978-0078112911 Chapter 12 Part 2

Global Business Today Ninth Edition Chapter 12

transnational strategy makes sense when cost pressures are intense, and simultaneously, so are

pressures for local responsiveness.

International Strategy

E) When there are low cost pressures and low pressures for local responsiveness, an international

strategy is appropriate. An international strategy involves taking products first produced for the

domestic market and then selling them internationally with only minimal local customization.

The Evolution of Strategy

G) An international strategy may not be viable in the long term, and to survive, firms may need to

shift to a global standardization strategy or a transnational strategy in advance of competitors.

Similarly, localization may give a firm a competitive edge, but if the firm is simultaneously facing

aggressive competitors, the company will also have to reduce its cost structures and the only way

to do that may be to shift toward a transnational strategy.

Management Focus: The Evolution of Strategy at Procter & Gamble

Summary

This feature explores the evolution of Procter & Gamble’s global strategy. In 1915, Procter &

Gamble opened its first foreign operation in Canada. In the 1950s and 1960s, Procter & Gamble

expanded into Western Europe, and then, in the 1970s, into Japan and other parts of Asia.

Throughout this expansion, the company maintained all product development at its Cincinnati,

Ohio headquarters, while each subsidiary took on the responsibility for manufacturing, marketing,

and distributing the products. Procter & Gamble shifted its strategy in the 1990s, closing several

foreign locations and moving to a more regional approach to global markets. In 1999, the

company implemented “Organization 2005”, a business unit approach whereby different units are

entirely responsible for generating profits for a product group. Discussion of this feature can begin

with the following questions:

Suggested Discussion Questions

1. Discuss the evolution of Procter & Gamble’s strategy. Do you think Procter & Gamble was

reactive or proactive in its approach to strategy in the late 1990s and early 2000s?

Discussion Points: Many students will probably suggest that Procter & Gamble took a reactive

approach to its strategy in the early 1990s, but was more proactive in the late 1990s and 2000s.

The company’s initial reorganization was a reaction to a changing marketplace and sluggish

profits, however, when it became apparent that the reorganization attempt was not really fixing the

problems that existed, the company embarked on a new strategy. This time, rather than simply

trying to adjust its existing strategy as the company had done in 1993, Procter & Gamble

completely dismantled the structure that had been in place for a quarter of a century and

reorganized as a company ready to operate in a global marketplace.

Global Business Today Ninth Edition Chapter 12

2. What factors have forced Procter & Gamble to change its strategy? As a competitor to Procter

& Gamble, what can you learn from the company’s experiences?

3. How would you characterize Procter & Gamble’s current strategy? What challenges do you

foresee with the new strategy?

Teaching Tip: To explore Procter & Gamble’s international strategy in more depth, go to

{http://www.pg.com/en_US/index.jhtml}. Click on “Worldwide Sites” to compare the company’s

domestic operations to those in numerous foreign locations.

Lecture Note: Procter & Gamble has been losing ground in research and development. To learn

more and extend this discussion consider {http://www.businessweek.com/articles/2012-09-06/at-

procter-and-gamble-the-innovation-well-runs-dry}.

Lecture Note: Procter & Gamble recently announced plans to reorganize its overseas operations.

To learn more, go to {http://www.businessweek.com/news/2013-12-13/procter-and-gamble-said-

planning-reorganization-of-overseas-units}.

STRATEGIC ALLIANCES

A) Strategic alliances refer to cooperative agreements between potential or actual competitors.

Here, we are concerned specifically with strategic alliances between firms from different countries.

The Advantages of Strategic Alliances:

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B) Strategic alliances may facilitate entry into a foreign market. Alliances allow firms to share the

fixed costs (and associated risks) of developing new products or processes. An alliance is a way to

bring together complementary skills and assets that neither company could easily develop on its

own. It can make sense to form an alliance that will help the firm establish technological standards

for the industry that will benefit the firm.

Lecture Note: H&M recently teamed up with Alexander Wang. The two fashion houses hope that

their collaboration will improve their product offerings and global recognition. To learn more, go

to {http://www.businessweek.com/news/2014-04-14/h-and-m-teams-with-balenciaga-s-wang-for-

latest-designer-partnership}.

Lecture Note: Many firms today are joining forces for “co–creation”. To learn more about this

trend, consider

{http://www.businessweek.com/managing/content/nov2010/ca2010112_927266.htm} and

{http://www.businessweek.com/managing/content/dec2010/ca20101220_742780.htm}.

The Disadvantages of Strategic Alliances

C) Strategic alliances can give competitors low-cost routes to new technology and markets. Unless

a firm is careful, it can give away more than it receives.

Making Alliances Work

D) The failure rate for international strategic alliances seems to be high. The success of an alliance

seems to be a function of three main factors: partner selection, alliance structure, and the manner in

which the alliance is managed.

Lecture Note: The Association for Strategic Alliance Professionals maintains a web site with

information on how to make alliances more successful. The site is available at

{http://www.strategic-alliances.org/}.

Partner Selection

E) One of the keys to making strategic alliance work is to select the right kind of ally. A good ally

or partner has three principal characteristics. First, a good partner helps the firm achieve its

strategic goals- whether they are market access, sharing the costs and risks of new product

development, or gaining access to critical core competencies. In other words, the partner must

have capabilities that the firm lacks and that it values. Second, a good partner shares the firm’s

vision for the purpose of the alliance. Third, a good partner is unlikely to try to opportunistically

exploit the alliance for its own ends: that it, to expropriate the firm’s technological know-how

while giving away little in return.

Lecture Note: Strategic alliances are an important component in Cisco System’s competitive

strategy. However, not all of its alliances are successful. Cisco has identified why some of its

Global Business Today Ninth Edition Chapter 12

alliances did not work out as planned. To learn more, go to

{http://www.businessweek.com/innovate/next/next/archives/2009/12/ciscos_failures.html}.

Lecture Note: Peter Drucker argues that while there are many benefits associated with strategic

alliances, it is important to enter them carefully. To learn more, consider

{http://www.businessweek.com/managing/content/aug2010/ca20100826_270920.htm}.

Alliance Structure

F) The alliance should be structured such that the firm’s risks of giving too much away to the

partner are reduced to an acceptable level. Alliances can be designed to make it difficult (if not

impossible) to transfer technology not meant to be transferred. Contractual safeguards can be

written into an alliance agreement to guard against the risk of opportunism by a partner. Both

parties to an alliance can agree in advance to swap skills and technologies that the other covets,

thereby ensuring a chance for equitable gain. Finally, the risk of opportunism by an alliance

partner can be reduced if the firm extracts a significant credible commitment from its partner in

advance.

Managing the Alliance

G) Once a partner has been selected and an appropriate alliance structure has been agreed on, the

task facing the firm is to maximize its benefits from the alliance. Part of the trick of managing an

alliance successfully seems to be to build interpersonal relationships between the firms’ managers.

H) After a five-year study of 15 strategic alliances between major multinationals, Gary Hamel,

Yves Doz, and C.K. Prahalad concluded that a major determinant of how much a company gains

from an alliance is its ability to learn from its alliance partners.

Lecture Note: Much of India’s growth in recent years can be attributed to the collaboration

between Indian firms and companies from developed nations. To learn more, consider

{http://www.businessweek.com/managing/content/may2011/ca20110531_251462.htm}.

Critical Thinking and Discussion Questions

1. In a world of zero transportation costs, no trade barriers, and non-trivial differences between

nations with regard to factor endowments, firms must expand internationally if they are to survive.

Discuss.

Global Business Today Ninth Edition Chapter 12

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countries with the most favorable factor endowments for their industry, however, there may not be

a need to expand internationally. The firm may be content to simply focus on the domestic

market. But if the firm does want to expand internationally, it may be able to do so via licensing

or exporting, and need not necessarily undertake foreign direct investment. Thus, not only in

theory, but also in practice many firms are able to survive quite well without having to expand

internationally.

2. Plot the position of the following firms on Figure 12.8 – Procter & Gamble, IBM, Apple, Coca-

Cola, Dow Chemical, U.S. Steel, and McDonald’s. In each case justify your answer.

3. In what kind of industries does a localization strategy make sense? When does a global

standardization strategy make most sense?

4. Re-Read the Management Focus box on Procter & Gamble and then answer the following

questions:

a) What strategy was Procter & Gamble pursuing when it first entered foreign markets in the

period up until the 1980s?

Global Business Today Ninth Edition Chapter 12

b) Why do you think this strategy became less viable in the 1990s?

c) What strategy does Procter & Gamble appear to be moving toward? What are the benefits of

this strategy? What are the potential risks associated with it?

5. What do you see as the main organizational problems that are likely to be associated with the

implementation of a transnational strategy?

Closing Case: Ford’s Global Strategy

Summary

The closing case describes the changes in U.S. automaker Ford’s global strategy after former

Boeing executive Alan Mulally was appointed CEO in 2006. At the time, Ford produced models

targeted for specific regions of the world. Under Mulally’s leadership, Ford implemented its One

Ford strategy that uses just a few car platforms to serve the entire world. Discussion of the closing

can revolve around the following questions:

QUESTION 1: How would you characterize the strategy for competing internationally that Ford

was pursuing prior to the arrival of Alan Mullaly in 2006? What were the benefits of this strategy?

What were the costs? Why was Ford pursuing this strategy?

Global Business Today Ninth Edition Chapter 12

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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

241

enabled the company to meet the needs of consumers in different countries who had differing

tastes and preferences. Most students will recognize however, that the strategy resulted in

duplication of certain activities. Moreover, the higher costs associated with this strategy hurt

Ford’s competitiveness in the global market place.

QUESTION 2: What strategy is Mullaly trying to get Ford to pursue with his One Ford initiative?

What are the benefits of this strategy? Can you see any drawbacks?

QUESTION 3: Does the One Ford initiative imply that Ford will now ignore national and regional

differences in demand?

Continuous Case Concept

When the big three Japanese auto companies initially expanded into the U.S., they changed their

strategies to meet the needs of the new market. Similarly, BMW and Mercedes changed their

Global Business Today Ninth Edition Chapter 12

strategies when they began to manufacture in the U.S. Now, as China and India become growth

markets, the world’s automakers are responding with new strategic charges. Already, Ford’s

existing factory in China is too small, and the company is looking for a new facility. Similarly,

Daimler AG is ramping up production in China. Nissan is expanding its lineup in China and

increasing production capacity to meet new demand. Toyota reported a strong increase in its sales

in China over the previous year.

• Ask students to reflect on the strategic changes made by the auto companies. What factors

have contributed to the changes the companies have made?

• Next, ask students, to discuss, based on what they already know about Toyota, Nissan, and

Honda, the notion of creating a global web of value creation activities. How does this

concept play out with the Japanese auto companies? Does the response to this question

differ if the American auto companies are considered?

• Then, ask students to consider whether, given that consumer preferences in America appear

to be quite different from those of Japanese consumers, there any way for automakers to

realize the traditional benefits of selling in multiple markets?

• Finally, ask students of the four basic international strategies described in the textbook,

which strategy is the most appropriate for most global automobile companies? Why?

This feature ties in well with the Closing Case on Ford Motors’ One Ford strategic initiative. The

first part of this feature can be used at the beginning of the discussion on strategy. Students should

be able to identify basic strategic changes made by the companies and many of the factors that

prompted those changes. The next question fits in with the discussion of the global web of value

creation activities. Finally, the last two questions provide a practical opportunity to review the

material on the four basic strategic alternatives, their advantages, and their disadvantages.

globalEDGE Exercises

The resources for each exercise can be easily located by using the search box at the top of the

globalEDGE website at http://globalEDGE.msu.edu

Exercise 1

Search phrase: – Composite Ranking

Resource Name: Forbes Global 2000

Website: http://fortune.com/global500/

globalEDGE Category: Rankings

Additional Info:

This question requires the students to identify and assess a so-called “composite ranking” of

companies. Composite rankings use multiple criteria to rank companies, and the Forbes Global

Global Business Today Ninth Edition Chapter 12

2000 ranking is a good way to illustrate how the largest 200 public companies in the world are

ranked any why. In extracting the list of the top 20 ranked companies, paying particular attention

to their home countries, the students will also get an appreciation for what type of companies and

where they are from in assessing the ranking.

Exercise 2

Search phrase: Global Connectedness

Resource Name: DHL Global Connectedness Index

Website:

http://www.dhl.com/en/about_us/logistics_insights/studies_research/global_connectedness_index

globalEDGE Category: Rankings

Additional Info:

The DHL Global Connectedness Index, released for the third time in 2014, provides a detailed

analysis of the state of globalization in the world. The index reports on the global connectedness

around the world – measured by cross-border flows of trade, capital, information and people. The

issue for students to tackle was to identify the top three eastern European countries in which a

company can market its current product line of smartphones and to prepare an executive summary

to support the recommendations. The DHL index ranks some 140 countries and all major Eastern

European countries are included.

Additional Readings and Sources of Information

Ford Adding 1,000 New Jobs in Canada

http://www.businessweek.com/ap/2014-10-01/ford-adding-1-000-new-jobs-in-canada

Ford CEO Sees Europe Improvement Next Year

http://www.businessweek.com/videos/2014-10-02/ford-ceo-fields-sees-europe-improvement-next-

year

Eastern Europe Gives Volkswagen a Sales Boost

http://www.businessweek.com/ap/2012-10-12/eastern-europe-gives-volkswagen-a-sales-boost

Victory for Vodaphone

http://www.businessweek.com/videos/2012-03-20/victory-for-vodafone

H&M’s New Store Blitz Moves Faster than Its Digital Expansion

http://www.businessweek.com/articles/2014-03-17/h-and-ms-new-store-blitz-moves-faster-its–

than-digital-expansion

Mandarin Oriental CEO on Results Strategy

http://www.businessweek.com/videos/2012-03-01/mandarin-oriental-ceo-on-results-strategy

Global Business Today Ninth Edition Chapter 12

Eastern Europe Gives Volkswagen a Sales Boost

http://www.businessweek.com/ap/2012-10-12/eastern-europe-gives-volkswagen-a-sales-boost

Wal–Mart’s Epic Strategy Fail

http://www.businessweek.com/managing/content/mar2011/ca20110328_966846.htm#p1

Sony Needs More Clarity on Strategy, Mizuho Says

http://www.businessweek.com/videos/2012-05-10/sony-needs-more-clarity-on-strategy-mizuho-

says

Why Leadership Teams Must Be Global

http://www.businessweek.com/globalbiz/content/feb2010/gb2010028_949458.htm

Inside Proctor & Gamble’s New Values-Based Strategy

http://www.businessweek.com/managing/content/sep2009/ca20090915_398234.htm

Can Yum Brands Cook Up Stock Success in a China Spin-Off?

http://www.businessweek.com/videos/2014-10-07/can-yum-brands-cook-up-stock-success-in-a-

china-spin-off