6

Supplementing
Chapter Title
the Chosen
Competitive
Strategy

Screen graphics created by:

16/e PPT Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
 “Successful business
strategy is about actively
shaping the game you play,
not just playing the game
you find.”
Adam M. Brandenburger and Barry J. Nalebuff
6-2
“The sure path to
oblivion is to stay
where you are.”

Bernard Fauber
6-3
 Chapter Roadmap
◆ Collaborative Strategies: Alliances and Partnerships
◆ Merger and Acquisition Strategies
◆ Vertical Integration Strategies: Operating Across More
Stages of the Industry Value Chain
◆ Outsourcing Strategies: Narrowing the Boundaries of the
Business
◆ Offensive Strategies: Improving Market Position and
Building Competitive Advantage
◆ Defensive Strategies: Protecting Market Position and
Competitive Advantage
◆ Web Site Strategies
◆ Choosing Appropriate Functional-Area Strategies
◆ First-Mover Advantages and Disadvantages
6-4
Fig. 6.1: A Company’s Menu of Strategy Options

6-5
 Collaborative Strategies:
Alliances and Partnerships
Companies sometimes use
strategic alliances or
collaborative partnerships to
complement their own strategic
initiatives and strengthen their
competitiveness. Such
cooperative strategies go beyond
normal company-to-company
dealings but fall short of merger
or full joint venture partnership.
6-6
 Alliances Can Enhance a
Firm’s Competitiveness
◆ Alliancesand partnerships can help companies
cope with two demanding competitive challenges
➔ Racing against rivals to build a
market presence in many
different national markets
➔ Racing against rivals to seize
opportunities on the frontiers
of advancing technology

◆ Collaborative arrangements can help a company

lower its costs and/or gain access to needed
expertise and capabilities
6-7
 Characteristics of a Strategic Alliance

◆ Strategic alliance – A formal agreement between two or

more separate companies where there is
➔ Strategically relevant collaboration of some sort
➔ Joint contribution of resources
➔ Shared risk
➔ Shared control
➔ Mutual dependence
◆ Alliances often involve
➔ Joint marketing
➔ Joint sales or distribution
➔ Joint production
➔ Design collaboration
➔ Joint research
➔ Projects to jointly develop new technologies or products
6-8
 What Factors Make an Alliance Strategic?

◆ Itis critical to a company’s achievement of an

important objective
◆ Ithelps build, sustain, or enhance a core
competence or competitive advantage
◆ It helps block a competitive threat
◆ It
helps open up important
market opportunities
◆ Itmitigates a significant risk
to a company’s business
6-9
 Why Are Strategic Alliances Formed?

◆ Tocollaborate on technology development or new

product development
◆ To fill gaps in technical or manufacturing expertise
◆ To create new skill sets and capabilities
◆ To improve supply chain efficiency
◆ Togain economies of scale in
production and/or marketing
◆ Toacquire or improve market access
via joint marketing agreements
6-10
 Potential Benefits of Alliances to
Achieve Global and Industry Leadership
◆ Get into critical country markets quickly to accelerate
process of building a global presence
◆ Gain inside knowledge about unfamiliar markets and
cultures
◆ Access valuable skills and competencies concentrated
in particular geographic locations
◆ Establish a beachhead to participate in target industry
◆ Master new technologies and build new expertise faster
than would be possible internally
◆ Open up expanded opportunities in target industry by
combining firm’s capabilities with resources of partners
6-11
 Capturing the Benefits
of Strategic Alliances
◆ Benefits from forming partnerships are a function of
➔ Picking a good partner
➔ Being sensitive to cultural differences
➔ Recognizing an alliance
must benefit both parties
➔ Ensuring both parties live
up to their commitments
➔ Structuring the decision-making process
so actions can be taken swiftly when needed
➔ Managing the learning process and then adjusting the
alliance agreement over time to fit new circumstances
6-12
 Why Alliances Fail

◆ Ability of an alliance to endure depends on

➔ How well partners work together
➔ Success of partners in responding
and adapting to changing conditions
➔ Willingness of partners to
renegotiate the bargain
◆ Reasons for alliance failure
➔ Diverging objectives and priorities of partners
➔ Inability of partners to work well together
➔ Changing conditions rendering purpose of alliance obsolete
➔ Emergence of more attractive technological paths
➔ Marketplace rivalry between one or more allies
6-13
 Test Your Knowledge
Which one of the following is not a factor that makes an
alliance “strategic” as opposed to just a convenient business
arrangement?
A. The alliance involves joint contribution of resources, shared
risk, and is mutually beneficial.
B. The alliance helps block a competitive threat or open up new
market opportunities.
C. The alliance helps mitigate a significant risk to a company’s
business.
D. The alliance helps build, enhance, or sustain a core competence
or competitive advantage.
E. The alliance is critical to the company’s achievement of an
important objective.

6-14
 Merger and Acquisition Strategies

◆ Merger – Combination and pooling of equals, with

newly created firm often taking on a new name
◆ Acquisition– One firm, the acquirer, purchases
and absorbs operations of another, the acquired
◆ Merger-acquisition strategy
➔ Much-used strategic option
➔ Especially suited for situations where
alliances do not provide a firm with needed
capabilities or cost-reducing opportunities
➔ Ownership allows for tightly integrated operations,
creating more control and autonomy than alliances
6-15
 Objectives of Mergers and Acquisitions

◆ To create a more cost-efficient operation

◆ To expand a firm’s geographic coverage
◆ Toextend a firm’s business into new
product categories or international markets
◆ Togain quick access to new technologies
or competitive capabilities
◆ Toinvent a new industry and lead the
convergence of industries whose boundaries
are blurred by changing technologies and
new market opportunities
6-16
 Pitfalls of Mergers and Acquisitions

◆ Combining operations may result in

➔ Resistance from rank-and-file employees

➔ Hard-to-resolve conflicts in management styles and

corporate cultures

➔ Tough problems of integration

➔ Greater-than-anticipated difficulties in
◼ Achieving expected cost-savings

◼ Sharing of expertise

◼ Achieving enhanced competitive capabilities

6-17
 Vertical Integration Strategies

◆ Extenda firm’s competitive scope within

same industry
➔ Backward into sources of supply
➔ Forward toward end-users of final product

◆ Can aim at either full or partial integration

Internally Activities, Costs,

Activities,
Performed & Margins of Buyer/User
Costs, &
Activities, Forward Channel Value
Margins of
Costs, & Allies & Chains
Suppliers
Margins Strategic Partners

6-18
 Strategic Advantages
of Backward Integration
◆ Generates cost savings only if volume needed is
big enough to capture efficiencies of suppliers
◆ Potential to reduce costs exists when
➔ Suppliers have sizable profit margins
➔ Item supplied is a major cost component
➔ Resource requirements are easily met
◆ Can produce a differentiation-based competitive
advantage when it results in a better quality part
◆ Reduces risk of depending on suppliers of crucial
raw materials / parts / components
6-19
 Strategic Advantages
of Forward Integration
◆ To
gain better access to end users
and better market visibility
◆ Tocompensate for undependable distribution
channels which undermine steady operations
◆ To
offset the lack of a broad product line, a firm
may sell directly to end users
◆ Tobypass regular distribution channels in favor of
direct sales and Internet retailing which may
➔ Lower distribution costs
➔ Produce a relative cost advantage over rivals
➔ Enable lower selling prices to end users
6-20
 Strategic Disadvantages
of Vertical Integration
◆ Boosts resource requirements
◆ Locks firm deeper into same industry
◆ Results in fixed sources of supply and
less flexibility in accommodating buyer
demands for product variety
◆ Poses all types of capacity-matching problems
◆ May require radically different skills / capabilities
◆ Reduces flexibility to make changes in component
parts which may lengthen design time and ability to
introduce new products
6-21
 Pros and Cons of
Integration vs. De-Integration
◆ Whether vertical integration is a viable
strategic option depends on its
➔ Ability to lower cost, build expertise,
increase differentiation, or enhance
performance of strategy-critical activities
➔ Impact on investment cost, flexibility,
and administrative overhead
➔ Contribution to enhancing a firm’s competitiveness

Many companies are finding that

de-integrating value chain activities is a
more flexible, economic strategic option!
6-22
 Outsourcing Strategies

Concept
Outsourcing involves withdrawing from
certain value chain activities and relying
on outsiders to supply needed products,
support services, or functional activities
Internally
Performed
Activities Functional
Suppliers
Activities

Support Distributors
Services or Retailers

6-23
 When Does Outsourcing
Make Strategic Sense?
◆ Activity can be performed better or
more cheaply by outside specialists
◆ Activity is not crucial to achieve a
sustainable competitive advantage
◆ Risk exposure to changing technology and/or
changing buyer preferences is reduced
◆ It improves firm’s ability to innovate
◆ Operations are streamlined to
➔ Improve flexibility
➔ Cut time to get new products into the market
◆ It increases firm’s ability to assemble diverse kinds of
expertise speedily and efficiently
◆ Firm can concentrate on “core” value chain activities that
best suit its resource strengths
6-24
 Risk of an Outsourcing Strategy

◆ Farming out too many or the wrong activities,

thus
➔ Hollowing out capabilities

➔ Losing touch with activities and expertise that

determine overall long-term success

6-25
 Offensive and Defensive Strategies

Offensive Strategies Defensive Strategies

Used to build new Used to protect
or stronger market competitive advantage
position and/or create (rarely lead to creating
competitive advantage advantage)

6-26
 Principles of Offensive Strategies

◆ Focus relentlessly on
➔ Building competitive advantage and
➔ Striving to convert it into decisive advantage
◆ Employthe element of surprise as
opposed to doing what rivals expect
◆ Apply
resources where rivals are least able to
defend themselves
◆ Be impatient with the status quo and display a
strong bias for swift, decisive actions to boost a
firm’s competitive position vis-à-vis rivals
6-27
 Types of Offensive Strategy Options

1. Offer an equally good or better product at a lower

price
2. Leapfrog competitors by being
➔ First adopter of next-generation technologies or
➔ First to market with next-generation products
3. Pursue continuous product innovation
to draw sales and market share away
from less innovative rivals
4. Adopt and improve on the
good ideas of other companies
6-28
Types of Offensive Strategy Options (con’t)

5. Deliberately attack market segments where a key

rival makes big profits
6. Attack competitive weaknesses of rivals
7. Maneuver around competitors and
concentrate on capturing unoccupied
or less contested market territory
8. Use hit-and-run or guerrilla warfare tactics to grab
sales and market share from complacent rivals
9. Launch a preemptive strike to secure an
advantageous position that rivals are prevented
from duplicating
6-29
 What Is a Blue Ocean Strategy?

◆ Seeks
to gain a dramatic, durable
competitive advantage by

➔ Abandoning efforts to beat out

competitors in existing markets and

➔ Inventing a new industry or distinctive

market segment to render existing
competitors largely irrelevant and

➔ Allowing a company to create and

capture altogether new demand
6-30
 Type of Markets: Blue Ocean Strategy

Typical Market Space Blue Ocean Market Space

◆ Industry boundaries are ◆ Industry does not exist yet
defined and accepted
◆ Industry is untainted by
◆ Competitive rules are well competition
understood by all rivals
◆ Industry offers wide-open
◆ Companies try to outperform opportunities if a firm has a
rivals by capturing a bigger product and strategy allowing
share of existing demand it to
➔ Create new demand and
➔ Avoid fighting over existing
demand

6-31
 For Discussion: Your Opinion

Which of the following is the best example of a blue

ocean strategy — Apple’s entry into MP3 players with
its iPod models or Dell’s entry into LCD TVs or Audi’s
recent move to bring out a luxury SUV? Explain.

6-32
 Choosing Rivals to Attack

◆ Fourtypes of firms can be the target of a fresh

offensive

➔ Vulnerable market leaders

➔ Runner-up firms with weaknesses

where challenger is strong

➔ Struggling rivals on
verge of going under

➔ Small local or regional

firms with limited capabilities
6-33
 Using Offensive Strategy to
Achieve Competitive Advantage
◆ Strategicoffensives offering strongest basis for
competitive advantage entail
➔ An important core competence

➔ A unique competitive capability

➔ A better-known brand name

➔ A cost advantage in manufacturing

or distribution

➔ Technological superiority

➔ A superior product
6-34
 Test Your Knowledge

Which one of the following is not a good type of rival for

an offensive-minded company to target?

A. Market leaders that are vulnerable

B. Runner-up firms with weaknesses in areas where the

challenger is strong.

C. Small local and regional companies with limited

capabilities

D. Companies with lower costs and lower prices

E. Struggling enterprises that are on the verge of going

under

6-35
 Defensive Strategy

Objectives
◆ Lessen risk of being attacked
◆ Blunt impact of any attack that occurs
◆ Influence challengers to aim attacks at other rivals
Approaches
◆ Block avenues open to challengers
◆ Signal challengers vigorous
retaliation is likely
6-36
 Block Avenues Open to Challengers
◆ Participate in alternative technologies
◆ Introduce new features, add new models, or broaden
product line to close gaps rivals may pursue
◆ Maintain economy-priced models
◆ Increase warranty coverage
◆ Offer free training and support services
◆ Reduce delivery times for spare parts
◆ Make early announcements about new
products or price changes
◆ Challenge quality or safety of rivals’ products
using legal tactics
◆ Sign exclusive agreements with distributors
6-37
 Signal Challengers Retaliation Is Likely

◆ Publicly
announce management’s strong
commitment to maintain present market share

◆ Publicly
commit firm to policy of
matching rivals’ terms or prices

◆ Maintain war chest of cash reserves

◆ Make occasional counter-response

to moves of weaker rivals
6-38
 Web Site Strategies

◆ Strategic Challenge – What use of the Internet

should a company make in staking out its position
in the marketplace?
◆ Five Web site approaches
➔ Use to disseminate only product information
➔ Use as minor distribution channel
to sell direct to customers
➔ Use as one of several important distribution
channels to access customers
➔ Use as primary distribution channel to access buyers
➔ Use as exclusive channel to transact sales with
customers
6-39
 Using the Internet to
Disseminate Product Information
◆ Approach – Website used to provide product
information of manufacturers or wholesalers
➔ Relies on click-throughs to websites of
dealers for sales transactions
➔ Informs end-users of location of retail stores
◆ Issues – Pursuing online sales may
➔ Signal weak strategic commitment to dealers
➔ Signal willingness to cannibalize dealers’ sales
➔ Prompt dealers to aggressively market rivals’ brands
◆ Avoids channel conflict with dealers – Important
where strong support of dealer networks is
essential
6-40
 Using the Internet as a
Minor Distribution Channel
◆ Approach – Use online sales to

➔ Achieve incremental sales

➔ Gain online sales experience

➔ Conduct marketing research

◼ Learn more about buyer tastes and preferences

◼ Test reactions to new products

◼ Create added market buzz about products

◆ Unlikely to provoke much outcry from dealers

6-41
 Reasons to Use the Internet
as a Minor Distribution Channel
◆ Manufacturer’s profit margin from
online sales is bigger than that from
sales through traditional channels

◆ Encouraging buyers to visit a firm’s

website educates them to the ease
and convenience of purchasing online

◆ Selling directly to end users allows a

manufacturer to make greater use of
build-to-order manufacturing and assembly

6-42
 Brick-and-Click Strategies:
An Appealing Middle Ground Approach
◆ Approach
➔ Sell directly to consumers and
➔ Use traditional wholesale/retail channels

◆ Strategic appeal for wholesalers and retailers

➔ Economic means of expanding a company’s economic
reach
➔ Provide both existing and potential customers another
choice of how to
◼ Communicate with a company
◼ Shop for product information
◼ Make purchases
◼ Resolve customer service problems
6-43
 Strategies for Online Enterprises

◆ Approach – Use Internet as the exclusive channel for

all buyer-seller contact and transactions
◆ Strategic issues for an online company
➔ How to deliver unique value to buyers
➔ Whether it will pursue competitive advantage based on lower
costs, differentiation, or better value for the money
➔ Whether it will have a broad or narrow product offering
➔ Whether to perform order fulfillment activities internally or to
outsource them
➔ How it will draw traffic to its Web site and then convert page
views into revenues
6-44
 Test Your Knowledge

One very important advantage of a product-information-

only Web site strategy is
A. lower advertising costs.
B. avoiding the extra costs associated with operating Web
site e-stores.
C. avoiding channel conflict—trying to sell online in direct
competition with retail dealers signals both a weak
strategic commitment to dealers and a willingness to
cannibalize dealers’ sales and growth potential.
D. added ability to create a positive image of the company.
E. lower sales force costs.

6-45
 For Discussion: Your Opinion

Suppose that you are a retailer of athletic footwear

and one of the major brands you stock in your store is
New Balance. What would be your reaction if you
learned that New Balance announced that it would
soon begin selling its footwear online at the
company’s Web site? What actions would you
consider taking?

6-46
 Choosing Appropriate
Functional-Area Strategies
◆ Involvesstrategic choices about how functional
areas are managed to support competitive
strategy and other strategic moves
◆ Functional strategies include
➔ Research and development
➔ Production
➔ Human resources
➔ Sales and marketing
➔ Finance

Tailoring functional-area strategies to

support key business-level strategies is critical!
6-47
 First-Mover Advantages

◆ When to make a strategic move is often as crucial

as what move to make

◆ First-mover advantages arise when

➔ Pioneering helps build firm’s image and reputation

➔ Early commitments to new technologies,

new-style components, and distribution
channels can produce cost advantage

➔ Loyalty of first time buyers is high

➔ Moving first can be a preemptive strike

6-48
 First-Mover Disadvantages

◆ Moving early can be a disadvantage (or fail to

produce an advantage) when
➔ When costs of pioneering are more than being an
imitative follower and only negligible learning/experience
curve benefits accrue to the leader
➔ Innovator’s products are primitive, not living up to buyer
expectations
➔ Demand side of the market is skeptical about the
benefits of new technology/product of a first-mover
➔ Rapid technological change allows followers to leapfrog
pioneers
6-49
 Strategic Issues:
To Be a First-Mover or Not
◆ Key issue – Is the race to market leadership in an
industry a marathon or a sprint?
◆ Seeking a competitive advantage by being a first-
mover involves addressing several questions
➔ Does market takeoff depend on development of
complementary products or services not currently available?
➔ Is new infrastructure required before buyer demand can
surge?
➔ Will buyers need to learn new skills or adopt new behaviors?
➔ Will buyers encounter high switching costs?
➔ Are there influential competitors in a position
to delay or derail the efforts of a first-mover?
6-50
 Chapter 7: Strategies for
Competing in Foreign Markets

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.
Troy University

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Learning Objectives
1. Develop an understanding of why companies that
have achieved competitive advantage in their
domestic market may opt to enter foreign markets.
2. Learn how and why differing market conditions in
different countries influence a company’s strategy
for competing in foreign markets.
3. Gain familiarity with the major strategic options for
entering and competing in foreign markets.
4. Understand the principal approaches used by
multinational companies in building competitive
advantage in foreign markets.
5. Gain an understanding of the unique characteristics
of competing in emerging markets.
7-2
 Chapter Roadmap
◼ Why Companies Expand into Foreign Markets
◼ Factors that Shape Strategy Choices in Foreign
Markets
◼ The Concepts of Multicountry Competition and
Global Competition
◼ Strategy Options for Entering and Competing in
Foreign Markets
◼ The Quest for Competitive Advantage in
Foreign Markets
◼ Strategies to Compete in the Markets of
Emerging Countries
7-3
The Four Big Strategic Issues
in Competing Multinationally
◼ Whether to customize a company’s offerings in
each different country market to match preferences
of local buyers or offer a mostly standardized
product worldwide
◼ Whether to employ essentially the same
basic competitive strategy in all countries
or modify the strategy country by country
◼ Where to locate a company’s production facilities,
distribution centers, and customer service
operations to realize the greatest locational
advantages
◼ How to efficiently transfer a company’s resource
strengths and capabilities from one country to
another to secure competitive advantage
7-4
 Why Do Companies Expand
into Foreign Markets?

Gain access to Obtain access to

new customers valuable natural
resources
Achieve lower
costs and enhance
competitiveness
Spread
Capitalize
business risk across
on core
wider
competencies
market base
7-5
International vs. Global Competition

Company operates in a
select few foreign
International
countries, with modest
Competitor
ambitions to expand
further

Company markets products

in 50 to 100 countries and
Global
is expanding operations
Competitor
into additional country
markets annually
7-6
 Factors Shaping Strategy
Choices in Foreign Markets

Cross-country differences in cultural,

demographic, and market conditions

Gaining competitive advantage based

on where activities are located

Risks of adverse shifts in

currency exchange rates

Impact of host government policies

on the local business climate
7-7
Cross-Country Differences in Cultural,
Demographic, and Market Conditions
◼ Cultures and lifestyles differ among
countries

◼ Differences in market demographics

and income levels

◼ Variations in manufacturing
and distribution costs

◼ Fluctuating exchange rates

◼ Differences in host government

economic and political demands
7-8
 How Markets Differ from
Country to Country
◼ Consumer tastes and preferences
◼ Consumer buying habits
◼ Market size and growth potential
◼ Distribution channels
◼ Driving forces
◼ Competitive pressures
One of the biggest concerns of companies competing in
foreign markets is whether to customize their product
offerings in each different country market to match the
tastes and preferences of local buyers or whether to
offer a mostly standardized product worldwide.
7-9
 Different Countries Have
Different Locational Appeal
◼ Manufacturing costs vary from country to country
based on
❖ Wage rates
❖ Worker productivity
❖ Inflation rates
❖ Energy costs
❖ Tax rates
❖ Government regulations
◼ Quality of business environment varies from country
to country
◼ Suppliers, trade associations, and makers of
complementary products often find it advantageous
to cluster their operations in the same general
location
7-10
Fluctuating Exchange Rates Affect
a Company’s Competitiveness
◼ Currency exchange rates are
unpredictable
❖ Competitiveness of a company’s operations
partly depends on whether exchange rate
changes affect costs favorably or unfavorably
◼ Competitive impact of fluctuating
exchange rates
❖ Exporters always gain in competitiveness
when the currency of the country where
goods are manufactured grows weaker
❖ Exporters are disadvantaged when
the currency of the country where
goods are manufactured grows stronger
7-11
 Differences in Host
Government Trade Policies
◼ Local content requirements
◼ Restrictions on exports
◼ Regulations on prices of imports
◼ Import tariffs or quotas
◼ Other regulations
❖ Technical standards
❖ Product certification
❖ Prior approval of capital spending projects
❖ Withdrawal of funds from country
❖ Ownership (minority or majority) by local citizens
7-12
 Two Primary Patterns
of International Competition

Multi-country
Competition

Global
Competition

7-13
 Characteristics of
Multi-Country Competition
◼ Market contest among rivals in one
country not closely connected to
market contests in other countries
◼ Buyers in different countries are
attracted to different product attributes
◼ Sellers vary from country to country
◼ Industry conditions and competitive forces in
each national market differ in important
respects
Rival firms battle for national championships –
winning in one country does not necessarily signal the
ability to fare well in other countries!
7-14
Characteristics of Global Competition

◼ Competitive conditions across country

markets are strongly linked
❖ Many of same rivals compete in
many of the same country markets
❖ A true international market exists
◼ A firm’s competitive position in one country
is affected by its position in other countries
◼ Competitive advantage is based on a firm’s
world-wide operations and overall global
standing
Rival firms in globally competitive
industries vie for worldwide leadership!
7-15
 Strategy Options for
Competing in Foreign Markets

◼ Exporting

◼ Licensing

◼ Franchising strategy

◼ Strategic alliances or
joint ventures

◼ Multi-country strategy

◼ Global strategy
7-16
 Export Strategies
◼ Involve using domestic plants as a production
base for exporting to foreign markets
◼ Excellent initial strategy to
pursue international sales
◼ Advantages
❖ Conservative way to test international waters
❖ Minimizes both risk and capital requirements
❖ Minimizes direct investments in foreign countries
◼ An export strategy is vulnerable when
❖ Manufacturing costs in home country are higher
than in foreign countries where rivals have plants
❖ High shipping costs are involved
❖ Adverse fluctuations in currency exchange rates occur
7-17
 Licensing Strategies

◼ Licensing makes sense when a firm

❖ Has valuable technical know-how or a patented
product but does not have international
capabilities to enter foreign markets
❖ Desires to avoid risks of committing resources
to markets which are
Unfamiliar
Politically volatile
Economically unstable
◼ Disadvantage
❖ Risk of providing valuable technical know-how
to foreign firms and losing some control over its
use
7-18
 Franchising Strategies

◼ Often is better suited to global expansion

efforts of service and retailing
enterprises
◼ Advantages
❖ Franchisee bears most of costs and
risks of establishing foreign locations
❖ Franchisor has to expend only the
resources to recruit, train, and support
franchisees
◼ Disadvantage
❖ Maintaining cross-country quality control
7-19
Achieving Global Competitiveness
via Cooperative Agreements
◼ Cooperative agreements with
foreign companies are a means to
❖ Enter a foreign market or
❖ Strengthen a firm’s
competitiveness in world markets

◼ Purpose of alliances / joint ventures

❖ Joint research efforts
❖ Technology-sharing
❖ Joint use of production or distribution facilities
❖ Marketing / promoting one another’s products
7-20
Strategic Appeal of Strategic Alliances

◼ Gain better access to attractive country markets

◼ Capture economies of scale in production and/or
marketing
◼ Fill gaps in technical expertise or knowledge of local
markets
◼ Share distribution facilities and dealer networks
◼ Direct combined competitive energies toward
defeating mutual rivals
◼ Take advantage of partner’s local market
knowledge and working relationships with
key government officials in host country
◼ Useful way to gain agreement on
important technical standards
7-21
Pitfalls of Strategic Alliances
◼ Overcoming language and cultural barriers
◼ Dealing with diverse or conflicting operating
practices
◼ Time consuming for managers in
terms of communication,
trust-building, and coordination costs
◼ Mistrust when collaborating in
competitively sensitive areas
◼ Clash of egos and company cultures
◼ Dealing with conflicting objectives, strategies,
corporate values, and ethical standards
◼ Becoming too dependent on another firm for
essential expertise over the long-term
7-22
Localized Multicountry Strategy
or a Global Strategy?

Strategic Issue

◼ Whether to vary a company’s competitive

approach to fit specific market conditions
and buyer preferences in each host county
or
◼ Whether to employ essentially the same
strategy in all countries

7-23
 Figure 7.1: A Company’s Strategic Options for Dealing with
Cross-Country Variations in Buyer Preferences and Market Conditions

7-24
 When Is a “Think-Local, Act-Local”
Approach to Strategy Making Necessary?

◼ Significant country-to-country
differences in customer preferences
and buying habits exist
◼ Host governments enact regulations
requiring products sold locally meet strict
manufacturing specifications or performance
standards
◼ Trade restrictions of host governments are
so diverse and complicated they preclude a
uniform, coordinated worldwide market
approach
7-25
 Drawbacks of a “Think-Local,
Act-Local” Approach to Strategy Making

Poses problems of transferring

competencies across borders

Works against building a

unified competitive advantage
7-26
 Characteristics of a “Think-Global,
Act-Global” Approach to Strategy Making
◼ Same products under the same brand names are
sold everywhere
◼ Same distribution channels are used in all countries
◼ Competition is based on the same capabilities
and marketing approaches worldwide
◼ Strategic moves are integrated and coordinated
worldwide
◼ Expansion occurs in most nations where
significant buyer demand exists
◼ Strategic emphasis is placed on
building a global brand name
◼ Opportunities to transfer ideas, new
products, and capabilities from one
country to another are aggressively pursued
7-27
Figure 7.2: How a Localized or Multicountry
Strategy Differs from a Global Strategy

7-28
 The Quest for Competitive
Advantage in Foreign Markets

◼ Three ways to gain competitive advantage

1. Locating activities among nations

in ways that lower costs or achieve
greater product differentiation

2. Efficient/effective transfer of competitively

valuable competencies and capabilities from
company operations in one country to
company operations in another country

3. Coordinating dispersed activities in

ways a domestic-only competitor cannot
7-29
Locating Activities to Build a
Global Competitive Advantage

◼ Two issues . . .

❖ Whether to

 Concentrate each activity

in a few countries or

 Disperse activities to
many different nations

❖ Where to locate activities

 Which country is best

location for which activity?
7-30
Concentrating Activities to Build
a Global Competitive Advantage
◼ Activities should be concentrated when
❖ Costs of manufacturing or other value chain
activities are meaningfully lower in certain
locations than in others
❖ There are sizable scale economies
in performing the activity
❖ There is a steep learning curve associated
with performing an activity in a single location
❖ Certain locations have
 Superior resources
 Allow better coordination of related activities or
 Offer other valuable advantages
7-31
Dispersing Activities to Build a
Global Competitive Advantage

◼ Activities should be dispersed when

❖ They need to be
performed close to buyers

❖ Transportation costs, scale diseconomies, or

trade barriers make centralization expensive

❖ Buffers for fluctuating exchange rates, supply

interruptions, and adverse politics are needed

7-32
Transferring Valuable Competencies to
Build a Global Competitive Advantage
◼ Transferring competencies, capabilities,
and resource strengths across borders
contributes to
❖ Development of broader
competencies and capabilities
❖ Achievement of dominating depth
in some competitively valuable area
◼ Dominating depth in a competitively
valuable capability is a strong basis for
sustainable competitive advantage over
❖ Other multinational or global competitors and
❖ Small domestic competitors in host countries
7-33
Coordinating Cross-Border Activities to
Build a Global Competitive Advantage
◼ Aligning activities located in different
countries contributes to competitive
advantage in several ways
❖ Choose where and how to challenge rivals
❖ Shift production from one location to
another to take advantage of most favorable
cost or trade conditions or exchange rates
❖ Use online systems to collectively come up with
next-generation products
❖ Achieve efficiencies by shifting workload to locations
where personnel are underutilized
❖ Enhance potential to build a global brand name by
incorporating same differentiating attributes in
products in all markets where a company competes
7-34
What Are Profit Sanctuaries?

◼ Profit sanctuaries are country

markets where a firm
❖Has a strong, protected market
position and
❖Derives substantial profits
◼ Generally, a firm’s most strategically
crucial profit sanctuary is its home market

Profit sanctuaries are a valuable

competitive asset in global industries!
7-35
Profit Sanctuary Potential of Domestic-Only,
International, and Global Competitors

7-36
 Characteristics of Competing
in Emerging Foreign Markets
◼ Tailoring products for big, emerging markets
often involves
❖ Making more than minor product changes and
❖ Becoming more familiar with local cultures
◼ Companies have to attract buyers with
bargain prices as well as better products
◼ Specially designed and/or specially
packaged products may be needed to
accommodate local market circumstances
◼ Management team must usually consist
of a mix of expatriate and local managers
7-37
Strategic Options: How to Compete
in Emerging Country Markets
◼ Prepare to compete on the basis of low price
◼ Be prepared to modify aspects of
the company’s business model to
accommodate local circumstances
◼ Try to change the local market
to better match the way the
company does business elsewhere
◼ Stay away from those emerging markets
where it is impractical or uneconomic
to modify the company’s business
model to accommodate local circumstances
7-38
 Strategies for Local Companies
in Emerging Markets

Develop business models that exploit shortcomings

in local distribution networks or infrastructure.

Utilize keen understanding of local customer needs and

preferences to create customized products or services.

Take advantage of low-cost labor and other

competitively important local workforce qualities.

Use economies of scope and scale to better

defend against expansion-minded multinationals.

Transfer company expertise to cross-border markets

and initiate actions to contend on a global level.
7-39
 Chapter 9: Ethical Business
Strategies, Social Responsibility,
and Environmental Sustainability

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.
Troy University

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 Linking Strategy to Ethics
and Social Responsibility
Key Issues
◼ Should there be a link between a
company’s efforts to craft and execute a
winning strategy and its duties to
❖ Conduct activities in an ethical manner?
❖ Demonstrate socially responsible behavior by
Being a committed corporate citizen?
Attending to needs of
non-owner stakeholders?
❖ Limit its strategic initiatives to those meeting
needs of consumers without depleting
resources needed by future generations
9-4
 What Is Business Ethics?

◼ Business ethics involves applying general

ethical principles and standards to behavior
in business situations

◼ Ethical principles in business are not

different from ethical principles in general

◼ Business actions are judged

❖ By general ethical standards of society

❖ Not by a set of rules business people

apply to their own conduct
9-5
 How Do Ethical Standards Impact the
Tasks of Crafting and Executing Strategy?
◼ Two sets of questions must be considered by
senior executives when reviewing a new
strategic initiative
❖ Is what we are proposing to do fully compliant
with our code of ethical conduct? Is there
anything here that could be considered ethically
objectionable?
❖ Is it apparent that this proposed action is in
harmony with our core values? Are any conflicts
or concerns evident?
The litmus test of a company’s code of ethics is
the extent to which it is embraced in crafting
strategy and in operating the business day to day!
9-6
Are Ethical Standards Universal or
Dependent on Local Norms?
Three schools of thought regarding extent
to which ethical standards can be applied . . .

Ethical Universalism

Ethical Relativism

Integrative Social Contracts Theory

9-7
Concept of Ethical Universalism

◼ According to the school of ethical

universalism . . .
❖ Same standards of what is ethical and
what is unethical resonate with peoples
of most societies regardless of
Local traditions and
Cultural norms
❖ Thus, common ethical standards can be used to
judge conduct of personnel at companies
operating in a variety of
Country markets and
Cultural circumstances
9-8
 Examples of Universal
Ethical Principles or Norms
◼ Honesty
◼ Trustworthiness
◼ Respecting rights of others
◼ Practicing the Golden Rule
❖Treating people with dignity and respect
◼ Exercising due diligence in product safety
◼ Acting in a manner that does not
❖Harm others or
❖Pillages the environment
9-9
Concept of Ethical Relativism

◼ According to the school of ethical

relativism . . .
❖Different societies/cultures/countries
Put more/less emphasis on some values than
others
Have different standards of right and wrong
Have different social mores
and behavioral norms
❖What is ethical or unethical
Must be judged in light of local
customs and social mores and
Can vary from one country to another
9-11
 Ethical Relativism =
Multiple Sets of Ethical Standards
◼ Proponents of the ethical relativism school
maintain there are
❖ Few ethical absolutes to judge a company’s
conduct in various countries
❖ Plenty of situations where ethical
norms are contoured to fit
Local customs and traditions
Local beliefs about what is fair
Local standards of “right” and “wrong”
◼ Ethical problems in business cannot be fully
resolved without appealing to the shared
convictions of the parties in question
9-13
Drawbacks of Ethical Relativism

◼ The ethical relativism rule of “when in Rome,

do as the Romans do” presents problems
❖ Cannot assume that local ethical standards are
an adequate guide to ethical behavior
 What if local standards condone
kickbacks and bribery?
 What if local standards don’t require
safe working conditions?
 What if local custom is to permit
companies to engage in egregious
pollution of the environment?
❖ From a global markets perspective, ethical
relativism results in a maze of conflicting ethical
standards for multinational companies wanting
to address the issue of what ethical standards to
enforce companywide
9-14
 Concept of Integrative
Social Contracts Theory
◼ According to the integrative social
contracts theory, the ethical standards a
company should try to uphold are governed
by both
❖ A limited number of universal ethical principles
that are widely recognized as putting legitimate
ethical boundaries on actions and behavior in
all situations
and
❖ The circumstances of local cultures,
traditions, and shared values that further
prescribe what constitutes
Ethically permissible behavior and
What does not 9-15
 Appeal of Integrative
Social Contracts Theory
◼ Universal ethical principles establish “moral free
space” based on the collective view of multiple
societies and cultures
◼ Commonly held views about morality and ethical
principles combine to form a “social contract” with
society
◼ It is appropriate for societies or companies to go
beyond universal ethical principles and specify local
or second-order ethical norms
❖ Where firms have developed ethical codes, the
standards they call for provide appropriate ethical
guidance
Social contracts theory maintains adherence to
universal or first-order ethical norms should always
take precedence over local or second-order norms!
9-16
Three Categories of Management Morality

The three Managers that

types of are moral
managers
as Managers that
concerns are immoral
ethical and
moral Managers that
principles are amoral
9-17
Characteristics of a Moral Manager

◼ Dedicated to high standards of ethical

behavior in
❖ Own actions
❖ How the company’s business is to be conducted
◼ Considers it important to
❖ Be a steward of ethical behavior
❖ Demonstrate ethical leadership
◼ Pursues business success
❖ Within confines of both letter and spirit of laws
❖ With a habit of operating well above what laws
require
9-18
Characteristics of an Immoral Manager

◼ Actively opposes ethical behavior in business

◼ Willfully ignores ethical principles in making
decisions
◼ Views legal standards as barriers to overcome
◼ Pursues own self-interests
◼ Is an example of self-serving greed
◼ Ignores interests of others
◼ Focuses only on bottom line –
making one’s numbers
◼ Will trample on others to avoid being trampled
upon
9-19
 Characteristics of an
Intentionally Amoral Manager
◼ Believes business and ethics should not be
mixed since different rules apply to
❖ Business activities
❖ Other realms of life
◼ Believes if a business-related action is legal
then it is OK; ethical considerations in business
activity don’t matter and lie outside sphere of
moral judgment
◼ Views ethical considerations as inappropriate
for tough, competitive business world
◼ Concept of right and wrong is
lawyer-driven (what can we get by
with without running afoul of the law)
9-20
 Many Managers in the Global
Business Community Are Unethical
◼ Evidence indicates a sizable majority of
managers are either
❖Amoral
or

❖Immoral
◼ Results of recent issues of the Global
Corruption Report indicate corruption is
widespread across the world
◼ Corruption extends beyond bribes and
kickbacks
9-23
Table 9.1: Corruption Perceptions Index (CPI), Selected Countries, 2007

9-24
What Are the Drivers of Unethical
Strategies and Business Behavior?

Overzealous pursuit of personal gain,

wealth, and other selfish interests

Heavy pressures on company managers

to meet or beat earnings targets

Company cultures that place profits and

good performance ahead of ethical behavior
9-25
Overzealous Pursuit of Personal Gain,
Wealth, and Selfish Interests
◼ People obsessed with wealth accumulation,
greed, power, status, and other self-
interests often
❖ Push ethical principles aside in their
quest for self gain

❖ Exhibit few worries in

 Skirting the rules or
 Doing whatever is necessary
to achieve their goals

❖ Engage in all kinds of unethical

strategic maneuvers and behaviors
9-26
Heavy Pressures on Company Managers
to Meet or Beat Earnings Targets
◼ Managers often feel enormous pressure to do
whatever it takes to deliver good financial
performance
◼ Actions often taken by managers
❖ Cut costs wherever savings show up immediately
❖ Squeeze extra sales out of early deliveries
❖ Engage in short-term maneuvers to make the numbers
❖ Stretch rules to extreme, until limits of ethical conduct are
overlooked
◼ Executives feel pressure to hit performance targets
since their compensation depends heavily on
company performance
◼ Fundamental problem with a “make the numbers”
syndrome
❖ Company does not create additional value for customers
or improve its competitiveness
9-27
Company Cultures that Put Bottom
Line Ahead of Ethical Behavior
◼ In an ethically corrupt or amoral work
climate, people have a company-approved
license to
❖ Ignore “what’s right”
❖ Engage in most any behavior or employ most
any strategy they think they can get away with
◼ Pressures to conform to cultural norms
can prompt otherwise honorable people to
❖ Make ethical mistakes
❖ Succumb to the many opportunities
to engage in unethical practices
9-28
What Is Corporate Social Responsibility?

◼ The thesis underlying the concept of corporate

social responsibility is that a company has a
duty to
❖ Be a good corporate citizen
❖ Make a positive contribution to society, and
❖ Actively work to improve the well-being of all
stakeholders
 Employees
 Local communities
 Environment
 Customers and suppliers
 Society at large

9-35
Figure 9.2: Demonstrating a Social Conscience: The Five
Components of Socially Responsible Business Behavior

9-37
 What Is an Environmental
Sustainability Strategy?

A company’s environmental sustainability

strategy consists of its actions to
❖ Protect the environment,
❖ Provide for the longevity
of natural resources,
❖ Maintain ecological support
systems for future generations, and
❖ Guard against ultimate endangerment
of the planet.
9-39
 Chapter 12: Corporate Culture and
Leadership: Keys to Good Strategy

Execution

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.
Troy University

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
INSTILLING A STRATEGY-
SUPPORTIVE CORPORATE
CULTURE

12-4
 Corporate Culture

◼ Corporate culture refers to the shared

values, ingrained attitudes, core beliefs, and
company traditions that determine norms of
behavior, accepted work practices, and
styles of operating.
◼ In a very real sense, the culture is the
company’s automatic, self-replicating
“operating system” that defines “how we do
things around here.” It can be thought of as
the company’s psyche or organizational
DNA.

12-5
 Identifying the Key Features
of Corporate Culture
A company’s culture is manifested in . . .
◼ Values, business principles, and ethical standards
preached and practiced by management
◼ Approaches to people management
and problem solving
◼ Official policies and procedures
◼ Spirit and character permeating work environment
◼ Interactions and relationships among managers and
employees
◼ Peer pressures that exist to display core values
◼ Its revered traditions and oft-repeated stories
◼ Its relationships with external stakeholders
12-7
 Where Does Corporate
Culture Come From?
◼ Founder or early leader
◼ Influential individual or work group
◼ Policies, vision, or strategies
◼ Operating approaches
◼ Company’s approach to people
management
❖ Traditions, supervisory practices,
employee attitudes
◼ Organizational politics
◼ Relationships with stakeholders
12-8
How Is a Company’s Culture Perpetuated?

◼ Selecting new employees who will “fit” in

◼ Systematic indoctrination of new employees
◼ Senior management efforts
to reinforce core values, beliefs,
principles, key operating practices
◼ Story-telling of company legends

◼ Ceremonies honoring employees

who display cultural ideals
◼ Visibly rewarding those
who follow cultural norms
12-9
Strong vs. Weak Cultures

Strong vs.
Weak
Cultures

12-12
 Characteristics of
Strong Culture Companies
◼ Conduct business according to a
clear, widely-understood philosophy

◼ Considerable time spent by management

communicating and reinforcing values

◼ Values are widely shared and deeply rooted

◼ Have a well-defined corporate character,

reinforced by a creed or values statement

◼ Careful screening/selection of new

employees to be sure they will “fit in”

◼ Individuals encounter strong peer pressure from co-

workers to observe the culturally approved norms and
behaviors
12-13
How Does a Culture Come to Be Strong?

◼ Leader who establishes values and

behaviors consistent with Values
Customers
❖ Customer needs Employees
❖ Competitive conditions Shareholders

❖ Strategic requirements
◼ A deep, abiding commitment to espoused
values, beliefs, and business philosophy
❖ Practicing what is preached!
◼ Genuine concern for well-being of
❖ Customers
❖ Employees
❖ Shareholders
12-14
Characteristics of Weak Culture Companies

◼ Lack of a widely-shared core set of values

◼ Few behavioral norms

evident in operating practices

◼ Few strong traditions

◼ No strong sense of company identity

◼ Little co-worker peer pressure to do things in

particular ways

◼ Weak employee allegiance to company’s vision and

strategy

12-15
Types of Corporate Cultures

High-Performance
Cultures

Adaptive Cultures

Unhealthy Cultures

12-16
 Characteristics of
High-Performance Cultures
◼ Standout cultural traits include
❖ A “can-do” spirit
❖ Pride in doing things right
❖ No-excuses accountability
❖ A results-oriented work climate in which people go
the extra mile to achieve performance targets
◼ Strong sense of involvement by all employees
◼ Emphasis on individual initiative and creativity
◼ Performance expectations are clearly identified
for all organizational members
◼ Strong bias for being proactive, not reactive
◼ Respect for the contributions of all employees
12-17
Hallmarks of Adaptive Cultures

◼ Willingness to accept change and embrace

challenge of introducing new strategies
◼ Risk-taking, experimentation, and
innovation to satisfy stakeholders
◼ Entrepreneurship is
encouraged and rewarded
◼ Funds provided for new products
◼ New ideas openly evaluated
◼ Genuine interest in well-being
of all key constituencies
◼ Proactive approaches to
implement workable solutions
12-18
Types of Unhealthy Cultures
◼ Politicized culture:
❖ A highly politicized internal environment in which many issues
get resolved and decisions made on the basis of which
individuals or groups have the most political clout to carry the
day.
◼ Change-resistant culture:
❖ Hostility to change and an unusual aggressiveness to people
who champion new ways of doing things.
◼ Unethical and greed-driven culture:
❖ A disregard for high ethical standards and overzealous pursuit
of wealth by key executives.
◼ Insular and inwardly-focused-cultures:
❖ An insular “not-invented-here” mind-set that makes company
personnel averse to looking outside the company for best
practices, new managerial approaches, and innovative ideas.
Companies with this kind of culture tend to resist recruiting
people who can offer fresh thinking and outside perspectives.

12-19
 Culture: Ally or Obstacle
to Strategy Execution?
◼ A company’s culture can contribute to – or
hinder – successful strategy execution

◼ A culture that promotes attitudes and

behaviors that are well-suited to first-rate
strategy execution is a valuable ally in the
strategy execution process

◼ A culture where attitudes

and behaviors impede
good strategy execution is a
huge obstacle to be overcome
12-20
Figure 12.1: Changing a Problem Culture

12-25
 Grounding the Culture in
Core Values and Ethics
◼ A culture based on ethical principles is
vital to long-term strategic success

◼ Ethics programs help make

ethical conduct a way of life

◼ Executives must provide genuine support

of personnel displaying ethical standards
in conducting the company’s business

◼ Value statements serve as a cornerstone for

culture-building
12-30
 The Two Culture-Building Roles of
a Company’s Core Values and Ethical Standards

12-31