Transnational corporate strategy

1
Trans-national corporate strategy

• Strategy Management in the Asian Corporation
• Week 1

2
What are the reasons for pursuing a
trans-national strategy

• Homogeneity of customer requirements
• Reduction of tariff trade barriers
• Technology investments that are too expensive to
  write off in one market
• Saturation of home markets (eg US)
• Rise of NIEs providing viable sites for
  manufacturing
• Multi-locational v- globalisation

3
Yips globalization triangle

• Apex 1 industry globalisation drivers
• Markets/costs/conditions providing potential
• Apex 2 global strategy levers
• Global market participation
• Standardised products
• Globally integrated competitive moves
• Global marketing approach
• Apex 3 global organisation factors
• Ability to implement global strategy
• Dynamic relationship between each apex
• (Total Global Strategy 1992)

4
Is there a typical strategy?

• Use of TNC/MNC/MNE interchangeably
• A global strategy implies not only worldwide
  cross-border activities but also integrated and
  coordinated access to global resource advantages
  and exploitation of corporations internal
  potential

5
Does globalisation exist?

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

6
How do we view a TNC

• Is it a series of subsidiaries operating in
  regional markets and adapting locally to market
  needs?
• If so to what extent do subsidiaries have
  autonomy?
• To what extent is the corporate strategy of the
  parent merely a directive to react to local
  conditions

7
What are the benefits of TNCs

• New market opportunities
• Economies of scale and scope
• Factor advantages
• Learning
• Flexibility
• Risk reduction

8
Performance measures

• Elango 2004 argues MNCs have higher profit
  margins in global rather than regional operations
• 3 distinct types
• Regional
• Global
• Home Based
• Defined as location where majority of Gross
  Profit earned
• Therefore success high Gross Profit margins
• Strategic implications
• Global operations offer higher profit margins
• Regional approach preferred if MNC diversified in
  many products
• Global strategies are more costly to implement in
  terms of administration costs
• There is fit between firm profile and strategy

9
Is profit too short term?

• Jalbert Landry 2003
• Need measures to suggest long term forward
  thinking strategic view across entire
  organisation
• Economic Value Added
• NOPAT ( CC X IC )
• Net profit after tax
• Cost of capital
• Invested capital
• Tracking Stocks
• Specific to unit of business
• Balanced Scorecard

10
Jalbert LandryBalanced Scorecard
11
Shareholder value

• Litman Welling 2002
• Argue common measure is TSR (Total shareholder
  return)
• Share price growth
• Great companies do not necessarily exhibit good
  TSR
• Corporate strategy often founded on companies
  showing good TSR
• Eg Dot.Com bubble

12
Kumar Petersen 2004Integrated strategy to
maximize Return on Investment (ROI)
13
Kumar Petersen 2004

• Develops marketing strategy on basis of ROI
• Do we measure strategic success by a metric (like
  ROI)?
• Do we use a metric to specifically determine
  strategy?

14
Multi-faceted measures

• Drucker 1954 argued for multi-dimensional
  financial non-financial measures
• Demirag 1987 showed UK parent companies used ROI
  and budgeted v- actual profit
• Borkowski 1999
• Suggests a range of financial measures be used to
  gauge performance
• Methods by which company can define long/short
  term outlook
• German Japanese TNCs see net income as
  important
• US UK TNCs use cost reduction
• European TNCs reward innovation (technological
  product)
• Argues Europeans encourage research and
  experimentation compared to Asian and US culture
• RD????

15
RD expenditure as of GDP2000 - 2001
16
Davis Devinney -The essence of corporate
strategy (1996)

• The fundamental process of corporate strategy
  development is rational, and
• Managers and firms are bounded by human, firm,
  market and environmental factors that limit their
  actions

17
Davis Devinney -The essence of corporate
strategy (1996)

• In the end, all strategy is about rivalry
• Most popular books on strategy talk about how to
  beat the competition
• The goal of the management of rivalry is the
  achieving of cooperation
• Understanding rivalry requires three things
• understanding the structure of the environment
• understanding the payoffs to the players in the
  game
• knowing who knows what
• In other words, rivalry is about understanding
  the terrain, understanding the stakeholders and
  their motivations and understanding the knowledge
  base of the stakeholders

18
You also need luck

• Having superior resources is a necessary
  condition for success.
• Having superior managerial skills is a necessary
  condition for success.
• Being lucky is a necessary condition for success.
• This questions how can luck be influenced?

19
End of Corporate Imperialism

• Prahalad Lieberthal 2003
• Argue western MNCs entered emerging markets
  seeing them as targets
• Means of disposal of vast amounts of western
  goods
• MNC strategy ignored low end market
• MNCs now adapt products to complexities of new
  markets
• Is this swapping global for local?
• West East strategy, how applicable for East
  West?

20
Bad news for latecomers?

• Carr Garcia 2003
• Argue market concentration/domination is key
  strategy driver of global MNCs
• General Electric (worlds most profitable
  company) aims to achieve top 3 position in any
  given market segment
• How does this affect laggard MNCs (late
  entrants)?
• If dominance is not feasible it must affect
  strategic options
• (localisation/regionalisation/product
  range/diversification)

21
Bad news for latecomers?

• Study of 9 vehicle component companies in Spain
• Argues local companies cannot develop global
  presence
• Constraint on strategic choices
• Develop niche markets
• Concentrate on core technical competencies
• Get taken over
• Is this inevitable? If so explain Asian MNCs!

22
Carr Garcia - summary
23
East West strategy

• Carney Gedajlovic 2002
• Internationalization by strategic asset purchase
• Asian corporations are laggards on
  international scene
• Build on merchant trading logic
• Can East West strategy be imperialistic
  (Japanese)
• How can Asian corporations develop MNC strategies
  as latecomers
• Is there a specific E W strategy?
• How global are Asian corporations?
• Are they in fact multi-locational (regional)?

24
How do we identify measure?

• Use of actual data
• Use of case studies
• Use of articles
• Use of corporate information

25
Asian ExampleMatsushita Panasonic

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

26
5 Year income summary
27
Achieving a V-shaped Recovery

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

28
Strategic products!

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