Strategies in MNEs

Corporate - Shareholders
Governance - Customers (core element)
influencers - Public
- Sources of supply
Multinationality - Working conditions
dimensions - Environmental issues
- Shareholder issues
- Governmental issues
Zone of Acceptance Defines stakeholders´ tolerance for actions and outcomes (Influence of stakeholders on
corporation / Management)
- Internal Environment
o Resource Availability (+)
o Inertial forces (-)
- Task Environment
o Industry structure, quasi-legal constraints, powerful outside forces (-)
o Product differentiability, Market growth, demand instability (+)
The Zone of Acceptance may change over time (ex. Adidas)
Stakeholders --> Zone of Acceptance --> CEO´s decision --> results --> Stakeholders --> …
Managerial Describes potential action of a manager
Awareness
Managerial Defines how free is management to use their mandate for making decisions and implement
Discretion them (intersection of Zone of Acceptance and Managerial Awareness) --> Latitude of Action
Success Success is the achievement of objectives (comparison between results and objectives)
Aspiration Level The aspiration level is a function of comparisons and path dependent variables. The value of
objectives is determined by:
- Own past performance (beat yourself)
- Past performance of others (beat competitors)
- Other factors (unexpected events)
Stakeholders´ expectations entail multiple objectives firms should fulfil (shareholder,
Customer…) --> Objectives of the company. Top management organizes a political process to
determine objectives of the company.
Financial success Financial success is, if financial value is increased (how much is someone willing to pay to
become owner of the company --> comparison t and t-1, considering opportunity costs)
FINANCIAL EVALUATION
- Cash-based: free cash flow principle, discounting principle, cost of capital and
opportunity cost principle

- Profit-based: capital productivity and efficacy principle, economic value add

principle, ROI and profit concepts

NET ECONOMIC VALUE ADDED: Value(t) - Value(t-1) - Opportunity costs

Total Shareholder [(Market Value (t+1) + Dividend payments – increase in equity)/Market value (t)]-1
Return (TSR) - TSR > Risk equivalent alternative rate of return --> Success
- TSR < Risk equivalent alternative rate of return --> Failure
Free Cash Flow Free cash flow is a periodic excess cash that could be paid to debt- and shareholders
Discounting Transforming the value of a payment out of later periods in what someone would invest today
to exactly get this value in this later period

Economic Value Add Economic value add asks whether capital income (profit + interest paid) exceeds cost of
(EVA) capital (WACC x Invested capital), or whether capital productivity exceeds cost of capital rate.
The Financial value of corporations can be created based on three main financial value
measures:
- Profitability (increase in capital productivity
 - Growth (increase in capital base)
- Financing (decrease in WACC)
Return on 1. NOPAT (Net Operative Profit After Taxes) / Invested Capital
Investment (ROI) 2. Sales profit margin (NOPAT / Revenues) x Capital turnover (Revenues / Inv. Capital)
Dimensions of - Profit Management
financial value - Tax Management
creation - Asset Management
- Financial Management
Competitive A competitive advantage is created if a company´s service to its customers is superior to that
Advantage of its competitors (own Value/Price > Value/Price of competitors). The superior value must be
perceived and important for customers and must be defendable against competitors.
A competitive advantage can only be achieved at the expenses of performance.
A profitable competitive advantage can only be achieved if compared to the competitors a
higher total added value exists
Corporate The management of the portfolio (by the principals) must lead to corporate advantages. A
Advantage Corporate advantage is even possible if the firm does not have a competitive advantage in the
respective business area
Levels of Strategy 1. Corporate Level (Corporate Advantage)
2. Product Area Level (Corporate Advantage across product areas)
3. Regional Area Level (Corporate Advantage across regional areas)
4. Product / Region Level (Competitive Advantage)
5. Functional Level (Functional Advantage)
6. Resource Level (Resource Advantage)
Changes in the firm Different forces oblige firms to change
- Events and behaviors in the external environment (anticipated / unanticipated)
- Behavior within the firm (intended / unintended)
CHANGE PROCESS
1. Initiation
o Perception
o Identification
o Structuring
o Processing
2. Formulation
o External / Internal analysis
o Strategy options
o Evaluation
o Strategy as a plan
3. Implementation
External & Internal External and internal analyses help to understand current performance and to predict future
analysis performance
- External
o Competitive forces
o Demand Forces
o PESTEL (Political, Economic, Social, Technological, Ecological, Legal)
o Suppliers
- Internal
o Value to Customer
o Price to customer
o Value chain
Temporary - Market-based view: Attractiveness of markets and influencing of market structure as
outperformance main drivers of success (Structure-Conduct Performance)
- Resource-based view: Valuable, inimitable, non-transferable resources (core
competencies) as main driver of success (Resource-Conduct Performance)
Industry The industry environment is composed of a set of forces that directly shape competition
Environment (Customer, Company, Competitors). The macro environment has an impact on the firm
through its effect on the industry environment (PESTEL)
Porter´s five forces Forces affecting industry attractiveness
- Potential entrants (threat of new entrants)
 - Substitutes (threat of substitutes)
--> Industry Competition (rivalry)
- Buyers (bargaining power of buyers)
- Suppliers (bargaining power of suppliers)
Core competencies Core competencies are the basis for success in any kind of business system (VRIN)
- Valuable
- Rare
- Inimitable
- Not transferable
SWOT analysis SWOT analysis summarizes internal and external analyses and identifies key issues.
- Develop a strategy that exploits opportunities / masters threats
- Develop a strategy that exploits core competencies to use and creates opportunities
Competitive - Differentiation: better perceived value (providing a unique product that is valuable to
strategies the customer)
- Price Leadership: better prices
- Better prices & better perceived value
Strategy Fields of strategy implementation
implementation - Structure + Systems
o Structures: formally defined roles, responsibilities, decisions, lines of
reporting…. Structure determines how the corporation really acts
o Systems: support and control
- Functional plans: concrete goals and measures for all functional units
R&D --> Purchasing --> Production --> Marketing --> Sales --> ….
- Envisioning, enabling, empowering: To make people understand and believe in
strategy, to ensure their qualifications to live strategy, and to give them the power to
make decisions and implement these according to strategy
- Strategic control: to provide information on outcome of actions and enable feedback
loops on assumptions, consistency, and strategy-action fit (objective vs. Results)
Need to change - Level 3: Liquidity problems (high)
- Level 2: Performance problems (medium-high)
- Level 1: Expectation problems (medium-low)
- Level 0: Healthy company (Low)
Five Strategy - Mission (Why are we here?)
objects - Vision (Long-term goals?)
- Strategy (How to compete)
- Structure (How to organize)
- Systems (How to support)
Portfolio - Events and behavior in the external environment
Management - Corporate strategies
o Investment
o Divestment
o Structural adjustments (how resources are coordinated)
Portfolio management starts with:
1. Scope analysis (e.g. product and regional scope of firm)
2. Performance analysis
3. Portfolio analysis
A meaningful analysis includes an external perspective on each market
Performance The performance measurement variables can be classified into financials and non-financials:
measurement - Financial
o Accounting-based (e.g. Revenues, expenses,…)
o Market-based (e.g. share price)
o Accounting and market-based
- Non-financials
Past performance analysis --> Disaggregation of corporate level
Future performance forecasting --> Aggregation of business units (forecasting is based on
time stability)
Time stability Time stability can be of:
- 1st order: object stability --> no change between t and t-1
- 2nd order: pattern stability --> change influenced by influencing factor x
 - 3rd order: pattern change stability --> (more complicated)
- …
Portfolio planning Portfolio planning was developed to address the issue of complexity. Understand the overall
business activities of the firm as a set of independent business units. Reach a better
understanding of the competitive position of the overall portfolio of businesses.
- External dimension
o Attractiveness of businesses
o Uncontrollable by the firm
- Internal dimension
o Strength of businesses
o Controllable by the firm
Every corporation uses a portfolio management concept
BCG-Matrix Technical details of the growth-share matrix
1. Question marks (increase or divest)
2. Stars (Increase/Hold)
3. Cash cows (Hold/harvest)
4. Poor dogs (Divest)
Profitability is highest when the market growth is highest.
McKinsey portfolio - External factors: industry attractiveness determined by critical structural factors
matrix o Market growth
o Market size
o Competitive structure
o …
- Internal factors: business strength determined by critical success factors
o Market share
o Financial resources
o R&D position
o ...
Portfolio decisions - Expansion within industries
o Economies of scale
o Market power
- Expansion across industries
o Opportunities in new/other industries
o Revenue synergies ( R(A) + R(B) < R(A+B) ) – possible if customers perceive a
packaged offering as more valuable
o Cost synergies (resource sharing) ( C(A) + C(B) > C(A+B) ) – possible if
resources are shared across product areas
Expansion across Expansion across industries shapes the degree of product diversification.
industries Types of product diversification
- Concentric diversification (high similarity)
- Relational diversification (related but different value chains)
- Conglomerate diversification (different value chains)
Corporate value The increase of corporate value consists of two components:
increase - Stand-alone value: compares the internationalizing (focal) firm to both local and
foreign competitors in the host country
- Combination value
International Transfer of advantages is only successful if the company is able to cope with liabilities of
growth outsidership:
- Destroying advantages (higher cost / lower value): distance and unembeddedness
- Creating advantages (higher value / lower costs): transferability and relevance
Decision-makers have to find out whether the firm-specific advantages are transferable and
relevant for the considered product market/host country:
- Non-area bound advantages (general technological knowledge, marketing
knowledge, administrative knowledge,….) → Transferable to other locations
- Area bound advantages
o Product area bound (specific technological knowledge, customer kn.,….)
o Regional area bound (privileged locations, local marketing, local brands,…)
Outsidership Occurs because of dissimilarities between the new regional area and the firm’s previously
existing portfolio.
 Regional dissimilarities: (CAGE)
- Economic (economic development, technological advancement, trade agreements,…)
- Cultural (values, norms, beliefs, religion, language, …)
- Administrative/Institutional (government intervention, corruption, historical ties,…)
- Geographic (distance, time zone,…)
Adaption in host country:
1. Outsider
2. Gaining market-specific knowledge by acting within the various environmental
settings (with/without a partner)
3. Insider
A firm might intensify its activities in a certain host country with growing knowledge about
the specific settings
Establishment chain:
1- No regular export
2- Independent representative agent
3- Sales subsidiary
4- Higher commitment subsidiary
Cooperation modes Time to insidership can be shortened by cooperation modes
- Market entry without own subsidiary
o Licensing
o Franchising
- Market entry via own subsidiary
o Joint venture
▪ Greenfield
▪ Acquisition
Managers have to take into account possible dependencies and opportunistic behaviors of
partners.
Growth program Growth programs consist of various single growth steps. Within a specific growth program,
decision-makers can choose between different timing strategies:
- Sequential approach (e.g. Amazon)
- Parallel approach (more countries at the same time)
- Combined approach
Timing approach - Urgency: the extend to how time critical it is to expand in the near future (e.g.
criteria blackberry) → Parallel approach
- Path dependency: the extend to which future strategies are dependent upon the
sequence of past and today’s decisions (e.g. Google) → Sequential approach
- Constraints: limitations of firm resources that prohibit further growth → SA
- Complexity: if the demand of management decisions goes beyond the managerial
capacity → SA
External growth - Internal development: own development of product
- Cooperation: license production of new product from other firm
- Acquisition: acquisition of competitor that owns a new product
M&A Motives:
- Shareholder motives (value creation through sales synergies / cost synergies /
financial synergies / restructuring
- Manager motives (power and increase of salary / Job protection)
Growth dimensions - New regional area
- New Product area
- New functions
Growth directions The (potential) relationship between acquirer and target determines the acquisition direction.
- Horizontal: same industry / competitor
- Forward integration (vertical): potential customer
- Backward integration (vertical): potential supplier
- Lateral: no potential business relationship (conglomerate, unrelated)
Mergers and - Value chain direction
Acquisitions criteria - Value chain relatedness
- Regional dimension
- Takeover attitude
- Payment
 Cross-border M&As are a popular form of foreign direct investment (47%).
Empirical studies show inconclusive results when it comes to factors that influence the
success of acquisitions.
Acquisition process The acquisition process consists of three phases and is embedded in pre- and postacquisition
activities:
1. Defining objectives: identifying sources for creating corporate advantage
2. Acquisition planning: defining search field, search and evaluation of candidates
3. Take-over: approaching candidates, negotiation, execution
4. Integration: realignment of groups, refinement of management responsibilities,
realization of process improvement and synergies
5. Company restructuring: selling parts of the business, reorganization of the company,.
Consideration of implementation during all acquisition steps decrease the risk of an
acquisition.
Integration forms - Holding: just vertical intervention, optimizing of financing and management, …
- Symbiosis: integration of several business units for corporate use of resources, partial
maintenance of the acquired company
- Absorption: complete merger in all domains
Planes of the Integration has to take place multi-plane:
integration - Strategic integration: to aim at defined strategic objectives
- Organizational integration: integration of the organizational structure
- System integration: integration of information / incentive systems
- Cultural integration: integration of corporate culture
- External integration: communication with an integration of stakeholders
Methods of - Payment in cash
payment - Payment in stock
- Payment in stock and cash
Management Business-focused era
thinking era 1. 1950 – Decentralization: in order to separate strategic and operational management
→ Structure follows strategy
2. 1960 – Diversification: determine successful diversification strategies
3. 1970 – Portfolio: allocate resources depending on the type of business and overall
corporate portfolio balance
Corporate-focused era
4. 1980 – Value: emphasis on shareholder value
5. 1990 – Focus: core competencies as driver of strategy
6. 2000 – Parenting: Defining the role of the corporate parent that fits to diversification
strategy
Globalization-focused era
7. 2010 – Growth: Firm specific advantages to be managed across national borders
8. 2020 – Digital Transformation?
Limitation of growth The maximum amount of expansion will be determined by the relevant managerial services
(Penrose) available for expansion in relation to the amount of these services required per dollar of
expansion. The factors determining the availability of managerial services and the need for
them in expansion will therefore determine the maximum rate of growth of the firm.
➔ Maximum growth rate function of maximum growth rate of management capacity
➔ Growth rate of management is path dependent
Because size of firm does not matter, it is reasonable to postulate the existence of a steady
state rate of growth (however, reality shows that continuous growth is the exception)
Profit maximizing growth rate:

Foundations of - Firms are conceptualized as bundles of resources

Penrose growth - Resources render (multiple) services. The unique character of a firm is given by the
theory heterogeneity of services from its resources
- Firms differ from markets in their coordination mechanism. Firms allocate resources
by authoritative direction. Markets allocate resources via price mechanism
- Managerial resources are of essence. They render both administrative and
entrepreneurial services. Administrative services are required to use the resources of
the firm. Entrepreneurial services are used to develop the firm
 - Managerial resources require experience internal to the firm and in working together
with other members of the firm to provide high quality services to the firm
Management Greiner understands firm growth as a sequence of evolution and revolution
phases 1. Creativity (crisis → lack of leadership)
2. Direction (crisis → lack of autonomy)
3. Delegation (crisis → lack of control)
4. Coordination (crisis → lack of red tape)
5. Collaboration (crisis → ….)
Firm changes What changes the firm?
- Events and behavior in the external environment
- Corporate strategies
o Investments
o Divestments
o Structural adjustments
Corporate growth Single division, single nation (SDSNE)
➔ Multi-division single nation → Multi-division multinational (MDMNE) (e.g. Samsung)
➔ Single-division multinational → Multi-division multinational (e.g. MAERSK)
➔ Multi-division Multinational (e.g. Microsoft)

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