Description
explains concepts on balance scorecard, ansoff matrix, market penetration, diversification, integration, BCG Growth-Share Matrix, generic strategies, Competitive Tactics, Functional Strategies, Strategic International Alliances, Joint Venture, Consortium and Mergers & Acquisitions.
Corporate Strategy
Corporate Strategy
• Also known as Grand Strategy, Master Strategy, General Strategy • Pertains to the organisation as a whole • Answers key questions:
– What businesses? Range of products? – What geographic spread? – What range of vertically integrated activities? – How to manage the businesses?
Strategy Alternatives
• Growth Strategy/ Expansion Strategy – Intensification
• • • • Market penetration Market development Product development R&D
• Stability strategy
– Incremental growth – Sustainable growth – Pause
• Retrenchment Strategy
– Divestment – Turnaround – liquidation
– Diversification
• Concentric / horizontal integration • conglomerate • Vertical Integration
– Backward – Forward
• Combination Strategy
– Joint venture – Strategic alliances – consortia
Growth/Expansion Strategy
• An organisation aims at substantially broadening the scope of one or more of its businesses in terms of their respective customer groups and alternative technologies, singly or jointly in order to improve its overall performance.
– Influenced by external environment – Influenced by internal environment – Top management more satisfied
Balanced Score Card
• Kaplan and Norton
– Linking corporate goals with strategic options undertaken at business units, departmental and individual levels – Allows to evaluate the organisation from different complementary perspectives – The performance at one level is linked with performance in other areas
Balanced Score Card
EVA
Financial
Profitability
Growth Differentiation
Customer
Cost Response Product development
Operations
Demand Management
Order Fulfillment Leadership
Organisational
Organisational learning Ability to change
Ansoff Matrix
Current Product New Product
Current market
Market Penetration
Product Development
New market
Market Development
Diversification
Market Penetration
• Concentration strategy • Increase sale of existing product in existing market • Least risky option • Success depends upon
– – – – Stages of PLC Intensity of competition Company?s position in the market Cost of attaining additional market share
• Tools
– Advertising – Other marketing tools
Market Development
• Existing products in new markets
– Creating new uses of the product (Du Pont?s Nylon) – Creating price segments by providing minor variation in the product range (HLL?s Toiletries) – New territories – New channels of distribution to expand customer base
Product Development
• New Products to the same market
– Quality improvement – Feature improvement – Aesthetic appeal – Different placement of the product – Creating entire product range – Providing all accessories
• Strategy to prolong life cycle of the product
Strategy at MSIL
Year 1981 1982 Particulars Maruti Udyog Ltd. was incorporated under the provisions of the Indian Companies Act, 1956 License and JV agreement signed between Maruti Udyog Ltd. and SMC of Japan Omni, a 796cc MUV was launched. Installed capacity reaches 40,000 units Launch of Maruti Gypsy (970cc, 4WD off-road vehicle) Installed capacity reaches 100,000 units Maruti 1000 (970cc, 3 box), India’s first contemporary sedan launched SMC increases its stake in MSIL to 50% Zen (993cc, hatchback Car), which was later exported in Europe and elsewhere as the Alto Esteem 1.3L (1298cc, 3 box car) LX launched
1983 Maruti 800, a 796cc hatchback, India’s first affordable car was launched
1984 1985 1988 1990 1992 1993 1994
1987 Exported first lot of 500 cars to Hungary
Strategy at MSIL
1995 1997 1999 2000 2001 With the launch of second plant, installed capacity reached 200,000 units New Maruti 800 (796cc,hatchback Car) Standard and Deluxe launched. Produced the 2mth vehicle since the commencement of production Launches Baleno, WagonR along with new variants of Omni and Zen Alto and Altura (luxury estate car) launched Maruti Versa (luxury MPV) launched
2002 Esteem Diesel. All other variants upgraded. Suzuki Motor Corporation (SMC) increases its stake in MSIL to 54.2%
2003 2004 2006 2007 2008 New Suzuki Grand Vitara XL-7 launched. Production of 4mth vehicle. Listed on BSE and NSE after a public issue oversubscribed 10 times Alto becomes India’s new best selling car. New variants of Baleno and Versa launched Launched new version of WagonR that is WagonR Duo (with LPG kit) Swift Diesel and Zen Estilo launched. Maruti 800 Duo (LPG) launched on the occasion of word environment day
Innovation
• New product in the new markets
– Radical innovation: Replace existing product – Incremental innovation: Modify existing product (technological enhancement)
• R&D is the most costly and risky strategy • Gives great success • Allen and Hamilton Inc?s Management Research Department studied 51 companies • Six stages of Innovation strategy identified
Innovation
• Innovation:
– 58 new ideas generated
• Screening:
– 12 passed initial screening test
• Business Analysis:
– 7 passed product potential test
• Development:
– 3 survived actual attempts to develop the product
• Commercialisation:
– 2 appeared to have profit potential
• Success:
– Only 1 ultimately successful
Diversification
• Diversification signifies entries into fields where both product and market are different from firm?s initial position
– Related: share any of the skill base of the firm
• Concentric
– Unrelated: does not share any of the skill base of the firm
• Conglomerate
Why Diversify?
• Peter Drucker
– To avoid the danger of overspecialisation – Balance the vulnerabilities of own wrong size – Use own strengths to exploit opportunities
• Ansoff
– Objectives can no longer be met by expanding within existing product-market – Retained cash exceeds demand for investment – Greater opportunities outside the industry – Expanding risk portfolio
Concentric Diversification
• Diversify in related but distinct business
– Market related synergy
• • • • Common Distribution channels Common Marketing skills Common customers Brand names
– Technology related
• Economies of scope
• Benefits
– – – – Synergies created Market power increases Distinctive competence increases to other areas Reduced economic risk
Concentric Diversification
Mahindra & Mahindra Ltd.
Automotive Domestic Mahindra International First Choice Mahindra Renault Ltd. Farm Equipment 4 Wheelers , Three Wheelers, Pik – Ups, SUVs, UVs, LCVs
Used cars - Purchase, Sale and Finance
Car ‘Logan’
Mahindra Agribusiness Agri inputs and services Farm Equipment Mahindra Gujarat Tractor Engines, Farm Implements Tractors
Conglomerate Diversification
• Unrelated diversification: no relation either with technology or market base or product range
– – – – – To reduce risk of concentration Mainly profit consideration Normally through acquisition mode Taking advantages of an expanding economy Migrating from business under threat due external environment factors – Personal choice of industrialists
Conglomerate Diversification
Trade & Financial Services Mahindra Intertrade Mahindra Insurance Brokers Mahindra Finance Kotak Mahindra Bank Ltd. Information Technology Mahindra Logisoft Tech Mahindra Infrastructure Development Mahindra Infrastructure Developers Mahindra Acres Consulting Engineers Mahindra Special Services Group Mahindra World City Mahindra Holidays & Resorts Mahindra Lifespaces Ferro Alloys and Metal Scrap, Steel and Steel Related Services, Technical Products and Services, Toys and Apparel Insurance and Risk Management Services Loans and Mutual Fund Distribution Investment and merchant banks, Banking services Security brokers Dealership Management and Facility Management Software Solutions Development of Infrastructure Projects Engineering consultancy Information Security Consultancy Integrated Business Cities Lifetime holidays Living Spaces and Working Spaces
Conglomerate Diversification
Systech
Mahindra Composites Mahindra Engineering Mahindra Forgings Mahindra Gears Composites Engineering Services Forgings Gears
Mahindra Steel Service Centre
Mahindra Sourcing Mahindra Steel Products Speciality Business Mahindra AshTech Mahindra Logistics Mahindra Defence Systems
Service Centre for Automotive and Electrical Steels
Sourcing of Auto Components Stampings and Steel Ash Handling Euipments for Power Plants
Corporate People Movement and Supply Chain Management
Defence Vehicles
Risks of Diversification
• Demands very high level of managerial, operational and financial competence • Decreasing commitment to basic business • Loss of attention and control • Against the principle of core competence
Integration
• Horizontal
– Similar to concentric diversification – Normally through takeovers, mergers, joint ventures – Strong internal R&D
• Vertical
– Forward
• Become own buyer
– Backward
• Become own supplier
Vertical Integration
• Advantages
– Internal
• Reduced costs: inventory, overheads • Improved performance an quality control
– Competitive
• Superior control over market • Product differentiation
• Disadvantages
– Internal
• Burden of excess capacity • Diseconomies of scale
– External
• Mobility barriers • Loss of information on industry
Stability Strategy
• • • • • Sustainable growth strategy Maintaining status quo Safety oriented Aimed at methodical moderate growth Incremental performance in one or more of its businesses in terms of
– Customer groups: special package to institutional buyers – Customer functions: better after sales service to existing customers – Alternative technologies: modernisation of plant
• Appropriate for a reasonably successful company in a moderately attractive industry
Profit Stability strategy
• A company with modest competitive position and facing no or little growth may aim at continuing the same course maintaining profit by making little adjustments in price and cost.
– Short term cut on R&D, advertising, maintenance, etc. – Moderate increase prices to adjust for inflation
Pause/proceed with caution Strategy
• When competitive environment is highly unpredictable • A temporary strategy to enable a company to consolidate its resources after prolonged rapid growth (or big losses) now facing uncertain future.
– Dell adopted this strategy in 1993 when it grew 285% and found it difficult to handle the growth. – Ford Motors adopted it when it recorded a loss of 2.3 billion in 1991. the company believed that the downturn was temporary and made some adjustments
Retrenchment Strategy
• Defensive strategy • When nothing seems to give results • Neither industry is attractive nor own position is strong • Involves partial or total withdrawal from a customer group, customer function, alternative technologies • Results in slimmer organisation
Turnaround Strategy
• When the organisation attempts to reverse the process of decline and turn around to profitability.
– Reduce unnecessary overheads – Cost rationalisation – Timeliness of every action very important
Elements of Turnaround
• • • • • • • • • Change in top management Initial credibility building actions Neutraising external pressures Initial control Identifying quick payoffs Quick cost reduction Revenue generation Asset liquidation for cash generation Better internal coordiantion
Divestment Strategy
• Also called divestiture or cutback • Involves sale of a portion of the business or a major division or profit centre or SBU • Spin Off: sell stakes to another firm or to employees or leveraged buy out and make it a financially independent unit • Sell out: outright sale of the company
Liquidation Strategy
• Worst possible situation • No hope of recovery • Bankruptcy: giving up the control of the firm in the hands of court in return for some settlement for its obligations • Liquidation: when company is too weak to be sold off as a going concern
– Its assets sold for cash
Model of Corporate Strategies
Company’s competitive position Strong Vertical Integration Average Horizontal Integration Weak Turnaround
Industry Attractiveness
High
Medium
Proceed with caution Concentric diversification
Profit strategy
Sell out
Low
Conglomerate diversification
liquidation
Combination Strategy
• Also referred as Mixed or Hybrid Strategies • Combination of Growth, stability and retrenchment strategies adopted, either simultaneously or sequentially • Especially popular in case of multi business firm
BCG Growth-Share Matrix
• Growth rate of industry
– Percentage by which sales of a product line increased over previous year – Indicator of attractiveness
• Relative market share of the unit
– As its market share divided by its largest competitor – A market share above 1 belongs to the leader
BCG Growth-Share Matrix
• Stars
– Market leaders – High growth potential – Require substantial resources
• Cash Cows
– High cash generation – Normally former stars
• Question Marks
– Require more resources than generate – Potential stars
• Dogs
– Barely support themselves – Mostly drain others? resources
BCG Growth-Share Matrix
Stars Business growth rate
Question Marks
10 Cash Cows Dogs
1.5
1
Relative Market Share
BCG Growth-Share Matrix
• Dos
– – – – Invest heavily in Stars Maintain Cash Cows Use selective resource allocation to Question Marks Liquidate/divest Dogs
• Don'ts
– Do not leave too little cash with Cash Cows – Do not invest too long in Dogs – Do not maintain too many Question Marks
BCG Growth-Share Matrix
• Healthy Portfolio
– More Stars an Cash Cows and few Question Marks and Dogs
• Successful SBUs have life cycle Question Marks Stars Cash Cows Dogs
BCG Growth-Share Matrix
• Merits
– – – – Quantifiable Easy to use Helps in future projections Helps in identifying primary strategy issues
• Demerits
– Considers extreme positions – Market growth rate and share, each based on single parameter – Not appealing terminology
GE Business Screen
• GE Multi Factor Portfolio Analysis
– An improvement over BCG Matrix – Many factors to measure industry attractiveness and market position of the unit – Nine cell Matrix – More pleasant terminology
GE Business Screen
• Industry Attractiveness
– – – – –
– – – – –
Market growth rate Industry profitability Size of the market Pricing policies Other opportunities and threats
Market share Technological position Profitability Size of the unit Other strengths and weaknesses
• Competitive Strength of the unit
Preparing GE Business Screen
• Select criteria to rate industry attractiveness for each product line • Assess overall industry attractiveness on a scale of 1-5 • Assess business unit strength on scale of 1-5 • Plot each unit?s current position on the nine cell matrix as a circle where:
– Area of circle is proportional to the relative size of the industry – Pie slice represents market share of the unit
• Plot the firm?s future portfolio assuming no change in corporate strategy
– Is there a gap between projected and desired position? – If yes review company?s vision, mission and strategy
GE Business Screen
Company’s competitive position Strong Winners Industry Attractiveness High Average Winners Weak Question Marks
Winners Medium
Average Business
Losers
Low
Profit Producers
Losers
Losers
Business level Strategy
Business level Strategy
• Integrated and coordinated set of commitments and actions designed to provide value to the customers and gain a competitive advantage by exploiting core competencies in specific individual product markets. • Also called as competitive strategies
Business level Strategy
• Basics: who, what, how
– Need to identify who my customer is? – What needs of the customer will I satisfy? – How would I satisfy those needs?
The customer
• Market segmentation: a process through which people with similar needs are clustered into individual identifiable groups. • Market segmentation creates a framework for selection of business strategy
– Average customer may be misleading – Need to identify specific customer
• Basis for segmentation
– Consumer markets: demographic, social, economic, geographic, psychological – Industrial markets: technological, geographic, customer size
Customer Needs
• Identifying and catering existing needs
– Listen to customers – Studying customers? influences on products, technology, distribution
• Anticipating and satisfying unknown needs
– – – – Being able to positively surprise the customer Provide customers unexpected value First mover advantage Gain an early competitive advantage
Satisfying customer needs
• Use core competencies to implement value generating strategies to satisfy customer needs
– Technology – Service – Reach – Variety
Generic Strategies
• Concerned with a firm?s industry position relative to those of competitors: Porter • Firm can have either of the two competitive strategies
– Lower cost – Differentiation
• Firm?s competitive advantage in an industry is determined by its competitive scope
– Broad target: middle of he mass market – Narrow target: niche market
• Combining the two strategies with two types of scope gives four generic strategies
Generic Strategies
Competitive Scope
Broad Target
Cost Leadership
Differentiation
Focused Cost Leadership
Cost
Narrow Target
Focused Differentiation
Uniqueness
Competitive Advantage
Cost Leadership
• Low cost competitive strategy aiming at broad mass market • Low cost lower price satisfactory profit margins
– – – – – Rigorous cost control Large scale operations Minimum wastages Avoidance of marginal customer accounts Minimum R&D, advertising, sales force etc.
Cost Leadership
• Competitive risks
– Technology may become obsolete due to low emphasis on R&D – May remain unaware of changing customer needs – May find amidst a differentiated market which was earlier undifferentiated – Threat of imitation
Differentiation
• Aimed at broad market with a unique product where firm may charge a premium • Uniqueness in:
– – – – – Unusual features / Design Rapid product innovation Brand image: perceived prestige and status Technology Dealer network
• Challenge is to identify features that create value to the customer • Earns above average returns
Differentiation
• Competitive risks
– Price differentials between differentiator and cost leader may be too large – Cannibalization: new product may eat away old product market – Threat of imitation – Increased awareness may take away pereived brand image
Focused Strategies
• Focus strategy is an integrated set of activities aimed to serve the needs of a particular target group
– A certain consumer group – An industry segment – A product line – A geographical segment
Focused Cost Leadership
• Cost leadership as applied to a focused market or narrow target • Firm seeks cost advantage in a target segment • Requires trade off between market share and profitability
Differentiation Focus
• Differentiation to serve unique needs of a small group • Strong understanding of customer needs • Very strong R&D • Integration of all activities
Risks of Focus Strategies
• Target segment becomes unattractive • Demand disappears • Difference between segments narrows down
– Broad target becomes more attractive
• Threat of imitation
– New focusers subsegment the industry
Competitive Tactics
• A tactic is a specific operating plan for implementation of a strategy • Tells how, when (timing) and where (market) of strategy
Timing Tactics
• First mover
– Pioneer – Higher market share than late entrants – Long term profit advantage
• Late mover
– – – – Imitators Learn from mistakes of pioneer Minimize cost on R&D, market creation Market segmentation (usually ignored by first mover)
Location Tactics
• Offensive Tactics
– Frontal Assault
• Head to head in every aspect from price to product to distribution to promotion • Very costly and needs huge resources and perseverance
– Flanking Maneuver
• Attack a part of the market where competitor is weak • Patience and careful expansion in undefended markets
– Encirclement
• Usually evolves from Frontal Assault or Flanking Maneuver • Attack with entire product range and many markets
– Bypass Attack
• Cut the market out from under the established defender • Development of a new version of a product to cater unsatisfied needs of consumers
– Guerrilla Warfare
• Hit and run • Small, intermittent attacks on different segments • Usually adopted by new entrants for short term gains
Location Tactics
• Defensive Tactics
– Raise Structural Barriers
• • • • • • Offer a full line of product Block channel access by signing exclusive agreements Raise buyers? switching cost Keep price low Patenting, franchising Influence government to create barriers
– Lower inducement to attack
• Make industry unattractive by reducing future profit expectations • Deliberately keep prices low and invest in cost reducing measures • Highlight the problems
Functional Strategies
• • • • • Marketing Strategy Financial Strategy Research and Development Strategy Operations Strategy Human Resource Strategy
Strategies to Avoid
• Follow the leader
– SWOT necessary
• Hit another home run
– Pioneers may be stuck with success of first idea – Very few are second time lucky
• Arms race
– Entering into a spirited battle
• Do everything
– Ignore core competency
• Losing hand
– Fixation with a project where huge investment has gone without much success – May ultimately lead to bankcruptcy
Cooperative Strategy and International Strategy
Co-operative Strategy
• Co-operative relationships occur at various points in a firm?s value chain and can be visualized on a continuum ranging from infrequent transactions to full involving mergers and acquisitions. • All offer the opportunity to combine the relative resources and technologies of the firms, but in different ways and with different consequences.
Co-operative Strategy/ Alliance
Flexibility
Licensing
Quasi-market
Non- equity partnership
Equity exchanges (Sharing) Joint Ventures
Hi-tech
Quasi-hierarchy Control
Merger & Acquisition
Low-tech
Co-operative Strategy/ Alliance
Strategic International Alliances
International Collaborative Forms
? Joint venture:
two or more companies share ownership
of an FDI ? Consortium: when two or more organizations participate, this is what the resulting joint venture is sometimes called ? Equity alliances: involves a company?s equity position in the company with which it has a collaborative arrangement • The purpose of equity ownership is to solidify a collaborating contract ? Licensing: a company grants rights to intangible property to another company • Cross-licensing
International Collaborative Forms
? Franchising: a specialized form of licensing in which
the franchiser not only sells an independent franchisee the use of a trademark but also assists on a continuous basis in the operation of the business ? Management contracts: arrangements whereby, for a fee, one company provides personnel for another company ? Turnkey operations: involve a contract for construction of operating facilities that are transferred for a fee to the owner when they are ready to commence operations.
International Collaborative Forms
Motives for International Collaborative Arrangements
• •
• • • • • • •
Spread and reduce costs Specialize in competencies ?Resource-based view of the firm holds that each company has a unique combination of competencies Competitive factors Secure vertical and horizontal linkages ?Horizontal linkages may increase a company?s product line ?Companies may lack the resources to go it alone Glean knowledge Gain location-specific assets Overcome legal constraints Diversify geographically ?Can help a firm smooth its sales and profits Minimize exposure in risky environments
Strategic Alliance
• Strategic Alliances are cooperative agreements between actual and potential competitors to exploit market opportunities • A strategic alliance (Chan et al., 1997,) enables a firm to focus resources on its core skills and competencies while acquiring other components or capabilities it lacks from the marketplace.
Strategic Alliances
Strategic Alliances are part of: -strategic moves, -change-management -knowledge-management
Why strategic alliances?
• Direct capital infusion in exchange for equity and/or intellectual property or distribution rights;
• A “capital substitute”, by which the resources that would otherwise be obtained with the capital are obtained through joint venturing.
• A shift of the burden and cost of new-product development (through licensing) in exchange for a potentially more limited upside;
Why strategic alliances?
• An entry strategy into new domestic or overseas markets through partnering or joint ventures; • Distribution and commercialization; and
• Financial savings through sharing the risks and the costs of commercialization, marketing, distribution, and other expenses.
Why strategic alliances?
• • • • • • • • • • Satisfy customer demand Share R&D costs, fill knowledge gaps Scale economies [volume economics] Scope economies [coordination economics] Jump market barriers Compress time, speed up process logistics Pre-empt competitive threats Use excess capacity Cut exit costs Cheaper than acquisitions
Benefits of strategic alliances
• • • • • Developing new markets (domestic/international); Developing new products Developing and sharing technology; Combining complementary technology; Pooling resources to develop a production/distribution facility; • Acquiring capital; • Executing government contracts; and • Access to new distribution channels or networks or sales and marketing capability.
Phases of strategic alliances
– Alliance Business Case – Partner Assessment and Selection – Alliance Negotiation and Governance – Alliance Management – Assessment and Termination
Each Phase requires different variables for attaining end-game
Partner Assessment and Selection
• Compatibility
• Capability
– Complementary strengths, stability – Has the capability been scrutinized – Visible vs. invisible competence
• Commitment
– The exit cost
Alliance Negotiation and Governance
• framework of contract
• performance clauses
• restrictions on the partners and liability
• contractual changes, dispute resolution, share disposal and alliance termination • identity and role of negotiators as well as the interaction between managers and their lawyers
Alliance Management and Assessment
• A complementary unified force or purpose that bonds the companies together • A management team committed to the success of the venture • A genuine synergy, in which the “sum of the whole truly exceeds its individual parts” • A cooperative culture and spirit between the strategic partners that leads to trust, resource-sharing and a friendly chemistry between the parties • A degree of flexibility in the objectives of the joint venture to allow for changes in the marketplace and an evolution of technology • An alignment of management styles and operational methods • Focus and leadership
MOTIVES >Resource Sharing >Cost Reduction >Increased Efficiency
STRATEGIC ALLIANCE
DRIVERS > Firm Characteristics > Industry Chars. > Environment Chars.
Termination of SA
break-down
Success [competence is transferred]
Failure [expectations?]
Irrelevant [ M&A ]
Joint Venture
• In a joint venture, two or more "parent" companies agree to share capital, technology, human resources, risks and rewards in a formation of a new entity under shared control.
International Joint Ventures
• A Joint Venture is considered international if at least one partner is headquartered outside the country of operation or if the venture operates significantly in more than one country. • Hence, an IJV can be defined as inter company collaboration over a given international economic space and time for the attainment of mutually defined goals.
Possibilities of International Joint Ventures
Case 1 2 3 4
Home Place of company A India Foreign India India
Home Place of company B India Foreign Foreign Foreign
Place of IJV India India Foreign India
Types of IJV Domestic JV Trinational IJV Traditional IJV Traditional IJV
Top Ten sectors of IJVs in India
terms of numbers)
S.N 0 1 2 3 4 5 6 Name of Industry Area of IJV Created Finance Computer software Business consultancy Misc. other services Trading Other Telecommunication services 1560 470 339 352 255 Technology 5 20 26 1 22 3 Total No. of IJVs 1565 490 365 353 303 258
(in
Total Foreign Equity (Rs. Crore) 2059.76 2074 1096.36 1198.17 429.14 4751.02
Misc. manufactured articles 281
7
8 9 10
Automobile ancillaries
Drugs & pharmaceuticals Hotels & restaurants Electronic equipments
127
168 114 143
118
41 57 25
245
209 171 168
1707.48
4455.92 748.38 217.83
Total
3809
318
4127
18738.1
Top Ten sectors of IJVs in India
terms of Foreign Equity)
S.N Name of Industry
Commercial complexes Total No of IJVs 88 Foreign Equity (in Rs. Crore) Finance 6350.34 Technology 0
(in
Total Foreign Equity (in Rs Crore) 6350.34
Refinery
3 4 5 6 7 8 9 Misc. financial services Other telecommunication services Brokers Drugs & pharmaceuticals Cement ITES Banking services
38
85 258 19 209 5 156 23
5901.94
5475.71 4751.02 4728.54 4455.92 2946.91 2632.34 2527.95
0
0 0 0 0 0 0 0
5901.94
5475.71 4751.02 4728.54 4455.92 2946.91 2632.34 2527.95
10
Business consultancy
Total
490
1371
2074
41844.7
0
0
2074
41844.67
Top Ten points of origin of foreign partners in India from 2002 to 2007(IJVs number wise)
S.N o. Country Names Total No. of IJV Foreign Equity (in Rs. Crore) Finance 1 2 3 4 5 6 7 8 9 10 USA Mauritius UK NRIs Germany Japan Singapore Netherlands Switzerland France 2097 665 644 533 527 443 395 355 208 200 8080.22 21280.9 6336.03 11193.9 1343.53 2459.6 2102.75 2672.19 965.74 1010.48 Technology 33.67 0 0 7.24 0 0 0 0 84.18 0 Total Foreign Equity (in Rs. Crore) 8113.89 21280.85 6336.03 11201.17 1343.53 2459.6 2102.75 2672.19 1049.92 1010.48
Important Factors Before a Joint Venture is Formed
• Screening of prospective partners • Joint development of a detailed business plan and shortlisting of prospective partners based on their contribution to developing the business plan • Due diligence - checking the credentials of the other party
– "trust and verify" - trust the information you receive from the prospective partner, but it's good business practice to verify the facts through interviews with third parties
• Special allocations of income, gain, loss or deduction to be made among the partners
Business strategy
? A successful joint venture must begin with a sound, well-articulated business strategy. ? Before moving forward, companies must be able to determine and explain
? ? ? ? why they wish to enter into a joint venture, why they have chosen their partner or partners, what they hope to achieve. what the organizations' involvement will be (managerial, capital, etc.) and ? how long the JV will last.
Business strategy
? It is critical that strategies be put in place to define governance, accountability, decision-making processes, and conflict- and issue-resolution procedures. ? Parent companies also have to ensure buy-in and participation at the highest levels. ? Finally, and ironically, smart companies consider outcomes even before they begin: What would cause them to terminate the joint venture, and what is the preferred exit strategy?
Business strategy
• Compensation to the members that provide services • Development of an exit strategy and terms of dissolution of the joint venture • Availability of appreciated or depreciated property being contributed to the joint venture; by misunderstanding the significance of appreciated property, companies can fundamentally weaken the economics of the deal for themselves and their partners.
Benefits from JV
• The opportunity to obtain new capacity and expertise. • Enter into related businesses or new geographic markets or obtain new technological knowledge. • Do not represent a long-term commitment.
– Companies can gradually separate a business from the rest of the organization while allowing a buyer to assess the true value of intangible assets such as brands, distribution networks, people, and systems, as well as learn how the business operates. (approximately 80% of all JVs end in a sale by one parent to the other.)
IJV: Synergy from Complementary strengths
?Knowledge of the domestic market. ?Familiarity with Government bureaucracy & regulations. ?Understanding of local labour market. ?Know about existing manufacturing facilities etc.
Domestic Company Strengths
?Advanced process & product Technologies. ?Management Know-how. ?Knowledge of the Export markets and control of vast pool of resources etc. ?Financial Engineering flexibility
Foreign Company Strengths
Why JVs fail?
• The philosophy governing expectations and objectives of the joint venture is unclear. • There's an imbalance in the level of investment and expertise brought to the joint venture by the two parent organizations. • The senior leadership and management teams for the joint venture receive inadequate identification, support, and compensation.
Why JVs fail?
• The JV partners possess disparate, and often conflicting, corporate cultures and operational styles. • The JV's size is modest compared to the two parent organizations. Among the most common causes of failure cited by CEOs in the Conference Board study were poor or unclear leadership (49%), different cultures (49%), and a poor integration process (46%).
Consortium
• Consortium is a word that comes from the Latin ; from the word consors meaning owner of means or comrade. • consortium meaning association or society. Usually this word refers to a temporary business organization created by businessmen or companies in order to carry out a certain task.
Critical Issues
• • • • • • • Creation of consortium Common objectives Structure and strategies Processes and control mechanism Sharing of benefits Government interventions and initiatives Implications for economic development
Important Factors
• The competitive advantages of SMEs consortia are based on three aspects : specialisation, cooperation and flexibility. • Government Policy and initiatives play a significant role in the development of these consortia (UNIDO,1997) • A firm?s R&D capabilities, network formation through past consortia, encounter with other firms in product markets, age, and past participation in large-scale consortia positively affect its tendency of consortia formation.
Mariko Sakakibara 2002
Important Factors
• In a sample of 312 Japanese firms in 74 industries between 1969 and 1992 it is found that a firm in an industry with weak competition and appropriability conditions has a higher rate of consortia participation. • Industry wide agreements tend to have socially beneficial effects when
– the degree of product market competition is low, – a high degree of sharing is technologically feasible, – the agreement concerns basic research rather than development activities.
Consortium : Strategic Alliance
Participants
Consortium
Evolution of Consortium
Stage I : Competitive •Domestic Horizontal Firm to firm Stage II : PreCompetitive •Domestic, Horizontal Firm to firm •Domestic, vertical, consortium to consortium Stage III : Coopetitive •Domestic, Horizontal, Firm to firm •Domestic, vertical, consortium to consortium •International, Horizontal, consortium to consortium
Mergers & Acquisitions
• One in which a controlling stake is acquired in the target. • An equity deal with any lesser percentage is defined as an equity alliance. • An acquisition can be for the totality of the equity interests of another entity or only a part of its equity. • The legal form of what has been purchased can usually be modified into another legal form. • Thus, a limited partnership can purchase the entire equity interests of a private limited liability company and convert it to a share corporation
Why alliances break up?
• Changes In strategy, leadership • False expectations Markets, partners, technology • External sabotage
istributors • Financial pressures : Different motives among stake holders
• Changes in policy : Exit policy, competition policy etc
International Strategic Management
Certain Facts about Global Environment
• Population 6000 ml • People living outside home country 175 ml (29% of population) The migrants in high income countries increased by 23 ml between 1990 to 2000
Source: Human Development Report 2005, UNDP
Interdependence toward the world
• Free flow of ideas, individuals, investments, and industries grow into an organic bond among the economies. • Not only traditionally traded goods and securities such crucial assets as companies, software, commercial rights (patents, memberships, and brands), art objects, and expertise.
• As such, the interlinked economies enhances the wellbeing of individuals and institutions. • Creates no absolute losers or winners, as market mechanisms adjust participating nations’ competitiveness rather fairly through currency exchange rates and employment.
Regional Economic Blocs
• Most countries are member of some block • One third of world trade takes place through regional arrangements
– – – – – –
APEC NAFTA European Union ASEAN Bangkok Agreement SAARC
% of World Trade 46.0 17.2 37.2 6.3 5.1 1.1
A Divergence of Values
• Nations hold differing values and priorities. • Divergence of values will require readjustment of activities of the international corporation.
Effects of Population Shifts
• Population increase will become a national priority in the industrialized world. • Population stabilization continues to be the challenge in the developing world.
Labour of foreign origin as percent of total Labour Force
• • • • Australia Canada Switzerland US 24.2% 19.9% 18.1% 13.9%
Source: Human Development Report 2005, UNDP
Global Business Environment
Porter’s Model extended to global Perspective
Potential Entrants
Bargaining power of suppliers may increase or decrease depending on potential entrants MNCs with greater resources and standing may enter domestic market
Suppliers
Firm+ Competitors
Threat of substitute goods/services deepens
Buyers
Bargaining power of buyers increases due to greater awareness level and wider choice
Substitutes
All stakeholders in global business come from various parts of the world which increases uncertainty of returns and intensity of competition.
Managing International Arrangements
?In early stages of international development, few
companies are willing to expend a large portion of their resources on foreign operations ?As companies grow, they tend to self-handle more operations and locate a larger portion of resources abroad ?Exporting usually precedes foreign production and contracting with another company to handle foreign business generally precedes handling it internally.
Global Business Strategies
• Strategy Components
– Product
• Standardised • Customised
– Communication
• Standardised • Customised
– People
• Local • International
International Product Policy
• Environmental concern is a key issue affecting product planning. • Product life cycle is continuously shortening. • More mass customization. • An increase in the trend toward strategic alliance.
International Pricing
• Forward pricing difficult. • Price competition substantial. • Exchange rate movements may play a more significant role in maintaining competitiveness. • Nations will attempt to stimulate their international competitiveness through subsidization, targeting, or government contracts.
Factors Favoring Standardization
• • • • Global customers Global distribution channels Common regulations/level playing field Global brands
– positioning and branding applied globally – technology can be applied globally – capabilities for local implementation
Factors Favoring Customization
• • • • • Cultural distance Multiple languages (semantics) Different political-legal environments Dissimilar competitive environment Different standards of living
Global Business Strategies: Managing Product & Communication
PRODUCT STRATEGY COMMUNICATON STRATEGY STANDARDIZED COMMUNICATIONS
STANDARDIZED PRODUCT
LOCALIZED COMMUNICATIONS
LOCALIZED PRODUCT
Global strategy: Uniform Product/ Uniform Message (Microsoft) Mixed strategy: Customized Product/ Uniform Message (McDonald)
Mixed Strategy: Uniform Product/ Customized Message (Cadbury) Local Strategy: Customized Product/ Customized Message (Banking)
Global Business Strategies: Managing People
• Employ local people – No culture shock, better understanding of markets (95% of Unilever and IBM employees are nationals of the country where they work) – Danger of sub-optimisation • Employ people with international orientation – Regardless of nationality persons with greater adaptability and sensitivity (Electrolux (Sweedish Co) appointed French person as Director in Singapore factory) – Danger: Almost 35% of expatriate managers failed to adjust to local environment
Imperatives of Cross Culture Management
• Company?s need for cultural adaptability increases as it
– Moves from one to multiple foreign locations – Moves from similar to dissimilar foreign environments – Converts from external to internal handling of international operations
Culture and Business
– Culture is an integral part of external environment of business
• Culture consists of the specific learned norms based on values, beliefs and attitude that exist in every nation
– Problems of cultural collision occur when
• Employees are unable to accept or adjust to foreign environment / different cultures • Company practices work less well than intended
– Every business function is subject to cultural impact
Culture Influences Business
EXTERNAL ENVIRONMENT BUSINESS
PHYSICAL - SOCIETAL FACTORS • Political policies and legal practices • Cultural factors • Economic forces • Territorial influences
OBJECTIVES
• Cultural
awareness
STRATEGY RESOURCES
•Behavioral practices • Strategies for dealing with cultural differences
COMPETITIVE ENVIRONMENT
OPERATIONS
Components of Culture
Social Structure
Language
Political Philosophy
Culture Religion
Economic Philosophy
Education
Dimensions of Culture Aspect of Business
Communication Barriers Verbal: Difficult to directly translate one language into another Nonverbal: Difference in colour associations, time and status cues, sense of appropriate distance and body language Culture Shock Emotional upheaval to cope with new cultural cues and expectations
Shock Absorber - Host cultures do not always expect foreigners to adjust to them - Less adjustment necessary when moving to a country with a similar culture
Strategic Dimension: Language is a culture stabilizer
• Culture spreads rapidly when people from different areas speak the same language • Stronger adherence to a culture if it does not share its language with other peoples (Swahili, Afrikaans, Mandarin)
First language Chinese English Hindi Russian % of world population 20 6 5 4
Majority speaks English as second language
Strategic Dimension: Religion is a culture stabilizer
• Religion has a strong influence on values (Trade Blocs) • People with same religious belief share cultural values • Specific beliefs may affect business
– where rival religions vie for political control, resulting strife may disrupt business (Turkey and EU) – Christianity – Islam – Hinduism
% of world population 20% 16% 7%
Management Orientations
• Polycentrism Recognizing cultural, social and political differences
Looking at the world primarily from the perspective of one's own culture with the belief in superiority of own culture
• Ethnocentrism
• Geocentrism
A global orientation with business strategies adapted to local country conditions
Global Business Strategies: Managing People
• Provide Cross-cultural training
– Create strategic awareness of verbal/nonverbal cues – Adaptability to new situations – Sensitivity to new cultures, social norms – Ability to work in international teams
(TCS trains employees into cross culture before deployment on foreign location. Failure rate of expatriate employees reduces)
Conclusion:
Business Strategy-Culture Compatibility
Is planned business strategy compatible with new culture? Yes proceed rapidly No Can culture be adapted easily? Yes introduce modifications, provide training No Is management committed to business strategy? Yes find JV partner, strategic alliance No Modify strategy to suit culture
Technological Environment
• Internet is democratizing global business. • Small/medium-sized enterprises can now be full participants in the global marketplace. • High technology is a controversial area of economic activity.
Role of Governments
• Facilitate consumers access the best and cheapest goods and services from anywhere in the world. • Help corporations provide stable and rewarding jobs anywhere in the world regardless of the corporation?s national identity. • Co-ordinate activities with other governments to minimise conflicts arising from narrow interests. • Avoid abrupt changes in economic and social fundamentals.
McKinsey?s Seven „S? Framework
System Structure
Skills
Shared Values (Culture)
Strategy
Staff
Style
doc_368960133.pptx
explains concepts on balance scorecard, ansoff matrix, market penetration, diversification, integration, BCG Growth-Share Matrix, generic strategies, Competitive Tactics, Functional Strategies, Strategic International Alliances, Joint Venture, Consortium and Mergers & Acquisitions.
Corporate Strategy
Corporate Strategy
• Also known as Grand Strategy, Master Strategy, General Strategy • Pertains to the organisation as a whole • Answers key questions:
– What businesses? Range of products? – What geographic spread? – What range of vertically integrated activities? – How to manage the businesses?
Strategy Alternatives
• Growth Strategy/ Expansion Strategy – Intensification
• • • • Market penetration Market development Product development R&D
• Stability strategy
– Incremental growth – Sustainable growth – Pause
• Retrenchment Strategy
– Divestment – Turnaround – liquidation
– Diversification
• Concentric / horizontal integration • conglomerate • Vertical Integration
– Backward – Forward
• Combination Strategy
– Joint venture – Strategic alliances – consortia
Growth/Expansion Strategy
• An organisation aims at substantially broadening the scope of one or more of its businesses in terms of their respective customer groups and alternative technologies, singly or jointly in order to improve its overall performance.
– Influenced by external environment – Influenced by internal environment – Top management more satisfied
Balanced Score Card
• Kaplan and Norton
– Linking corporate goals with strategic options undertaken at business units, departmental and individual levels – Allows to evaluate the organisation from different complementary perspectives – The performance at one level is linked with performance in other areas
Balanced Score Card
EVA
Financial
Profitability
Growth Differentiation
Customer
Cost Response Product development
Operations
Demand Management
Order Fulfillment Leadership
Organisational
Organisational learning Ability to change
Ansoff Matrix
Current Product New Product
Current market
Market Penetration
Product Development
New market
Market Development
Diversification
Market Penetration
• Concentration strategy • Increase sale of existing product in existing market • Least risky option • Success depends upon
– – – – Stages of PLC Intensity of competition Company?s position in the market Cost of attaining additional market share
• Tools
– Advertising – Other marketing tools
Market Development
• Existing products in new markets
– Creating new uses of the product (Du Pont?s Nylon) – Creating price segments by providing minor variation in the product range (HLL?s Toiletries) – New territories – New channels of distribution to expand customer base
Product Development
• New Products to the same market
– Quality improvement – Feature improvement – Aesthetic appeal – Different placement of the product – Creating entire product range – Providing all accessories
• Strategy to prolong life cycle of the product
Strategy at MSIL
Year 1981 1982 Particulars Maruti Udyog Ltd. was incorporated under the provisions of the Indian Companies Act, 1956 License and JV agreement signed between Maruti Udyog Ltd. and SMC of Japan Omni, a 796cc MUV was launched. Installed capacity reaches 40,000 units Launch of Maruti Gypsy (970cc, 4WD off-road vehicle) Installed capacity reaches 100,000 units Maruti 1000 (970cc, 3 box), India’s first contemporary sedan launched SMC increases its stake in MSIL to 50% Zen (993cc, hatchback Car), which was later exported in Europe and elsewhere as the Alto Esteem 1.3L (1298cc, 3 box car) LX launched
1983 Maruti 800, a 796cc hatchback, India’s first affordable car was launched
1984 1985 1988 1990 1992 1993 1994
1987 Exported first lot of 500 cars to Hungary
Strategy at MSIL
1995 1997 1999 2000 2001 With the launch of second plant, installed capacity reached 200,000 units New Maruti 800 (796cc,hatchback Car) Standard and Deluxe launched. Produced the 2mth vehicle since the commencement of production Launches Baleno, WagonR along with new variants of Omni and Zen Alto and Altura (luxury estate car) launched Maruti Versa (luxury MPV) launched
2002 Esteem Diesel. All other variants upgraded. Suzuki Motor Corporation (SMC) increases its stake in MSIL to 54.2%
2003 2004 2006 2007 2008 New Suzuki Grand Vitara XL-7 launched. Production of 4mth vehicle. Listed on BSE and NSE after a public issue oversubscribed 10 times Alto becomes India’s new best selling car. New variants of Baleno and Versa launched Launched new version of WagonR that is WagonR Duo (with LPG kit) Swift Diesel and Zen Estilo launched. Maruti 800 Duo (LPG) launched on the occasion of word environment day
Innovation
• New product in the new markets
– Radical innovation: Replace existing product – Incremental innovation: Modify existing product (technological enhancement)
• R&D is the most costly and risky strategy • Gives great success • Allen and Hamilton Inc?s Management Research Department studied 51 companies • Six stages of Innovation strategy identified
Innovation
• Innovation:
– 58 new ideas generated
• Screening:
– 12 passed initial screening test
• Business Analysis:
– 7 passed product potential test
• Development:
– 3 survived actual attempts to develop the product
• Commercialisation:
– 2 appeared to have profit potential
• Success:
– Only 1 ultimately successful
Diversification
• Diversification signifies entries into fields where both product and market are different from firm?s initial position
– Related: share any of the skill base of the firm
• Concentric
– Unrelated: does not share any of the skill base of the firm
• Conglomerate
Why Diversify?
• Peter Drucker
– To avoid the danger of overspecialisation – Balance the vulnerabilities of own wrong size – Use own strengths to exploit opportunities
• Ansoff
– Objectives can no longer be met by expanding within existing product-market – Retained cash exceeds demand for investment – Greater opportunities outside the industry – Expanding risk portfolio
Concentric Diversification
• Diversify in related but distinct business
– Market related synergy
• • • • Common Distribution channels Common Marketing skills Common customers Brand names
– Technology related
• Economies of scope
• Benefits
– – – – Synergies created Market power increases Distinctive competence increases to other areas Reduced economic risk
Concentric Diversification
Mahindra & Mahindra Ltd.
Automotive Domestic Mahindra International First Choice Mahindra Renault Ltd. Farm Equipment 4 Wheelers , Three Wheelers, Pik – Ups, SUVs, UVs, LCVs
Used cars - Purchase, Sale and Finance
Car ‘Logan’
Mahindra Agribusiness Agri inputs and services Farm Equipment Mahindra Gujarat Tractor Engines, Farm Implements Tractors
Conglomerate Diversification
• Unrelated diversification: no relation either with technology or market base or product range
– – – – – To reduce risk of concentration Mainly profit consideration Normally through acquisition mode Taking advantages of an expanding economy Migrating from business under threat due external environment factors – Personal choice of industrialists
Conglomerate Diversification
Trade & Financial Services Mahindra Intertrade Mahindra Insurance Brokers Mahindra Finance Kotak Mahindra Bank Ltd. Information Technology Mahindra Logisoft Tech Mahindra Infrastructure Development Mahindra Infrastructure Developers Mahindra Acres Consulting Engineers Mahindra Special Services Group Mahindra World City Mahindra Holidays & Resorts Mahindra Lifespaces Ferro Alloys and Metal Scrap, Steel and Steel Related Services, Technical Products and Services, Toys and Apparel Insurance and Risk Management Services Loans and Mutual Fund Distribution Investment and merchant banks, Banking services Security brokers Dealership Management and Facility Management Software Solutions Development of Infrastructure Projects Engineering consultancy Information Security Consultancy Integrated Business Cities Lifetime holidays Living Spaces and Working Spaces
Conglomerate Diversification
Systech
Mahindra Composites Mahindra Engineering Mahindra Forgings Mahindra Gears Composites Engineering Services Forgings Gears
Mahindra Steel Service Centre
Mahindra Sourcing Mahindra Steel Products Speciality Business Mahindra AshTech Mahindra Logistics Mahindra Defence Systems
Service Centre for Automotive and Electrical Steels
Sourcing of Auto Components Stampings and Steel Ash Handling Euipments for Power Plants
Corporate People Movement and Supply Chain Management
Defence Vehicles
Risks of Diversification
• Demands very high level of managerial, operational and financial competence • Decreasing commitment to basic business • Loss of attention and control • Against the principle of core competence
Integration
• Horizontal
– Similar to concentric diversification – Normally through takeovers, mergers, joint ventures – Strong internal R&D
• Vertical
– Forward
• Become own buyer
– Backward
• Become own supplier
Vertical Integration
• Advantages
– Internal
• Reduced costs: inventory, overheads • Improved performance an quality control
– Competitive
• Superior control over market • Product differentiation
• Disadvantages
– Internal
• Burden of excess capacity • Diseconomies of scale
– External
• Mobility barriers • Loss of information on industry
Stability Strategy
• • • • • Sustainable growth strategy Maintaining status quo Safety oriented Aimed at methodical moderate growth Incremental performance in one or more of its businesses in terms of
– Customer groups: special package to institutional buyers – Customer functions: better after sales service to existing customers – Alternative technologies: modernisation of plant
• Appropriate for a reasonably successful company in a moderately attractive industry
Profit Stability strategy
• A company with modest competitive position and facing no or little growth may aim at continuing the same course maintaining profit by making little adjustments in price and cost.
– Short term cut on R&D, advertising, maintenance, etc. – Moderate increase prices to adjust for inflation
Pause/proceed with caution Strategy
• When competitive environment is highly unpredictable • A temporary strategy to enable a company to consolidate its resources after prolonged rapid growth (or big losses) now facing uncertain future.
– Dell adopted this strategy in 1993 when it grew 285% and found it difficult to handle the growth. – Ford Motors adopted it when it recorded a loss of 2.3 billion in 1991. the company believed that the downturn was temporary and made some adjustments
Retrenchment Strategy
• Defensive strategy • When nothing seems to give results • Neither industry is attractive nor own position is strong • Involves partial or total withdrawal from a customer group, customer function, alternative technologies • Results in slimmer organisation
Turnaround Strategy
• When the organisation attempts to reverse the process of decline and turn around to profitability.
– Reduce unnecessary overheads – Cost rationalisation – Timeliness of every action very important
Elements of Turnaround
• • • • • • • • • Change in top management Initial credibility building actions Neutraising external pressures Initial control Identifying quick payoffs Quick cost reduction Revenue generation Asset liquidation for cash generation Better internal coordiantion
Divestment Strategy
• Also called divestiture or cutback • Involves sale of a portion of the business or a major division or profit centre or SBU • Spin Off: sell stakes to another firm or to employees or leveraged buy out and make it a financially independent unit • Sell out: outright sale of the company
Liquidation Strategy
• Worst possible situation • No hope of recovery • Bankruptcy: giving up the control of the firm in the hands of court in return for some settlement for its obligations • Liquidation: when company is too weak to be sold off as a going concern
– Its assets sold for cash
Model of Corporate Strategies
Company’s competitive position Strong Vertical Integration Average Horizontal Integration Weak Turnaround
Industry Attractiveness
High
Medium
Proceed with caution Concentric diversification
Profit strategy
Sell out
Low
Conglomerate diversification
liquidation
Combination Strategy
• Also referred as Mixed or Hybrid Strategies • Combination of Growth, stability and retrenchment strategies adopted, either simultaneously or sequentially • Especially popular in case of multi business firm
BCG Growth-Share Matrix
• Growth rate of industry
– Percentage by which sales of a product line increased over previous year – Indicator of attractiveness
• Relative market share of the unit
– As its market share divided by its largest competitor – A market share above 1 belongs to the leader
BCG Growth-Share Matrix
• Stars
– Market leaders – High growth potential – Require substantial resources
• Cash Cows
– High cash generation – Normally former stars
• Question Marks
– Require more resources than generate – Potential stars
• Dogs
– Barely support themselves – Mostly drain others? resources
BCG Growth-Share Matrix
Stars Business growth rate
Question Marks
10 Cash Cows Dogs
1.5
1
Relative Market Share
BCG Growth-Share Matrix
• Dos
– – – – Invest heavily in Stars Maintain Cash Cows Use selective resource allocation to Question Marks Liquidate/divest Dogs
• Don'ts
– Do not leave too little cash with Cash Cows – Do not invest too long in Dogs – Do not maintain too many Question Marks
BCG Growth-Share Matrix
• Healthy Portfolio
– More Stars an Cash Cows and few Question Marks and Dogs
• Successful SBUs have life cycle Question Marks Stars Cash Cows Dogs
BCG Growth-Share Matrix
• Merits
– – – – Quantifiable Easy to use Helps in future projections Helps in identifying primary strategy issues
• Demerits
– Considers extreme positions – Market growth rate and share, each based on single parameter – Not appealing terminology
GE Business Screen
• GE Multi Factor Portfolio Analysis
– An improvement over BCG Matrix – Many factors to measure industry attractiveness and market position of the unit – Nine cell Matrix – More pleasant terminology
GE Business Screen
• Industry Attractiveness
– – – – –
– – – – –
Market growth rate Industry profitability Size of the market Pricing policies Other opportunities and threats
Market share Technological position Profitability Size of the unit Other strengths and weaknesses
• Competitive Strength of the unit
Preparing GE Business Screen
• Select criteria to rate industry attractiveness for each product line • Assess overall industry attractiveness on a scale of 1-5 • Assess business unit strength on scale of 1-5 • Plot each unit?s current position on the nine cell matrix as a circle where:
– Area of circle is proportional to the relative size of the industry – Pie slice represents market share of the unit
• Plot the firm?s future portfolio assuming no change in corporate strategy
– Is there a gap between projected and desired position? – If yes review company?s vision, mission and strategy
GE Business Screen
Company’s competitive position Strong Winners Industry Attractiveness High Average Winners Weak Question Marks
Winners Medium
Average Business
Losers
Low
Profit Producers
Losers
Losers
Business level Strategy
Business level Strategy
• Integrated and coordinated set of commitments and actions designed to provide value to the customers and gain a competitive advantage by exploiting core competencies in specific individual product markets. • Also called as competitive strategies
Business level Strategy
• Basics: who, what, how
– Need to identify who my customer is? – What needs of the customer will I satisfy? – How would I satisfy those needs?
The customer
• Market segmentation: a process through which people with similar needs are clustered into individual identifiable groups. • Market segmentation creates a framework for selection of business strategy
– Average customer may be misleading – Need to identify specific customer
• Basis for segmentation
– Consumer markets: demographic, social, economic, geographic, psychological – Industrial markets: technological, geographic, customer size
Customer Needs
• Identifying and catering existing needs
– Listen to customers – Studying customers? influences on products, technology, distribution
• Anticipating and satisfying unknown needs
– – – – Being able to positively surprise the customer Provide customers unexpected value First mover advantage Gain an early competitive advantage
Satisfying customer needs
• Use core competencies to implement value generating strategies to satisfy customer needs
– Technology – Service – Reach – Variety
Generic Strategies
• Concerned with a firm?s industry position relative to those of competitors: Porter • Firm can have either of the two competitive strategies
– Lower cost – Differentiation
• Firm?s competitive advantage in an industry is determined by its competitive scope
– Broad target: middle of he mass market – Narrow target: niche market
• Combining the two strategies with two types of scope gives four generic strategies
Generic Strategies
Competitive Scope
Broad Target
Cost Leadership
Differentiation
Focused Cost Leadership
Cost
Narrow Target
Focused Differentiation
Uniqueness
Competitive Advantage
Cost Leadership
• Low cost competitive strategy aiming at broad mass market • Low cost lower price satisfactory profit margins
– – – – – Rigorous cost control Large scale operations Minimum wastages Avoidance of marginal customer accounts Minimum R&D, advertising, sales force etc.
Cost Leadership
• Competitive risks
– Technology may become obsolete due to low emphasis on R&D – May remain unaware of changing customer needs – May find amidst a differentiated market which was earlier undifferentiated – Threat of imitation
Differentiation
• Aimed at broad market with a unique product where firm may charge a premium • Uniqueness in:
– – – – – Unusual features / Design Rapid product innovation Brand image: perceived prestige and status Technology Dealer network
• Challenge is to identify features that create value to the customer • Earns above average returns
Differentiation
• Competitive risks
– Price differentials between differentiator and cost leader may be too large – Cannibalization: new product may eat away old product market – Threat of imitation – Increased awareness may take away pereived brand image
Focused Strategies
• Focus strategy is an integrated set of activities aimed to serve the needs of a particular target group
– A certain consumer group – An industry segment – A product line – A geographical segment
Focused Cost Leadership
• Cost leadership as applied to a focused market or narrow target • Firm seeks cost advantage in a target segment • Requires trade off between market share and profitability
Differentiation Focus
• Differentiation to serve unique needs of a small group • Strong understanding of customer needs • Very strong R&D • Integration of all activities
Risks of Focus Strategies
• Target segment becomes unattractive • Demand disappears • Difference between segments narrows down
– Broad target becomes more attractive
• Threat of imitation
– New focusers subsegment the industry
Competitive Tactics
• A tactic is a specific operating plan for implementation of a strategy • Tells how, when (timing) and where (market) of strategy
Timing Tactics
• First mover
– Pioneer – Higher market share than late entrants – Long term profit advantage
• Late mover
– – – – Imitators Learn from mistakes of pioneer Minimize cost on R&D, market creation Market segmentation (usually ignored by first mover)
Location Tactics
• Offensive Tactics
– Frontal Assault
• Head to head in every aspect from price to product to distribution to promotion • Very costly and needs huge resources and perseverance
– Flanking Maneuver
• Attack a part of the market where competitor is weak • Patience and careful expansion in undefended markets
– Encirclement
• Usually evolves from Frontal Assault or Flanking Maneuver • Attack with entire product range and many markets
– Bypass Attack
• Cut the market out from under the established defender • Development of a new version of a product to cater unsatisfied needs of consumers
– Guerrilla Warfare
• Hit and run • Small, intermittent attacks on different segments • Usually adopted by new entrants for short term gains
Location Tactics
• Defensive Tactics
– Raise Structural Barriers
• • • • • • Offer a full line of product Block channel access by signing exclusive agreements Raise buyers? switching cost Keep price low Patenting, franchising Influence government to create barriers
– Lower inducement to attack
• Make industry unattractive by reducing future profit expectations • Deliberately keep prices low and invest in cost reducing measures • Highlight the problems
Functional Strategies
• • • • • Marketing Strategy Financial Strategy Research and Development Strategy Operations Strategy Human Resource Strategy
Strategies to Avoid
• Follow the leader
– SWOT necessary
• Hit another home run
– Pioneers may be stuck with success of first idea – Very few are second time lucky
• Arms race
– Entering into a spirited battle
• Do everything
– Ignore core competency
• Losing hand
– Fixation with a project where huge investment has gone without much success – May ultimately lead to bankcruptcy
Cooperative Strategy and International Strategy
Co-operative Strategy
• Co-operative relationships occur at various points in a firm?s value chain and can be visualized on a continuum ranging from infrequent transactions to full involving mergers and acquisitions. • All offer the opportunity to combine the relative resources and technologies of the firms, but in different ways and with different consequences.
Co-operative Strategy/ Alliance
Flexibility
Licensing
Quasi-market
Non- equity partnership
Equity exchanges (Sharing) Joint Ventures
Hi-tech
Quasi-hierarchy Control
Merger & Acquisition
Low-tech
Co-operative Strategy/ Alliance
Strategic International Alliances
International Collaborative Forms
? Joint venture:
two or more companies share ownership
of an FDI ? Consortium: when two or more organizations participate, this is what the resulting joint venture is sometimes called ? Equity alliances: involves a company?s equity position in the company with which it has a collaborative arrangement • The purpose of equity ownership is to solidify a collaborating contract ? Licensing: a company grants rights to intangible property to another company • Cross-licensing
International Collaborative Forms
? Franchising: a specialized form of licensing in which
the franchiser not only sells an independent franchisee the use of a trademark but also assists on a continuous basis in the operation of the business ? Management contracts: arrangements whereby, for a fee, one company provides personnel for another company ? Turnkey operations: involve a contract for construction of operating facilities that are transferred for a fee to the owner when they are ready to commence operations.
International Collaborative Forms
Motives for International Collaborative Arrangements
• •
• • • • • • •
Spread and reduce costs Specialize in competencies ?Resource-based view of the firm holds that each company has a unique combination of competencies Competitive factors Secure vertical and horizontal linkages ?Horizontal linkages may increase a company?s product line ?Companies may lack the resources to go it alone Glean knowledge Gain location-specific assets Overcome legal constraints Diversify geographically ?Can help a firm smooth its sales and profits Minimize exposure in risky environments
Strategic Alliance
• Strategic Alliances are cooperative agreements between actual and potential competitors to exploit market opportunities • A strategic alliance (Chan et al., 1997,) enables a firm to focus resources on its core skills and competencies while acquiring other components or capabilities it lacks from the marketplace.
Strategic Alliances
Strategic Alliances are part of: -strategic moves, -change-management -knowledge-management
Why strategic alliances?
• Direct capital infusion in exchange for equity and/or intellectual property or distribution rights;
• A “capital substitute”, by which the resources that would otherwise be obtained with the capital are obtained through joint venturing.
• A shift of the burden and cost of new-product development (through licensing) in exchange for a potentially more limited upside;
Why strategic alliances?
• An entry strategy into new domestic or overseas markets through partnering or joint ventures; • Distribution and commercialization; and
• Financial savings through sharing the risks and the costs of commercialization, marketing, distribution, and other expenses.
Why strategic alliances?
• • • • • • • • • • Satisfy customer demand Share R&D costs, fill knowledge gaps Scale economies [volume economics] Scope economies [coordination economics] Jump market barriers Compress time, speed up process logistics Pre-empt competitive threats Use excess capacity Cut exit costs Cheaper than acquisitions
Benefits of strategic alliances
• • • • • Developing new markets (domestic/international); Developing new products Developing and sharing technology; Combining complementary technology; Pooling resources to develop a production/distribution facility; • Acquiring capital; • Executing government contracts; and • Access to new distribution channels or networks or sales and marketing capability.
Phases of strategic alliances
– Alliance Business Case – Partner Assessment and Selection – Alliance Negotiation and Governance – Alliance Management – Assessment and Termination
Each Phase requires different variables for attaining end-game
Partner Assessment and Selection
• Compatibility
• Capability
– Complementary strengths, stability – Has the capability been scrutinized – Visible vs. invisible competence
• Commitment
– The exit cost
Alliance Negotiation and Governance
• framework of contract
• performance clauses
• restrictions on the partners and liability
• contractual changes, dispute resolution, share disposal and alliance termination • identity and role of negotiators as well as the interaction between managers and their lawyers
Alliance Management and Assessment
• A complementary unified force or purpose that bonds the companies together • A management team committed to the success of the venture • A genuine synergy, in which the “sum of the whole truly exceeds its individual parts” • A cooperative culture and spirit between the strategic partners that leads to trust, resource-sharing and a friendly chemistry between the parties • A degree of flexibility in the objectives of the joint venture to allow for changes in the marketplace and an evolution of technology • An alignment of management styles and operational methods • Focus and leadership
MOTIVES >Resource Sharing >Cost Reduction >Increased Efficiency
STRATEGIC ALLIANCE
DRIVERS > Firm Characteristics > Industry Chars. > Environment Chars.
Termination of SA
break-down
Success [competence is transferred]
Failure [expectations?]
Irrelevant [ M&A ]
Joint Venture
• In a joint venture, two or more "parent" companies agree to share capital, technology, human resources, risks and rewards in a formation of a new entity under shared control.
International Joint Ventures
• A Joint Venture is considered international if at least one partner is headquartered outside the country of operation or if the venture operates significantly in more than one country. • Hence, an IJV can be defined as inter company collaboration over a given international economic space and time for the attainment of mutually defined goals.
Possibilities of International Joint Ventures
Case 1 2 3 4
Home Place of company A India Foreign India India
Home Place of company B India Foreign Foreign Foreign
Place of IJV India India Foreign India
Types of IJV Domestic JV Trinational IJV Traditional IJV Traditional IJV
Top Ten sectors of IJVs in India
terms of numbers)
S.N 0 1 2 3 4 5 6 Name of Industry Area of IJV Created Finance Computer software Business consultancy Misc. other services Trading Other Telecommunication services 1560 470 339 352 255 Technology 5 20 26 1 22 3 Total No. of IJVs 1565 490 365 353 303 258
(in
Total Foreign Equity (Rs. Crore) 2059.76 2074 1096.36 1198.17 429.14 4751.02
Misc. manufactured articles 281
7
8 9 10
Automobile ancillaries
Drugs & pharmaceuticals Hotels & restaurants Electronic equipments
127
168 114 143
118
41 57 25
245
209 171 168
1707.48
4455.92 748.38 217.83
Total
3809
318
4127
18738.1
Top Ten sectors of IJVs in India
terms of Foreign Equity)
S.N Name of Industry
Commercial complexes Total No of IJVs 88 Foreign Equity (in Rs. Crore) Finance 6350.34 Technology 0
(in
Total Foreign Equity (in Rs Crore) 6350.34
Refinery
3 4 5 6 7 8 9 Misc. financial services Other telecommunication services Brokers Drugs & pharmaceuticals Cement ITES Banking services
38
85 258 19 209 5 156 23
5901.94
5475.71 4751.02 4728.54 4455.92 2946.91 2632.34 2527.95
0
0 0 0 0 0 0 0
5901.94
5475.71 4751.02 4728.54 4455.92 2946.91 2632.34 2527.95
10
Business consultancy
Total
490
1371
2074
41844.7
0
0
2074
41844.67
Top Ten points of origin of foreign partners in India from 2002 to 2007(IJVs number wise)
S.N o. Country Names Total No. of IJV Foreign Equity (in Rs. Crore) Finance 1 2 3 4 5 6 7 8 9 10 USA Mauritius UK NRIs Germany Japan Singapore Netherlands Switzerland France 2097 665 644 533 527 443 395 355 208 200 8080.22 21280.9 6336.03 11193.9 1343.53 2459.6 2102.75 2672.19 965.74 1010.48 Technology 33.67 0 0 7.24 0 0 0 0 84.18 0 Total Foreign Equity (in Rs. Crore) 8113.89 21280.85 6336.03 11201.17 1343.53 2459.6 2102.75 2672.19 1049.92 1010.48
Important Factors Before a Joint Venture is Formed
• Screening of prospective partners • Joint development of a detailed business plan and shortlisting of prospective partners based on their contribution to developing the business plan • Due diligence - checking the credentials of the other party
– "trust and verify" - trust the information you receive from the prospective partner, but it's good business practice to verify the facts through interviews with third parties
• Special allocations of income, gain, loss or deduction to be made among the partners
Business strategy
? A successful joint venture must begin with a sound, well-articulated business strategy. ? Before moving forward, companies must be able to determine and explain
? ? ? ? why they wish to enter into a joint venture, why they have chosen their partner or partners, what they hope to achieve. what the organizations' involvement will be (managerial, capital, etc.) and ? how long the JV will last.
Business strategy
? It is critical that strategies be put in place to define governance, accountability, decision-making processes, and conflict- and issue-resolution procedures. ? Parent companies also have to ensure buy-in and participation at the highest levels. ? Finally, and ironically, smart companies consider outcomes even before they begin: What would cause them to terminate the joint venture, and what is the preferred exit strategy?
Business strategy
• Compensation to the members that provide services • Development of an exit strategy and terms of dissolution of the joint venture • Availability of appreciated or depreciated property being contributed to the joint venture; by misunderstanding the significance of appreciated property, companies can fundamentally weaken the economics of the deal for themselves and their partners.
Benefits from JV
• The opportunity to obtain new capacity and expertise. • Enter into related businesses or new geographic markets or obtain new technological knowledge. • Do not represent a long-term commitment.
– Companies can gradually separate a business from the rest of the organization while allowing a buyer to assess the true value of intangible assets such as brands, distribution networks, people, and systems, as well as learn how the business operates. (approximately 80% of all JVs end in a sale by one parent to the other.)
IJV: Synergy from Complementary strengths
?Knowledge of the domestic market. ?Familiarity with Government bureaucracy & regulations. ?Understanding of local labour market. ?Know about existing manufacturing facilities etc.
Domestic Company Strengths
?Advanced process & product Technologies. ?Management Know-how. ?Knowledge of the Export markets and control of vast pool of resources etc. ?Financial Engineering flexibility
Foreign Company Strengths
Why JVs fail?
• The philosophy governing expectations and objectives of the joint venture is unclear. • There's an imbalance in the level of investment and expertise brought to the joint venture by the two parent organizations. • The senior leadership and management teams for the joint venture receive inadequate identification, support, and compensation.
Why JVs fail?
• The JV partners possess disparate, and often conflicting, corporate cultures and operational styles. • The JV's size is modest compared to the two parent organizations. Among the most common causes of failure cited by CEOs in the Conference Board study were poor or unclear leadership (49%), different cultures (49%), and a poor integration process (46%).
Consortium
• Consortium is a word that comes from the Latin ; from the word consors meaning owner of means or comrade. • consortium meaning association or society. Usually this word refers to a temporary business organization created by businessmen or companies in order to carry out a certain task.
Critical Issues
• • • • • • • Creation of consortium Common objectives Structure and strategies Processes and control mechanism Sharing of benefits Government interventions and initiatives Implications for economic development
Important Factors
• The competitive advantages of SMEs consortia are based on three aspects : specialisation, cooperation and flexibility. • Government Policy and initiatives play a significant role in the development of these consortia (UNIDO,1997) • A firm?s R&D capabilities, network formation through past consortia, encounter with other firms in product markets, age, and past participation in large-scale consortia positively affect its tendency of consortia formation.
Mariko Sakakibara 2002
Important Factors
• In a sample of 312 Japanese firms in 74 industries between 1969 and 1992 it is found that a firm in an industry with weak competition and appropriability conditions has a higher rate of consortia participation. • Industry wide agreements tend to have socially beneficial effects when
– the degree of product market competition is low, – a high degree of sharing is technologically feasible, – the agreement concerns basic research rather than development activities.
Consortium : Strategic Alliance
Participants
Consortium
Evolution of Consortium
Stage I : Competitive •Domestic Horizontal Firm to firm Stage II : PreCompetitive •Domestic, Horizontal Firm to firm •Domestic, vertical, consortium to consortium Stage III : Coopetitive •Domestic, Horizontal, Firm to firm •Domestic, vertical, consortium to consortium •International, Horizontal, consortium to consortium
Mergers & Acquisitions
• One in which a controlling stake is acquired in the target. • An equity deal with any lesser percentage is defined as an equity alliance. • An acquisition can be for the totality of the equity interests of another entity or only a part of its equity. • The legal form of what has been purchased can usually be modified into another legal form. • Thus, a limited partnership can purchase the entire equity interests of a private limited liability company and convert it to a share corporation
Why alliances break up?
• Changes In strategy, leadership • False expectations Markets, partners, technology • External sabotage
istributors • Financial pressures : Different motives among stake holders• Changes in policy : Exit policy, competition policy etc
International Strategic Management
Certain Facts about Global Environment
• Population 6000 ml • People living outside home country 175 ml (29% of population) The migrants in high income countries increased by 23 ml between 1990 to 2000
Source: Human Development Report 2005, UNDP
Interdependence toward the world
• Free flow of ideas, individuals, investments, and industries grow into an organic bond among the economies. • Not only traditionally traded goods and securities such crucial assets as companies, software, commercial rights (patents, memberships, and brands), art objects, and expertise.
• As such, the interlinked economies enhances the wellbeing of individuals and institutions. • Creates no absolute losers or winners, as market mechanisms adjust participating nations’ competitiveness rather fairly through currency exchange rates and employment.
Regional Economic Blocs
• Most countries are member of some block • One third of world trade takes place through regional arrangements
– – – – – –
APEC NAFTA European Union ASEAN Bangkok Agreement SAARC
% of World Trade 46.0 17.2 37.2 6.3 5.1 1.1
A Divergence of Values
• Nations hold differing values and priorities. • Divergence of values will require readjustment of activities of the international corporation.
Effects of Population Shifts
• Population increase will become a national priority in the industrialized world. • Population stabilization continues to be the challenge in the developing world.
Labour of foreign origin as percent of total Labour Force
• • • • Australia Canada Switzerland US 24.2% 19.9% 18.1% 13.9%
Source: Human Development Report 2005, UNDP
Global Business Environment
Porter’s Model extended to global Perspective
Potential Entrants
Bargaining power of suppliers may increase or decrease depending on potential entrants MNCs with greater resources and standing may enter domestic market
Suppliers
Firm+ Competitors
Threat of substitute goods/services deepens
Buyers
Bargaining power of buyers increases due to greater awareness level and wider choice
Substitutes
All stakeholders in global business come from various parts of the world which increases uncertainty of returns and intensity of competition.
Managing International Arrangements
?In early stages of international development, few
companies are willing to expend a large portion of their resources on foreign operations ?As companies grow, they tend to self-handle more operations and locate a larger portion of resources abroad ?Exporting usually precedes foreign production and contracting with another company to handle foreign business generally precedes handling it internally.
Global Business Strategies
• Strategy Components
– Product
• Standardised • Customised
– Communication
• Standardised • Customised
– People
• Local • International
International Product Policy
• Environmental concern is a key issue affecting product planning. • Product life cycle is continuously shortening. • More mass customization. • An increase in the trend toward strategic alliance.
International Pricing
• Forward pricing difficult. • Price competition substantial. • Exchange rate movements may play a more significant role in maintaining competitiveness. • Nations will attempt to stimulate their international competitiveness through subsidization, targeting, or government contracts.
Factors Favoring Standardization
• • • • Global customers Global distribution channels Common regulations/level playing field Global brands
– positioning and branding applied globally – technology can be applied globally – capabilities for local implementation
Factors Favoring Customization
• • • • • Cultural distance Multiple languages (semantics) Different political-legal environments Dissimilar competitive environment Different standards of living
Global Business Strategies: Managing Product & Communication
PRODUCT STRATEGY COMMUNICATON STRATEGY STANDARDIZED COMMUNICATIONS
STANDARDIZED PRODUCT
LOCALIZED COMMUNICATIONS
LOCALIZED PRODUCT
Global strategy: Uniform Product/ Uniform Message (Microsoft) Mixed strategy: Customized Product/ Uniform Message (McDonald)
Mixed Strategy: Uniform Product/ Customized Message (Cadbury) Local Strategy: Customized Product/ Customized Message (Banking)
Global Business Strategies: Managing People
• Employ local people – No culture shock, better understanding of markets (95% of Unilever and IBM employees are nationals of the country where they work) – Danger of sub-optimisation • Employ people with international orientation – Regardless of nationality persons with greater adaptability and sensitivity (Electrolux (Sweedish Co) appointed French person as Director in Singapore factory) – Danger: Almost 35% of expatriate managers failed to adjust to local environment
Imperatives of Cross Culture Management
• Company?s need for cultural adaptability increases as it
– Moves from one to multiple foreign locations – Moves from similar to dissimilar foreign environments – Converts from external to internal handling of international operations
Culture and Business
– Culture is an integral part of external environment of business
• Culture consists of the specific learned norms based on values, beliefs and attitude that exist in every nation
– Problems of cultural collision occur when
• Employees are unable to accept or adjust to foreign environment / different cultures • Company practices work less well than intended
– Every business function is subject to cultural impact
Culture Influences Business
EXTERNAL ENVIRONMENT BUSINESS
PHYSICAL - SOCIETAL FACTORS • Political policies and legal practices • Cultural factors • Economic forces • Territorial influences
OBJECTIVES
• Cultural
awareness
STRATEGY RESOURCES
•Behavioral practices • Strategies for dealing with cultural differences
COMPETITIVE ENVIRONMENT
OPERATIONS
Components of Culture
Social Structure
Language
Political Philosophy
Culture Religion
Economic Philosophy
Education
Dimensions of Culture Aspect of Business
Communication Barriers Verbal: Difficult to directly translate one language into another Nonverbal: Difference in colour associations, time and status cues, sense of appropriate distance and body language Culture Shock Emotional upheaval to cope with new cultural cues and expectations
Shock Absorber - Host cultures do not always expect foreigners to adjust to them - Less adjustment necessary when moving to a country with a similar culture
Strategic Dimension: Language is a culture stabilizer
• Culture spreads rapidly when people from different areas speak the same language • Stronger adherence to a culture if it does not share its language with other peoples (Swahili, Afrikaans, Mandarin)
First language Chinese English Hindi Russian % of world population 20 6 5 4
Majority speaks English as second language
Strategic Dimension: Religion is a culture stabilizer
• Religion has a strong influence on values (Trade Blocs) • People with same religious belief share cultural values • Specific beliefs may affect business
– where rival religions vie for political control, resulting strife may disrupt business (Turkey and EU) – Christianity – Islam – Hinduism
% of world population 20% 16% 7%
Management Orientations
• Polycentrism Recognizing cultural, social and political differences
Looking at the world primarily from the perspective of one's own culture with the belief in superiority of own culture
• Ethnocentrism
• Geocentrism
A global orientation with business strategies adapted to local country conditions
Global Business Strategies: Managing People
• Provide Cross-cultural training
– Create strategic awareness of verbal/nonverbal cues – Adaptability to new situations – Sensitivity to new cultures, social norms – Ability to work in international teams
(TCS trains employees into cross culture before deployment on foreign location. Failure rate of expatriate employees reduces)
Conclusion:
Business Strategy-Culture Compatibility
Is planned business strategy compatible with new culture? Yes proceed rapidly No Can culture be adapted easily? Yes introduce modifications, provide training No Is management committed to business strategy? Yes find JV partner, strategic alliance No Modify strategy to suit culture
Technological Environment
• Internet is democratizing global business. • Small/medium-sized enterprises can now be full participants in the global marketplace. • High technology is a controversial area of economic activity.
Role of Governments
• Facilitate consumers access the best and cheapest goods and services from anywhere in the world. • Help corporations provide stable and rewarding jobs anywhere in the world regardless of the corporation?s national identity. • Co-ordinate activities with other governments to minimise conflicts arising from narrow interests. • Avoid abrupt changes in economic and social fundamentals.
McKinsey?s Seven „S? Framework
System Structure
Skills
Shared Values (Culture)
Strategy
Staff
Style
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