IBM - Chap 12

CHAPTER 12: STRATEGY
1. IB Strategy
- Strategy is an integrated set of choices and commitments that supports and sustains an
MNE’s competitiveness. It defines and communicates an MNE’s plan on how it will
use its resources, capabilities, and competencies to compete in different countries.
- Strategy calls on managers to deal with the questions and complexities that follow
from cross checking opportunities with competencies, assessing competitive threats,
and setting and sustaining superior performance
- The MNE’s vision, a future-oriented declaration of its purpose and aspirations,
outlines its broad ambitions. It communicates to stakeholders, namely employees,
stockholders, governments, partners, suppliers, customers, and society, what the MNE
is, where it is going, and the values that will guide its efforts.
- The mission statement inspires them to action. It communicates what the MNE is
going to do, why it’s going to do that, and the general approach to doing so.
2. Perspectives on Strategy
- The Industry Organization (IO) Paradigm The IO outlook sets the external
environment as the primary determinant of an MNE’s strategic plan. It begins by
presuming that markets tend toward perfect competition. Perfect competition
presumes:
+ Many buyers and sellers, such that no individual agent determines price or quantity.
+ Perfect information for both producers and consumers.
+ Few, if any, barriers to market entry and exit.
+ Full mobility of resources.
+ Perfect knowledge among firms and buyers.
In reality, an attractive industry is one in which far-from-perfect competition lets

companies consistently earn above-average profitability.
- Great by Choice: If markets are not always perfectly competitive, industry structure
does not entirely determine performance. Then, bright executives exploit market
imperfections to outperform rivals.
- Strategy’s Hallmarks
+ The goal of strategy is to create value - the measure of a firm’s capability to sell what
it makes for more than the costs incurred to make it.
+ As such, strategy is the committed-to-excellence framework that exploits industry
conditions and leverages executive quality to create superior value.
3. Resources, Capabilities and Core Competencies
- Capabilities: resources represent the stocks of available factors that managers bundle
together into capabilities.
- Core Competencies: the special outlook, skill, or technology that, by synthesizing
links between resources and capabilities, sets and sustains the firm’s capacity to create
superior value.
4. Creation of Value
- Value: as the difference between the cost of making a product and the price that
customers are willing to pay for it.
- Cost Leadership Strategy: to make a product at the lowest cost, relative to those
offered by rivals, which appeals to the largest number of potential customers.
- Differentiation Strategy: aims to do something no other firm can do, and, besides
doing it, doing it effectively.
- Integrating Cost Leadership/Differentiation Strategies: Production must optimize
efficiency in order to generate the funds that support differentiation.
5. The firm as Value Chain
- Outbound logistics: Moving finished product from operations to wholesalers,

retailers, or end-consumers. Deals with distribution channels, inventory management,
warehousing, and transportation logistics.
- Firm infrastructure: accounting, finance, legal, safety and security, and quality
control,
- Systems and solutions: Managing information processing, overseeing information
systems, and integrating technologies platforms.
6. Managing the Value Chain
Configuration
How an MNE distributes value activities around the world is the matter of
configuration—essentially, the task of deciding which activity to do where.
- Concentrated: the MNE performs all value chain activities in one location.
- Dispersed: the MNE performs different value-chain activities in different locations.
- Location advantages: Differing environmental conditions, given differing political,
legal, and market features, means costs differ from country to country. Labor, capital,
and resources costs are traditional determinants of location advantages.
- Economies of scale: The degree that an MNE concentrates or disperses its value-chain
activities reflects the importance of efficiency to its quest to create value.
- Experience and learning effects: Industry and firm conduct confirms that low costs
create strategic advantage. Hence, MNEs look to capitalize on the scale and scope of
their operations to exploit potential cost minimization via experience and learning
effects.
- Risks of configuration choices: Configuration decisions face the risks of
unpredictable market change. Disruptions, such as a regime change, material
shortages, labor unrest, or currency instability, can quickly convert an efficient
location into a costly one.
7. Global Integration versus Local Responsiveness
- The greater the potential to standardize value activities, the greater the importance
of global integration to an MNE’s competitiveness.
- Responding to local customers’ preferences requires customizing products and
processes. Adaptation reduces the efficiencies of standardization, thereby aggravating
the liability of foreignness, inflating operational costs, and reducing value creation.
Hence, MNEs oppose adapting operations unnecessarily. Still, local imperatives often
compel them to do so.
- A third factor, institutional agents and their policy agendas, can, at different times,
support either scenario. Various transnational institutions, such as the IMF, WTO, and
World Bank, build an increasingly seamless global business environment.
Systematically opening national borders to trade and investment creates greater
potential for MNEs to build, expand, and integrate global operations.
- Mapping the Interaction: Operating internationally calls for configuring and
coordinating operations in ways that reconcile the competing demands of global
integration and local responsiveness. The Integration-Responsiveness (IR) Grid
provides a straightforward framework to organize analysis

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CHAPTER 12: STRATEGY

In reality, an attractive industry is one in which far-from-perfect competition lets

- Outbound logistics: Moving finished product from operations to wholesalers,

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