International Strategy and Organization

International Strategy and Organization

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Welcome to Chapter 11, International Strategy and Organization.

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Copyright © 2014 Pearson Education, Inc.

Chapter Objectives

Explain the stages of identification and analysis that precede strategy selection

Identify the two international strategies and the corporate-level strategies that companies use

Identify the business-level strategies of companies and the role of department-level strategies

Discuss the important issues that influence the choice of organizational structure

Describe each type of international organizational structure, and explain the importance of work teams

Copyright © 2014 Pearson Education, Inc.

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In this chapter, you will explore how companies select their international strategies and structures.

You will also:

  • Learn about the variety of strategies that companies use in international business.
  • Examine the organizational structures used in international operations.
  • And understand factors relevant to selecting these strategies and structures.

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Copyright © 2014 Pearson Education, Inc.

Ryanair

  • Employs a low-cost business strategy
  • Charges far less than national airlines
  • Uses low-cost airports near major cities

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  • Ryanair shuttles nearly 80 million passengers a year across Europe at fares that are around 50 percent lower than Europe’s big national carriers.
  • Ryanair’s strategy is to use less congested, secondary airports just outside Europe’s biggest cities. Instead of serving London’s Heathrow or Gatwick airport, Ryanair flies into Stansted. This lets Ryanair negotiate airport fees that are one-tenth that charged by Europe’s major airports.
  • Ryanair is hot on the heels of big national carriers, such as British Airways, Lufthansa in Germany, and Alitalia in Italy.

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Planning and Strategy

Planning

Strategy

Identifying and selecting objectives and deciding how to achieve those objectives

Set of planned actions that managers take to help a company meet its objectives

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  • Planning is the process of identifying and selecting a company’s objectives and deciding how the firm will achieve those objectives.
  • Strategy is the set of planned actions that managers take to help a company meet its objectives. A well-defined strategy coordinates divisions and departments to achieve company-wide goals effectively and efficiently.

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Strategy-Formulation Process

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  • Firms must determine what products to produce, where to produce them, and where and how to market them. Whether as a site for operations or as a potential market, each location comprises a mixture of cultural, political, legal, and economic traditions and processes that complicate decision making.
  • The strategy formulation process allows managers a chance to step back from day-to-day activities and get a fresh perspective on the direction of the company and its industry.

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Identify Mission and Goals

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  • A mission statement explains why a company exists and what it plans to accomplish. It often describes how a company’s operations are likely to affect stakeholders in all nations where the firm is active.
  • High-level company objectives are stated in general terms, as in “to be the largest global company in each industry in which we compete.”
  • Business-unit objectives tend to be more specific, as in “to mass produce a zero-pollution-emissions automobile by 2020.”
  • And department-level objectives often carry numerical performance targets, as in “to increase global market share by 5 percent in each of the next three years.”

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Identify Core Competency

Special ability of a company that competitors find extremely difficult or impossible to equal

Coordination of multiple skills

Develop over lengthy period of time

Difficult to teach

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To formulate strategies, managers should analyze the company, its industry, and the markets in which it is active and those it plans to enter.

  • This type of analysis helps managers identify activities that create value for customers and discover a company’s core competency.
  • A core competency refers to the coordination of multiple skills to form a single technological outcome, develops over a long period of time, and is difficult to teach.

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Copyright © 2014 Pearson Education, Inc.

Value Chain Analysis

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Value chain analysis is the process of dividing a company’s activities into primary and support activities and identifying those that create value for customers. Each business activity is a source of strength or weakness for a company. Insights gained from this analysis are then fed into the strategy formulation process.

  • Primary activities include inbound and outbound logistics, production, marketing and sales, and customer service. When analyzing primary activities, managers look for areas in which the company can directly increase customer value.
  • Support activities include business infrastructure, human resources, technology development, and sourcing. These assist in the performance of primary activities.

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Business Environment

National differences are inherent in analyzing a firm’s unique abilities

  • Cultural differences
  • Political processes
  • Legal matters
  • Economic systems
  • Labor issues
  • Consumer forces

and much more…

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National and international business environments are extremely important to strategy formulation. Differences in language, religious beliefs, customs, traditions, and climate complicate strategy formulation.

  • Manufacturing processes must sometimes adapt to local customs, traditions, work practices, and labor supply. Marketing practices must also often adapt to cultural, political, and legal differences among markets.

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Copyright © 2014 Pearson Education, Inc.

Discussion Question

What are the three stages of the strategy-formulation process, and what is involved at each stage?

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What are the three stages of the strategy-formulation process, and what is involved at each stage?

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Copyright © 2014 Pearson Education, Inc.

Answer to Discussion Question

Stage one is to identify company mission and goals. This means defining the business and its main objectives.

Stage two is to identify company core competency and value-creating activities. This means analyzing a firm’s unique abilities, primary and support activities, and the business environment.

Stage three is to formulate strategies. This means selecting a multinational or global strategy and then formulating corporate-, business-, and department-level strategies.

Copyright © 2014 Pearson Education, Inc.

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Answer:

Stage one is to identify company mission and goals. This means defining the business and its main objectives. Stage two is to identify company core competency and value-creating activities. This means analyzing a firm’s unique abilities, primary and support activities, and the business environment. Stage three is to formulate strategies. This means selecting a multinational or global strategy and then formulating corporate-, business-, and department-level strategies.

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Multinational Strategy

Adapting products and their marketing strategies to local preferences in each national market

  • Difficult to exploit economies of scale
  • Respond quickly to buyer preferences

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Generally speaking, companies approach international markets using one of two international strategies. When following a multinational strategy, a company adapts its products and marketing to local preferences in each national market.

  • The benefit of this approach is that it allows a company to monitor buyer preferences in each local market and respond quickly and effectively to changes in buyer preferences.
  • The drawback is that a firm may not be able to exploit scale economies in product development, manufacturing, or marketing, which can make it ill-suited to price-competitive industries.

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Global Strategy

Offering the same products using the same marketing strategy in all national markets

  • May overlook varying buyer preferences
  • Cost savings from standardization

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When following a global strategy, a company offers the same products using the same marketing strategy in all markets. This approach helps firms take advantage of scale and location economies by producing entire inventories or components in a few, optimal locations.

  • The benefit of this approach is the cost savings from standardized products and marketing. Also, lessons learned in one market can be shared with other markets.
  • The drawback is that it allows for only simple modifications in features. If a firm overlooks an unmet customer need, a competitor may step in and create a niche market for itself by satisfying that need.

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Levels of Company Strategy

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Companies involved in more than one business must first formulate a corporate-level strategy by identifying the markets and industries in which it operates. The corporation develops overall objectives for different business units and determines the role of each unit in reaching those objectives.

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Growth Strategy

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One type of corporate strategy is a growth strategy, which is designed to increase the scale or scope of operations. Scale refers to the size of a corporation’s activities and scope refers to the kinds of activities it performs.

  • Firms can grow organically (that is, through internal sources of expansion) and by forming mergers and acquisitions, joint ventures, and strategic alliances. Potential partners for cooperation include competitors, suppliers, and buyers.

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Retrenchment Strategy

Reduce the scale or scope

of a corporation’s businesses

Reduce Scale

Reduce Scope

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Another corporate strategy is a retrenchment strategy, which reduces the scale or scope of a corporation’s businesses.

  • Corporations can cut back the scale of operations by closing factories and laying off employees, such as during difficult economic times or when competition increases.
  • They typically reduce the scope of activities by selling unprofitable business units or those in industries unrelated to the corporation’s main business.

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Stability Strategy

Guard against change and avoid

growth or retrenchment

  • No opportunities or threats
  • Strengths fully exploited
  • Weaknesses fully protected
  • Stated objectives are met

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Another corporate strategy is a stability strategy, which guards against change and is used to avoid either growth or retrenchment. This strategy is seldom employed because it assumes that a corporation has met all objectives, is satisfied with all its accomplishments, and envisions no new opportunities or threats.

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Combination Strategy

Mix of growth, retrenchment, and stability strategies across business units

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The last corporate strategy is a combination strategy, which mixes growth, retrenchment, and stability strategies across a corporation’s business units. This approach is quite commonly used because rarely do international corporations follow identical strategies in all of its business units.

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Discussion Question

A company that adapts its products and marketing to local preferences in each national market follows a __________ strategy.

a. Global

b. Multinational

c. Preference

Copyright © 2014 Pearson Education, Inc.

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A company that adapts its products and marketing to local preferences in each national market follows a __________ strategy.

a. Global

b. Multinational

c. Preference

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Copyright © 2014 Pearson Education, Inc.

Answer to Discussion Question

A company that adapts its products and marketing to local preferences in each national market follows a __________ strategy.

a. Global

b. Multinational

c. Preference

Copyright © 2014 Pearson Education, Inc.

*

The correct answer is b. Multinational

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Copyright © 2014 Pearson Education, Inc.

Business-Level Strategies

  • Low-cost leadership
  • Differentiation
  • Focus

Copyright © 2014 Pearson Education, Inc.

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A company must also formulate a business-level strategy for each business unit. It may need only one strategy if it has just one line of business, or require a number of strategies for a number of businesses. Key to an effective business-level strategy is developing an appropriate general competitive strategy in the marketplace, of which there are three: low-cost leadership, differentiation, and focus.

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Low-Cost Strategy

Exploit economies of scale to have the lowest

cost structure of any competitor in an industry

  • Mantra is cutting costs
  • Quality remains important
  • Scale is barrier to new entrants
  • Perhaps low customer loyalty

Copyright © 2014 Pearson Education, Inc.

*

A company pursuing a low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in its industry. This strategy works best with mass-marketed products aimed at price-sensitive buyers.

  • A company following this strategy must contain administrative costs and the costs of its primary activities, including marketing, advertising, and distribution.
  • Efficient production in large quantities can help a firm guard against attack by competitors because of the large start-up costs it requires.
  • A drawback of this strategy is that it can encourage low customer loyalty. Price-conscious buyers will purchase from any low-cost leader, all else being equal.

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Differentiation Strategy

Effects

  • Price premium
  • Customer loyalty
  • Portion of market only
  • Higher production costs

Design products that buyers perceive

as unique throughout an industry

Differentiators

  • Quality
  • Brand image
  • Product design

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A company following a differentiation strategy designs products that buyers perceive as unique throughout an industry.

  • This approach tends to force a company into a lower-market-share position because it involves the perception of exclusivity or meeting the needs of a special group.
  • It can allow a company to develop a loyal customer base to offset a smaller market share and the higher costs of producing and marketing a unique product.
  • Special features are used to differentiate products on the basis of quality, brand image, product design, or a combination of these factors.

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Focus Strategy

Focus on narrow market segment by being the low-cost leader, differentiating, or both

  • Many sub-segments today
  • Need distinctive product
  • Single geography, ethnicity, etc.

Copyright © 2014 Pearson Education, Inc.

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A company following a focus strategy satisfies the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.

  • Intense competition forces many products to be distinguished by price, quality, or design. In turn, the resulting expanded range of available products leads to more refined market segments.
  • Some firms focus on a single geographic area whereas others serve the needs of one ethnic group.

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Department-Level Strategies

Departmental strategies are key to a company achieving its objectives:

  • Manufacturing
  • Marketing
  • Logistics
  • Research & development

and others…

Source: Peng Neng/Newscom

Copyright © 2014 Pearson Education, Inc.

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Effective department-level strategies are integral to a company achieving its corporate- and business-level objectives. Department-level strategies rely on capabilities grounded in a company’s primary and support activities.

  • Each department creates customer value by helping to lower costs or by contributing to product differentiation. Manufacturing strategies can cut production costs and improve product quality, marketing strategies can promote differences from competitors’ products, efficient logistics can reap cost savings, and research and development strategies can identify unmet customer needs and design new products.

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Discussion Question

What are the main differences between the three types of business-level strategy?

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What are the main differences between the three types of business-level strategy?

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Answer to Discussion Question

A low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in an industry.

A differentiation strategy designs products that buyers perceive as unique throughout an industry.

A focus strategy focuses on the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.

Copyright © 2014 Pearson Education, Inc.

*

Answer:

A low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in an industry. A differentiation strategy designs products that buyers perceive as unique throughout an industry. A focus strategy focuses on the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.

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Organizational Structure

Centralized

decision making

Decentralized

decision making

  • Coordination is paramount
  • Financial control & cost savings
  • Improves local responsiveness
  • Increases accountability

Copyright © 2014 Pearson Education, Inc.

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Organizational structure is the way in which a company divides and coordinates its activities among separate units.

  • Companies rarely centralize or decentralize all decision-making responsibilities, but strike a balance to maximize efficiency and effectiveness.
  • Centralization helps coordinate international subsidiary activities, control financial resources, and promote a global organizational culture.
  • On the other hand, decentralization improves local responsiveness in rapidly changing environments and increases personal accountability and commitment from managers and workers.

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International Division Structure

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The international division structure separates domestic and international activities by creating a separate international division with its own manager. A general manager for each nation in which a company operates then controls product manufacturing and marketing within that market.

  • This structure concentrates international expertise in one division where the manager becomes a specialist in activities such as foreign exchange, exporting, and so forth. It can help a firm reduce costs and increase efficiency while preventing international activities from disrupting domestic operations.
  • Potential problems include poor coordination between the international division and the rest of the company, and destructive rivalries between country managers within the international division.

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Copyright © 2014 Pearson Education, Inc.

International Area Structure

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The international area structure organizes a company’s global operations into countries or regions. Each geographic division operates as a self-contained unit, with decision making decentralized to country or regional managers.

  • This structure works well when a business operates in countries with vastly different cultural, political, and economic characteristics. General managers, then, become experts on the unique needs of local customers.
  • A drawback is that units acting independently may cause resources to overlap and impair cross-fertilization of knowledge across units.

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Copyright © 2014 Pearson Education, Inc.

Global Product Structure

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The global product structure divides worldwide operations according to a company’s product areas. It is well-suited to a company that sells a diverse set of products. But with the primary focus on the product, domestic and international managers in each product division must coordinate their activities so they do not conflict.

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Global Matrix Structure

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The global matrix structure splits the chain of command between product and area divisions. Each manager reports to two bosses who share decision making—the president of the product division and the president of the geographic area.

  • Bringing specialists together can create a team-type organization, increase local responsiveness, reduce costs, coordinate worldwide operations, and increase coordination.
  • Drawbacks can include slow decision making and reaction time due to the need for coordination, and fuzzy accountability due to shared responsibility.

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Work Teams

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Establishing work teams can improve responsiveness by cutting across functional boundaries that slow decision making. Work teams coordinate their efforts to arrive at solutions and then implement corrective action.

  • A self-managed team joins employees from a single department who accept the responsibilities of former supervisors. Quality-improvement teams are commonly used in manufacturing settings to improve efficiency, productivity, and product quality.
  • A cross-functional team joins employees who work at similar levels in different functional departments. They improve coordination and reduce inter-departmental barriers.
  • A global team brings together a group of top managers from headquarters and international subsidiaries who meet to solve company-wide problems. Global teams must overcome large distances between team members, lengthy travel times to meetings, and the inconvenience of working across time zones.

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Discussion Question

The organizational structure that divides worldwide operations according to a company’s product areas is called a(n) __________ structure.

a. Global matrix

b. Global product

c. International division

Copyright © 2014 Pearson Education, Inc.

*

The organizational structure that divides worldwide operations according to a company’s product areas is called a(n) __________ structure.

a. Global matrix

b. Global product

c. International division

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Copyright © 2014 Pearson Education, Inc.

Answer to Discussion Question

The organizational structure that divides worldwide operations according to a company’s product areas is called a(n) __________ structure.

a. Global matrix

b. Global product

c. International division

Copyright © 2014 Pearson Education, Inc.

*

The correct answer is b. Global product

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

Copyright © 2014 Pearson Education, Inc.

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Welcome to Chapter 11, International Strategy and Organization.

*

In this chapter, you will explore how companies select their international strategies and structures.

You will also:

  • Learn about the variety of strategies that companies use in international business.
  • Examine the organizational structures used in international operations.
  • And understand factors relevant to selecting these strategies and structures.

*

  • Ryanair shuttles nearly 80 million passengers a year across Europe at fares that are around 50 percent lower than Europe’s big national carriers.
  • Ryanair’s strategy is to use less congested, secondary airports just outside Europe’s biggest cities. Instead of serving London’s Heathrow or Gatwick airport, Ryanair flies into Stansted. This lets Ryanair negotiate airport fees that are one-tenth that charged by Europe’s major airports.
  • Ryanair is hot on the heels of big national carriers, such as British Airways, Lufthansa in Germany, and Alitalia in Italy.

*

  • Planning is the process of identifying and selecting a company’s objectives and deciding how the firm will achieve those objectives.
  • Strategy is the set of planned actions that managers take to help a company meet its objectives. A well-defined strategy coordinates divisions and departments to achieve company-wide goals effectively and efficiently.

*

  • Firms must determine what products to produce, where to produce them, and where and how to market them. Whether as a site for operations or as a potential market, each location comprises a mixture of cultural, political, legal, and economic traditions and processes that complicate decision making.
  • The strategy formulation process allows managers a chance to step back from day-to-day activities and get a fresh perspective on the direction of the company and its industry.

*

  • A mission statement explains why a company exists and what it plans to accomplish. It often describes how a company’s operations are likely to affect stakeholders in all nations where the firm is active.
  • High-level company objectives are stated in general terms, as in “to be the largest global company in each industry in which we compete.”
  • Business-unit objectives tend to be more specific, as in “to mass produce a zero-pollution-emissions automobile by 2020.”
  • And department-level objectives often carry numerical performance targets, as in “to increase global market share by 5 percent in each of the next three years.”

*

To formulate strategies, managers should analyze the company, its industry, and the markets in which it is active and those it plans to enter.

  • This type of analysis helps managers identify activities that create value for customers and discover a company’s core competency.
  • A core competency refers to the coordination of multiple skills to form a single technological outcome, develops over a long period of time, and is difficult to teach.

*

Value chain analysis is the process of dividing a company’s activities into primary and support activities and identifying those that create value for customers. Each business activity is a source of strength or weakness for a company. Insights gained from this analysis are then fed into the strategy formulation process.

  • Primary activities include inbound and outbound logistics, production, marketing and sales, and customer service. When analyzing primary activities, managers look for areas in which the company can directly increase customer value.
  • Support activities include business infrastructure, human resources, technology development, and sourcing. These assist in the performance of primary activities.

*

National and international business environments are extremely important to strategy formulation. Differences in language, religious beliefs, customs, traditions, and climate complicate strategy formulation.

  • Manufacturing processes must sometimes adapt to local customs, traditions, work practices, and labor supply. Marketing practices must also often adapt to cultural, political, and legal differences among markets.

*

What are the three stages of the strategy-formulation process, and what is involved at each stage?

*

Answer:

Stage one is to identify company mission and goals. This means defining the business and its main objectives. Stage two is to identify company core competency and value-creating activities. This means analyzing a firm’s unique abilities, primary and support activities, and the business environment. Stage three is to formulate strategies. This means selecting a multinational or global strategy and then formulating corporate-, business-, and department-level strategies.

*

Generally speaking, companies approach international markets using one of two international strategies. When following a multinational strategy, a company adapts its products and marketing to local preferences in each national market.

  • The benefit of this approach is that it allows a company to monitor buyer preferences in each local market and respond quickly and effectively to changes in buyer preferences.
  • The drawback is that a firm may not be able to exploit scale economies in product development, manufacturing, or marketing, which can make it ill-suited to price-competitive industries.

*

When following a global strategy, a company offers the same products using the same marketing strategy in all markets. This approach helps firms take advantage of scale and location economies by producing entire inventories or components in a few, optimal locations.

  • The benefit of this approach is the cost savings from standardized products and marketing. Also, lessons learned in one market can be shared with other markets.
  • The drawback is that it allows for only simple modifications in features. If a firm overlooks an unmet customer need, a competitor may step in and create a niche market for itself by satisfying that need.

*

Companies involved in more than one business must first formulate a corporate-level strategy by identifying the markets and industries in which it operates. The corporation develops overall objectives for different business units and determines the role of each unit in reaching those objectives.

*

One type of corporate strategy is a growth strategy, which is designed to increase the scale or scope of operations. Scale refers to the size of a corporation’s activities and scope refers to the kinds of activities it performs.

  • Firms can grow organically (that is, through internal sources of expansion) and by forming mergers and acquisitions, joint ventures, and strategic alliances. Potential partners for cooperation include competitors, suppliers, and buyers.

*

Another corporate strategy is a retrenchment strategy, which reduces the scale or scope of a corporation’s businesses.

  • Corporations can cut back the scale of operations by closing factories and laying off employees, such as during difficult economic times or when competition increases.
  • They typically reduce the scope of activities by selling unprofitable business units or those in industries unrelated to the corporation’s main business.

*

Another corporate strategy is a stability strategy, which guards against change and is used to avoid either growth or retrenchment. This strategy is seldom employed because it assumes that a corporation has met all objectives, is satisfied with all its accomplishments, and envisions no new opportunities or threats.

*

The last corporate strategy is a combination strategy, which mixes growth, retrenchment, and stability strategies across a corporation’s business units. This approach is quite commonly used because rarely do international corporations follow identical strategies in all of its business units.

*

A company that adapts its products and marketing to local preferences in each national market follows a __________ strategy.

a. Global

b. Multinational

c. Preference

*

The correct answer is b. Multinational

*

A company must also formulate a business-level strategy for each business unit. It may need only one strategy if it has just one line of business, or require a number of strategies for a number of businesses. Key to an effective business-level strategy is developing an appropriate general competitive strategy in the marketplace, of which there are three: low-cost leadership, differentiation, and focus.

*

A company pursuing a low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in its industry. This strategy works best with mass-marketed products aimed at price-sensitive buyers.

  • A company following this strategy must contain administrative costs and the costs of its primary activities, including marketing, advertising, and distribution.
  • Efficient production in large quantities can help a firm guard against attack by competitors because of the large start-up costs it requires.
  • A drawback of this strategy is that it can encourage low customer loyalty. Price-conscious buyers will purchase from any low-cost leader, all else being equal.

*

A company following a differentiation strategy designs products that buyers perceive as unique throughout an industry.

  • This approach tends to force a company into a lower-market-share position because it involves the perception of exclusivity or meeting the needs of a special group.
  • It can allow a company to develop a loyal customer base to offset a smaller market share and the higher costs of producing and marketing a unique product.
  • Special features are used to differentiate products on the basis of quality, brand image, product design, or a combination of these factors.

*

A company following a focus strategy satisfies the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.

  • Intense competition forces many products to be distinguished by price, quality, or design. In turn, the resulting expanded range of available products leads to more refined market segments.
  • Some firms focus on a single geographic area whereas others serve the needs of one ethnic group.

*

Effective department-level strategies are integral to a company achieving its corporate- and business-level objectives. Department-level strategies rely on capabilities grounded in a company’s primary and support activities.

  • Each department creates customer value by helping to lower costs or by contributing to product differentiation. Manufacturing strategies can cut production costs and improve product quality, marketing strategies can promote differences from competitors’ products, efficient logistics can reap cost savings, and research and development strategies can identify unmet customer needs and design new products.

*

What are the main differences between the three types of business-level strategy?

*

Answer:

A low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in an industry. A differentiation strategy designs products that buyers perceive as unique throughout an industry. A focus strategy focuses on the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.

*

Organizational structure is the way in which a company divides and coordinates its activities among separate units.

  • Companies rarely centralize or decentralize all decision-making responsibilities, but strike a balance to maximize efficiency and effectiveness.
  • Centralization helps coordinate international subsidiary activities, control financial resources, and promote a global organizational culture.
  • On the other hand, decentralization improves local responsiveness in rapidly changing environments and increases personal accountability and commitment from managers and workers.

*

The international division structure separates domestic and international activities by creating a separate international division with its own manager. A general manager for each nation in which a company operates then controls product manufacturing and marketing within that market.

  • This structure concentrates international expertise in one division where the manager becomes a specialist in activities such as foreign exchange, exporting, and so forth. It can help a firm reduce costs and increase efficiency while preventing international activities from disrupting domestic operations.
  • Potential problems include poor coordination between the international division and the rest of the company, and destructive rivalries between country managers within the international division.

*

The international area structure organizes a company’s global operations into countries or regions. Each geographic division operates as a self-contained unit, with decision making decentralized to country or regional managers.

  • This structure works well when a business operates in countries with vastly different cultural, political, and economic characteristics. General managers, then, become experts on the unique needs of local customers.
  • A drawback is that units acting independently may cause resources to overlap and impair cross-fertilization of knowledge across units.

*

The global product structure divides worldwide operations according to a company’s product areas. It is well-suited to a company that sells a diverse set of products. But with the primary focus on the product, domestic and international managers in each product division must coordinate their activities so they do not conflict.

*

The global matrix structure splits the chain of command between product and area divisions. Each manager reports to two bosses who share decision making—the president of the product division and the president of the geographic area.

  • Bringing specialists together can create a team-type organization, increase local responsiveness, reduce costs, coordinate worldwide operations, and increase coordination.
  • Drawbacks can include slow decision making and reaction time due to the need for coordination, and fuzzy accountability due to shared responsibility.

*

Establishing work teams can improve responsiveness by cutting across functional boundaries that slow decision making. Work teams coordinate their efforts to arrive at solutions and then implement corrective action.

  • A self-managed team joins employees from a single department who accept the responsibilities of former supervisors. Quality-improvement teams are commonly used in manufacturing settings to improve efficiency, productivity, and product quality.
  • A cross-functional team joins employees who work at similar levels in different functional departments. They improve coordination and reduce inter-departmental barriers.
  • A global team brings together a group of top managers from headquarters and international subsidiaries who meet to solve company-wide problems. Global teams must overcome large distances between team members, lengthy travel times to meetings, and the inconvenience of working across time zones.

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The organizational structure that divides worldwide operations according to a company’s product areas is called a(n) __________ structure.

a. Global matrix

b. Global product

c. International division

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The correct answer is b. Global product

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