11

Trans-national corporate Trans-national corporate strategystrategy

Strategy & Management in the Strategy & Management in the Asian CorporationAsian Corporation

Week 1Week 1

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What are the reasons for pursuing What are the reasons for pursuing a trans-national strategya trans-national strategy

Homogeneity of customer requirementsHomogeneity of customer requirements

Reduction of tariff & trade barriersReduction of tariff & trade barriers

Technology investments that are too Technology investments that are too expensive to write off in one marketexpensive to write off in one market

Saturation of home markets (eg US)Saturation of home markets (eg US)

Rise of NIEs providing viable sites for Rise of NIEs providing viable sites for manufacturingmanufacturing

Multi-locational –v- globalisationMulti-locational –v- globalisation

33

Yip’s globalization triangleYip’s globalization triangle

Apex 1Apex 1 – industry globalisation drivers – industry globalisation driversMarkets/costs/conditions providing potentialMarkets/costs/conditions providing potentialApex 2Apex 2 – global strategy levers – global strategy leversGlobal market participationGlobal market participationStandardised productsStandardised productsGlobally integrated competitive movesGlobally integrated competitive movesGlobal marketing approachGlobal marketing approachApex 3Apex 3 – global organisation factors – global organisation factorsAbility to implement global strategyAbility to implement global strategyDynamic relationship between each apexDynamic relationship between each apex(Total Global Strategy 1992)(Total Global Strategy 1992)

44

Is there a typical strategy?Is there a typical strategy?

Use of TNC/MNC/MNE Use of TNC/MNC/MNE interchangeablyinterchangeably

A global strategy implies not only A global strategy implies not only worldwide cross-border activities but worldwide cross-border activities but also integrated and coordinated also integrated and coordinated access to global resource advantages access to global resource advantages and exploitation of corporation’s and exploitation of corporation’s internal potentialinternal potential

55

Does globalisation exist?Does globalisation exist?

Recent research suggests that globalization is a myth. Recent research suggests that globalization is a myth. Far from taking place in a single global market, most Far from taking place in a single global market, most business activity by large firms takes place in regional business activity by large firms takes place in regional blocks. blocks. There is no uniform spread of American market There is no uniform spread of American market capitalism nor are global markets becoming capitalism nor are global markets becoming homogenized. homogenized. Government regulations and cultural differences divide Government regulations and cultural differences divide the world into the triad blocks of North America, the the world into the triad blocks of North America, the European Union and Japan. Rival multinational European Union and Japan. Rival multinational enterprises from the triad compete for regional market enterprises from the triad compete for regional market share and so enhance economic efficiency.share and so enhance economic efficiency.The end of global strategy Rugman & Hodgetts 2001The end of global strategy Rugman & Hodgetts 2001

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How do we view a TNCHow do we view a TNC

Is it a series of subsidiaries operating in Is it a series of subsidiaries operating in regional markets and adapting locally to regional markets and adapting locally to market needs?market needs?

If so to what extent do subsidiaries have If so to what extent do subsidiaries have autonomy?autonomy?

To what extent is the corporate strategy of To what extent is the corporate strategy of the parent merely a directive to react to the parent merely a directive to react to local conditionslocal conditions

77

What are the benefits of TNCsWhat are the benefits of TNCs

New market opportunitiesNew market opportunities

Economies of scale and scopeEconomies of scale and scope

Factor advantagesFactor advantages

LearningLearning

FlexibilityFlexibility

Risk reductionRisk reduction

88

Performance measuresPerformance measures

Elango 2004 argues MNCs have higher profit margins in global Elango 2004 argues MNCs have higher profit margins in global rather than regional operationsrather than regional operations3 distinct types3 distinct typesRegionalRegionalGlobalGlobalHome BasedHome BasedDefined as location where majority of Gross Profit earnedDefined as location where majority of Gross Profit earnedTherefore success = high Gross Profit marginsTherefore success = high Gross Profit marginsStrategic implicationsStrategic implicationsGlobal operations offer higher profit marginsGlobal operations offer higher profit marginsRegional approach preferred if MNC diversified in many Regional approach preferred if MNC diversified in many productsproductsGlobal strategies are more costly to implement in terms of Global strategies are more costly to implement in terms of administration costsadministration costsThere is “fit” between firm profile and strategyThere is “fit” between firm profile and strategy

99

Is profit too short term?Is profit too short term?

Jalbert & Landry 2003Jalbert & Landry 2003Need measures to suggest long term forward thinking Need measures to suggest long term forward thinking strategic view across entire organisationstrategic view across entire organisationEconomic Value AddedEconomic Value AddedNOPAT – ( CC X IC )NOPAT – ( CC X IC )Net profit after taxNet profit after taxCost of capitalCost of capitalInvested capitalInvested capitalTracking StocksTracking StocksSpecific to unit of businessSpecific to unit of businessBalanced ScorecardBalanced Scorecard

1010

Jalbert & LandryJalbert & LandryBalanced ScorecardBalanced Scorecard

1111

Shareholder valueShareholder value

Litman & Welling 2002Litman & Welling 2002Argue common measure is TSR (Total Argue common measure is TSR (Total shareholder return)shareholder return)Share price growthShare price growthGreat companies do not necessarily Great companies do not necessarily exhibit good TSRexhibit good TSRCorporate strategy often founded on Corporate strategy often founded on companies showing good TSRcompanies showing good TSREg Dot.Com bubbleEg Dot.Com bubble

1212

Kumar & Petersen 2004Kumar & Petersen 2004Integrated strategy to maximize Integrated strategy to maximize

Return on Investment (ROI)Return on Investment (ROI)

1313

Kumar & Petersen 2004Kumar & Petersen 2004

Develops marketing strategy on basis Develops marketing strategy on basis of ROIof ROI

Do we measure strategic success by Do we measure strategic success by a metric (like ROI)?a metric (like ROI)?

Do we use a metric to specifically Do we use a metric to specifically determine strategy?determine strategy?

1414

Multi-faceted measuresMulti-faceted measures

Drucker 1954 argued for multi-dimensional financial & non-financial Drucker 1954 argued for multi-dimensional financial & non-financial measuresmeasuresDemirag 1987 showed UK parent companies used ROI and Demirag 1987 showed UK parent companies used ROI and budgeted –v- actual profitbudgeted –v- actual profitBorkowski 1999Borkowski 1999Suggests a range of financial measures be used to gauge Suggests a range of financial measures be used to gauge performanceperformanceMethods by which company can define long/short term outlookMethods by which company can define long/short term outlookGerman & Japanese TNCs see net income as importantGerman & Japanese TNCs see net income as importantUS & UK TNCs use cost reductionUS & UK TNCs use cost reductionEuropean TNCs reward innovation (technological & product)European TNCs reward innovation (technological & product)Argues Europeans encourage research and experimentation Argues Europeans encourage research and experimentation compared to Asian and US culturecompared to Asian and US cultureR&D????R&D????

1515

R&D expenditure as % of GDPR&D expenditure as % of GDP2000 - 20012000 - 2001

1616

Davis & Devinney -The essence of Davis & Devinney -The essence of corporate strategy (1996)corporate strategy (1996)

The fundamental process of corporate The fundamental process of corporate strategy development is rational, andstrategy development is rational, and

Managers and firms are bounded by Managers and firms are bounded by human, firm, market and environmental human, firm, market and environmental factors that limit their actionsfactors that limit their actions

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Davis & Devinney -The essence of Davis & Devinney -The essence of corporate strategy (1996)corporate strategy (1996)

In the end, In the end, all strategy is about rivalryall strategy is about rivalryMost popular books on strategy talk about ‘how to beat Most popular books on strategy talk about ‘how to beat the competition’the competition’The goal of the management of rivalry is the achieving of The goal of the management of rivalry is the achieving of cooperationcooperationUnderstanding rivalry requires three things:Understanding rivalry requires three things:understanding the structure of the environmentunderstanding the structure of the environmentunderstanding the payoffs to the players in the gameunderstanding the payoffs to the players in the gameknowing who knows whatknowing who knows whatIn other words, rivalry is about understanding the terrain, In other words, rivalry is about understanding the terrain, understanding the stakeholders and their motivations understanding the stakeholders and their motivations and understanding the knowledge base of the and understanding the knowledge base of the stakeholdersstakeholders

1818

You also need luckYou also need luck

Having superior resources is a necessary Having superior resources is a necessary condition for success.condition for success.Having superior managerial skills is a Having superior managerial skills is a necessary condition for success.necessary condition for success.Being lucky is a necessary condition for Being lucky is a necessary condition for success.success.

This questions how can luck be This questions how can luck be influenced?influenced?

1919

End of Corporate ImperialismEnd of Corporate Imperialism

Prahalad & Lieberthal 2003Prahalad & Lieberthal 2003Argue western MNCs entered emerging markets Argue western MNCs entered emerging markets seeing them as “targets”seeing them as “targets”Means of disposal of vast amounts of western Means of disposal of vast amounts of western goodsgoodsMNC strategy ignored “low end” marketMNC strategy ignored “low end” marketMNCs now adapt products to complexities of MNCs now adapt products to complexities of new marketsnew marketsIs this swapping global for local?Is this swapping global for local?West – East strategy, how applicable for East – West – East strategy, how applicable for East – West?West?

2020

Bad news for latecomers?Bad news for latecomers?

Carr & Garcia 2003Carr & Garcia 2003Argue market concentration/domination is key Argue market concentration/domination is key strategy driver of global MNCsstrategy driver of global MNCsGeneral Electric (world’s most profitable company) General Electric (world’s most profitable company) aims to achieve top 3 position in any given market aims to achieve top 3 position in any given market segmentsegmentHow does this affect “laggard” MNCs (late entrants)?How does this affect “laggard” MNCs (late entrants)?If dominance is not feasible it must affect strategic If dominance is not feasible it must affect strategic optionsoptions(localisation/regionalisation/product (localisation/regionalisation/product range/diversification)range/diversification)

2121

Bad news for latecomers?Bad news for latecomers?

Study of 9 vehicle component companies in Study of 9 vehicle component companies in SpainSpain

Argues local companies cannot develop global Argues local companies cannot develop global presencepresence

Constraint on strategic choicesConstraint on strategic choices

Develop niche marketsDevelop niche markets

Concentrate on core technical competenciesConcentrate on core technical competencies

Get taken overGet taken over

Is this inevitable? If so explain Asian MNCs!Is this inevitable? If so explain Asian MNCs!

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Carr & Garcia - summaryCarr & Garcia - summary

2323

East – West strategyEast – West strategy

Carney & Gedajlovic 2002Carney & Gedajlovic 2002Internationalization by strategic asset purchaseInternationalization by strategic asset purchaseAsian corporations are “laggards” on international sceneAsian corporations are “laggards” on international sceneBuild on merchant trading logicBuild on merchant trading logicCan East – West strategy be imperialistic (Japanese)Can East – West strategy be imperialistic (Japanese)How can Asian corporations develop MNC strategies as How can Asian corporations develop MNC strategies as latecomerslatecomersIs there a specific E – W strategy?Is there a specific E – W strategy?How global are Asian corporations?How global are Asian corporations?Are they in fact multi-locational (regional)?Are they in fact multi-locational (regional)?

2424

How do we identify & measure?How do we identify & measure?

Use of actual dataUse of actual data

Use of case studiesUse of case studies

Use of articlesUse of articles

Use of corporate informationUse of corporate information

2525

Asian ExampleAsian ExampleMatsushita – PanasonicMatsushita – Panasonic

Worldwide, Matsushita has currently 589 Worldwide, Matsushita has currently 589 consolidated companies as well as 81 consolidated companies as well as 81 companies which are reflected by the equity companies which are reflected by the equity method. method. International marketing and sales of International marketing and sales of Matsushita’s products are handled mainly Matsushita’s products are handled mainly through its sales subsidiaries and affiliates through its sales subsidiaries and affiliates located in respective countries or regions. located in respective countries or regions. In some countries, however, marketing and In some countries, however, marketing and sales are handled through independent agents sales are handled through independent agents or distributors, depending or distributors, depending on regional on regional characteristics.characteristics.

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5 Year income summary5 Year income summary

2727

Achieving a V-shaped RecoveryAchieving a V-shaped Recovery

As part of a new business domain-based organizational As part of a new business domain-based organizational structure and various management reforms implemented structure and various management reforms implemented in fiscal 2004, overseas companies are now managed by in fiscal 2004, overseas companies are now managed by respective business domain companies on a global respective business domain companies on a global consolidated basis. consolidated basis. Matsushita also adopted two results-Matsushita also adopted two results-based standards, namely CCM and cash flows, for the based standards, namely CCM and cash flows, for the evaluation of business performanceevaluation of business performance..CCM (Capital Cost Management) is a management CCM (Capital Cost Management) is a management benchmark created by Matsushita that emphasizes benchmark created by Matsushita that emphasizes return on capital. A CCM of zero or above indicates that return on capital. A CCM of zero or above indicates that the return on invested capital meets the minimum return the return on invested capital meets the minimum return expected by shareholdersexpected by shareholders

2828

Strategic products!Strategic products!

Sales of V-products, the driving force behind the Sales of V-products, the driving force behind the V-shaped recovery in Matsushita’s business V-shaped recovery in Matsushita’s business results, surged to approximately ¥1.24 trillion in results, surged to approximately ¥1.24 trillion in fiscal 2004, up from about ¥1 trillion in fiscal fiscal 2004, up from about ¥1 trillion in fiscal 2003.2003.Since fiscal 2003, Matsushita has promoted V-Since fiscal 2003, Matsushita has promoted V-products that can attain top shares in high products that can attain top shares in high volume markets and contribute to overall volume markets and contribute to overall earnings.earnings.Overseas operations play a vital role as a Overseas operations play a vital role as a “growth engine” in expanding business and “growth engine” in expanding business and enhancing overall earnings.enhancing overall earnings.