Institute of Public Administration and Management

University of Sierra Leone

Advanced Financial Management

MFA Second Semester

Corporate Strategy and Multinational
Financing Decision

Ibrahim Samai
 Learning Objectives
• Define differentiation and low cost
• Understand how low-cost and differentiation
strategists make money
• Recall multinational examples of use of
generic strategies
• Understand competitive advantage and value
chain
• Understand offensive and defensive strategies
 Learning Objectives
• Understand basics of multinational
diversification
• Understand how traditional strategy
formulation techniques apply to the
multinational company
• Realize both the convergence and divergence
in strategies
Basic Strategy for the Multinational Company

• Strategy: the central, comprehensive,

integrated and externally oriented set of
choices of how a company will achieve its
objectives
Basic Strategy for the Multinational Company

• Important strategic areas

- Arenas: a company needs to be able to decide which
businesses it wants to be in
- Vehicles: a properly stated strategy also needs to include
the vehicles a company will use to create a presence in
specific markets or products
- Differentiators/Economic Logic: a company also needs to
decide what ways it will use to win over customers
- Sequencing: a company also needs to decide in what
sequence and at what pace major decisions will be made
Basic Strategy for the Multinational Company

• Multinational companies use many of the

same strategies as domestic companies
Competitive Advantage and Multinational
Applications of Generic Strategies

• Generic strategies: basic ways to achieve and

sustain competitive advantage

• Competitive advantage: when a company can

outmatch its rivals in attracting and
maintaining its targeted customers
 Competitive Advantage and
Multinational Applications of
Generic Strategies (cont.)

• Differentiation strategy: providing superior

value to customers
– Eg.: Apple competing in the world market by
providing high-quality mobile phones and
electronic tablets.
• Low-cost strategy: producing at a lower cost
than competitors
– Eg.: Techno
 How Do Low-Cost and Differentiation Firms
Make Money?

• Differentiation
– Customers often pay a higher price for extra value
• Low-cost
– Additional profits come from cost savings
 Focus Strategy
• Strategies can be further subdivided on the
basis of competitive scope
• Competitive scope: how broadly a firm targets
its products or services
– Narrow competitive scope for certain buyers or
geographic areas
– Broad competitive scope when a large range of
buyers are targeted
Competitive Advantage and the Value Chain

• A firm can gain competitive advantage by

finding differentiation or low costs in its
activities
• Value chain is a convenient way of looking at
the firm’s activities
• Value chain: all the activities that a firm used
to design, produce, market, deliver, and
support its products.
 Components of the Value Chain
• Primary activities: physical actions of creating,
selling, and after-sale service of products
• Upstream: early activities in the value chain
– R&D
– Dealing with suppliers
Components of the Value Chain (cont.)

• Downstream: later value chain activities

– Sales and dealing with distribution channels
• Support activities: systems for human
resources management, organisational design
and control, and technology
 Outsourcing
• Outsourcing: a deliberate decision to have
outsiders or strategic allies perform certain
activities in the value chain
• About half of U.S. manufacturing jobs will be
outsourced to more than 28 emerging
countries over the next 10 years
• About 10% of U.S. service jobs may be
outsourced
 Outsourcing
• When should a multinational company
outsource?
– Outsourcing makes sense if an outsider can
perform a value-chain task better or more cheaply
– However, tasks that are outsourced should be the
ones that are not crucial to the company’s ability
to achieve competitive advantage
 Distinctive Competencies
• Strengths that allow companies to outperform
rivals
- Ex.: Quality, innovation, customer service
• Resources: inputs into the production or
service processes
- Ex.: Buildings, land, equipment, employees
 Distinctive Competencies
• Capabilities: ability to assemble and
coordinate resources effectively
• Resources provide the organisation with
potential capabilities.
• For long-term success, capabilities must lead
to sustainable competitive advantage
 Sustaining Competitive Advantage
• Sustainable: strategies not easily defeated by
competitors
• Four characteristics of capabilities that lead to
competitive advantage
- Valuable
- Rare
- Difficult to imitate
- Non-substitutable
 Competitive Strategies in International
Markets
• Competitive strategies - strategic moves
multinationals use to defeat competitors:
- Offensive competitive strategies: direct attacks to
capture market share
- Defensive competitive strategies: attempts to
discourage offensive strategies
- Counter-parry: fending off a competitor’s attack in
one country by attacking in another country
 Offensive Strategies
• Direct attacks: price cutting, adding new
features, or going after poorly served markets
• End-run offensives: seeking unoccupied
markets
• Preemptive competitive strategies: being first
to obtain particular advantageous position
• Acquisitions: buying out a competitor
 Defensive Strategies
• Attempts to reduce risks of being attacked
• Convince an attacking firm to seek other
targets
• Blunt the impacts of any attack
– Exclusive contracts with best suppliers
– New models to match competitor’s lower prices
– Public announcements about the willingness to
fight
 Counter-parry
• Popular strategy for multinationals
• Respond to attack by attacking competitor in
another country
– Ex.: Kodak—When Fuji attacked Kodak in the U.S.,
Kodak retaliated by attacking Fuji in Japan.
– Goodyear also attacked Michelin in Europe as
response to attack in U.S.
 Multinational Diversification Strategy

• Business-level strategies: strategies for a single

business operation
• Corporate-level strategies: how companies
choose their mixture of different businesses
 Diversification
• Related diversification: companies acquire
businesses that are similar in some way to
their original or core business
– Ex.: Nike adding clothing line to its shoe
operations
• Unrelated diversification: firms acquire
businesses in any industry
– Main concern is whether it’s a good financial
investment
Strategy Formulation: Traditional Approaches

• Strategy formulation: process by which

managers select the strategies to be used by
their company
• Popular analysis techniques
– Competitive dynamics of the industry
– Company’s competitive position in the industry
– Opportunities and threats faced by their company
– Company’s strengths and weaknesses
 Industry and Competitive Analysis
• Porter’s five forces model: a popular
technique that can help a multinational firm
understand the major forces at work in the
industry and the degree of attractiveness of
the industry
 Industry and Competitive Analysis
• Porter’s Five Forces Model
1. The degree of competition among existing
competitors in the industry
2. The threat of new entrants
3. The bargaining power of buyers
4. The bargaining power of suppliers
5. The threat of substitutes
 Industry and Competitive Analysis
• Managers must understand their industry well
to formulate good strategies.
• Must understand economic characteristics of
industries and driving forces
• Economic characteristics include
- Market size
- Ease of entry
- Opportunities for economies of scale
 Driving Forces
• The important changes that have potential to
affect an industry
- Speed of new product innovations
- Technological changes
- Changing societal attitudes and lifestyles
 Key Success Factors (KSFs)
• Important characteristics of a company or its
product that lead to success in an industry
- Innovative technology or products
- Broad product line
- Effective distribution channels
- Price advantages
- Effective promotion
- Superior physical facilities or skilled labour
 Key Success Factors
Experience of firm in business
- Cost position for raw materials
- Cost position for production
- R&D quality
- Financial assets
- Product quality
- Quality of human resources
 Competitor Analysis
• Profiles of competitor’s strategies and
objectives
• Four steps
1. Identify strategic intent of competitors
2. Identify current and anticipated generic
strategies
3. Identify current and anticipated offensive and
defensive competitive strategies
4. Assess current positions of competitors
 Competitor Analysis (cont.)
1.Strategic intent
- Broad objectives of competitors
2.Current and anticipated generic strategies
- Helps determine key KSF
3.Current and anticipated offensive and
defensive competitive strategies
4.Current positions
Company-Situation Analysis: SWOT
• Strengths: distinctive capability, resource or
skill
• Weaknesses: competitive disadvantage
compared to competitors
• Opportunities: favorable conditions in the
environment
• Threats: unfavorable conditions in the
environment
 SWOT Analysis
• More complex than for domestic firms
• Multinationals face more complex general and
operating environments
• Environments vary by country
 Corporate Strategy Selection
• Diversified corporation has a portfolio of
businesses
• Major issue is which businesses to invest in
and which businesses to divest
• The basic tool: matrix analyses
• The most popular is the growth-share matrix
of the Boston Consulting Group (BCG).
 BCG Share Matrix
• Division into four categories based on market
share and relative market share
– Stars: the most successful firm
– Dogs: businesses with low market shares in low-
growth industries
– Cash cows: businesses in slow-growth industries
where company has strong market-share position
– Problem children: businesses in high-growth
industries where company has a poor market
share
 Matrices
• All matrices help answer basic strategy
formulation question such as
– Are businesses in attractive industries?
– Are most businesses growing?
– Are there sufficient cash cows to finance other
businesses?
– Is business portfolio well positioned for the
future?
– Is the some strategic synergies among businesses?
 Organisations Alike: Globalisation and
convergence
• How Globalisation pushes organisations to be
more similar
- Global customers and products
- Growing levels of industrialisation and economic
development
- Global competition and global trade
- Gross-border mergers, acquisitions, and alliances
- Cross-national mobility of managers
- Internationalisation of business education
 Organisations Alike: Globalisation and
convergence
• National differences still affect the way many firms compete
via their choices of strategies
• Three important reasons to understand the national
differences
– Managers in successful multinational firms must
understand and anticipate the strategies of rivals from
other countries
– Managers in successful multinational firms must
understand the strategies of potential business partners
– Strategies developed in one national context might be
copied and modified to fit another national context
 THE END

DISCUSSION AND QUESTIONS