Unit III IM

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MBA 6631, Intercultural Management 1

7. Contrast business practices from cultures around the world. 7.1 Perform a SWOT analysis of a multinational company. 7.2 Analyze political risks faced by a multinational company.

Course/Unit Learning Outcomes

Learning Activity

7.1 Unit Lesson Chapter 5, pp. 111–126 Unit III Case Study

7.2 Unit Lesson Chapter 6, pp. 131–151 Unit III Case Study

Reading Assignment

Chapter 5: Strategic Management in the Multinational Company: Content and Formulation, pp. 111–126

Chapter 6: Multinational and Entry-Mode Strategies: Content and Formulation, pp. 131–151

Unit Lesson

Strategic Management

Before developing and operating a small business, you would want to create a strategic plan. The purpose of a strategic plan is to create business goals and then map out a plan to achieve the goals. Both domestic and multinational companies must pursue strategies to achieve a competitive advantage. For the sake of simplicity, many multinational companies share the same business strategies as their domestic counterparts. There are various types of strategies that companies consider. A generic strategy can be used by both domestic and multinational companies in order to maintain a competitive advantage (Cullen & Parboteeah, 2017).

Michael Porter’s economic theories consist of three primary strategies: differentiation strategy, low-cost strategy, and focus strategy (Cullen & Parboteeah, 2017). Differentiation strategy is a plan that enables the company to provide an exceptional, high-quality product or service. This can be accomplished through convenience such as a product offered by Amazon. Amazon has managed to provide an exceptional online service that makes it easy for consumers to one-stop-shop as well as receive quick delivery. This has certainly given Amazon a competitive advantage over other online companies.

Another strategy that might offer a competitive advantage would be to adopt a low-cost strategy. Wal-Mart is a great example of this strategy type. The company has been able to undercut competitor prices on merchandise to gain market share. The same strategy is shared by Southwest Airlines as the company offers lost-cost, no-frills flights that include not having to pay for checked luggage, which keeps costs low and makes the airline more competitive. Both Wal-Mart and Southwest Airlines have been able to save costs, which enables them to pass these down to the customer, resulting in a competitive advantage and customer loyalty.

UNIT III STUDY GUIDE Strategic Management and Entry-Mode Strategies in the Multinational Company

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The focus strategy is a hybrid of low-cost and differentiation and is based on the fact that a company knows its distinct segment of the business and can focus on, and satisfy the needs of, such a market. When a company employs a focus strategy, it must focus on a narrow market niche (Cullen & Parboteeah, 2017).

A company’s value chain is all the activities needed to produce and support their product. Based on the company’s value chain, the company can ascertain their internal cost structure (Cullen & Parboteeah, 2017). In an effort to cut costs to become more competitive, the company may have to either outsource jobs by contracting to an external organization or transfer jobs to a foreign country through offshoring. Many companies have begun outsourcing or offshoring to reduce costs to increase profit margins. A company must decide which strategy is best for its business in order to reduce costs and save money.

Multinational companies use competitive strategies comprised of both offensive and defensive strategies to maintain international markets. An offensive strategy will target specific companies in order to seize the market; whereas, a defensive strategy discourages the competitor’s offensive strategy (Cullen & Parboteeah, 2017). An example of an offensive competitive strategy would be the Pepsi Challenge. Pepsi imposed a direct attack on Coca-Cola with a successful marketing campaign aimed at comparing taste between the two soft drinks. Consumers were blindfolded as they sampled the two beverages and then chose their favorite with Pepsi winning the challenge. This direct attack was a smart move on Pepsi’s side and proved to be quite successful.

A defensive competitive strategy is used to keep competitors at a distance. They are forced to protect their company and market share by discouraging competitors in order to maintain customer loyalty. For instance, if grocery store A markets their business as the best value in town, the competitor (grocery store B) can market even lower prices trying to lure the A customers away from the company. If company A advertises that they will price match and beat the cost of company B, they have succeeded at using a defensive competitive strategy (Cullen & Parboteeah, 2017). This is the strategy Wal-Mart has successfully implemented since their inception.

Choosing a multinational diversification strategy is a component of business decision-making. The two types of diversification strategies are related and unrelated. With a related strategy, a company will either start a business or acquire one that is similar to its existing industry. For example, it would not be unusual for an electronics business that makes and sells smart TVs to purchase and sell other smart technology, such as smart cell phones, laptops, or tablets. An unrelated strategy would result from a business acquiring an operation completely different from its existing market. For instance, COSTCO is a wholesale company that sells mostly household and food products, yet they also sell vacation packages and automobiles. A traditional approach to creating a strategy other than related and unrelated is using strategy formulation (Cullen & Parboteeah, 2017). This allows the managers to select the strategy that they think would be best for their company.

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Michael Porter’s (as cited in Cullen & Parboteeah, 2017) five forces model is a “popular technique that can help a multinational manager understand the major forces at work in the industry and the industry’s degree of attractiveness” (p. 122). The purpose of the five forces is to measure and analyze the competition’s appeal.

A SWOT analysis is a common tool used to identify a company’s position in the industry. This analysis reviews a company’s strengths, weaknesses, opportunities, and threats. The benefits of such an analysis help a company recognize the internal and external factors that require attention in regard to achieving business success (Cullen & Parboteeah, 2017). Failing to recognize the SWOT segments could result in a business making poor decisions and losing market share because management lacks important information about factors affecting the business.

Entry-Mode Strategies

Multinational businesses encounter many issues when doing business at home and abroad. This presents challenges on how to address pressures at home or in different areas of the international market. These issues force multinational companies to make important decisions about how to allocate resources. Multinational strategies are used by businesses to deal with the global-local dilemma. In a global market, one of the issues that a multinational business faces is marketing in a different country. The global market is a tight market, which encompasses the buying and selling of products or services in other countries. “Four broad multinational strategies offer solutions to this dilemma: multidomestic, transnational, international, and regional” (Cullen & Parboteeah, 2017, p. 132). These present a solution to the global-local responsiveness dilemma.

A company will strive to attain top priority to local responsiveness when exercising the multidomestic strategy. A great example of a multinational company using a multidomestic strategy would be Burger King. The company is currently operating in international markets and changing its menu to appeal to the foreign countries where it operates. The transnational strategy has two goals of seeking advantageous locations and becoming economically efficient. This strategy is used by larger companies that operate in several countries and provides cost and quality gains. The international strategy takes place when companies attempt to sell

Figure 1. Porter’s Five Forces (Cullen & Parboteeah, 2017)

Degree of Competition

Threat of New Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitutes

Figure 2. SWOT Analysis Steps (Cullen & Parboteeah, 2017)

Strengths Weaknesses Opportunities Threats

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products globally using similar marketing techniques (Cullen & Parboteeah, 2017). The company transfers products and sales operations to foreign markets where there are none, but the home country headquarters continues to control the marketing and product strategies. Lastly, the regional strategy attempts to balance the economy and the location. The worldwide products are managed within a region that is most conducive to the company. This type of strategy works best for multinational companies. “For example, Proctor & Gamble and DuPont combined their respective subunits in Mexico, the United States, and Canada into one regional organization” (Cullen & Parboteeah, 2017, p. 135). Which strategy is best for the company is strictly up to the management.

Any company that is considering conducting business in a foreign country must seek a method of entry into the foreign market. Therefore, important decisions must be made by multinational corporations when it comes to entering international markets, such as whether a company should just try exporting products to another country or if it should consider building manufacturing facilities in another country. The most popular entry- mode strategies are exporting, licensing, strategic alliances, and foreign direct investment. The easiest entry mode is through exporting. It allows a business to sell its products internationally. An international license is a contract between the domestic licenser and the foreign licensee. This contractual agreement gives rights to the licensee to sell the licenser’s goods as provided by the licensing agreement. An international strategic alliance is composed of a collaborative agreement between businesses located in different countries, allowing business activity participation. Foreign direct investment strategy (FDI) occurs when a multinational company creates a subsidiary in another country, such as building a manufacturing facility (Cullen & Parboteeah, 2017).

Multinational companies are exposed to political risks as they operate in foreign countries; this is the main concern. They have no control over the political environment; therefore, they lack the ability to impact political decisions that may have an impact on their products or services. The risks may be more abundant when the country is transitioning from one governing body to the next. This could have a bearing on the company and the employees. A multinational’s main concern is the safety of the employees and keeping them out of harm’s way, so political risk must be accurately assessed before making strategic decisions on investing in a foreign country.

Reference

Cullen, J. B., & Parboteeah, K. P. (2017). Multinational management: A strategic approach (7th ed.). Cengage Learning. https://online.vitalsource.com/#/books/9781337655736

Exporting Licensing

Strategic Alliances Foreign Direct

Investment

Entry-Mode Strategies

Figure 3. Entry-Mode Strategies (Cullen & Parbooteah, 2017)

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