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IB-Strategic Options For MNC: Sumit Mitra Iimk 2013-14

1) The document discusses various strategic options for multinational corporations (MNCs) operating globally, including international, multidomestic, global, and transnational strategies. 2) It also covers considerations for MNCs around achieving location economies, balancing pressures for cost reductions with pressures for local responsiveness, and leveraging skills across subsidiaries. 3) Finally, the document discusses the importance of aligning a company's organizational architecture including its structure, control systems, incentives, and processes to support its chosen strategy and adapt as competition intensifies over time.

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Venkata Tummala
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68 views

IB-Strategic Options For MNC: Sumit Mitra Iimk 2013-14

1) The document discusses various strategic options for multinational corporations (MNCs) operating globally, including international, multidomestic, global, and transnational strategies. 2) It also covers considerations for MNCs around achieving location economies, balancing pressures for cost reductions with pressures for local responsiveness, and leveraging skills across subsidiaries. 3) Finally, the document discusses the importance of aligning a company's organizational architecture including its structure, control systems, incentives, and processes to support its chosen strategy and adapt as competition intensifies over time.

Uploaded by

Venkata Tummala
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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IB- Strategic options for MNC

Sumit Mitra
IIMK
2013-14
Value creation Options-MNCs
Location Economies:
• Location economies are the economies that
arise from performing a value creation activity
in the optimal location for that activity
• Can have one of two effects
– It can lower the costs of value creation and help the firm to
achieve a low-cost position and/or

– It can enable a firm to differentiate its product offering from those


of competitors
Cost Pressures and Pressures for
Local Responsiveness
• Firms that compete in the
global marketplace
typically face two types of
competitive pressure
– Pressures for cost
reductions
– Pressures to be
locally responsive
Also called :
Global Integration(I)
Local
Responsiveness (R)
(I-R Grid, Prahalad)
Pressures for Cost Reductions
• International businesses often face pressures for cost
reductions because of the competitive global market
• Pressures for cost reduction can be particularly
intense in industries producing commodity-type
products
– Universal needs exist when the tastes and preferences of consumers in
different nations are similar if not identical

• Pressures for cost reductions are also intense


– In industries where major competitors are based in low-cost locations
– Where there is persistent excess capacity
– Where consumers are powerful and face low switching costs
Pressures for Local
Responsiveness
• Differences in consumer tastes & preferences
– North American families like pickup trucks while in Europe they are
viewed as a utility vehicle for firms
• Differences in infrastructure & traditional practices
– Consumer electrical system in North America is based on 110 volts; in
Europe on 240 volts
• Differences in distribution channels
– Germany has few retailers dominating the food market, while in Italy it
is fragmented
• Host-Government demands
– Health care system differences between countries require
pharmaceutical firms to change operating procedures
Types of Strategies for MNCs
The Evolution of Strategy
• The Achilles heel of the international strategy is
that over time competitors inevitably emerge
– An international strategy may not be viable in the long-term so
firms need to shift toward a global standardization strategy or a
transnational strategy in advance of competitors

• As competition intensifies
– International and localization strategies tend to become less viable
as competition builds cost pressures
– Managers need to orient their companies toward either a global
standardization strategy or a transnational strategy to overcome
challenges
The Evolution of Strategy
International Strategy
• Create value by transferring valuable core
competencies to foreign markets that indigenous
competitors lack
• Centralize product development functions at home
• Establish manufacturing and marketing functions in
local country but head office exercises tight control
over it
• Limit customization of product offering and market
strategy
– Strategy effective if firm faces weak pressures for
local responsive and cost reductions

Is this what KFC-I wants. Will it work when


competition is increasing locally or globally?
Multidomestic Strategy
• Main aim is maximum local responsiveness
• Customize product offering, market strategy
including production and R&D according to national
conditions
• Generally unable to realize value from experience
curve effects and location economies
• Possess high cost structure
Is this what Loy Weston started with and wanted to
continue? (Throwing mud on the wall) Is this
responsible for deteriorating performance of KFCJ?
Global Strategy

• Focus is on achieving a low cost strategy by reaping


cost reductions that come from experience curve
effects and location economies
• Production, marketing, and R&D concentrated in few
favorable locations
• Market standardized product to keep costs low
• Effective where strong pressures for cost reductions
and low demand for local responsiveness exist
– Semiconductor industry
OR is this what ‘excessive control’ of HQ reduced
KFC-I strategy to? Can it work for food business?
Transnational Strategy

• To meet competition, firms aim to reduce costs,


transfer core competencies while paying attention to
pressures for local responsiveness
• Global learning
– Valuable skills can develop in any of the firm’s world
wide operations
– Transfer of knowledge from foreign subsidiary to
home country, to other foreign subsidiaries
• Transnational strategy difficult task due to
contradictory demands placed on the organization
– Caterpillar

Is this what is best for KFC-I and KFCJ for future?


What are challenges to achieve this?
Leveraging Subsidiary Skills
• Leveraging the skills created within subsidiaries and
applying them to other operations within the firm’s
global network may create value
• Learning how to leverage the skills of subsidiaries
presents a challenge for managers of multinational
organizations
– They must have the humility to recognize that valuable skills leading to
competencies can arise anywhere within the firm’s global network
– They must establish an incentive system that encourages local
employees to acquire new skills
– They must have a process for identifying when valuable new skills have
been created in a subsidiary
– They need to act as facilitators, helping to transfer valuable skills within
the firm
Could KFC-J and Loy Weston be made to proactively do some of
these ?
Implementation-Organization Architecture

• Organizational architecture includes the totality of a


firm’s organization, including formal organization
structure, control systems and incentives,
processes, organizational culture, and people
• Superior enterprise profitability requires three
conditions
– The different elements of a firm’s organizational
architecture must be internally consistent
– The organizational architecture must match or fit
the strategy of the firm
– The strategy and architecture of the firm must not
only be consistent with each other but they also
must be consistent with competitive conditions
Organizational Architecture
• Organizational structure refers to three things
– The formal division of the organization into sub-units
– The location of decision-making responsibilities within that
structure
– The establishment of integrating mechanisms to coordinate the
activities of subunits
( see how the structure of KFC-I has undergone change over
time)
• Control systems are the metrics used to measure the performance
of sub-units and make judgments about how well managers are
running them
(see how strategic planning is done in KFC-I, who are key
people)
• Incentives are the devices used to reward appropriate managerial
behavior
( how do you expect employees to buy idea and fall in line?)
Organizational Architecture
Thank You

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