Description
The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.Assignments submitted through email will not be accepted.Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.Students must mention question number clearly in their answer.Late submission will NOT be accepted.Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).Submissions without this cover page will NOT be accepted.
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المملكة العربية السعودية
وزارة التعليم
الجامعة السعودية اإللكترونية
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment-2
Strategic Management (MGT 401)
Due Date: 30th March 2024 @ 23:59
Course Name: Strategic Management
Student’s Name:
Course Code: MGT401
Student’s ID Number:
Semester: 2nd
CRN: 24911
Academic Year:
For Instructor’s Use only
Instructor’s Name: Dr. Farhat Anjum
Students’ Grade: Marks Obtained/Out of 10
2023-24
Level of Marks: High/Middle/Low
General Instructions – PLEASE READ THEM CAREFULLY
•
•
•
•
•
•
•
•
The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced for
poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Learning Outcomes:
1.
Recognize the basic concepts and terminology used in Strategic Management. (CLO1)
2.
Explain the contribution of functional, business, and corporate strategies to the competitive advantage of
the organization. (CLO3)
3.
Distinguish between different types and levels of strategy and strategy implementation. (CLO4)
4.
Communicate issues, results, and recommendations coherently, and effectively regarding appropriate
strategies for different situations. (CLO6)
I.
Discussion Questions (2 marks for each question)
1) How does horizontal growth differ from vertical growth of a corporate strategy? From
concentric diversification? Give at least one example for each strategy. (CH 7)
2) What are the tradeoffs between an internal and an external growth strategy? Which
approach is best as an international entry strategy? (CH 7)
3) Are functional strategies interdependent, or can they be formulated independently of
other functions? Discuss (CH 8)
4) What skills should a person have for managing a business unit following a differentiation
strategy? Why? What should a company do if no one is available internally and the
company has a policy of promotion from within? (CH10)
5) Is the evaluation and control process appropriate for a corporation that emphasizes
creativity? Are control and creativity compatible? Justify and give examples from the
real market. (CH 11)
Important Notes:
•
•
•
Avoid Plagiarism.
Support your answers with course material concepts from the textbook and scholarly,
peer-reviewed journal articles, etc.
Need references and use APA style for writing the references.
Answers
1.
2.
3.
CHAPTER
7
strategy formulation:
Corporate Strategy
Environmental
Scanning:
Strategy
Formulation:
Strategy
Implementation:
Evaluation
and Control:
Gathering
Information
Developing
Long-range Plans
Putting Strategy
into Action
Monitoring
Performance
External
Mission
Natural
Environment:
Reason fo
Reason
forr
existence
Resources and
climate
Societal
Environment:
Objectives
What
What
l to
results
h
accomplish
by when
General forces
Task
Environment:
Industry analysis
Internal
Strategies
Pl
Pla
n to
t
Plan
hi
he
achieve
the
mission &
objectives
Policies
B
roadd
Broad
id li
guidelines
for decision
making
Programs
and Tactics
Activities
Actiiviities
i
needed
d d to
accomplishh
a plan
Budgets
Cost
Cost off the
thhe
programs
Procedures
Sequence
Sequence
off steps
needed to
do the job
Structure:
Chain of command
Culture:
Performance
Actual results
Beliefs, expectations,
values
Resources:
Assets, skills,
competencies,
knowledge
Feedback/Learning: Make corrections as needed
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Over 10 million students improved their results using the Pearson MyLabs.Visit mymanagementlab.com
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Learning Objectives
After reading this chapter, you should be able to:
Understand the three aspects of corporate
strategy
■
Identify strategic options to enter a foreign
country
Apply the directional strategies of growth,
stability, and retrenchment
■ Understand the differences between vertical
and horizontal growth as well as concentric
and conglomerate diversification
■
Apply portfolio analysis to guide decisions
in companies with multiple products and
businesses
■
Develop a parenting strategy for a multiplebusiness corporation
■
■
How Does a Company Grow if Its Primary Business
Is Maturing?
Pfizer Remakes the Company
Pfizer, Inc. was founded in 1849 by Charles Pfizer and Charles Erhart. The
company was the breakthrough leader in the development of the means for producing
Penicillin on a large scale. In fact, most of the Penicillin carried by troops on D-Day in 1944 was
made by Pfizer. The company became a major research lab for the development of drugs. In 1972,
Pfizer increased funding of research and development from 5% of sales (an astounding figure
in any industry) to 20% of sales. The company viewed its mission as discovering and developing
innovative pharmaceuticals. By 2011, the company had sales of US$67.4 billion but had also absorbed several very large acquisitions from 1999–2009, including Wyeth, Warner-Lambert, and
Pharmacia. A number of blockbuster drugs had or were coming off patent protection and new
ones were becoming increasingly difficult to find. Most of the diseases that still lacked effective
treatment, such as Alzheimer’s, were more complicated.
By 2012, new drug successes were becoming increasingly difficult to find. The company
poured US$2.8 billion into an inhalable insulin (Exubera) and a cholesterol-reducing replacement for Lipitor (Torcetrapib), but both failed to take hold in the market. History has shown
that only 16% of drugs under development ever get regulatory approval.
In a bold move, Pfizer’s CEO, Ian Read, made the decision in 2012 to consolidate around
five areas: cardiovascular diseases, cancer, neuroscience, vaccines, and inflammation/immunology. Redirecting resources in the company, Pfizer closed the famed Sandwich, England, research campus (the birthplace of Viagra) laying off more than 2000 employees because its focus
was on areas not included in the new direction of the company. It then divested its animal
health and infant nutrition businesses. It also cut more than 3000 research jobs at its flagship
New London, Connecticut, campus.
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All of the cuts were being plowed back into one of the five areas the company will
focus on in the future. This type of corporate repositioning is a hallmark of portfolio management and the techniques described in this chapter.
SOURCES: “Pfizer Embarks on an Overdue Crash Diet,” Bloomberg Businessweek (March 12, 2012),
pp. 24–25; http://www.pfizer.com/about/history/history.jsp; http://www.pfizer.com/about/history/
1951_1999.jsp.
Corporate Strategy
The vignette about Pfizer illustrates the importance of corporate strategy to a firm’s survival
and success. Corporate strategy addresses three key issues facing the corporation as a whole:
1. The firm’s overall orientation toward growth, stability, or retrenchment (directional strategy)
2. The industries or markets in which the firm competes through its products and business
units (portfolio analysis)
3. The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units (parenting strategy)
Corporate strategy is primarily about the choice of direction for a firm as a whole and
the management of its business or product portfolio.1 This is true whether the firm is a small
company or a large multinational corporation (MNC). In a large multiple-business company,
in particular, corporate strategy is concerned with managing various product lines and business
units for maximum value. In this instance, corporate headquarters must play the role of the organizational “parent,” in that it must deal with various product and business unit “children.” Even
though each product line or business unit has its own competitive or cooperative strategy that it
uses to obtain its own competitive advantage in the marketplace, the corporation must coordinate
these different business strategies so that the corporation as a whole succeeds as a “family.”2
Corporate strategy, therefore, includes decisions regarding the flow of financial and other
resources to and from a company’s product lines and business units. Through a series of
coordinating devices, a company transfers skills and capabilities developed in one unit to
other units that need such resources. In this way, it attempts to obtain synergy among numerous product lines and business units so that the corporate whole is greater than the sum of
its individual business unit parts.3 All corporations, from the smallest company offering one
product in only one industry to the largest conglomerate operating in many industries with
many products, must at one time or another consider one or more of these issues.
To deal with each of the key issues, this chapter is organized into three parts that examine corporate strategy in terms of directional strategy (orientation toward growth), portfolio
analysis (coordination of cash flow among units), and corporate parenting (the building of
corporate synergies through resource sharing and development).4
Directional Strategy
Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide its orientation toward growth by asking the following three questions:
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Strategy Formulation: Corporate Strategy
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1. Should we expand, cut back, or continue our operations unchanged?
2. Should we concentrate our activities within our current industry, or should we diversify
into other industries?
3. If we want to grow and expand nationally and/or globally, should we do so through internal development or through external acquisitions, mergers, or strategic alliances?
A corporation’s directional strategy is composed of three general orientations (sometimes
called grand strategies):
■
Growth strategies expand the company’s activities.
■
Stability strategies make no change to the company’s current activities.
■
Retrenchment strategies reduce the company’s level of activities.
Having chosen the general orientation (such as growth), a company’s managers can select
from several more specific corporate strategies such as concentration within one product line/
industry or diversification into other products/industries. (See Figure 7–1.) These strategies
are useful both to corporations operating in only one industry with one product line and to
those operating in many industries with many product lines.
GROWTH STRATEGIES
By far, the most widely pursued corporate directional strategies are those designed to achieve
growth in sales, assets, profits, or some combination of these. Companies that do business in
expanding industries must grow to survive. Continuing growth means increasing sales and a
chance to take advantage of the experience curve to reduce the per-unit cost of products sold,
thereby increasing profits. This cost reduction becomes extremely important if a corporation’s
industry is growing quickly or consolidating and if competitors are engaging in price wars in
attempts to increase their shares of the market. Firms that have not reached “critical mass”
(that is, gained the necessary economy of large-scale production) face large losses unless they
can find and fill a small, but profitable, niche where higher prices can be offset by special
product or service features. That is why Oracle has been on the acquisition trail for the past
seven years. In that time period, Oracle acquired 85 businesses in a wide variety of areas.
Although still growing, the software industry is maturing around a handful of large firms.
According to CEO Larry Ellison, Oracle needed to double or even triple in size by buying
smaller and weaker rivals if it wants to compete with SAP and Microsoft.5 Growth is a popular
strategy because larger businesses tend to survive longer than smaller companies due to the
greater availability of financial resources, organizational routines, and external ties.6
A corporation can grow internally by expanding its operations both globally and domestically, or it can grow externally through mergers, acquisitions, and strategic alliances. In
practice, the line between mergers and acquisitions has been blurred to the point where it is
FIGURE 7–1 Corporate Directional Strategies
GROWTH
Concentration
Vertical Growth
Horizontal Growth
Diversification
Concentric
Conglomerate
STABILITY
Pause/Proceed with Caution
No Change
Profit
RETRENCHMENT
Turnaround
Captive Company
Sell-Out/Divestment
Bankruptcy/Liquidation
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difficult to tell the difference. In general, we regard a merger as a transaction involving two
or more corporations in which both companies exchange stock in order to create one new
corporation. Mergers that occur between firms of somewhat similar size are referred to as a
“merger of equals.” Most mergers are “friendly”—that is, both parties believe it is in their
best interests to combine their companies. The resulting firm is likely to have a name derived
from its composite firms. One example is the merging of Allied Corporation and Signal
Companies to form Allied Signal. An acquisition is a 100% purchase of another company.
In some cases, the company continues to operate as an independent entity and in others it
is completely absorbed as an operating subsidiary or division of the acquiring corporation.
In July 2012, Duke Energy acquired Progress Energy, making the latter a wholly owned unit
of Duke Energy. With the acquisition, Duke Energy became the largest utility in the United
States.7 Acquisitions usually occur between firms of different sizes and can be either friendly
or hostile. Hostile acquisitions are often called takeovers.
From management’s perspective (but perhaps not a stockholder’s), growth is very attractive for two key reasons:
Growth based on increasing market demand may mask flaws in a company—flaws that
would be immediately evident in a stable or declining market. A growing flow of revenue into a highly leveraged corporation can create a large amount of organization slack
(unused resources) that can be used to quickly resolve problems and conflicts between
departments and divisions. Growth also provides a big cushion for turnaround in case a
strategic error is made. Larger firms also have more bargaining power than do small firms
and are more likely to obtain support from key stakeholders in case of difficulty.
■ A growing firm offers more opportunities for advancement, promotion, and interesting
jobs. Growth itself is exciting and ego-enhancing for everyone. The marketplace and
potential investors tend to view a growing corporation as a “winner” or “on the move.”
Executive compensation tends to get bigger as an organization increases in size. Large
firms are also more difficult to acquire than smaller ones—thus, an executive’s job in a
large firm is more secure.
■
The two basic growth strategies are concentration on the current product line(s) in one industry and diversification into other product lines in other industries.
Concentration
If a company’s current product lines have real growth potential, the concentration of resources
on those product lines makes sense as a strategy for growth. The two basic concentration strategies are vertical growth and horizontal growth. Growing firms in a growing industry tend to
choose these strategies before they try diversification.
Vertical Growth. Vertical growth can be achieved by taking over a function previously
provided by a supplier or distributor. The company, in effect, grows by making its own supplies
and/or by distributing its own products. This may be done in order to reduce costs, gain
control over a scarce resource, guarantee quality of a key input, or obtain access to potential
customers. This growth can be achieved either internally by expanding current operations or
externally through acquisitions. Henry Ford, for example, used internal company resources to
build his River Rouge plant outside Detroit. The manufacturing process was integrated to the
point that iron ore entered one end of the long plant, and finished automobiles rolled out the
other end into a huge parking lot. In contrast, Cisco Systems, a maker of Internet hardware,
chose the external route to vertical growth by purchasing Scientific-Atlanta Inc., a maker of
set-top boxes for television programs and movies-on-demand. This acquisition gave Cisco
access to technology for distributing television to living rooms through the Internet.8
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Vertical growth results in vertical integration—the degree to which a firm operates vertically in multiple locations on an industry’s value chain from extracting raw materials to
manufacturing to retailing. More specifically, assuming a function previously provided by a
supplier is called backward integration (going backward on an industry’s value chain). The
purchase of Carroll’s Foods for its hog-growing facilities by Smithfield Foods, the world’s
largest pork processor, is an example of backward integration.9 Assuming a function previously provided by a distributor is labeled forward integration (going forward on an industry’s value chain). FedEx, for example, used forward integration when it purchased Kinko’s
in order to provide store-front package drop-off and delivery services for the small-business
market.10
Vertical growth is a logical strategy for a corporation or business unit with a strong competitive position in a highly attractive industry—especially when technology is predictable
and markets are growing.11 To keep and even improve its competitive position, a company
may use backward integration to minimize resource acquisition costs and inefficient operations, as well as forward integration to gain more control over product distribution. The firm,
in effect, builds on its distinctive competence by expanding along the industry’s value chain
to gain greater competitive advantage.
Although backward integration is often more profitable than forward integration (because
of typical low margins in retailing), it can reduce a corporation’s strategic flexibility. The
resulting encumbrance of expensive assets that might be hard to sell could create an exit barrier, preventing the corporation from leaving that particular industry. Examples of single-use
assets are blast furnaces and refineries. When demand drops in either of these industries (steel
or oil and gas), these assets have no alternative use, but continue to cost money in terms of
debt payments, property taxes, and security expenses.
Transaction cost economics proposes that vertical integration is more efficient than
contracting for goods and services in the marketplace when the transaction costs of buying
goods on the open market become too great. When highly vertically integrated firms become
excessively large and bureaucratic, however, the costs of managing the internal transactions
may become greater than simply purchasing the needed goods externally—thus justifying
outsourcing over vertical integration. This is why vertical integration and outsourcing are situation specific. Neither approach is best for all companies in all situations.12 See the Strategy
Highlight feature on how transaction cost economics helps explain why firms vertically integrate or outsource important activities. Research thus far provides mixed support for the
predictions of transaction cost economics.13
Harrigan proposes that a company’s degree of vertical integration can range from total
ownership of the value chain needed to make and sell a product to no ownership at all.14
(See Figure 7–2.) Under full integration, a firm internally makes 100% of its key supplies
and completely controls its distributors. Large oil companies, such as British Petroleum
and Royal Dutch Shell, are fully integrated. They own the oil rigs that pump the oil out of
the ground, the ships and pipelines that transport the oil, the refineries that convert the oil
to gasoline, and the trucks that deliver the gasoline to company-owned and franchised gas
FIGURE 7–2 Vertical Integration Continuum
Full
Integration
Taper
Integration
QuasiIntegration
Long-Term
Contract
SOURCE: Suggested by K. R. Harrigan, Strategies for Vertical Integration (Lexington, MA: Lexington Books, D.C. Heath, 1983), pp. 16–21.
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stations. Sherwin-Williams Company, which not only manufactures paint, but also sells it
in its own chain of 3000 retail stores, is another example of a fully integrated firm.15 If a
corporation does not want the disadvantages of full vertical integration, it may choose either
taper or quasi-integration strategies.
With taper integration (also called concurrent sourcing), a firm internally produces less
than half of its own requirements and buys the rest from outside suppliers (backward taper
integration).16 In the case of Smithfield Foods, its purchase of Carroll’s allowed it to produce
27% of the hogs it needed to process into pork. In terms of forward taper integration, a firm
sells part of its goods through company-owned stores and the rest through general wholesalers. Although Apple had 246 of its own retail stores in 2012, much of the company’s sales
continued to be through national chains such as Best Buy and through independent local and
regional dealers.
With quasi-integration, a company does not make any of its key supplies but purchases
most of its requirements from outside suppliers that are under its partial control (backward
quasi-integration). A company may not want to purchase outright a supplier or distributor,
but it still may want to guarantee access to needed supplies, new products, technologies, or
distribution channels. For example, the pharmaceutical company Bristol-Myers Squibb purchased 17% of the common stock of ImClone in order to gain access to new drug products
being developed through biotechnology. An example of forward quasi-integration would be a
paper company acquiring part interest in an office products chain in order to guarantee that its
products had access to the distribution channel. Purchasing part interest in another company
usually provides a company with a seat on the other firm’s board of directors, thus guaranteeing the acquiring firm both information and control. As in the case of Bristol-Myers Squibb
and ImClone, a quasi-integrated firm may later decide to buy the rest of a key supplier that it
did not already own.17
Long-term contracts are agreements between two firms to provide agreed-upon goods
and services to each other for a specified period of time. This cannot really be considered to
be vertical integration unless it is an exclusive contract that specifies that the supplier or distributor cannot have a similar relationship with a competitive firm. In that case, the supplier
or distributor is really a captive company that, although officially independent, does most of
its business with the contracted firm and is formally tied to the other company through a longterm contract.
Recently, there has been a movement away from vertical growth strategies (and
thus vertical integration) toward cooperative contractual relationships with suppliers
and even with competitors.18 These relationships range from outsourcing, in which resources are purchased from outsiders through long-term contracts instead of being done
in-house (Coca-Cola Enterprises eliminated jobs in three U.S. centers by contracting with
Capgemini for accounting and financial services), to strategic alliances, in which partnerships, technology licensing agreements, and joint ventures supplement a firm’s capabilities (Toshiba has used strategic alliances with GE, Siemens, Motorola, and Ericsson
to become one of the world’s leading electronic companies).19
Horizontal Growth. A firm can achieve horizontal growth by expanding its operations
into other geographic locations and/or by increasing the range of products and services
offered to current markets. Research indicates that firms that grow horizontally by broadening
their product lines have high survival rates.20 Horizontal growth results in horizontal
integration—the degree to which a firm operates in multiple geographic locations at the
same point on an industry’s value chain. For example, Procter & Gamble (P&G) continually
adds additional sizes and multiple variations to its existing product lines to reduce possible
niches that competitors may enter. In addition, it introduces successful products from one part
of the world to other regions. P&G has been introducing into China a steady stream of popular
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STRATEGY highlight
TRANSACTION COST ECONOMICS ANALYZES VERTICAL
GROWTH STRATEGY
Why do corporations use vertical growth to permanently own
suppliers or distributors when
they could simply purchase individual
items when needed on the open market? Transaction cost
economics is a branch of institutional economics that attempts to answer this question. Transaction cost economics
proposes that owning resources through vertical growth is
more efficient than contracting for goods and services in the
marketplace when the transaction costs of buying goods on
the open market become too great. Transaction costs include
the basic costs of drafting, negotiating, and safeguarding a
market agreement (a contract) as well as the later managerial
costs when the agreement is creating problems (goods aren’t
being delivered on time or quality is lower than needed),
renegotiation costs (e.g., costs of meetings and phone calls),
and the costs of settling disputes (e.g., lawyers’ fees and
court costs).
According to Williamson, three conditions must be
met before a corporation will prefer internalizing a vertical
transaction through ownership over contracting for the
transaction in the marketplace: (1) a high level of uncertainty must surround the transaction, (2) assets involved
in the transaction must be highly specialized to the transaction, and (3) the transaction must occur frequently. If
there is a high level of uncertainty, it will be impossible to
write a contract covering all contingencies, and it is likely
that the contractor will act opportunistically to exploit any
gaps in the written agreement—thus creating problems
and increasing costs. If the assets being contracted for
are highly specialized (e.g., goods or services with few
alternate uses), there are likely to be few alternative suppliers—thus allowing the contractor to take advantage of
the situation and increase costs. The more frequent the
transactions, the more opportunity for the contractor to
demand special treatment and thus increase costs further.
Vertical integration is not always more efficient than the
marketplace, however. When highly vertically integrated
firms become excessively large and bureaucratic, the costs
of managing the internal transactions may become greater
than simply purchasing the needed goods externally—thus
justifying outsourcing over ownership. The usually hidden
management costs (e.g., excessive layers of management,
endless committee meetings needed for interdepartmental
coordination, and delayed decision making due to excessively detailed rules and policies) add to the internal transaction costs—thus reducing the effectiveness and efficiency of
vertical integration. The decision to own or to outsource is,
therefore, based on the particular situation surrounding the
transaction and the ability of the corporation to manage the
transaction internally both effectively and efficiently.
SOURCES: O. E. Williamson and S. G. Winter (Eds.), The Nature
of the Firm: Origins, Evolution, and Development (New York:
Oxford University Press, 1991); E. Mosakowski, “Organizational
Boundaries and Economic Performance: An Empirical Study of
Entrepreneurial Computer Firms,” Strategic Management Journal
(February 1991), pp. 115–133; P. S. Ring and A. H. Van de Ven,
“Structuring Cooperative Relationships Between Organizations,”
Strategic Management Journal (October 1992), pp. 483–498.
American brands, such as Head & Shoulders, Crest, Olay, Tide, Pampers, and Whisper. By
2012, it had sales of more than US$6 billion in China, and 10 manufacturing plants.21
Horizontal growth can be achieved through internal development or externally through
acquisitions and strategic alliances with other firms in the same industry. For example, Delta
Airlines acquired Northwest Airlines in 2008 to obtain access to Northwest’s Asian markets
and those American markets that Delta was not then serving. In contrast, many small commuter airlines engage in long-term contracts with major airlines in order to offer a complete
arrangement for travelers. For example, the regional carrier Mesa Airlines arranged contractual agreements with United Airlines and U.S. Airways to be listed on their computer reservations, respectively, as United Express and U.S. Airways Express.
Horizontal growth is increasingly being achieved in today’s world through international
expansion. America’s Wal-Mart, France’s Carrefour, and Britain’s Tesco are examples of
national supermarket discount chains expanding horizontally throughout the world. This type
of growth can be achieved internationally through many different strategies.
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INTERNATIONAL ENTRY OPTIONS FOR HORIZONTAL GROWTH
Research indicates that growing internationally is positively associated with firm profitability.22 A corporation can select from several strategic options the most appropriate method
for entering a foreign market or establishing manufacturing facilities in another country. The
options vary from simple exporting to acquisitions to management contracts. See the Global
Issue feature to see how U.S.-based firms do not always succeed when using international
entry options in a horizontal growth strategy to expand throughout the world.
Some of the most popular options for international entry are as follows:
■
Exporting: A good way to minimize risk and experiment with a specific product is exporting, shipping goods produced in the company’s home country to other countries for marketing. The company could choose to handle all critical functions itself, or it could contract
these functions to an export management company. Exporting is becoming increasingly
popular for small businesses because of the Internet, fax machines, toll-free numbers, and
overnight express services, which reduce the once-formidable costs of going international.
■
Licensing: Under a licensing agreement, the licensing firm grants rights to another firm
in the host country to produce and/or sell a product. The licensee pays compensation to
the licensing firm in return for technical expertise. This is an especially useful strategy
if the trademark or brand name is well known but the company does not have sufficient
GLOBAL issue
GLOBAL EXPANSION IS NOT ALWAYS A PATH TO EXPANSION
The mantra in U.S. business
growth for the past few
decades has been to look
to international markets for
growth, and especially to China.
Company after company poured
into China with their successful U.S. business models and
touted their global growth plans. Entering a new market,
and especially a new market that is in a new country, often
requires an adjustment to the nuances of that market.
McDonald’s learned that lesson long ago when it modified its menu for the Indian market by eliminating pork
and beef products and offering such unique offerings as
the McAloo Tikkiburger with a mashed potato patty and
the McPuff, which is a vegetable and cheese pastry. In
China-based McDonald’s outlets, a favorite drink is “bubble tea,” which is tea with tapioca balls in the bottom.
Unfortunately, many large U.S. companies are pulling out
of China completely or are having to completely rewrite
their business models in order to succeed.
Home Depot Inc. closed all seven of its remaining Chinese
big-box
