GLOBAL TECHNOLOGY COLLABORATIVE MODE

Global Technology Collaboration Mode - GTC

• GTC – based on the need to add capabilities, competencies and competitive force;

• GTC – brings together distinct competitors/rivals in the effort to create new opportunities;

• Strategic alliance – alliance of two or more companies on a global scale in strategic domains: R&D, technology transfer, innovation.

GTC

• 1. international use of different national technology capacities/ capabilities/ competencies;

• 2. based on public/private collaboration in exchange and development of technology;

• 3. generating innovation with participation of more than one country generally related to acitvity of multinational corporations- MNCs

Tehnonationalism vs. Technoglobalism

Growth and development paradigm based on domestic, national resources, capacities and competencies - superseded by the rise of multinational companies, with internationalization and globalization of business operatios in multiple countries all over the world.

Simultaneous trends.  

Phenomenon

Localization Globalization

Media E-mail; E-publishing Big media conglomerates (CNN)

Languages Provencal; Catalaninan; Global - English

Culture Ethnic enclave Global world (jeans; Coca-Cola; Disney)

Conflikts Terrorism; ethnic war Nuclear war; electronic war

State; government Separatism; disintegration (USSR, SFRY; Checkoslovakia)

Integration (EU; NAFTA)

Corporations Local autonomy; decentralized information services; customized products

Global alliances between firms; virtual interorganizational relations; global connections

International Strategic Decisions - example

• McDonald’s Corporation offers food that seeks to appeal to local palates– This is an example of one of the most important

strategic decisions a firm can make; whether to have a single global approach or a multi-country approach

The International Environment

• Doing business internationally is not new– Countries and organizations have been trading with

each other for centuries– Companies, including smaller firms, are finding

newer ways to do business internationally– Yet, there remain challenges as strategic managers

need to know the important aspects of the international environment – including the legal/political, economic, and cultural environments

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall 8- 7

The Legal-Political Environment

• The legal-political environment in the US is stable– Changes are slow and legal and political

procedures are well established– The laws governing the actions of institutions

and individuals are fairly stable

The Legal-Political Environment

• The legal-political environment is not the same on a global basis– Australia, Germany, Japan, and Spain are

similar to the US– Others are unstable – Bosnia, Nigeria, North

Korea– Still others are failed states – Somalia, Haiti,

Sudan– Each country has its own unique legal-political

environment that must be understood

Advantages and Drawbacks of International Expansion

Advantages Drawbacks- could lower operational costs

- provides a way to supplement or

strengthen domestic growth

- contributes to achieving benefits to economies of scale

- becomes a stronger competitor bothe domestically and internationally

- poses greater economic, strategic and financial risks

- process of managing strategically

becomes more complex and challenging

-finding similarities in market or operational capabilities is more difficult

- capturing and exploiting advantages is not easy or guaranteed

The Economic Environment• There are several factors in consideration

• Currency exchange rates– The differences in value between the home

currency and the value of the currency in the country the goods are sold

– Companies operating globally find they convert large amounts of currency each year

– Timing of the conversion can significantly affect a company’s balance sheet and bottom line, as it also accounts for interest rates

The Economic Environment

• Inflation Rates– The rising cost for products and services– This affects interest rates, exchange rates, cost of

living, and confidence in a country’s systems

• Strategic managers must monitor inflation rates to anticipate changes in monetary policy and make good decisions

• Diverse tax policies– Can be restrictive or not, will determine tax

obligations

The Global Perspective

• It is important to understand the international legal-political environment – Coke and Pepsi were banned in part of India

because a private research group alleged the soft drinks contained high levels of pesticides

– Both companies fought the ban and appealed to the High Court, which agreed and overturned the ban

The Global Perspective

• India hopes to become a global powerhouse– But, it suffers from an inefficient and state

controlled financial system– Banks are small and focus is local– Large Indian companies go overseas for advice

and funding– The country is seeking to reform its system, as

a means to compete globally

The Cultural Environment• Legal, political, and economic differences are

obvious among countries; but not so of cultural differences– Companies that fail to understand the national

culture will fail to operate effectively– Values and attitudes shared by individuals from a

specific country shape their beliefs and actions– Strategic managers must be familiar with cultural

differences between the countries in which it does business

Strategic Management Case: One Man’s Junk-Another Man’s Treasure

• The company 8-800-Got-Junk has discovered a lucrative niche somewhere between “trash cans and those big green bins dropped off by giant trash haulers”– The company has over 340 franchisees in the

US, Canada, and Australia– System-wide revenues exceed $125 Million– It relies on sophisticated technology and a

strong organizational culture

Case: One Man’s Junk-Another Man’s Treasure

• Information systems and technology have been key to expansion and growth– This enables booking and dispatching– Helps with a proprietary intranet to access

schedules, customer information, and real-time reports

– Franchisees are tech savvy

Case: One Man’s Junk-Another Man’s Treasure

• Company culture is blend of fun and seriousness– Hire the right people, treat them right– A Canadian best company to work for– Seek franchisees with energy, initiative, and

creativity

• This case provides evidence of the need for strategic management in entrepreneurial firms to recognize opportunities globally

Key Issues That Arise as Organizations go International

It is expected that between 2010-2012 the US will overtake France as the world’s largest wine maker– Wine consumption is expected to continue to

rise– The value of the wine market will increase as

consumers drink better and more expensive wine

– Italy is expected to remain the 2nd largest market

Key Issues

• Global changes in wine producing will include some surprises– Russia and China have appeared in the top ten

markets in terms of consumption and are forecasted to continue with growth

• What organizations might be interested in this forecast and what strategic implications might it have for them?

Entrepreneurial Ventures and Small Businesses Global Perspectives

- Entrepreneurial venture and a small business are not the same;

- Entrepreneurial ventures are created to pursue opportunities characterized by innovative practices: growth and profitability are their goals

Strategic management process and issues for entrepreneurial ventures and small businesses

• Entrepreneurial venture pursues opportunities, is characterized by innovative practices, has growth and profitability as main goals

• Small business is an independent business having less than 500 employees and it does not necessarily engage in new or innovative practices

• These organizations are important because they contribute to job creation, the number of new start-ups, and innovation

Strategic management process and issues for entrepreneurial ventures and small businesses

• Both external and internal analysis are important– They determine opportunities, threats, strengths,

and weaknesses

• Strategy choices of these types of organizations are fairly the same as larger organizations– They face some limits on how they can implements

Strategic management process and issues for entrepreneurial ventures and small businesses –

cont’d

• Strategy evaluation is important– Limitations must be understood

• Two main strategic issues facing these entities– Human resource management

– Innovation/flexibility

• Entrepreneurial ventures often replace existing products, processes, ideas with new ones: referred to as creative destruction

The issues that arise in going international - summary

• Advantages of going international include: – Lowering operational costs – Contributing to economies of scale– Supplementing domestic growth– Becoming a better competitor

• Drawbacks include:– Greater risks– Complexity of managing strategically

Issues that arise in going international

• Strategic decision makers must know:– Legal-political environment: laws, political

stability– Economic environment: currency exchange

rates, inflation rates, tax policies– Cultural environment: the values and attitudes

shared by individuals from a specific country that shapes their behavior and beliefs

Important international strategic decisions

• Multi-country approach– Strategies vary in the countries where a firm is

doing business

• Global approach– Strategies are the same in all countries where

the firm is doing business

The important international strategic decisions

• Five international strategies include:– Exporting– Importing– Licensing– Franchising

• Direct investment

• Born global firms are those that go international from the point of their founding

Multi-country Approach vs. Global Approach

• A firm with a multi-country approach varies its strategies according to the country in which it does business– This is based on differentiation, products are

tailored to fit consumer tastes and preferences– Marketing and distribution are adapted– Competitive actions are chosen to fit the unique

circumstances of the market

Global Approach

• A Global Approach is one where the strategies are the same in all countries where the firm does business– This effort seeks to develop a low cost advantage– More emphasis is placed on globally integrating

operations than on local market responsiveness– Products will have minor variations– Emphasis is on coordination between functions and

sharing of capabilities and technologies

Global is not always big

• Sonia Seye, a US immigrant from Senegal, brings a global perspective to her hair care business– She seeks products from global suppliers

• Many small US businesses are increasingly looking to other countries to improve– Cheaper or better products boost their business

International Strategy Alternatives

• Expanding beyond domestic borders requires considering several alternatives for growth:– Exporting– Importing– Licensing– Franchising– Direct Investment

International Strategy Alternatives

• Exporting– A business makes products in its home country,

transports them to another country for sale through an existing distribution channel

• Importing– Selling products at home that were made in another

country

• Licensing– The right to manufacture or sell for a fee

International Strategy Alternatives – cont’d

• Franchising– Mainly used by retailers or service brands, the

company will sell limited rights to use its brand name in return for a payment and share of profits

• Direct Investment– Involves the owning of assets, such as a

manufacturing facility or sales office, in another country

Global firm strategyGlobal firm strategy

Key steps in creating GLOBAL STRATEGY:

1. Developing basic, national strategy;

2. Internationalization of the business;

3. Globalization of operations.

1. Basic firm strategy

• Is created with primary focus on national conditions in the economy and business environment. It is the initial step ultimately leading to successful global strategy;

• Before globalization can emerge, technology and business competitiveness is reached within the national economy.

2. Internationalization

The next step is to turning the basic strategy towards international orientation, beyond the limits of own country. It is followed by international expansion of operations and strategic adapting. Companies that internationalize their business are creating sound base for the next step, globalization.

3. Globalization

• Means a adding a new quality for the international firm strategy. This new quality is related to consolidating a global corporate strategy based on integrating different multiple country strategies developed and achieving global world competitiveness.

Globalization Triangle

Costs & benefitsof globalization

Global strategymeans

Global companyfactorsGlobal

Industry Incentives

Globalization Incentives of Industry

Globalization potential of industry

Market incentives

Cost incentives

Incentivesfrom the state

Competitive incentives

Global strategy means - general

• 1) share in the global market;

• 2) global products (goods/services) development;

• 3) global location;

• 4) global marketing, and

• 5) global competitive strategy.

Global company factors (O&M)

Global company features and factors to support global operations:

• 1) organizational structure;• 2) management processes and procedures;• 3) employees, organizational culture; • 4) technology; • 5) core competencies.

The Global Strategy Framework

Global Strategy Means:- global market share- global locus- global product- global marketing- global competitiveness

Global Industry Incentives:MarketCostStateCompetition

Company position& resources Company factors and

capacity todevelop global strategy

Global Strategy Advantages &Drawbacks

Global Strategy Advantages &Drawbacks: Advantages

• Cost reduction;

• Product and program quality improvement;

• Customer satisfaction rising;

• Strengthening Competitive Power.

Global Strategy Drawbacks

• Management costs rising because of the need to coordinate, communicate, lead, control the disperesed global operations;

• Threats of product standardization, potential customer not satisfied with global product;

• Global concentration of functions and activities may remove the global program from true needs of the customer and decrease business resposiveness and flexibility;

Global Strategy Drawbacks

• Rising risks related to exchange rate dynamics, different foreign country costs and revenues and other economic indicators;

• Uniform, central marketing can lead to lower level of adaptivity to the needs of local customers and local market conditions;

• Integrating competitive weapons could jeopardize revenues, profits or competitive position in certain countries.

Five Forces Model

• The level of industry attractiveness depends on five dimensions:

1. Buyer Power: measures the degree of power that customers have over companies in the industry

2. Supplier Power: measures the degree of power that suppliers have over companies in the industry

3. Threat of New Entrants: measures ease of entry into the industry

4. Threat of Substitutes: measures the likelihood that new products or services will substitute for those supplied by the industry

5. Degree of Rivalry: measures the degree of competition between firms in the industry

Five Forces Model

Technology Cooperative Profile

• The basic profile built upon the degree and character of technology relations the company develops with the environment;

• Empirical research in Sweden on the sample of 121 companies as basis for identifying the dominant company cooperative profile.

Dominant Company Technology Cooperative Profile

• Isolated;

• Focused;

• Broad;

• Disperesed cooperative profile.

1. Isolated companies: weak and limited technological cooperative links, external technology relations absent both in vertical (with suppliers and customers) and horizontal (with companies in same business), limited external technology sources for development.2. Focused companies: have developed technological links vertically in just one dimension – formalized relations with customers. Also they are involved in horizontal relations, but the relations with suppliers are not developed.

3. Broad cooperative profile: companies that actively share operations with multiple partners, at least two representatives of each category that was analysed (suppliers, customers and horizontally). The relations with suppliers and customers dominate.

4. Companies with disperesed cooperation: develop at least five significant partnering relations and they are present in all three categories.

Technology Strategy: Collaborative Mode

Narayanan, Ch. 9

Collaborative Mode

1. What is a collaborative arrangement?(definition and trends)

2. Why do firms collaborate? (reasons)

3. What are the different types of collaborative arrangements?

4. What are the risks of collaboration?

5. How globalization influences collaborative arrangements?

1. Collaborative arrangements: definition and trends

• Collaborative arrangements involve two or more firms in which the partners hope to learn and acquire from each other the technologies, products, skills, and knowledge that are not otherwise available. The partners may range from suppliers and customers to competitors, unrelated firms, or organizations in the public sector.

• Recent years have witnessed four distinctly new trends in collaborative arrangements: 1) R&D alliances, 2) marketing alliances, 3) outsourcing arrangements, and 4) collaboration between small and large firms

R&D Alliances

• R&D alliances represent the formation of collaborative arrangements between two or more firms to conduct research and development. ( Previously in the USA R&D collaboration between competitors had been restricted by antitrust regulations, but antitrust provisions were relaxed, allowing competitors greater freedom to collaborate on R&D ventures.R&D strategic alliances have been on the rise. )

Marketing Alliances

– Firms are also increasingly employing marketing alliances to exploit the outcome of research and development through marketing channels. These alliances could take the form of licensing or teaming up with firms that have marketing expertise.(A lot of drug developers are teaming up with domestic firms with mass distribution expertise)

Outsourcing Arrangements

• Firms are sourcing particular components and production processes from other firms, including foreign partners.(In consumer electronics alone, no U.S. manufacturer currently produces its own color television sets, VCRs, stereo equipment. All electronic products are made by their foreign alliance partners and imported into the United States.)

Collaboration between Small and Large Firms

• Small firms have been growing in importance as leaders in technology development. However, because the ability of small firms to compete in the global markets is constrained, inter-firm collaboration for innovation has become a major vehicle by which small firms overcome some of these barriers.

Advantage of Inter-firm Collaboration by Size And SECTOR

SMALL FIRMSSmall-Large Firm

Collaboration:Electronics• To exploit new technology

• Build company resources

• Access to expert user

• Open new markets

• Product development

• Potential sales to partner

• Management strategy, company evolving from followers to leaders in technology

LARGE FIRMSLarge-Small Firm

Collaboration:Electronics• Access to people with right

combinations of skills to develop new products

• Increase company range, provide customers with better service

• Strategic decision to invest in a key technology. Exploitation needed specialized resources of smaller company

• Access to smaller firm’s expertise for product development

• Provided solution to technical problem

2. Reasons for Collaborative Arrangements

• Three major reasons why firms seek collaborative relationships with other partners, including competitors are: pooling of resources, sharing risk and leveraging the individual firm’s capabilities.

• Collaborative arrangements can be classified into two broad categories:

• STRATEGIC• OPERATIONAL

STRATEGIC(three strategic long-term objectives)

1. Controlling the Evolution of Competitive Domains

2. Knowledge Acquisition and Transfer

3. Links to Environment

Controlling the Evolution of Competitive Domains

• Four major areas of collaboration have been common:

1. Dominant design-firms find it useful to collaborate with certain other firms for gaining acceptance of their designs as the industry standard.(IBM&Microsoft, IBM PC became de facto standard)

2. Establishment of standards-firms collaborate to establish standards.(automobile firms often collaborate to get environmental emission standards established in their favor by the government)

3. Technology development-firms may band together to gain favorable treatment from other environmental agents (formation of SEMATECH-group of companies gained access to federal funds to support their research.

4. Favorable treatment from the government-(Clinton administration’s threat to impose sanctions on Japanese imports was partly stimulated by the collective lobbing efforts of U.S. auto manufacturers)

Knowledge Acquisition and Transfer

• Firm may attempt diversification into another industry, away from its core operations, by collaborating with other firms either through joint ventures, equity investments, or acquisitions (Procter&Gamble’s diversification into the biotechnology industry was implemented through a series of acquisitions that enabled the firm to understand more biotechnology industry; technology transfer to developing countries-India’s auto industry is booming with a help of Indo-Japanese joint ventures)

Links to Environment

• Large firms encourage their scientists or senior science personnel to become active in advisory committees in universities or government agencies. This kind of participation enables firms to gain access to information that otherwise would not have been easily available. (IBM & Universities)

OPERATIONAL(four operational short-term objectives)

1. Competitive Benchmarking

2. Extract operating Efficiencies

3. Time to market

4. Capture Value from Existing Technology

Competitive Benchmarking

• Benchmarking practices involve a firm’s importing the “best in the world" practices in a specific value chain activity and institutionalizing these practices in the normal operating procedures. (When General Electric wanted to benchmark its distribution system, it studied Wal-Mart)

Operating Efficiencies

• Because comparative advantage of firms is shifting due to the rapid changes in the marketplace, firms often find it useful to outsource some of the activities in the value chain that they have previously performed in-house (banks are outsourcing activities involved in the management of information systems)

Time to Market

• Reduction in time to market is accomplished by using a variety of

mechanisms ranging from outsourcing to joint development to equity purchase. (Pharmaceutical firms are outsourcing

operations involved in drug development)

Capturing Value from Technology Development

• Collaborative arrangements also provide firms one avenue by which the benefits of in-house technology development can be realized.

1. Spin-offs – represent a mechanism whereby a firm can reap the value of technology developed in-house that does not fit with the business strategy of the firm. The firm might take a key position in a new firm created by the people who were involved in the development of the technology.

2. Transfer of technology through projects3. Sell consulting services based on know-how developed

in-house

3.Types of collaborative arrangements in domains of technology strategy

• There are four domains of technology strategy:

1. Appropriation of Technological Capability

2. Deployment in New Products

3. Deployment in the Value Chain

4. Marketing of TechnologyEach domain has different type of collaborative arrangement.

Appropriation of Technologytwo forms of collaboration

• Collective ResearchOrganizations want to strengthen the

technical infrastructure of their respective industries.

1. Precompetitive research(to improve productivity and enhance international competitiveness)

2. Noncompetitive (center their activities on basic research, education, health safety)

They are: Trade associations, Industry associations, University-based centers, Research corporations

• Strategic AlliancesThey are forged specifically to further the

competitive objectives of the participating firms. The benefits are strictly proprietary to alliance partners.

1. Corporate venturing – relationship between a large comp. & small comp. Assume the form of financial participation by large firms, merger or acquisition.

2. Joint technology development-firms come together for limited period of time to conduct research projects.

3. Outsourcing—involves one firm contracting out some activity

Deployment of Technology in New Products

• Inward technology licensing (ITL)

This refers to a contractual arrangement whereby one firm (licensee) obtains the rights to use technology(in the form of patents, trademarks, manufacturing, marketing, and technical expertise) from another firm, or organization, or individual(the licensor).

Advantage & disadvantage of ITL to internal product development:

1. Lower capital investment in ITL

2. ITL is faster method

3. ITL has a lower degree of control

4. ITL involve transaction costs

• Joint technology development

In order to achieve technological lead over their competitors in new product development, firms usually undertake JTD. JTD is common in fast-changing industrial sectors: electronics, computers, telecommunications and biotechnology.

Deployment of Technology in the Value Chain

• Advances in information technology and the rise of global competitors have been the primary drivers of this trend. Three major forms of alliances have appeared in recent years:

1. Logistic Alliances-the principals in a typical agreement are a provider of customized logistic services and a producer of goods that jointly engineer and launch a system to speed goods to customers.

2. Information Partnership- facilitated by the sharing of customer data. Four different kinds: joint marketing partnership(access to new customers and territories and to economies of scale through cost sharing,) inter-industry partnership(opportunity to pool resources capital, skills), Customer-supplier partnership(data networks set up by suppliers to service customers), IT vendor-driven partnership(provide a platform for uninitiated industry participants to offer novel customer services)

3. Outsourcing- most common,involves subcontracting one or several activities in a firm’s value chain to other firms. Outsourcing of production and distribution have had a log history,something new is outsourcing IT.

Marketing of Technology

• The marketing of technology represents the opposite side of outsourcing. Firms that have technology capabilities partner with firms that need the requisite technology for mutual benefit. The major mechanisms by which firms market technologies are:

1. Licensing of technology(most common)

2. Provision of consulting services

3. Sale of technology through divestiture

Risks of Collaborative Activity• Intellectual property right risk1. Private Property (profit corporation)2. Public Property (government, nonprofit educational institutions)3. Leaky Property ( collaborative arrangements)refers to knowledge that can

be appropriated by another through imitation, observation, or by hiring people away. THUS, the collaborating firms run the potential risk of erosion of their intellectual rights,due to the sharing of intellectual property rights.

• Competitive risk- refers to the danger that one of the partners may imitate another’s technology and attempt to compete with the firm in which it acquires the relevant know-how.

• Organizational risk-refers to the problems that appear due to the way in which joint efforts are managed. Such risks arise from four factors: differing priorities, differing behavior styles, lack of performance of one partner, relationships among people

Risks differ among the various domains of activity in the technology strategy.

Influence of Globalization

• Two major facets of globalization of collaborative activity: 1) R&D collaboration in other parts of the world and 2) global technology alliances.

1. Cooperative arrangements in technology development are common in Japan and Europe.

2. Global alliances have sprung up between partners in Western countries, between firms in Western countries and Asian countries, and between small and large companies.

Managerial ImplicationDifferent forms of arrangements are appropriate under different technology and

market condition. When the technology and market are familiar to the firm, internal development is encouraged. When either one is new or unfamiliar, joint

venture or acquisition is an alternative. When neither the technology nor the market is familiar to a firm, acquisition, venture capital, or educational

acquisitions are needed.

MARKET

(T-M) Matrix

Appropriate form of Collaborative Arrangement

New and Unfamiliar

New but Familiar

Existing

Joint venture

Venture capital

Venture nurturing

Educational acquisition

Venture capital

Venture nurturing

Educational acquisition

Internal market development

Acquisition

Internal venture

Acquisition

Licensing

Venture capital

Venture nurturing

Educational acquisition

Internal development

(or acquisition)

Internal venture

Acquisition

Licensing

“New style” joint venture

Existing New but Familiar

New and Unfamiliar

TECHNOLOGY

Execution

• In order to reduce risk in collaborative arrangements it is necessary to have good management practices that remove organizational and strategic differences as obstacles from collaborating with partners.

• The execution of collaborative arrangements requires:

1. specification of clear objectives2. top management commitment3. clear and open communications

Cooperative Company Profile

• Empirical research shows difference between the traditional American and partnering models;

• Further trends show rise in cooperative business modes with global orientation;

• Technology is the driver of collaborative modes;

• The rising importance of Open Innovation

Traditonal American model Japanese partnering model

Focus on the firm: efficinecy and business results Focus on business ecosystem: efficiency in the value chain

Emphasis on unit costs/prices, minimum quality standard

Emphasis on value chain costs and wuality improvement

Producer defines needs; specialization of activity; sequential planning

Joint effort in defining needs ands solving of problems in VC; high operations integration and planning

Occasional communication on problem occurance; very small joint activitiy in information sharing or support

Frequent planned communication; continuous cooperation in information sharing and support

General investment; uniform approach Customer oriented investments oriented at satisfying unique customer and/or supplier needs (e.g. Information systems)

Precise contracts and clear economic interest and specified in advance. Consequent external conditions bear risk based on the principle one gains-the other loses.

Flexible contracting conditions correlated to changes in the environment so that they bear ptotection and equal division of risk under the principle one gains-the other gains.

No further obligations beyond contract; relations generated at a distance

Multiple collateral relations built on mutual faith and oriented at building strong partnering relations, with risk sharing in investment activities.