)
2. Identify the current and anticipated generic strategies of
competitors
3. Identify the current and anticipated offensive and
defensive competitive strategies of competitors
4. Identify what are competitors’ current competitive position
in the industry
 2) Company-Situation
Analysis: SWOT
• More complex than for domestic firms since
Multinationals face more complex general and
operating environments and environments vary by
country
• Strengths: distinctive capability, resource or skill
• Weaknesses: competitive disadvantage compared
to competitors
• Opportunities: favorable conditions in the
environment
• Threats: unfavorable conditions in the environment
 Corporate Strategy Selection

• Diversified corporation has a portfolio of businesses and must decide in

which businesses to invest in and which businesses to divest (Resource
Allocation)
• The basic tool: matrix analyses help answer basic strategy formulation
question such as:
• Are businesses in attractive industries?
• Are most businesses growing?
• Are there sufficient cash cows to finance other businesses?
• Is business portfolio well positioned for the future?
• Is the some strategic synergies among businesses?
• The most popular is the growth-share matrix of the Boston Consulting
Group (BCG).
 BCG Share Matrix

• Division into four categories based on market share and

relative market share
• Stars: the most successful firm
• Dogs: businesses with low market shares in low-growth
industries
• Cash cows: businesses in slow-growth industries where
company has strong market-share position
• Problem children (Question Mark): businesses in high-
growth industries where company has a poor market share