LECTURE 8
Global Strategic Structures
University of South Australia Australia’s University of Enterprise
Learning
objectives
8.1 Explain the concept of strategy.
8.2 Understand how companies
can profit from global expansion.
8.3 Understand how pressures for
cost reductions and pressures for
local responsiveness influence
strategic choice.
8.4 Be familiar with different
strategies for competing globally
and their pros and cons.
8.5 Explain the pros and cons of
using strategic alliances to support
global strategies.
Strategy and the
firm
Strategy
Actions managers take to attain the goals of the
company
Key goal
Maximise the value of a company
Two key strategies to attain this goal
Increase profitability–return on invested capital
Increase rate of profit growth–percentage
increase in profits
next
Figure 10.1,
Determinants
of enterprise
value
continue
d
Value creation
Add value so customers are willing to pay
more
Lowering cost of producing the product
V = price given competition
C = cost of production
V – C = value creation
Either raising V and/or lowering C
This Photo by Unknown author is licensed under CC BY-NC-ND. There are two basic strategies for improving
profitability:
Differentiation strategy
Low-cost strategy continued
Strategy and the company
To maximise profitability, company must:
Strategic positioning
Pick a viable position on efficiency frontier
Value chain
Configure internal operations to support that position
Organisational structure and architecture
Execute strategy through optimal structure
continued
Strategic positioning
Figure 10.3, Strategic choice in the international hotel industry
continued
Operations–company as a value chain
Value chain
Series of distinct value-creation activities
Primary and support activities
Figure 10.4, The value chain
continued
Organisational structure and
architecture
Architecture includes:
Formal organisational structure
Control systems and incentives
Organisational culture–shared norms within organisation
Processes and people–includes HRM
Structure includes:
Formal division of organisation into sub-units
Location of decision-making responsibilities
Integrating mechanisms to coordinate the activities of sub-units
continued
This Photo by Unknown author is licensed under CC BY-SA-NC.
Organisational architecture
Figure 10.5 Organisation architecture
continued
Implementation of
strategy
Organisation method of implementing strategy,
include:
Controls
Measure performance of managers and sub-units
Incentives
Reward appropriate managerial behaviour
Processes
Decision-making and work performance processes
continued
This Photo by Unknown author is licensed under CC BY.
Figure 10.6 Strategic fit
continued
Global
expansion -
reasons
Market size–expansion &
leveraging of product &
competencies
Location economies–moving
activities to optimal locations
where best efficiency, quality &
cost
Cost economies–economies of
scale through production on large
scale & reduction of fixed unit
costs
Leveraging valuable skills–
experience & learning curve continued
Transfer within global group of
companies
Figure 10.7 The experience curve
continued
Experience
effects and
strategy
Moving down experience curve–
reduction of cost of creating
value
Serving global market
from single location similar to
moving down experience curve
and establishing a low-cost
position
Learn & apply skills from
throughout the company’s global
network
continued
Leverage & deploy skills to
maximise value
This Photo by Unknown author is licensed under CC BY-NC-ND.
Figure 10.8 Pressures for cost reductions and local responsiveness
continued
Pressures for cost
reductions
Pressures for cost reductions greatest
Commodity-based industries where price main
competitive weapon
When major competitors based in low-cost
locations
Where persistent excess production capacity
Where consumers powerful & face low switching
costs
This Photo by Unknown author is licensed under CC BY-SA-NC.
Pressures for local responsiveness from
Differences in consumer tastes and preferences
Differences in traditional practices and
infrastructure
continued
Differences in distribution channels & host
government demands
Choosing a strategy
Four basic strategies to compete in
international environment
1. Global standardisation strategy
2. Localisation strategy
3. Transnational strategy
4. International strategy
This Photo by Unknown author is licensed under CC BY-SA.
Choosing a strategy
Figure 10.9 Four basic strategies
continued
Global standardisation strategy
Cost reductions from economies of scale, learning
effects & location economies
Standardised product across all markets
Goal to pursue a low-cost strategy on a global scale
Good if strong pressures for cost reductions & low
local responsiveness demands
continued
This Photo by Unknown author is licensed under CC BY-SA-NC.
Localisation
strategy
Customising goods or
services providing match
for tastes and preferences
in different national
markets
Appropriate if substantial
differences across nations
of consumer tastes and
preferences, and where
cost pressures low
continued
Transnational strategy
Simultaneous demands for low costs and
localisation of products This Photo by Unknown
author is licensed under CC
BY-SA.
Products differentiated and not standardised
across markets
Adjusted for local tastes and demands enough
to satisfy local consumers
Appropriate when cost pressures and
pressures for local responsiveness
simultaneously intense continued
International strategy
Products first produced for
domestic market and then This Photo by Unknown author is licensed under CC BY-NC.
selling them internationally
with only minimal local
customisation
Appropriate if low cost
pressures and low pressures
for local responsiveness
continued
Evolution of strategy
For long-term viability, strategies might need
to evolve in response to active competitors
For example:
Firms move to standardisation or
transnational strategy ahead of competitors
Localisation good for competitive edge, but
aggressive competitors, pressure to reduce
costs moving to transnational strategy
continued
The evolution of strategy
Figure 10.10 Changes in strategy over time
Strategic alliances
Cooperative agreements between potential or actual
competitors
• Equity joint ventures
• Short-term contractual agreements
Advantages
Entry to new market
Sharing fixed costs, resources & risks of new products or
processes
Joining complementary skills and assets
Disadvantages
Competitors have easy routes to new technology and
markets
Avenue for future takeovers
Corporate culture clashes
Next
Making
alliances work
Partner selection
Same vision for the purpose
of alliance
Not exploitation of partner’s
IP
Alliance structure
Well-structured contract
protecting both partners
Large commitment by both
partners from start
Management
Development of
interpersonal relationships
between partners continued
Ability to learn from partners
Questions & Comments?
University of South Australia
Australia’s University of Enterprise
