Chapter 7 Homework Infosys Leader Sustainability Efforts Company's Success Attributed

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Chapter 7

IMPLEMENTING STRATEGY: SMALL BUSINESSES, GLOBAL ALLIANCES,

EMERGING MARKET FIRMS

LECTURE OUTLINE

General Outline

Opening Profile: TAG Heuer in Smartwatch Alliance with Google and Intel

Strategic Alliances

Joint Ventures

Equity Strategic Alliances

Comparative Management in Focus: Joint Ventures in the Russian Federation

Implementing Strategy

Implementing Strategies for SMEs

Under the Lens: Breaking Down Barriers for Small-Business Exports

Implementing a Global Sourcing Strategy: From Offshoring to Next-Shoring?

Under the Lens: Global Supply Chain Risks— The Japanese Disaster

Implementing Strategies for Emerging Economy Firms

Management in Action: Infosys’s Path From Emerging Start-up to EMNE

Challenges in Implementing Strategies in Emerging Markets

Chapter Learning Objectives

7-1. To become familiar with the types of strategic alliances for international

business, the challenges in implementing them, and guidelines for success in

alliances.

7-3. To consider how to manage the firm’s performance in international joint

ventures, with attention to knowledge management, government and cultural

influence, role of e-commerce.

Chapter Learning Goals and Opening Profile: TAG Heuer in Smartwatch Alliance

with Google and Intel (see slides 7-3 & 7-4)

TAG Heuer will partner with Google and Intel to develop a smartwatch, signaling that

they want to take the fight to Apple as it rolls out the Apple Watch. The move marks the

first time a top-end brand from the Swiss watch industry has joined the competition for

I. Strategic Alliances (see slide 7-5)

A. Strategic alliances are partnerships between two or more firms which decide

they can better pursue their mutual goals by combining their resources—

financial, managerial, technological—as well as their existing distinctive

competitive advantages. Alliances—often called cooperative strategies—are

transition mechanisms that propel the partners’ strategy forward in a turbulent

environment faster than would be possible for each company alone. It should

be noted that although the last decade brought a surge of companies seeking

3. Nonequity strategic alliances: agreements are carried out through contract

rather than ownership sharing.

4. Global strategic alliances: Working partnerships were found between

companies (often more than two) across national boundaries and

increasingly across industries. Alliances are also sometimes formed

between a company and a foreign government, or among companies and

governments.

B. Alliances may comprise full global partnerships—often joint ventures—in

which two or more companies, while retaining their national identity, develop a

common, long-term strategy aimed at world leadership.

C. Global and Cross-Border Alliances: Motivations and Benefits (see slides 7-7 &

7-8)

1. To avoid import barriers, licensing requirements, and other protectionist

legislation

D. Challenges in Implementing Global Alliances (see slide 7-9)

1. In a highly competitive environment, alliances present a faster and less

risky route to globalization. It is extremely complex to fashion such

linkages, however, especially where many interconnecting systems are

involved, forming intricate networks. Many alliances fail or end up in a

takeover in which one partner swallows the other.

2. Often, the form of governance chosen for multinational firm alliances

greatly influences their success, particularly in technologically-intense

3. All too often, cross-border allies have difficulty in collaborating

effectively, especially in competitively sensitive areas, creating mistrust

and secrecy, which then undermine the purpose of the alliance. The

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4. The enticing benefits of cross-border alliances often mask their many

pitfalls. In addition to potential loss of technology and knowledge-skill

base, other areas of incompatibility often arise, such as conflicting

strategic goals and objectives, cultural clashes, and disputes over

management and control systems.

II. Challenges in Implementing Global Alliances (see slide 7-11)

All countries have a large proportion of business enterprises which are small or

medium sized (SMEs). But increasingly, MNCs dominate the markets in which SMEs

operate. Astute managers of SMEs can find opportunities for alliances with those

multinationals. SMEs should offer MNCs complementary technologies as well

as local market networks.

A. Guidelines for Successful Alliances (see slide 7-12)

1. Alliance partners can provide synergies and value to corporate

performance by providing access to new resources and markets. A study

2. Some basic guidelines, given below, serve to minimize potential problems,

but nothing is as important as having a long “courtship” with the potential

partner to establish compatibility strategically and interpersonally, and to

set up a “prenuptial” plan with the prospective partner.

a. Choose a partner with compatible strategic goals and objectives and

one with whom the alliance will result in synergies through the

combined markets, technologies, and management cadre.

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Comparative Management in Focus: JVs in Russian Federation (see slide 7-13)

As of 2015, both potential investors and those firms already in Russia were very

concerned about Russia’s continuing involvement in Ukraine and the negative impact on

the economy of the stringent western sanctions. Foreign companies have started to think

twice about investing in international joint ventures (IJVs) in Russia since President

Putin’s moves to take control of key industries, including banks, newspapers, and oil

assets. In May 2008, President Putin signed the Strategic Industries Bill, which regulates

Until recently Moscow and other major cities have experienced a consumer boom,

spurred on by rising incomes in the middle class, making Russia one of the fastest

growing regions for global giants such as Coca-Cola, Procter & Gamble, and Nestlé..

Reliance on their own networks and the use of favors (blat) present obstacles to business

relations between Russians and outsiders. The following are some suggestions for foreign

companies to minimize the risk of doing business in Russia: (see slides 7-14 & 7-15):

Investigate whether a joint venture is the best strategy.

• Set up meetings with the appropriate ministry and regional authorities well in

advance.

• Be sure to be totally above board in paying all relevant taxes to avoid crossing the

Russian authorities.

• Set up stricter controls and accountability systems than usual for the company.

III. Chapter Learning Goals and Strategic Implementation (see slides 7-16 & 7-17)

A. Strategic Implementation (see slide 7-18)

1. Successful implementation requires the orchestration of many variables

into a cohesive system that complements that desired strategy.

a. Form paradigm-busting arrangements with suppliers.

b. Know a country’s culture.

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B. Breaking Down Barriers for Small Business Exports (see slide 7-19)

1. For small businesses venturing abroad, however, the first step is often that

of exporting. This can be a daunting task; however, there are many sources

available to help the small business managers embark on exporting, as

China in recent years.

Under the Lens: Breaking Down Barriers for Small Business Exports (see slide 20)

Small businesses made up 97 percent of all U.S. companies that exported goods and

services abroad in 2009, but they only generated roughly one-third of all export revenue,

according to the U.S. Census Bureau. The U.S. government is looking to boost small

business exports with the National Export Initiative (NEI)—an initiative started in

January 2010 by U.S. President Barack Obama—which aims to double U.S. exports and

create millions of jobs in the United States by the end of 2014.

U.S. EXPORT ASSISTANCE CENTERS

Of the 20 U.S. government agencies involved in export assistance, SBA specifically aims

to increase the number of small business exporters through programs delivered through

EXPORT LOANS FOR SMALL BUSINESSES

In addition to counseling and training, SBA guarantees loans of up to $5 million, while

the Ex-Im Bank provides export financing for amounts over $5 million. SBA runs four

loan programs for small business exporters: the Export Express Program, the Export

C. Implementing a Global Outsourcing Strategy (see slide 7-21)

1. Transformational outsourcing, when properly implemented, can produce

gains in efficiency, productivity, quality, and profitability.

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• Examine your reasons for outsourcing—make sure the reasons

outweigh the disadvantages.

customer service and quality.

Under the Lens: Global Supply Chain Risks – The Japanese Disaster (see slide 7-22)

With different component parts for everything from cell phones to cars being sourced

from various countries, supply chains have become longer and far more complex to

manage than in the past. It is not surprising, then, that companies around the world, from

Lenovo to General Motors, had to scramble to find alternate supply sources after the

These days, sourcing risk is somewhat reduced because sourcing is done globally, and

technological developments have enabled the ability to manage these complex networks

through Internet communications, RFID tags, and sensors attached to valued parts. In

addition sophisticated software can now be used for tracking and orchestrating the flow

of goods worldwide. However, as supply chains become longer—that is suppliers of

suppliers of suppliers—control is more difficult and therefore the risk is greater.

Clearly, executives around the world have learned that there are unforeseen risks in

implementing a global sourcing strategy—in particular combined with the just-in-time

inventory practice. As a result, they realize that they need to have back-up sourcing plans

to manage the risk of supply chain disruption.

D. The Next Wave

1. Companies are moving from towards nearshoring to closer geographic

regions and markets, or to reshoring to the ‘home’ country. Increasing labor

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2. As Guillén and García-Canal demonstrate in Exhibit 7-2, those firms must

decide how to balance their geographic expansion with their ability to

upgrade their capabilities in the market because they lack the resources and

capabilities of established MNEs; they must realize that “prioritizing global

Management in Action: Infosys’ Path From Emerging Start-up to EMNE (see slides 7-

24 & 7-25)

Infosys began in India as a start-up valued at $250 in 1981 to an emerging market

national enterprise valued at over $36.1 billion in 2015. It’s path from a “born global” IT–

services company to strategic alliances around the world is widely admired. A central

goal was the “global delivery model (GDM),” which focused on producing where it is

most cost effective and selling where it is most profitable. Software development work

was done in India and the sales focused on the United States. Infosys focused on

F. Challenges in Implementing Strategies in Emerging Markets (see slide 7-26)

Firms expanding into emerging market countries are often unaware of the

considerable differences from their home markets and the challenges they face in

getting started. Because of their lack of familiarity and preparation for those

challenges, “foreign” firms are often surprised that they are not able to compete

and distribution networks, as well as personnel challenges, especially at

management levels.

G. Chapter Learning Goals and Managing Performance in International Joint

Ventures (see slides 7-27 & 7-28)

1. Much of the world’s international business activity involves international

joint ventures (IJVs) in which at least one parent is headquartered outside

the venture’s country of operation. IJVs require unique controls; ignoring

choice of a partner.

4. The strategic context and the competitive environment of the proposed IJV

and the parent firm will determine the relative importance of the criteria

used to select a partner. IJV performance is also a function of the general

fit between the international strategies of the parents, the IJV strategy, and

the specific performance goals that the parents adopt.

Research has shown that to facilitate this fit, the partner selection process

must determine the specific task-related skills and resources needed from a

partner, as well as the relative priority of those needs. To do this, managers

must analyze their own firm and pinpoint any areas of weakness in task-

related skills and resources that can be overcome with the help of the IJV

partner.

7. The choice of the IJV general manager, in particular, will influence the

relative allocation of control because that person is responsible for running

the IJV and for coordinating relationships with each of the parents.

8. Where ownership is divided among several partners, the parents are more

likely to delegate the daily operations of the IJV to the local IJV

management—a move that resolves many potential disputes. In addition,

the increased autonomy of the IJV tends to reduce many common human

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number of parents, one way to avoid such potential problem situations is

to provide special training to managers about the unique nature and

problems of IJVs.

The extent of control exercised over an IJV by its parent companies seems

to be primarily determined by the decision-making autonomy the parents

delegate to the IJV management. This in turn is largely dependent on

staffing choices for the top IJV positions and thus on how much

confidence the partners have in these managers.

9. Two pervasive influences on strategy implementation are government

policy and culture.

H. Knowledge Management in IJVs (see slide 7-30)

Knowledge management is “the conscious and active management of creating,

I. Government Influences on Strategic Implementation (see slide 7-31)

1. There are many areas of influence by host governments on the strategic

choice and implementation of foreign firms. The profitability of those

firms is greatly influenced, for example, by the level of taxation in the host

country and by any restrictions on profit repatriation. Also important

influences are government policies on ownership by foreign firms, on

J. Cultural Influences on Strategic Implementation: Western ex-pats vs. Hungarian

Managers (see slide 7-32)

1. Culture is one variable that is often overlooked when deciding on entry

strategies and alliances, particularly when we perceive the target country

to be familiar to us and similar to our own. However, cultural differences

can have a subtle and often negative effect.

2. As Europe’s largest MNCs increase their business in the United States,

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3. Dimensions of National and Corporate Culture Affecting Alliances: U.K.

vs. Europe, and French Managers Comment on the U.S. (see slides 7-33

& 7-34) and expectations is perhaps most noticeable and important when

implementing international joint ventures. The complexity of a joint

consumer.

K. E-commerce impact on Strategy Implementation (7-35)

1. Many firms decide to implement global e-commerce strategy by

outsourcing the necessary tasks to companies that specialize in providing

the necessary technology to organize transactions and follow through with

the regulatory requirements. These specialists are called e-commerce

enablers. They help companies sort through different taxes, duties,

Internet Resources

Chapter Discussion Questions

7-1. Discuss the reasons that companies embark on cross-border strategic

alliances. What other motivations may prompt such alliances? What are

the driving forces for firms in emerging economies to embark on strategic

alliances? How can SMEs expand abroad through relationships with

MNCs?

Learning Objective: 1; AACSB: Dynamics of the global economy

The text notes five motives for cross border alliances: 1) to avoid import

barriers, licensing requirements, and other protectionist legislation; 2) to share

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. 7-2. Why are there an increasing number of mergers with companies in different

industries? Give some examples. What industry do you think will be the next

for global consolidation?

Learning Objective: 1; AACSB: Analytic skills

There are a variety of reasons. In some cases, companies in different industries

7-3. Discuss the problems inherent in developing a cooperative alliance to enhance

competitive advantage, which also incurs the risk of developing a new

competitor.

Learning Objective: 3; AACSB: Dynamics of the global economy

Technology transfer is inevitable in an alliance relationship. An alliance partner

can quickly learn all it needs to know about a new technology from its partner.

7-4. What are the common sources of incompatibility in cross-border alliances?

What can be done in order to minimize them? Explain what is necessary for

companies to implement a global sourcing strategy successfully.

Learning Objective: 3; AACSB: Multicultural and diversity understanding

Differences in culture can cause differences in objectives, leadership style,

strategy, governance, control, and compensation among other issues. There can

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7-5. Explain what is necessary for companies to successfully implement a global

sourcing strategy.

Learning Objective: 3; AACSB: Dynamics of the global economy

Global sourcing isn’t just about finding lower paid workers. In order to fully

benefit from a global sourcing strategy a firm must seek to develop into

7-6. Discuss the political and economic situation in the Russia Federation with

your class. What has changed since this writing? What are the implications

for foreign companies to start a joint venture there now?

Learning Objective: 3; AACSB: Dynamics of the global economy

This area is still struggling to establish a modern market economy and achieve

strong economic growth. The economic picture in 2007 was much brighter with a

surging trade surplus fueled by rising world oil prices, than in 2009 and 2010 with

7-7. What is involved in strategic implementation? What is meant by creating a

system of fits with the strategic plan? Explain how the host government may

affect strategic implementation—in an alliance or another form of entry

strategy.

Learning Objective: 2; AACSB: Analytic skills

In order for a strategy to work effectively, there must be a good fit between the

company’s structure, systems, and operating processes. This process becomes

more complex in an international setting precisely because the fit factors are

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7-8. Explain how the host government may affect strategic implementation—in

an alliance or another form of entry strategy.

Learning Objective: 3; AACSB: Multicultural and diversity understanding

There are many areas of influence by host governments on the strategic choice

7-9. How might the variable of national culture affect strategic implementation?

Consider the earlier comments by French and British managers regarding

Americans as examples to highlight some of these factors.

Learning Objective: 3; AACSB: Multicultural and diversity understanding

Research found that European managers appreciate that Americans are pragmatic,

open, forthright, and innovative. However, the tendency of Americans to be

informal and individualistic means that their need for independence and autonomy

7-10. Discuss the importance of knowledge management in IJVs and what can be

done to enhance effectiveness of that process.

Learning Objective: 3; AACSB: Analytic skills

Knowledge management in international joint ventures is critical, especially as we

enter a more knowledge-based global economy. The alliance allows for the transfer

of knowledge in order to make both firms in the partnership stronger. In order to

Application Exercises

7-11. Research some recent joint ventures with foreign companies situated in India

or Russia. How are they doing? Bring your information to class for discussion.

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What is the climate for foreign investors in developing economies at the time

of your reading this chapter?

Learning Objective: 1; AACSB: Dynamics of the global economy

There are a number of useful Internet sources to help with this exercise. The

following link will provide supplemental material useful to guiding students in this

End-of-Chapter Case Study: Foreign Companies in China Under Attack

7-12. What factors do you think are behind these events? Do some research to find

out whether there have been more such problems since this writing. Is it just

American companies that are being targeted?

Learning Objective: 2; AACSB: Dynamics of the global economy

Answers will vary; however, these events are due in part to rising labor costs,

inconsistent application of laws, confusing information, pressure from

government-owned departments, political tensions, and slowing growth. Students

say that doing business there is getting more difficult.

7-13. What can firms currently operating in China, or considering investment

there, do to lessen the likelihood of these problems for their managers?

Learning Objective: 2; AACSB: Dynamics of the global economy

Firms currently operating in China can file a complaint through the U.S.

Chamber of Commerce. For example, the U.S. Chamber of Commerce has

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Web Exercise

A number of universities are beginning to expand their operations to include global

classrooms. The benefits to these universities are global branding, increased revenues,

cross cultural studies, and bringing the global marketplace to their curricula. The means

of achieving these goals include online programs, onsite programs, students visiting the

main campus as part of their curricula, and so forth. Research several of these university