Management Chapter 4 Homework Finland Student Responses May Vary Ahlstrom Has

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INTERNATIONAL MANAGEMENT Chapter 4: Strategy Fundamentals and Corporate Strategy

Chapter 4

STRATEGY FUNDAMENTALS AND CORPORATE

STRATEGY

Learning Objectives

After studying this chapter, you should be able to:

2. identify the strategy process.

4. understand corporate-level strategy including mergers and acquisitions, and

alliances.

General Teaching Suggestions

Divide the class into groups and assign leading multinational brands to each team. Each

group should analyze the strategies behind the success of their respective brands. Proceed

to discuss the introduction to these strategies.

Opening Case Discussion Guide

The case tells the story of Ahlstrom, a Finnish company with the mission “to be the

global source for fiber-based materials.” The company’s mergers and acquisitions across

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CHAPTER OUTLINE: KEY CONCEPTS AND TERMS

Sections I through III of Chapter 4

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I. STRATEGY FUNDAMENTALS

1. Key Concepts

• Resources and Capabilities:

Firms need a variety of resources and capabilities to operate in today’s

competitive markets. This section examines the leading concepts related to

strategy.

• Strategy Process:

The strategic process in a firm can be divided into three different activities which

are all part of a continuous process that occurs simultaneously.

Planning is the systematic gathering of information from which the firm then sets

its mission, performance objectives, and ultimately its strategy. The steps in the

planning process include:

i. Data gathering

INTERNATIONAL MANAGEMENT Chapter 4: Strategy Fundamentals and Corporate Strategy

2. Key Terms

• Strategy – A coordinated set of actions that fulfills the firm’s objectives,

purposes, and goals.

• Resources – Tangible and intangible assets that firms possess.

• Capabilities – Functional skills that a firm develops and which are the foundation

on which a firm builds its strategy.

• Key success factors – Things that are important to customers and help determine

a business’ success in a given industry.

• Core competence – A capability that is most critical to the firm’s success.

II. DIVERSIFICATION AND CORPORATE-LEVEL STRATEGY

1. Key Concepts

• Mergers and Acquisitions:

The principal means by which a firm changes its portfolio of businesses. Though

used interchangeably, they represent different types of business expansion.

Merger and acquisition represents a major economic force in the world economy

but on the whole, have a poor record of performance.

• Reasons for Mergers and Acquisitions

M&As can allow a firm to accomplish a variety of strategic goals, including:

i. Entering a new market quickly

ii. Avoiding costs and risks of new product development

INTERNATIONAL MANAGEMENT Chapter 4: Strategy Fundamentals and Corporate Strategy

• Another M&A Motivator

The agency theory argues that the self-interest of managers is the principal

motivation behind mergers and acquisitions. Table 4-1 lists the factors motivating

a firm entering into an M&A or alliance.

• Types of Mergers and Acquisitions

Mergers and acquisitions can be analyzed along two key dimensions:

• The Challenges of M&As

For international firms, often the primary problem is poor implementation.

Typically, the implementation problems are:

i. Cultural differences in the firms involved.

ii. Insufficient planning for the necessary degree of integration of the two

firms.

• Strategic Alliances

A strategic alliance is another option in a firm’s corporate strategy where exact

nature of the partnership can vary widely, ranging from simple marketing

• Reasons for Alliances

Kogut argued that the reasons could be summarized into three broad categories:

i. Organizational learning

ii. Cost savings

iii. Strategic behavior

• Types of Alliances: Formal versus Informal

Formality of an alliance can be conceptualized as a continuum with joint ventures

• The Challenges of Alliances

The major challenges facing strategic alliances can be summarized as

i. Finding the proper partner

2. Key Terms

• Acquisition – The outright purchase of a firm or some part of that firm.

• Merger – Occurs when two firms combine as relative equals

• Product platform – A package of products that complement each other.

INTERNATIONAL MANAGEMENT Chapter 4: Strategy Fundamentals and Corporate Strategy

• Agency theory – The recognition that those who own firms and manage them are

now separated. Thus, the agents may act in their own best interest rather than that

of the firm.

• Horizontal merger and acquisition – Occurs when the acquired and acquiring

firms are in the same industry.

III. SUMMARY

1. Key Concepts

• This chapter has laid the foundation for understanding an international firm’s

strategy.

• The firm’s strategy should be based on an ongoing process built around planning,

implementation, and evaluation and control.

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END-OF-CHAPTER GUIDE

* MANAGERIAL GUIDELINES

* OPENING VIGNETTE DISCUSSION QUESTIONS

MANAGERIAL GUIDELINES

1. Taking the time to understand the cultures of the firm you would like to acquire

can reduce conflict and smooth the integration process.

2. The firm needs to clearly establish its mission and strategy.

4. Planning is a critical step as a firm enters into an M&A or alliance.

5. People are a key resource and at the same time, represent a potential stumbling

OPENING VIGNETTE DISCUSSION QUESTIONS

1. Do you think Ahlstrom would have as clear a strategy and follow it so closely if

the firm were in a commodity area?

Student responses may vary. The four cornerstones upon which Ahlstrom builds

its strategy are: long-term customer relationships; teamwork to develop new

2. Do you think that Ahlstrom is encouraged to pursue its strategy so closely

because it is in a small country like Finland?

Student responses may vary. Ahlstrom has grown globally through mergers and

DISCUSSION QUESTIONS

1. Why would a firm that has a well-defined strategy perform better than a firm

without one?

Strategy is an effort by which an organization defines the nature of the products

and/or services it provides, and the markets in which the firm competes. A

2. Differentiate corporate- and business-level strategies.

INTERNATIONAL MANAGEMENT Chapter 4: Strategy Fundamentals and Corporate Strategy

3. Differentiate strategic planning and a strategic process in a firm.

Strategic planning is the process by which a firm decides its direction over the

next several years. The typical outcome of such planning is a formal statement

4. What is the strategic mission of your school? If you do not know it, should the

school have made it known to its students in the same way a firm makes its

mission statement known to its workers?

5. How could an international merger or acquisition differ from a domestic-only

merger or acquisition?

Compared to an international merger, aspects of cultural, legal, and political

IN-CLASS EXERCISES

1. Your boss, the vice-president of a software firm in Silicon Valley, is not satisfied

with the internal report you generated with due diligence on the feasibility of

2. Write a mission statement for your career. How are you trying to implement that

mission? Be prepared to present your mission statement to the class.

3. Churchill China Plc’s mission statement reads, “To be a leading provider to the

believe that it is a good mission statement? How can it be improved?

4. Assume you are representing a U.S. firm in the pharmaceutical industry. You are

assigned to develop an alliance with a Japanese pharmaceutical firm to coproduce

5. You assist a top manager in a major European luxury garment and accessories

firm that subscribes to a fairly strict corporate code of conduct. Your firm is

thinking of acquiring a supplier in Indonesia to make the highest line of shirts

INTERNATIONAL MANAGEMENT Chapter 4: Strategy Fundamentals and Corporate Strategy

your firm offers. After verifying the viability and inspecting the working

conditions in the Indonesian facility, you feel satisfied of renovating it to

acceptable standards. But a surprise encounter with a documentary filmmaker has

TAKE-HOME EXERCISES

1. Find a Latin American company on the Internet (with an English language Web

site). Read about the description of the firm and then write a mission statement for

that firm based on the principles of effective missions. (Do not copy its current

mission statement, but think up an ideal mission statement for that firm.)

The mission of a firm is a simple statement of the basic purpose or reason for its

2. Research a Fortune 500 firm that is pursuing some form of diversification.

Identify whether that diversification is related or unrelated and give your reasons

for saying so.

3. Pick a recent merger or acquisition in which at least one of the parties involved

was a European firm. Was the merger or acquisition vertical or horizontal in

nature? Explain your answer.

4. The opening case was about the success of Toyota. Research the major recent

strategic actions of General Motors (5-10 major strategic actions over the last

three or four years). Comparing these actions to Toyota’s, why do you think

Toyota’s performance is ascending while General Motors is in decline?

Student suggestions and observations may vary.

INTERNATIONAL MANAGEMENT Chapter 4: Strategy Fundamentals and Corporate Strategy

5. Explain what merger and acquisition professionals mean by ‘‘synergy.’’ Why is

synergy difficult to achieve? Provide an example of a merger or acquisition in

which one of the parties was from outside your home country. In describing the

merger and acquisition, was synergy discussed? If so, describe where they

believed that synergy would be found. Do you think they will be able to achieve

that synergy?

SHORT CASE QUESTIONS

1. If you had to predict, will business groups continue to exist in Continental

Europe, or do you think that diversification patterns will come to reflect those in

the U.S. and the United Kingdom?

2. What cultural reasons do you think exist for the development of business groups

in Asia? Think specifically of the role of family and inheritance.

Asian culture varies across the countries in the region. Strict hierarchical

3. Hutchison Whampoa comprises both high-technology 3G wireless firms and

mature industries, such as retail grocery stores. How do you think this firm makes

key decisions?

Student answers may vary. The firm competes in diverse activities that include