GLOBAL STRATEGIC MANAGEMENT
K.RANGARAJAN
Module 1
Fundamentals on Strategic Management &
Global Context
Strategy, Strategic Management Process
Levels of Management & Strategy
Globalisation & firm drivers
Globalisation & Global Strategy?
A Few Points to ponder………
 India is rated as the second preferred destination for FDIs in
the coming years.
 Excess Capacity especially in the wake of WTO is becoming a
strategic issue of top priority (Steel, Textile, Polyester etc.)
 Greenfield Investments is the preferred form for investment in
developing countries.
 The No. of Parent Cos of TNCs operating in economy is
around 82k (India-815)
 Only 2 coys from India are ranked in the top 100 non-financial
TNCs by Foreign Assets from the Developing Countries.
 The R & D expenditure by Indian Business firms is around
0.32% of Sales
 The downslide of Traditional business houses (Great Indian
Churn)
 Growing interdependence of global economies
 Growing Economic Turbulence across the world
 Crash of TNCs like Standard Oil, Union Carbide, Enron,
Lehman ………
India’s Most Admired Companies
Rank’10
Rank’11
Company
Growth(%)
1
1
RIL
-14.3
2
NL
CIL
NA
3
2
ONGC
-7.9
4
5
TCS
36.9
5
4
INFOSYS
-1.6
6
10
ITC
32.8
7
6
SBI
-6.2
8
9
BHARTI AIRTEL
27.7
9
3
NTPC
-12.4
10
13
ICICI BANK
10.4
Based on BT ranking of most Valuable Companies 2011
Challenge of Strategic Management
Competitive success is
transient...unless care is taken to
preserve competitive position
Strategic Competitiveness
Achieved when a firm successfully formulates and
implements a value-creating strategy
Sustained Competitive Advantage
Occurs when a firm develops a strategy that competitors are not
simultaneously implementing
Provides benefits which current and potential competitors are unable
to duplicate
Above-Average Returns
Returns in excess of what an investor expects to earn from other
investments with similar risk
The Strategic Management Process
Involves the full set of:
Commitments
Decisions
Actions
which are required for firms to achieve:
Strategic Competitiveness
Sustained Competitive Advantage
Above-Average Returns
The pace of change is
relentless & increasing
Fundamental nature of
competition is changing
21st Century Competitive Landscape
Traditional industry
boundaries are
blurring, such as…..
* Computers
* Telecom
* Consumer Elect.
21st Century Competitive Landscape
The global economy is
changing.
•People, goods, services and
ideas move freely across
geographic boundaries
• New opportunities emerge
in multiple global markets
• Markets and industries
become more
internationalised.
Traditional sources of
competitive advantage
no longer guarantee
success
New keys to success
include:
•
•
•
•
Flexibility
Innovation
Speed
Integration
Strategic Management & Strategy
Strategic Management
Art & science of formulating, implementing, and
evaluating, cross-functional decisions that
enable an organization to achieve its objectives.
Strategy
Means by which long-term objectives are
achieved
Other views of Strategy
Strategy as Plan:
Consciously intended course of action which
may be in the form of guidelines/report
guiding decision making.
Strategy as Ploy:
Short-term tactic or a maneuver, intended to
outwit a competitor.
Strategy as Pattern:
It is after-the-fact view which emerges over a
period of time.
Other views of Strategy
Strategy as Position:
Managers see their firm as occupying a space
within an environment in terms of Market
share, Profits, Assets etc.
Strategy as Perspective:
This is a way of perceiving the world, and
individuals in an organization are united by
common thinking and behaviour.
Elements of Strategy
Strategy Formulation
Vision & Mission
External Opportunities & Threats
Internal Strengths & Weaknesses
Long-Term Objectives
Alternative Strategies
Strategy Selection
Elements of Strategy
Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
Elements of Strategy
Strategy Evaluation
Internal Review
External Review
Performance Metrics
Corrective Actions
Levels of Strategy
•Corporate Level – Choice of business, dividend policies,
sources of long term financing and priorities for growth
•Business Level – Plant location, marketing segmentation and
geographic coverage, and distribution channels
•Functional Level – Levels of Inventory, degree of supervision,
selection of production equipment etc.
Managerial Decisions (Vs) Strategic Levels
Features
Corporate
Business
Functional
Measurability
Subjective
Semi
Quantifiable
Frequency
Periodic/Sporadic
Periodic/Sporadic
Periodic
Relation to
present act
Innovative
Mixed
Supplement
Risk
Wide
Moderate
Low
Profit Potential
Large
Medium
Small
Cost
Major
Medium
Modest
Time Horizon
Long-range
Medium
Short
Flexibility
High
Medium
Low
Cooperation
Reqd.
Considerable
Moderate
Little
Achieving Sustained Competitive Advantage
1. Adapting to change in external
trends, internal capabilities and
resources
2. Effectively formulating,
implementing & evaluating
strategies
Adapting to Change – Key Strategic Management
Questions
What kind of business should
we become?
Are we in the right fields?
Are there new competitors?
What strategies should we
pursue?
How are our customers
changing?
A Company’s Actual Strategy Is Partly
Planned and Partly Reactive
Company
Experiences,
Know-how,
Resource
Strengths and
Weaknesses, and
Competitive
Capabilities
Actual Company
Strategy
Recent Changes in General Globalization Drivers
Some of the widespread changes include the following:
Market Drivers
•
Per capita income converging among industrialized nations
•
Convergence of lifestyles and tastes (e.g., McDonald’s in India and
Stolichnaya vodka in America)
•
Increasing travel creating global consumers
•
Organizations beginning to behave as global customer
•
Growth of global and regional channels (e.g.,Walmart (US) in 10
Countries, Carrefour (France) in 31, Metro (Ger.) in21,& 7-eleven (Jap.) in 21 )
•
Establishment of world brands (e.g., Coca-Cola, Levi’s, Microsoft)
•
Push to develop global advertising (e.g. McCann's for Nestle & Gillette;
Saatchi & Saatchi’s commercials
for British Airways.
•
Spread of Global & regional media (CNN,MTV,Star TV in Asia)
Recent Changes in General Globalization Drivers…
Cost Drivers
 Continuing push for economies of scale (but offset
by flexible manufacturing)
 Accelerating technological innovation
 Advances in transportation (e.g., use of Federal
Express to deliver urgent supplies from one
continent to another)
 Emergence of newly industrializing countries with
productive capabilities and low labor costs (e.g..,
China, India, Indonesia etc.)
 Increasing cost of product development relative to
market life
Recent Changes in General Globalization Drivers…
Government Drivers
Reduction of tariff barriers (e.g., NAFTA,FTAs)
Reduction of non-tariff barriers (e.g., Japan’s
gradual opening of its markets)
Creation of trading blocs (e.g., EU etc)
Decline in role of governments as producers
and customers (e.g., denationalization of many
industries in Europe, China, India etc.)
Privatization in previously state-dominated
economies, particularly in Latin America
Shift to open market economies from closed
communist systems in Eastern Europe & Soviet
Increasing participation of China and India in
the global economy
Recent Changes in General Globalization Drivers…
Competitive Drivers
 Continuing increase in level of world trade
 More
countries
becoming
key
competitive
battlegrounds (e.g., rise of Japan to become a “lead”
country)
 Increased ownership of corporations by foreign
acquirers
 Rise of new competitors intent upon becoming
global
competitors(e.g.,Japanese(70s),Koreans(80s),Taiwan
ese (90s),Chinese(00s), Indian & Russian (10s).
 Rise of ‘born global’ companies.
 Growth of global networks making countries
interdependent
in
particular
industries
(
eg.,electronics)
Recent Changes in General Globalization Drivers…
Other Drivers
Revolution
in
information
and
communications
(e.g.,personalcomputers,mobiletelephony,
internet etc.)
Globalization of financial markets (e.g., listing
of corporations on multiple exchanges, and
issuing debt in multiple currencies)
Improvements in business travel (e.g.,
improved air travel and rise of international
hotel chains)
Historically Corporate Globalization
took place in 3 stages
Global Integration
(Global)
Internationalisation
(Multinational)
Export
(Trade)
ELEVATORS in EUROPE
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R
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P
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P
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GIS 4
M
P
M
R
M
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R
R
M
M
Why Companies Globalize?
 Increase Size (V): Capture market opportunities
Customer Value
CV
Price
PROFIT
Costs
Internal Costs
C
Supplies (S)
Volume (V)
 Increase Size benefit from Economies of Scale (C)
 Get Access to resources and procurement(S)
 Get access to low cost labor and infrastructure (C)
 Get access to knowledge (CV and C)
 Serve global customers (CV)
 Reduce risks through geographical diversification
Globalisation Push Factors
Political
Factors
* GATT * EEC * FDI
Reduce trade barriers
Technological
Factors
Social Factors
* Convergence of
* Transport * Manufacturing
* Telecommunication * R&D
Globalisation
customer’s needs
* Travel, TV, movies
Favour standardisation
and global branding
Reduce the cost of
co-ordination
Increase economies
of scale
Competitive
Factors
*
Japanese and Korean
* Multinational Customers
Induce integration and co-ordination
Localisation Push Factors
Cultural
Factors
*
Attitudes, tastes
* Behaviour * Social Codes
Reduce the benefits of standardisation
Technical
Factors
* Standards * Transportation
* Spatial presence * Languages
Commercial
Factors
Localisation
* Distribution networks
* Customisation
* Responsiveness
Require differentiated
approaches to sales
and marketing
Reduce the benefits of
economies of scale,
centralisation and
standardisation
Legal
Factors
*
Regulations
* National security
Limit free flow of people, goods, data,
cash Impose localisation constraints
LOCAL INDUSTRIES
Local industries are industries
in which firms can sustain
competitive within the
boundaries of countries.
Firm competing in multilocal
industries
Are either:
• Domestic firms within each
country
•Subsidiaries of multinational
companies operating
independently of each others in
the respective countries
GLOBAL INDUSTRIES
Global industries are industries
in which firms can sustain competitive
advantages only if :
• They are present in the key countries of
the world
and
• They integrate and coordinate their
activities across the world on a
centralized manner.
Industries: Global or Local ?
Characteristics of Global Industries
• Similar Needs & Customers Behavior
• Standardized Products
• Beyond country economies of scale
• Speed of Innovation
• Transferability of experience
• “Global” customers
• “Global” pricing
• “Global” competitors
Characteristics of Local Industries
• Different
Needs & Customers
Behavior
• Customized
Products/services
• Low economies of scale
• Complex distribution
• Transferability of experience
• “Local” customers
• High transport costs
DIFFERENT INDUSTRIES HAVE DIFFERENT
COMPETITIVE REQUIREMENTS
HIGH
Telecommunication
Equipments
Civil Aircraft
Microprocessors
Institutional Banking
Bulk Chemicals
Corporate Banking
Automobile
Paint
GLOBAL
FORCES
Package Tours
Retail Banking
Catering
LOW
LOW
Food
Retail
HIGH
LOCAL FORCES
WITHIN BUSINESSES DIFFERENT SEGMENTS HAVE
DIFFERENT COMPETITIVE REQUIREMENTS
PAINTS
HIGH
AUTOMOTIVE
AIRCRAFT
GLOBAL
FORCES
MARINE
CAR
INDUSTRIAL
DO IT YOURSELF
LOW
LOW
HIGH
LOCAL FORCES
WITHIN BUSINESSES DIFFERENT FUNCTIONS HAVE
DIFFERENT BENEFITS OF BEING "GLOBAL" or "LOCAL"
HIGH
Research
Development
Finances
After Sales
Services
Components Sourcing
Components Manufacturing
GLOBAL
FORCES
Logistics
Marketing
Advertising
Accounting
Customers Services
Sales
LOW
LOW
LOCAL FORCES
HIGH
Domestic (vs.) Global Strategy:
• Greater scale and scope of activities
• More alternatives for configuration Of VA
Activities
• More scope for competitive advantage
• More subjected to cultural and lingual activities
• Wider economic and factor conditions