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‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫ر‬
‫اإللكتونية‬
‫الجامعة السعودية‬

Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment-3
Strategic Management (MGT 401)
Due Date: 26th April 2025 @ 23:59
Course Name: Strategic Management

Student’s Name:

Course Code: MGT401

Student’s ID Number:

Semester: 2nd

CRN:
Academic Year:

For Instructor’s Use only
Instructor’s Name:
Students’ Grade: X /Out of 10

Restricted – ‫مقيد‬

2024-25

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.

Describe the different issues related to environmental scanning, strategy formulation, and strategy
implementation in diversified organizations. (CLO2)

Explain the contribution of functional, business, and corporate strategies to the competitive advantage of
the organization. (CLO3)

Distinguish between different types and levels of strategy and strategy implementation. (CLO4)

Communicate issues, results, and recommendations coherently, and effectively regarding appropriate
strategies for different situations. (CLO6)

Discussion questions
1. How should a corporation strive to achieve synergy among its functions and
business units? Give examples. (Chapter 9)
2. How is the cellular/modular structure different from the network structure? (Chapter
9)

3. In what ways can corporate culture be changed? Why is understanding national
cultures vital in strategic management? (Chapter 10)
4. Is the evaluation and control process suitable for a corporation that prioritizes
creativity? Can control and creativity coexist? Give examples (Chapter 11)
Notes:
–

–

II.

Your answers must include at least 4 scholarly, peer-reviewed references, following a proper referencing
style (APA). Please note that these scholarly references can be accessed through the Saudi Digital Library
(SDL).
Ensure that you support your statements with logic and arguments, citing all referenced sources.
1.5 marks each question.

Case study

From a real national/international market, choose an example of acquisition or merger between
companies and answer the following questions:
1) Present your chosen companies and explain the reasons for this acquisition/merger.
2) What is the method used by the company to manage the culture of
the acquired/merged company? Justify.
3) Assess the cultural compatibility of the companies.
4) Is this acquisition/merger successful? Why or why not? Discuss the competitive position
of the company (after acquisition/merger).
Notes:
✔ 1 mark for each question
✔ Max 400 words

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Answers

Restricted – ‫مقيد‬

‫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-3
Strategic Management (MGT 401)
Due Date: 26th April 2025 @ 23:59
Course Name: Strategic Management

Student’s Name: NERO

Course Code: MGT401

Student’s ID Number: ELITE

Semester: 2nd

CRN:
Academic Year:

For Instructor’s Use only
Instructor’s Name:
Students’ Grade: /Out of 10

2024-25

Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY
•
•
•
•
•
•
•
•

Restricted – ‫مقيد‬

Learning Outcomes:
1.

Describe the different issues related to environmental scanning, strategy formulation, and strategy
implementation in diversified organizations. (CLO2)

Explain the contribution of functional, business, and corporate strategies to the competitive advantage of
the organization. (CLO3)

Distinguish between different types and levels of strategy and strategy implementation. (CLO4)

Communicate issues, results, and recommendations coherently, and effectively regarding appropriate
strategies for different situations. (CLO6)

Discussion questions
1.

How should a corporation strive to achieve synergy among its functions and
business units? Give examples. (Chapter 9)
2. How is the cellular/modular structure different from the network structure? (Chapter
9)

–

II.

Case study

Restricted – ‫مقيد‬

1 mark for each question
Max 400 words

Answers
I.

Discussion questions

Answer-Q1
Corporations strive to achieve synergy by ensuring that different business units and functions
work together to create greater overall value than they could independently. One way to achieve
this is through shared knowledge and expertise, where companies integrate learning across units
to enhance overall competencies. Procter & Gamble, for example, leveraged its acquisition of
Gillette to combine expertise in male and female consumer markets, leading to improved product
offerings. Coordinated strategies also play a crucial role, as aligning objectives across business
units can prevent internal competition and enhance resource utilization. Comcast’s merger with
NBC Universal is a strong example of how synergy in media production and distribution can
create value.
Another approach is shared resource utilization, where companies use common assets such as
manufacturing facilities, research and development (R&D) centers, and supply chains to
maximize efficiency. Pharmaceutical giants like Pfizer and Novartis achieve this by pooling
R&D expenses, reducing costs while fostering innovation. Additionally, achieving economies of
scale through consolidated operations allows corporations to lower costs and improve
operational efficiency. The airline industry demonstrates this well, with United Airlines
improving fleet utilization and market access after merging with Continental Airlines.
Pooled negotiating power further enhances synergy, as businesses can collectively leverage their
purchasing influence on secure better deals from suppliers and distributors. Macy’s acquisition
of the May Company enabled significant cost savings through bulk purchasing. Similarly,

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creating new business opportunities by integrating expertise from different units has been a
successful strategy for companies like Google, which developed YouTube and Android by
combining resources from various acquisitions.
For synergy to be effectively implemented, companies must focus on clear communication,
leadership commitment, and fostering a collaborative culture. Structural adjustments such as
forming cross-functional teams and integrating digital tools further enhance coordination.
Ensuring that every business unit aligns with the broader corporate mission while maintaining
operational flexibility helps corporations achieve long-term success.
Answer-Q2.
The cellular/modular structure and the network structure represent two flexible approaches to
corporate organization, each offering distinct benefits. The cellular/modular structure consists of
independent but interconnected units that operate autonomously while contributing to the overall
organizational objectives. Each unit, or “cell,” is designed to be self-sufficient, allowing for
continuous innovation and efficient problem-solving. Bombardier, a leader in the aerospace
industry, successfully implemented a modular approach by outsourcing different components of
jet production to both internal divisions and external contractors. This method allowed the
company to focus on core competencies such as design and assembly while benefiting from
specialized expertise in other areas.
In contrast, the network structure is a decentralized system in which business functions are
outsourced or managed by independent firms connected through digital platforms. This approach
is often used in virtual organizations that rely on technology for coordination rather than
traditional hierarchical management. Nike exemplifies this model by outsourcing manufacturing

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while retaining control over design, branding, and marketing. This structure enables businesses
to reduce costs, increase flexibility, and rapidly adapt to market changes.
The fundamental difference lies in the management of operations. While the cellular/modular
structure ensures internal self-sufficiency with interconnected units, the network structure
depends on external partnerships and outsourcing. The former allows for greater control over
quality and processes, whereas the latter provides scalability and cost efficiency. The choice
between these structures depends on the industry, competitive environment, and corporate
objectives.
Answer-Q3
Corporate culture can be transformed through leadership commitment, structural adjustments,
training initiatives, transparent communication, and performance-based incentives. Leadership
plays a fundamental role in driving cultural change, as executives set the tone for corporate
values and behaviors. When a company undergoes a transformation, leaders must consistently
model the desired behaviors to encourage adoption across all levels.
Structural changes, such as modifying reporting relationships, decision-making frameworks, or
incentive systems, reinforce cultural shifts. If a company wants to encourage innovation, it might
establish a more decentralized decision-making structure that empowers employees. Training
programs are also essential for ensuring employees understand and embrace the evolving
corporate culture. Companies like Yum! Brands successfully transitioned after separating from
PepsiCo by redefining their corporate values and implementing employee engagement strategies
that aligned with their new mission.

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Effective communication is crucial to overcoming resistance to change. Organizations that
maintain transparency through internal platforms, newsletters, and company meetings help
employees understand the purpose of cultural transformation and how they fit into the process.
Rewarding behaviors that align with the new culture further reinforce the transition. For
example, organizations that prioritize customer service excellence can introduce incentive
programs that recognize employees who demonstrate exceptional service.
Understanding national cultures is vital in strategic management because cultural norms
influence business practices, leadership styles, and employee expectations. In multinational
corporations, a lack of cultural awareness can lead to conflicts, decreased productivity, and failed
market entry strategies. Companies operating in diverse international markets must adapt their
corporate strategies to align with local customs and values. This adaptation includes adjusting
communication styles, negotiation tactics, and leadership approaches to ensure smooth
operations across different cultural environments.
Answer-Q4
Evaluation and control mechanisms are essential in any organization, but their effectiveness in
creativity-driven corporations depends on their design. Traditional control systems that
emphasize strict oversight and rigid performance metrics can hinder innovation by discouraging
risk-taking and experimentation. However, when control systems are designed to provide
structure while allowing flexibility, they can coexist with creativity.
One effective approach is balancing structure and freedom, where companies establish clear
objectives while granting employees autonomy to explore innovative solutions. Google, for
instance, allows employees to dedicate a portion of their work hours to independent projects,

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fostering

innovation

while

maintaining

overall

strategic

alignment.

Encouraging

experimentation is another key factor; organizations like 3M implement controlled innovation
processes where employees are encouraged to develop new ideas while ensuring alignment with
business goals.
Adaptive performance metrics help in evaluating creative contributions without stifling
innovation. Instead of relying solely on traditional financial indicators, companies that prioritize
creativity assess factors such as the number of ideas generated, collaborative engagement, and
user feedback. This ensures that evaluation focuses on long-term innovation rather than shortterm financial results.
A supportive corporate culture is essential for the coexistence of creativity and control.
Organizations that embrace calculated risk-taking, provide constructive feedback, and treat
failures as learning opportunities foster an environment where creative ideas can thrive.
Companies like Pixar and IDEO have successfully integrated evaluation systems that guide
innovation rather than constrain it.
Agile evaluation methods further enhance this balance by implementing iterative feedback loops
rather than rigid annual reviews. This allows for continuous refinement of creative projects while
ensuring they align with corporate goals. By designing evaluation and control processes that
guide rather than restrict innovation, corporations can create an environment where creativity
flourishes while maintaining strategic direction.

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II.

Case study

Answer-1
In 2020, Saudi Aramco, the world’s largest oil producer, acquired a 70% stake in Saudi Basic
Industries Corporation (SABIC) for $69.1 billion from the Public Investment Fund (PIF). This
acquisition was one of the most significant transactions in Saudi Arabia’s corporate history,
aimed at strengthening Aramco’s position in the global petrochemical market. SABIC, a leading
petrochemicals company, operates in over 50 countries and is the fourth-largest chemicals
company globally. The deal aligned with Saudi Vision 2030, which aims to diversify the
Kingdom’s economy beyond crude oil.
One of the primary motivations for this acquisition was Aramco’s strategic shift toward
petrochemicals. Historically, Aramco’s business was centered on crude oil production and
refining, making it highly dependent on oil price fluctuations. By acquiring SABIC, Aramco
aimed to integrate its upstream operations (oil extraction) with SABIC’s downstream operations
(petrochemicals), creating a more resilient and diversified business model. The demand for
petrochemicals is expected to grow significantly in the coming decades, driven by industries
such as plastics, automotive, and consumer goods. This acquisition positioned Aramco to
capitalize on these opportunities and reduce reliance on crude oil sales.
Furthermore, the acquisition allowed Aramco to enhance its refining-to-chemicals strategy. The
combination of Aramco’s refining capacity and SABIC’s chemical production expertise enabled
the development of advanced chemicals and specialty products. This moves also improved
operational efficiencies by leveraging economies of scale in supply chain management,
manufacturing, and distribution.

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Another critical aspect of this acquisition was financial synergy. The transaction was structured
to optimize Aramco’s balance sheet while supporting Saudi Arabia’s economic diversification
efforts. The Public Investment Fund (PIF), which previously owned SABIC, used the proceeds
from the sale to invest in non-oil sectors, further aligning with Vision 2030’s objectives.
Overall, the acquisition of SABIC by Aramco was a strategic decision aimed at long-term
sustainability. It allowed Aramco to enter the petrochemical market on a global scale, making it
more competitive with companies like ExxonMobil and Shell. Despite challenges in the global
chemicals market, this acquisition was a significant step in Aramco’s transformation into an
integrated energy and chemicals company, ensuring its relevance in the post-oil era.
Answer-2
Cultural integration is a crucial aspect of mergers and acquisitions, as differences in
organizational culture can lead to conflicts, inefficiencies, and reduced employee morale. In the
case of Saudi Aramco’s acquisition of SABIC, both companies share a strong Saudi corporate
identity, which facilitated a smoother cultural integration. However, Aramco implemented
specific strategies to ensure effective cultural alignment and operational synergy.
One of the key methods used to manage cultural integration was the establishment of the
Corporate Collaboration and Integration Committee. This committee, which included executives
from both Aramco and SABIC, was responsible for aligning business objectives, ensuring
smooth operational integration, and fostering a unified corporate culture. The committee
developed a structured plan that focused on knowledge sharing, leadership alignment, and
employee engagement.

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Leadership alignment played a significant role in cultural integration. Aramco maintained
SABIC’s brand identity and management team to ensure continuity. Rather than imposing a topdown approach, Aramco allowed SABIC to retain operational autonomy while gradually
aligning strategic priorities. This approach minimized resistance and ensured that SABIC
employees felt valued and included in the new organizational framework.
Another critical aspect of cultural integration was communication. Aramco and SABIC
implemented transparent communication strategies to keep employees informed about the
merger’s progress, expectations, and long-term benefits. Regular town hall meetings, digital
platforms, and internal newsletters were used to address employee concerns, promote
collaboration, and reinforce shared corporate values.
Employee engagement initiatives were also introduced to bridge any cultural gaps between the
two organizations. Training programs, workshops, and cross-company projects were designed
to encourage collaboration between Aramco and SABIC employees. These initiatives helped
create a sense of unity and reinforced a common mission of driving innovation and global
competitiveness.
Moreover, performance management and corporate governance practices were aligned to create
consistency across both organizations. Aramco integrated its high-performance culture into
SABIC by setting clear key performance indicators (KPIs) and operational benchmarks. At the
same time, SABIC’s innovative and customer-centric approach influenced Aramco’s strategic
planning in the chemicals sector.

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By maintaining SABIC’s distinct identity while ensuring strategic alignment, Aramco
successfully managed cultural integration. This approach helped mitigate the common pitfalls of
mergers, such as employee resistance, cultural clashes, and operational disruptions.
Answer-3
Cultural compatibility is a critical factor in determining the success of a merger or acquisition.
In the case of Aramco’s acquisition of SABIC, both companies shared several cultural
similarities, which facilitated a smoother transition.
Firstly, both Aramco and SABIC are Saudi companies with deep-rooted corporate values that
align with the Kingdom’s economic goals. Their commitment to Vision 2030, operational
excellence, and national economic growth created a strong foundation for cultural alignment.
Unlike many cross-border mergers that struggle with differences in national business cultures,
Aramco and SABIC benefited from a shared Saudi corporate identity, reducing the risk of
cultural conflicts.
However, there were notable differences between the two organizations. Aramco, as a stateowned entity, operates with a more bureaucratic and hierarchical structure, focusing on largescale energy production and infrastructure projects. In contrast, SABIC, as a global
petrochemical company, has a more dynamic and innovative corporate culture, driven by
research and development (R&D) and market-driven strategies.
Despite these differences, cultural integration was relatively smooth due to proactive
management strategies. Aramco recognized SABIC’s strengths in innovation and global market
agility and allowed it to operate independently while aligning long-term strategic goals. This
approach helped bridge cultural differences without disrupting SABIC’s entrepreneurial spirit.

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Another factor that enhanced cultural compatibility was a shared emphasis on sustainability and
technological advancement. Both companies prioritize energy efficiency, environmental
responsibility, and digital transformation, creating common ground for collaboration. Aramco’s
vast resources and SABIC’s chemical expertise complemented each other, strengthening their
collective market position.
Overall, the cultural compatibility between Aramco and SABIC was high, supported by a shared
national identity, aligned corporate goals, and complementary business models. By managing
cultural differences effectively, the companies achieved a harmonious integration that
maximized synergy and long-term success.
Answer-4
The success of Aramco’s acquisition of SABIC can be evaluated based on financial performance,
operational synergies, and market positioning. While the acquisition has provided strategic
advantages, it has also faced challenges due to global market conditions.
Financially, the acquisition strengthened Aramco’s position in the petrochemical industry,
diversifying its revenue streams. However, the petrochemical market has experienced volatility,
with fluctuating demand and high input costs. In early 2024, SABIC reported a net loss of 1.89
billion riyals, reflecting industry-wide challenges. Despite short-term financial struggles, the
long-term outlook remains positive as demand for petrochemicals is expected to grow globally.
From an operational perspective, integration has led to improved efficiencies in supply chain
management, procurement, and product innovation. By leveraging Aramco’s refining capacity
and SABIC’s chemical expertise, the combined entity is better positioned to compete with
international giants like ExxonMobil, Dow Chemical, and BASF.

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In terms of market positioning, the acquisition has enhanced Aramco’s ability to capture value
across the entire hydrocarbon chain. The company now has a stronger presence in the chemicals
sector, which is crucial for future energy transition strategies. However, external factors such as
geopolitical tensions, economic downturns, and changing consumer preferences continue to
influence performance.
Overall, while short-term profitability has been impacted, the acquisition aligns with Aramco’s
long-term vision of becoming an integrated energy and chemicals powerhouse. If managed
effectively, this merger will enhance Aramco’s resilience and global competitiveness in the
evolving energy landscape.

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References
1. Hill, C. W. L., Jones, G. R., & Schilling, M. A. (2021). Strategic management: Theory:
An integrated approach (13th ed.). Cengage Learning.
2. Barney, J. B., & Hesterly, W. S. (2018). Strategic management and competitive
advantage (6th ed.). Pearson.
3. Gaughan, P. A. (2017). Mergers, acquisitions, and corporate restructurings (7th ed.).
Wiley.
4. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2020). Strategic management:
Competitiveness and globalization (13th ed.). Cengage Learning.
5. Cartwright, S., & Cooper, C. L. (2014). Mergers and acquisitions: The human factor.
Butterworth-Heinemann.
6. Saudi

Aramco.

(2020).

Annual

report

2020-2024.

Retrieved

from

7. SABIC. (2020). Annual report 2020-2024. Retrieved from
8. McKinsey & Company. (2021). Mergers and acquisitions: Capturing synergies for
growth. Retrieved from
9. PricewaterhouseCoopers (PwC). (2022). The future of petrochemicals: How mergers and
acquisitions shape industry trends. Retrieved from
10. Harvard Business Review. (2020). Managing cultural integration in mergers and
acquisitions. Retrieved from

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Chapter

Strategy
Implementation:
Global 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 for
existence

Resources and
climate

Societal
Environment:

Objectives
What
results to
accomplish
by when

General forces

Task
Environment:

Industry analysis

Strategies
Plan to
achieve the
mission &
objectives

Policies
Broad
guidelines
for decision
making

Internal

Programs
and Tactics
Activities
needed to
accomplish
a plan

Budgets
Cost of the
programs

Procedures
Sequence
of 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

Pearson MyLab Management®
Improve Your Grade!
Over 10 million students improved their results using the Pearson MyLabs. Visit mymanagementlab.com
for simulations, tutorials, and end-of-chapter problems.
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Learning Objectives
After reading this chapter, you should be able to:
9-1. Describe the means of entry by which an
organization can do business in another
country
9-2. Explain the elements of International Strategic Alliances that lead to success
9-3. Discuss the stages of International
Development

9-4. Explain how companies can improve their
staffing efforts as they expand beyond
their home country
9-5. Discuss the unique issues related to Measuring Organizational performance that
are presented with the administration of
a truly international company

UNIQLO – From Japan to Asia to the World
Founded in 1949, UNIQLO, a Japanese fashion retailer from the Fast Retailing group, opened a unisex casual wear store in Fukuro-machi, Naka-ku,
Hiroshima, under the name “Unique Clothing Warehouse,” and later
converted to its current brand name. As of November 2016, UNIQLO
Japan had 841 stores. By 2016, UNIQLO has over 1,700 stores worldwide
and around 40,000 global employees.
Fast Retailing adopted a set of strategies from the American retailer
GAP Inc. known as “SPA” (specialty-store/retailer of private-label apparel),
under which they produce their own clothing and sell it exclusively. By having a SPA business model, UNIQLO could deliver high-quality, affordable, and
innovative apparel to consumers. The concept of this brand is “Made for All.” It
means UNIQLO offers a basic casual outfit that everyone can wear daily.
There has been major growth in Asia, with 497 stores in Greater China (Mainland China,

H o n g

Kong, and Taiwan), 178 in South Korea, and 248 in Southeast Asia and Oceania. However, the Fast Retailing
group currently ranks as the forth place as global fashion retailer, just behind Inditex (Zara), H&M, and GAP.
The company’s global mission is to grow from a Japanese company to a Japan-born global firm. They strive to
be the best apparel manufacturer retailer from Japan, to Asia, and to the world by 2020. To achieve this goal
UNIQLO needs to employ and nurture managers to develop business throughout the world. However, UNIQLO is
known as a company that has a traditionally Japanese working culture. It has a company standards manual book,
which is translated into various languages and is distributed globally to ensure that everyone follows the same
global standards. The main principles include Global One (“global approach”) and Zen-in Keiei (“all employees
with the mindset of a manager”). UNIQLO trains employees to embody these standards in their work. While
it makes sense for a global company to share same standards and regulations, due to cultural differences and
management styles, it leads to a high turnover ratio especially overseas. In order to tackle this diversity issue,
UNIQLO supports women’s progress, and gives importance to advancing a regional regular employee program,
allowing temporary employees to become permanent employees.
SOURCES: Based on information from Fast Retailing Website, accessed February 8, 2017;
and Tadashi Yanai, “The Fast Retailing in 2020: My Views on Management,” Fast Retailing,
eng/ir/library/pdf/presen080903_Yanai.pdf, accessed February, 2017.

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282

PART 4 Strategy Implementation and Control

One of the most competitive and difficult aspects of Strategy Implementation is a
move to extend business operations outside of the home country of the company.
Global Strategy is the sum total of the activities that an organization takes in order
to compete in markets outside its home country. Given that one of the three pillars
of this text is globalization you will note that we have crafted a global issues section
into every chapter, have utilized global organizations as examples and have addressed
unique concerns that arise with the operation of a global organization. Many companies
start with sales outside the country in which the business begins and virtually every
company eventually has sales in many other countries. However, running a truly global
organization is far more than simply selling goods & services around the world, it is an
operational mindset that has its own unique issues and concerns.
In this chapter, we will address some of the unique issues that arise in the move to
and the running of a truly global business. This will include means of entry, international
coordination, stages of international development, international employment and measurement of performance.

International Entry
Research indicates that shareholders reward companies who grow faster outside of the
United States and that growing internationally is positively associated with firm profit9-1. Describe the
ability.1 Tumi (the high-end luggage company) aggressively pushed a global expansion
means of entry by
strategy and reported record sales and earnings in 2016, despite foreign exchange issues.2
which an organization
A corporation can select from several strategic options regarding the most appropriate
can do business in
method for entering a foreign market or establishing facilities in another country. The
another country
options vary from simple exporting to acquisitions to management contracts.
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
popular for small businesses because of the Internet and rapid advance of overnight
express services, which has reduced the once-formidable costs of exporting. About
10% of the sales of High West Distillery in Park City, UT comes from exports to the
United Kingdom, Canada, Australia, Hong Kong and others.3
■■ 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 and sometimes marketing
expertise. This is an especially useful strategy if the trademark or brand name is
well known but the company does not have sufficient funds to finance its entering the country directly, the technology is unique and not easily replicable or if
the country makes entry via investment difficult or impossible. Rovi Corporation
(guides and recommendation engines for online searches) signed a license agreement with Funai Electric Co. Ltd., covering Japan and Europe that enabled Funai
to use Rovi’s patent portfolio for digital consumer electronics.4 This strategy is also
important if the country makes entry via investment either difficult or impossible.
■■ Franchising: Under a franchising agreement, the franchiser grants rights to another
company to open a retail store using the franchiser’s name and operating system.
In exchange, the franchisee pays the franchiser a percentage of its sales as a royalty.
Franchising provides an opportunity for a firm to establish a presence in countries
■■

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CH A PTER 9 Strategy Implementation: Global Strategy

283

where the population or per capita spending is not sufficient for a major expansion
effort.5 However, the more important element of franchising is the ability of the franchisor to expand rapidly with minimal capital investment. Franchising has enabled
McDonald’s to grow to a worldwide powerhouse. More than 80% of their worldwide
locations and nearly 90% of the locations in the United States are franchised.6
■■ Joint ventures: Forming a joint venture between a foreign corporation and a domestic company has been one of the most popular strategies used to enter a new country.7
Companies often form joint ventures to combine the resources and expertise needed
to develop new products or technologies. A joint venture may be an association
between a company and a firm in the host country or a government agency in that
country. A quick method of obtaining local management, it also reduces the risks
of expropriation and harassment by host country officials. A joint venture may also
enable a firm to enter a country that restricts foreign ownership. The corporation can
enter another country with fewer assets at stake and thus lower risk. Under Indian
law, for example, foreign retailers are permitted to own no more than 51% of shops
selling single-brand products, or to sell to others on a wholesale basis. These and other
restrictions deterred supermarket giants Tesco and Carrefour from entering India.
As a result, 97% of Indian retailing is composed of small, family-run stores. Eager
to enter India, Wal-Mart’s management formed an equal partnership joint venture
in 2007 with Bharti Enterprises to start wholesale operations. Under the name Best
Price, they opened their first store in 2009 and had opened 21 retail stores by 2016.8
■■ Acquisitions: A relatively quick way to move into an international area is through
acquisitions—purchasing another company already operating in that area. Synergistic benefits can result if the company acquires a firm with strong complementary
product lines and a good distribution network. For example, Belgium’s InBev purchased Anheuser-Busch in 2008 for US$52 billion to obtain a solid position in the
profitable North American beer market. Before the acquisition, InBev had only a
small presence in the United States, but a strong one in Europe and Latin American,
where Anheuser-Busch was weak.9 Research suggests that wholly owned subsidiaries are more successful in international undertakings than are strategic alliances,
such as joint ventures.10 This is one reason why firms more experienced in international markets take a higher ownership position when making a foreign investment.11 Cross-border Merger and Acquisitions amounted to more than US$441
billion in the first half of 2015, up 136% from the same time period in 2014.12 In
some countries, however, acquisitions can be difficult to arrange because of a lack
of available information about potential candidates. Government restrictions on
ownership, such as the U.S. requirement that limits foreign ownership of U.S. airlines
to 49% of nonvoting and 25% of voting stock, can also discourage acquisitions.
■■ Green-field development: If a company doesn’t want to purchase another company’s problems along with its assets, it may choose green-field development and build
its own manufacturing plant and distribution system. Research indicates that firms
possessing high levels of technology, multinational experience, and diverse product
lines prefer green-field development to acquisitions.13 This is usually a far more
complicated and expensive operation than acquisition, but it allows a company
more freedom in designing the plant, choosing suppliers, and hiring a workforce.
For example, Nissan, Honda, and Toyota built auto factories in rural areas of Great
Britain and then hired a young workforce with no experience in the industry. BMW
did the same thing when it built its auto plant in Spartanburg, South Carolina, to
make its Z3 and Z4 sports cars. In early 2016, BMW announced it had exported its
2,000,000 vehicles built in South Carolina. Seventy percent of the vehicles made in
Spartanburg are shipped around the world through the Port of Charleston.14

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Production sharing: Coined by Peter Drucker, the term production sharing generally refers to the process of combining the higher labor skills and technology
available in developed countries with the lower-cost labor available in developing
countries. Often called outsourcing, many companies have moved data processing,
programming, and customer service activities “offshore” to Ireland, India, Barbados,
Jamaica, the Philippines, and Singapore, where wages are lower, English is spoken,
and strong telecommunications networks are in place. Payroll outsourcing is the
fastest growing segment of global human resource outsourcing. It is expected to
grow at a compound annual growth rate of 4.4% between 2016 and 2020.15
■■ Turnkey operations: Turnkey operations are typically contracts for the construction of operating facilities in exchange for a fee. The facilities are transferred to
the host country or firm when they are complete. The customer is usually a government agency of a country that has decreed that a particular product must be
produced locally and under its control. For example, Fiat built an auto plant in
Togliatti, Russia, for the Soviet Union in the late 1960s to produce an older model
of Fiat under the brand name of Lada. MNCs that perform turnkey operations
are frequently industrial equipment manufacturers that supply some of their own
equipment for the project and that commonly sell replacement parts and maintenance services to the host country. They thereby create customers as well as future
competitors. Interestingly, Renault purchased a 25% stake in the same Togliatti
factory and in 2013 was allowed to purchase a majority stake in the business along
with their partner Nissan. By 2016 it employed more than 44,000 people.16
■■ BOT concept: The BOT (Build, Operate, Transfer) concept is a variation of the
turnkey operation. Instead of turning the facility (usually a power plant or toll road)
over to the host country when completed, the company operates the facility for a
fixed period of time during which it earns back its investment, plus a profit. It then
turns the facility over to the government at little or no cost to the host country. In 2013
the State of North Carolina contracted with the Spanish firm Cintra Infraestructuras
to build toll lanes on I77. They had previously built the Chicago Skyway and the Indiana East-West Toll Road. North Carolina will contribute $88 million toward the $655
million project with Cintra paying the remaining amount. For that, Cintra will receive
toll revenues for 50 years before turning it back over the State. Construction work
began in late 2015 and is expected to be completed within three-and-a-half years.17
■■ Management contracts: A large corporation operating throughout the world is likely to
have a large amount of management talent at its disposal. Management contracts offer
a means through which a corporation can use some of its personnel to assist a firm in
a host country for a specified fee and period of time. Management contracts are common when a host government expropriates part or all of a foreign-owned company’s
holdings in its country. The contracts allow the firm to continue to earn some income
from its investment and keep the operations going until local management is trained.18
■■

International Coordination
An international company is one that engages in any combination of activities, from
exporting/importing to full-scale manufacturing, in foreign countries. A multinational
9-2. Explain the elecorporation (MNC), in contrast, is a highly developed international company with a
ments of International
deep involvement throughout the world, plus a worldwide perspective in its manageStrategic Alliances
ment and decision making. For an MNC to be considered global, it must manage its
that lead to success

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worldwide operations as if they were totally interconnected. This approach works best
when the industry has moved from being multidomestic (each country’s industry is
essentially separate from the same industry in other countries) to global (each country
is a part of one worldwide industry).
The global MNC faces the dual challenge of achieving scale economies through
standardization while at the same time responding to local customer differences.
The design of the organization is strongly affected by the sophistication of its international activities and the types of industries in which the company is involved. Strategic
alliances may complement or even substitute for an internal functional activity.

International Strategic Alliances
Strategic alliances, such as joint ventures and licensing agreements, between an MNC
and a local partner in a host country are becoming increasingly popular as a means by
which a corporation can gain entry into other countries, especially countries that limit
foreign ownership. The key to the successful implementation of these strategies is the
selection of the local partner. Each party needs to assess not only the strategic fit of
each company’s project strategy but also the fit of each company’s respective resources.
A successful joint venture may require years of prior contacts between the parties.
A prior relationship helps to develop a level of trust, which facilitates openness in sharing knowledge and a reduced fear of opportunistic behavior by the alliance partners.
This is especially important when the environmental uncertainty is high.19
Research reveals that firms favor past partners when forming new alliances.20
Key drivers for strategic fit between alliance partners are the following:
Partners must agree on fundamental values and have a shared vision about the
potential for joint value creation.
■■ Alliance strategy must be derived from business, corporate, and functional strategy.
■■ The alliance must be important to both partners, especially to top management.
■■ Partners must be mutually dependent for achieving clear and realistic objectives.
■■ Joint activities must have added value for customers and the partners.
■■ The alliance must be accepted by key stakeholders.
■■ Partners contribute key strengths but protect core competencies.21
■■

Stages of International Development
9-3. Discuss the stages
of International
Development

Corporations operating internationally tend to evolve through five common stages,
both in their relationships with widely dispersed geographic markets and in the manner
in which they structure their operations and programs. These stages of international
development are:
■■

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Stage 1 (Domestic company): The primarily domestic company exports some of its
products through local dealers and distributors in the foreign countries. The impact
on the organization’s structure is minimal because an export department at corporate headquarters handles everything. Eden Brewery is a UK microbrewery that
joined a trade mission organized by UK Trade and Investment, after Eden identified Japan as a potential market for its craft beer. While there the company met
with distributors and outlets interested in importing the beer to Japan.22 The whole

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process can take some time to set up, but is run fairly simply from an organizational
perspective.
■■ Stage 2 (Domestic company with export division): Success in Stage 1 leads the company to establish its own sales company with offices in other countries to eliminate
the middlemen and to better control marketing. Because exports have now become
more important, the company establishes an export division to oversee foreign sales
offices.
■■ Stage 3 (Primarily domestic company with international division): Success in earlier
stages leads the company to establish manufacturing facilities in addition to sales
and service offices in key countries. The company now adds an international division
with responsibilities for most of the business functions conducted in other countries.
■■ Stage 4 (Multinational corporation with multidomestic emphasis): Now a fullfledged MNC, the company increases its investments in other countries. The company establishes a local operating division or company in the host country, such as
Ford of Britain, to better serve the market. The product line is expanded, and local
manufacturing capacity is established. Managerial functions (product development,
finance, marketing, and so on) are organized locally. Over time, the parent company
acquires other related businesses, broadening the base of the local operating division. As the subsidiary in the host country successfully develops a strong regional
presence, it achieves greater autonomy and self-sufficiency. The operations in each
country are, nevertheless, managed separately as if each is a domestic company.
■■ Stage 5 (MNC with global emphasis): The most successful MNCs move into a fifth
stage in which they have worldwide human resources, R&D, and financing strategies. Typically operating in a global industry, the MNC denationalizes its operations
and plans product design, manufacturing, and marketing around worldwide considerations. Global considerations now dominate organizational design. The global
MNC structures itself in a matrix form around some combination of geographic
areas, product lines, and functions. All managers are responsible for dealing with
international as well as domestic issues.
Research provides some support for stages of international development, but it does
not necessarily support the preceding sequence of stages. For example, a company may
initiate production and sales in multiple countries without having gone through the steps
of exporting or having local sales subsidiaries. In addition, any one corporation can be at
different stages simultaneously, with different products in different markets at different
levels. Firms may also leapfrog across stages to a global emphasis.

International Employment
9-4. Explain how
companies can
improve their staffing
efforts as they expand
beyond their home
country

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Implementing a strategy of international expansion takes a lot of planning and can
be very expensive. Nearly 80% of midsize and larger companies send some of their
employees abroad – known as expatriation and the employees are known as expats. The
Economist reported that over three-quarters of companies report spending two to three
times an expat’s annual salary on a typical assignment.23 Research tells us that between
20% and 45% of expatriate assignments are failures with managers sent abroad returning early because of job dissatisfaction or difficulties in adjusting to a foreign country. Of
those who stayed for the duration of their assignment, nearly one-third did not perform
as well as expected. One-fourth of those completing an assignment left their company

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within one year of returning home—often leaving to join a competitor.24 One common
mistake is failing to educate the person about the customs and values in other countries.
Primarily due to cultural differences, managerial style and human resource practices must be tailored to fit the particular situations in other countries. Only 11% of
human resource managers have ever worked abroad, most have little understanding
of a global assignment’s unique personal and professional challenges and thus fail to
develop the training necessary for such an assignment.25 This is complicated by the fact
that 90% of companies select employees for an international assignment based on their
technical expertise while ignoring other areas.26 A lack of knowledge of national and
ethnic differences can make managing an international operation extremely difficult.
One such example that shows the issues that have to be dealt with exists in Malaysia.
Three ethnic groups live in Malaysia (Malay, Chinese, and Indian), each with their
own language and religion, attending different schools, and a preference to not work in
the same factories with each other. Because of the importance of cultural distinctions
such as these, multinational corporations (MNCs) are now putting more emphasis on
intercultural training for managers being sent on an assignment to a foreign country..27
To improve organizational learning, many MNCs are providing their managers with
international assignments lasting as long as five years. Upon their return to headquarters, these expatriates have an in-depth understanding of the company’s operations in
another part of the world. This has value to the extent that these employees communicate this understanding to others in decision-making positions. Research indicates
that an MNC performs at a higher level when its CEO has international experience.28
Global MNCs, in particular, emphasize international experience, have a greater number
of senior managers who have been expatriates, and have a strong focus on leadership
development through the expatriate experience.29 Unfortunately, not all corporations
appropriately manage international assignments. While out of the country, a person
may be overlooked for an important promotion (out of sight, out of mind). Upon his
or her return to the home country, co-workers may discount the out-of-country experience as a waste of time. The perceived lack of organizational support for international
assignments increases the likelihood that an expatriate will return home early.30
Recent work on the subject has led to a set of recommendations to improve the
entire expatriation process:
Have a compelling reason for sending a current employee to a new country. Vague
ideas about broadening a person will quickly lead to frustration and loss of productivity. A business case should be made for every assignment.
■■ Choose individuals who are open to the assignment and committed to adapt to the
new environment.
■■ Assign sponsors/mentors in both the home country and the new country.
■■ Develop a means of maintaining very open, frequent communication throughout
the assignment.
■■ Design a plan for repatriation. Communication should begin six months before the
end of the assignment to discuss the process. The employee should outline the top
skills, qualifications, and insights achieved during the assignment and express how
he or she would like to incorporate them at the home office (or in some cases on
the next assignment).
■■ Craft an approach for sharing the experiences and lessons learned within the company. One organization asks assignees to blog about their experiences — both during and after the assignment. These posts are shared via internal social media and
commented on by others throughout the company.31
■■

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Once a corporation has established itself in another country, it generally hires and
promotes people from the host country into higher-level positions. For example, most
large MNCs attempt to fill managerial positions in their subsidiaries with well-qualified
citizens of the host countries. One of the fastest growing MNCs in the past few years
has been Uber. Uber had grown to almost 400 cities worldwide by 2016 and tries to hire
general managers with local experience.32 This policy serves to placate nationalistic governments and to better attune management practices to the host country’s culture. The
danger in using primarily foreign nationals to staff managerial positions in subsidiaries
is the increased likelihood of suboptimization (the local subsidiary ignores the needs
of the larger parent corporation). This makes it difficult for an MNC to meet its longterm, worldwide objectives. To a local national in an MNC subsidiary, the corporation
as a whole can be an abstraction. Communication and coordination across subsidiaries
become more difficult. As it becomes harder to coordinate the activities of several international subsidiaries, an MNC will have serious problems operating in a global industry.
Another approach to staffing the managerial positions of MNCs is to use people
with an “international” orientation, regardless of their country of origin or host country
assignment. This is a widespread practice among European firms. For example, Electrolux, a Swedish firm, had a French director in its Singapore factory. Using third-country
“nationals” can allow for more opportunities for promotion than does Uber’s policy of
hiring local people, but it can also result in more misunderstandings and conflicts with
the local employees and with the host country’s government.
MNCs with a high level of international interdependence among activities need
to provide their managers with significant international assignments and experiences
as part of their training and development. Such assignments provide future corporate
leaders with a series of valuable international contacts in addition to a better personal
understanding of international issues and global linkages among corporate activities.33
Research reveals that corporations using cross-national teams, whose members have
international experience and communicate frequently with overseas managers, have
greater product development capabilities than others.34 Executive recruiters have
reported that more major corporations are now requiring candidates to have international experience.35
Since an increasing number of multinational corporations are primarily organized
around business units and product lines instead of geographic areas, product and SBU
managers who are based at corporate headquarters are often traveling around the world
to work personally with country managers. These managers and other mobile workers are being called stealth expatriates because they are either cross-border commuters
(especially in the EU) or the accidental expatriate who goes on many business trips or
temporary assignments due to offshoring and/or international joint ventures.36

Measurement of Performance
The three most widely used techniques for international performance evaluation are
9-5. Discuss the unique ROI, budget analysis, and historical comparisons. In one study, 95% of the corporate
officers interviewed stated that they use the same evaluation techniques for foreign
issues related to
Measuring Organizaand domestic operations. Rate of return was mentioned as the single most important
tional performance
measure.37 However, ROI can cause problems when it is applied to international operathat are presented with
tions: Because of foreign currencies, different accounting systems, different rates of
the administration of
inflation, different tax laws, and the use of transfer pricing, both the net income figure
a truly international
and the investment base may be seriously distorted.38 To deal with different accounting
company

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systems throughout the world, the London-based International Accounting Standards
Board developed International Financial Reporting Standards (IFRS) to harmonize
accounting practices. The Financial Accounting Standards Board (FASB) oversees the
Generally Accepted Accounting Principles (GAAP) that is used in the United States.
For over a decade, these two groups worked to merge their systems and there was hope
that there would be a single set of standards by 2015, however much like bringing the
metric system to the United States, implementation has not gone as planned. More
than 116 countries worldwide adopted IFRS while the United States and seven other
countries have maintained their own standards.39
Nevertheless, enforcement and cultural interpretations of the international rules
can still vary by country and may undercut what is hoped to be a uniform accounting
system.40
A study of 79 MNCs revealed that international transfer pricing from one country
unit to another is primarily used not to evaluate performance but to minimize taxes.41
Taxes are an important issue for MNCs, given that corporate tax rates vary from 40%
in the United States to 33% in Japan, 35% in India, 30% in Mexico, 20% in the United
Kingdom, 24% in South Korea, 26% in Canada, 25% in China, 17% in Singapore, 15%
in Albania, and 0% in Bahrain and the Cayman Islands.42 Recently there has been an
uproar about the issue with companies moving operations / headquarters to Ireland with
its 12.5% corporate tax rate. In 2016, Apple was being investigated by regulators who
had accused the iPhone maker of using subsidiaries in Ireland to avoid paying taxes on
revenue generated outside the United States.43
Parts made in a subsidiary of a Japanese MNC in a low-tax country such as
Singapore could be shipped to its subsidiary in a high-tax country like the United States
at such a high price that the U.S. subsidiary reports very little profit (and thus pays few
taxes), while the Singapore subsidiary reports a very high profit (but also pays few taxes
because of the lower tax rate). A Japanese MNC could, therefore, earn more profit
worldwide by reporting less profit in high-tax countries and more profit in low-tax countries. Transfer pricing can thus be one way the parent company can reduce taxes and
“capture profits” from a subsidiary. Other common ways of transferring profits to the
parent company (often referred to as the repatriation of profits) are through dividends,
royalties, and management fees.44
Among the most important barriers to international trade are the different standards for products and services. There are at least three categories of standards: safety/
environmental, energy efficiency, and testing procedures. Existing standards have
been drafted by such bodies as the British Standards Institute (BSI-UK) in the United
Kingdom, the Japanese Industrial Standards Committee (JISC), AFNOR in France,
DIN in Germany, CSA in Canada, and the American Standards Institute in the United
States. These standards traditionally created entry barriers that served to fragment
various industries, such as major home appliances, by country. The International Electrotechnical Commission (IEC) standards were created to harmonize standards in the
European Union and eventually to serve as worldwide standards, with some national
deviations to satisfy specific needs. Because the European Union (EU) was the first to
harmonize the many different standards of its member countries, the EU shaped standards for the rest of the world. In addition, the International Organization for Standardization (ISO) published detailed international standards. These standards provided a
foundation for regional associations to build upon. CANENA, the Council for Harmonization of Electrotechnical Standards of the Nations of the Americas, was created in 1992
to further coordinate the harmonization of standards in North and South America.45
Authorities in international business recommend that the control and reward
systems used by a global MNC be different from those used by a multidomestic MNC.46

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A MNC should use loose controls on its foreign units. The management of each
geographic unit should be given considerable operational latitude, but it should be
expected to meet some performance targets. Because profit and ROI measures are
often unreliable in international operations, it is recommended that the MNC’s top
management, in this instance, emphasize budgets and non-financial measures of performance such as market share, productivity, public image, employee morale, and
relations with the host country government.47 Multiple measures should be used
to differentiate between the worth of the subsidiary and the performance of its
management.
A global MNC, however, needs tight controls over its many units. To reduce costs
and gain competitive advantage, it is trying to spread the manufacturing and marketing operations of a few fairly uniform products around the world. Therefore, its key
operational decisions must be centralized. Its environmental scanning must include
research not only into each of the national markets in which the MNC competes but
also into the “global arena” of the interaction between markets. Foreign units are thus
evaluated more as cost centers, revenue centers, or expense centers than as investment
or profit centers because MNCs operating in a global industry do not often make the
entire product in the country in which it is sold.

End of Chapter S U M M AR Y
Addressing global issues is simply an expectation of the modern organization. The question becomes how and when to expand operations beyond the borders of the company’s
home country. Six Flags theme parks were looking for a means of expanding their
opportunities outside of their core parks in North America (United States, Canada &
Mexico). In 2016 they announced a licensing arrangement with NaVi Entertainment
in Vietnam to build a theme park and a water park in Vietnam using the Six Flags and
Six Flags Hurricane Harbor brand names, respectively. The move allows the largest
regional theme park company to expand outside the borders while minimizing the
downside risk.48
This approach is often a prelude the full-blown multi-national company. Zara
Stores are the flagship operation of Inditex and headquartered in the Spanish coastal
town of A Coruña. Zara had expanded to over 7,000 stores worldwide by early
2016. Sales grew by more than 15% from the previous year driven by sales outside
of Spain. The company runs an MNC on the retail side of the business growing not
only their store footprint (they added over 300 new stores worldwide in 2015), but
also growing an extensive set of innovative Internet Shopping sites that were in 29
market locations, many of which were in Asia. The company controls the fundamental elements of the business from Spain. All textile design, manufacturing and
distribution facilities are located in Spain.49 MNC’s that operate in many countries
with full resources within those countries include companies such as Coca-Cola,
Wal-Mart, and BMW.

Pearson MyLab Management®
Go to mymanagementlab.com to complete the problems marked with this icon

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291

K E Y TER M S
Acquisition (p. 283)
BOT (Build, Operate, Transfer)
concept (p. 284)
Exporting (p. 282)
Franchising (p. 282)
Green-field development (p. 283)

Joint venture (p. 283)
Licensing (p. 282)
Management contracts (p. 284)
Multinational Corporation
(MNC) (p. 284)
Production sharing (p. 284)

Stages of international
development (p. 285)
Global strategy (p. 285)
Turnkey operations (p. 284)

Pearson MyLab Management®
Go to mymanagementlab.com for the following Assisted-graded writing questions:
9-1. What are the nine means by which a company can enter a new international market?
9-2. What are the advantages of using a Strategic alliance when operating in a new country?

DISCUSSION QUESTIONS
9-3. What are the stages of International Development?
9-4. How can an expat program be improved to the
benefit of the organization?

9-5. Why is strategic flexibility important for strategy
formulation when an organisation is at the growth
stage?

Notes
1. J. Cryan, “4 Real Benefits from International Expansion,” Chief Executive, April 16, 2012 (
net/4-real-benefits-from-international-expansion/); A. Delios
and P. W. Beamish, “Geographic Scope, Product Diversification, and the Corporate Performance of Japanese Firms,”
Strategic Management Journal (August 1999), pp. 711–727.
2. “Tumi Holdings Inc. Earnings: Global Expansion Fuels
Profit Growth,” The Motley Fool, February 26, 2016 (http://
www.fool.com/investing/general/2016/02/26/tumi-holdings
-inc-earnings-global-expansion-fuels.aspx).
3 K. Kulp, “Your local booze gets the world drunk,” The
Daily Beast, March 19, 2016 (
.com/articles/2016/03/19/how-craft-distillers-are-selling
-their-drinks-to-the-world.html).
4. “Rovi Extends Product and Entertainment Discovery
Patent License Agreement to Funai,” Multichannel News,
July 29, 2015 (
-extends-product-and-entertainment-discovery-patent
-license-agreement-funai/392591).
5. E. Elango and V. H. Fried, “Franchising Research: A Literature Review and Synthesis,” Journal of Small Business
Management (July 1997), pp. 68–81.
6.
/business-model.html.
7. J. E. McCann III, “The Growth of Acquisitions in Services,”
Long Range Planning (December 1996), pp. 835–841.
8.
9. A Bid for Bud,” The Economist (June 21, 2008), p. 77.

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10. B. Voss, “Strategic Federations Frequently Falter in Far
East,” Journal of Business Strategy (July/August 1993),
p. 6 S. Douma, “Success and Failure in New Ventures,”
Long Range Planning (April 1991), pp. 54–60.
11. A. Delios and P. W. Beamish, “Ownership Strategy of
Japanese Firms: Transactional, Institutional, and Experience Approaches,” Strategic Management Journal (October
1999), pp. 915–933.
12. “Recovery in Cross-Border Mergers and Acquisitions,”
Global Investment Trends Monitor, United Nations
(UNCTAD), November 17, 2015 (unctad.org/en
/publicationslibrary/webdiaeia2015d5_en.pdf).
13. K. D. Brouthers and L. E. Brouthers, “Acquisition or
Greenfield Start-up? Institutional, Cultural, and Transaction Cost Influences,” Strategic Management Journal
(January 2000), pp. 89–97.
14. K. Bolster, “SCPA and BMW celebrate two-millionth
vehicle export,” Wistv.com, March 18, 2016 (
.wistv.com/story/31497619/scpa-and-bmw-celebrate
-two-millionth-vehicle-export).
15. “Global Payroll Outsourcing Market 2016-2020,”
PRNewswire, February 15, 2016 (www.prnews
wire.com/news-releases/global-payroll-outsourcing
-market-2016-2020-300220297.html)..
16. G. Jackson, “Renault profit up but headlights on struggling Russian unit,” Yahoo!News, February 12, 2016
(news.yahoo.com/Renault-net-profit-russian-unitdrag-091727015.html).

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17. S. Lyttle, “NC has a bidder for I-77 toll lanes,” The Charlotte Observer, April 11, 2014 (www.charlotteobserver.com
/news/local/article9111983.html); J. Naisbitt, Megatrends
Asia (New York: Simon & Schuster, 1996), p. 143 http://
www.ncdot.gov/projects/I-77ExpressLanes/.
18. For additional information on international entry
modes, see D. F. Spulber, Global Competitive Strategy
(Cambridge, UK: Cambridge University Press, 2007) and
K. D. Brouthers and J-F Hennart, “Boundaries of the Firm:
Insights from International Entry Mode Research,” Journal of Management (June 2007), pp. 395–425.
19. R. Krishnan, X. Martin, and N. G. Noorderhaven, “When
Does Trust Matter to Alliance Performance,” Academy of
Management Journal (October 2006), pp. 894–917.
20. S. X. Li and T. J. Rowley, “Inertia and Evaluation Mechanisms in Interorganizational Partner Selection: Syndicate
Formation Among U.S. Investment Banks,” Academy of
Management Journal (December 2002), pp. 1104–1119.
21. M. U. Douma, J. Bilderbeek, P. J. Idenburg, and J. K. Loise,
“Strategic Alliances: Managing the Dynamics of Fit,” Long
Range Planning (August 2000), pp. 579–598; W. Hoffmann
and R. Schlosser, “Success Factors of Strategic Alliances
in Small and Medium-Sized Enterprises—An Empirical
Survey,” Long Range Planning (June 2001), pp. 357–381;
Y. Luo, “How Important Are Shared Perceptions of Procedural Justice in -Cooperative Alliances?” Academy of
Management Journal (August 2005), pp. 695–709.
22. “Cumbrian micro-brewery aims to start exporting to
Japan,” The News and Star, March 23, 2016 (
.newsandstar.co.uk/news/business/Cumbrian-micro
-brewery-aims-to-start-exporting-to-Japan-c886f335-dc68
-4c8c-b36e-2b773fc15c29-ds).
23. “Expatriate costs and assignments,” The Economist, July 24, 2012 (.economist.com/blogs
/graphicdetail/2012/07/focus-3).
24. S. Mahoney, “Can you afford to throw away £2 million
of your organisation’s money on a failed Expat Assignment?” Business Reporter, May 21, 2015 (
-million-of-your-organisations-money-on-a-failed-expat
-assignment/); J. S. Black and H. B. Gregersen, “The Right
Way to Manage Expats,” Harvard Business Review.
25. Ibid, p. 54.
26. J. I. Sanchez, P. E. Spector, and C. L. Cooper, “Adapting
to a Boundaryless World: A Developmental Expatriate
Model,” Academy of Management Executive (May 2000),
pp. 96–106.
27. R. L. Tung, The New Expatriates (Cambridge, MA: Ballinger,
1988); J. S. Black, M. Mendenhall, and G. Oddou, “Toward
a Comprehensive Model of International Adjustment: An
Integration of Multiple Theoretical Perspectives,” Academy
of Management Review (April 1991), pp. 291–317.
28. M. A. Carpenter, W. G. Sanders, and H. B. Gregersen,
“Bundling Human Capital with Organizational Context:
The Impact of International Assignment Experience on
Multinational Firm Performance and CEO Pay,” Academy
of Management Journal (June 2001), pp. 493–511.
29. P. M. Caligiuri and S. Colakoglu, “A Strategic Contingency Approach to Expatriate Assignment Management,”
Human Resource Management Journal (Vol. 17, No. 4,
2007), pp. 393–410.

M09B_WHEE5488_15_GE_C09.indd 292

30. M. A. Shaffer, D. A. Harrison, K. M. Gilley, and D. M. Luk,
“Struggling for Balance Amid Turbulence on International
-Assignments: Work-Family Conflict, Support, and Commitment,” Journal of Management (Vol. 27, No. 1, 2001),
pp. 99–121.
31. A. Molinsky & M. Hahn, “5 Tips for Managing Successful
Overseas Assignments,” Harvard Business Review, March 16,
2016 (/2016/03/5-tips-for-managing
-successful-overseas-assignments).
32. E. Huet, “Uber’s Global Expansion In Five Seconds,”
Forbes, December 11, 2014 (.forbes.com
/sites/ellenhuet/2014/12/11/ubers-global-expansion
/#1f91997f7a7a);
33. K. Roth, “Managing International Interdependence:
CEO Characteristics in a Resource-Based Framework,”
A cademy of Management Journal (February 1995),
pp. 200–231.
34. M. Subramaniam and N. Venkatraman, “Determinants
of Transnational New Product Development Capability: Testing the Influence of Transferring and Deploying
Tacit Overseas Knowledge,” Strategic Management Journal
(April 2001), pp. 359–378.
35. J. S. Lublin, “An Overseas Stint Can Be a Ticket to
the Top,” The Wall Street Journal (January 29, 1996),
pp. B1, B2.
36. “Expatriate Employees: In Search of Stealth,” The Economist (April 23, 2005), pp. 62–64.
37. S. M. Robbins and R. B. Stobaugh, “The Bent Measuring
Stick for Foreign Subsidiaries,” Harvard Business Review(September–October 1973), p. 82.
38. J. D. Daniels and L. H. Radebaugh, International Business, 5th ed. (Reading, MA: Addison-Wesley, 1989),
pp. 673–674.
39. R. Ball, “IFRS – Ten Years Later: The Perspectives In
2005 & 2015,” University of Chicago via ValueWalk,
March 10, 2016 (.valuewalk.com/2016/03
/ifrs-global-accounting/).
40. D. Henry, “A Better Way to Keep the Books,” BusinessWeek (September 15, 2008), p. 35 “International Accounting: Speaking in Tongues,” The Economist (May 19, 2007),
pp. 77–78; C. Hackett, “Convergence of U.S. GAAP
and IFRS: Where Do Things Stand?” (.cshco.
com/News/-Articles/Convergence_of_U.S._GAAP_and
_IFRS%3A_Where_do_things_stand%3F/).
41. W. A. Johnson and R. J. Kirsch, “International Transfer
Pricing and Decision Making in United States Multinationals,” International Journal of Management (June 1991),
pp. 554–561.
42. KPMG’s Corporate Tax Rate Table 2016, (
kpmg.com/xx/en/home/services/tax/tax-tools-andresources/tax-rates-online/corporate-tax-rates-table
.html).
43. R. McHugh, “Apple Irish tax controversy continues,”
BusinessWorld, January 15, 2016 (
44. J. M. L. Poon, R. Ainuddin, and H. Affrim, “Management
Policies and Practices of American, British, European, and
Japanese Subsidiaries in Malaysia: A Comparative Study,”
International Journal of Management (December 1990),
pp. 467–474.

6/20/17 7:48 AM

CH A PTER 9 Strategy Implementation: Global Strategy
45. .canena.org/about-canena/international-and
-regional-partners/ (accessed March 16, 2016); M. Egan,
“Setting Standards: Strategic Advantages in International
Trade,” Business Strategy Review (Vol. 13, No. 1, 2002),
pp. 51–64; L. Swatkowski, “Building Towards International
Standards,” Appliance (December 1999), p. 30.
46. C. W. L. Hill, P. Hwang, and W. C. Kim, “An Eclectic
Theory of the Choice of International Entry Mode,” Strategic Management Journal (February 1990), pp. 117–128;
D. Lei, J. W. Slocum, Jr., and R. W. Slater, “Global Strategy and Reward Systems: The Key Roles of Management
Development and Corporate Culture,” Organizational
Dynamics (Autumn 1990), pp. 27–41; W. R. Fannin and
A. F. Rodrigues, “National or Global?—Control vs. Flexibility,” Long Range Planning -(October 1986), pp. 84–188.

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293

47. A. V. Phatak, International Dimensions of Management,
2nd ed. (Boston: Kent, 1989), pp. 155–157.
48. “International Expansion Accelerates as Two Six FlagsBranded Parks to Open in Vietnam,” Financial Content,
March 21, 2016 (
/stocks/news/read?GUID=31759161).
49. “Zara owner’s profits soar on higher sales, expansion,”
The Peninsula: Qatar’s Daily Newspaper, March 9, 2016
( .inditex.com/en/our_group
/facilities.
50. .inc.com/inc5000/

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Chapter

Strategy
Implementation:
Organizing and
Structure
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 for
existence

Resources and
climate

Societal
Environment:

Objectives
What
results to
accomplish
by when

General forces

Task
Environment:

Industry analysis

Strategies
Plan to
achieve the
mission &
objectives

Policies
Broad
guidelines
for decision
making

Internal

Programs
and Tactics
Activities
needed to
accomplish
a plan

Budgets
Cost of the
programs

Procedures
Sequence
of 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

M10_WHEE5488_15_GE_C10.indd 294

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Learning Objectives
After reading this chapter, you should be able to:
10-1. Describe the major issues that impact
successful strategy implementation
10-2. Explain how you would develop programs, budgets, and procedures to implement strategic change
10-3. List the stages of corporate development
and the structure that characterizes each
stage

10-4. Explain how matrix, network and
modular structures are used to implement strategy
10-5. Discuss the issues related to centralization versus decentralization in structuring
organizations

Tesla Drives to Change the Structure of an Industry
Every car manufacturer who sells in the United States does so through
a network of locally-owned dealerships. The car manufacturers have
structured their business to deal with the only sales channel allowed
by law in most states. Into this arena comes Tesla. Much to the surprise
of many, Tesla was not founded by Elon Musk, but by Martin Eberhard
and Marc Tarpenning in 2003 with the goal of utilizing an AC induction motor patented in 1888 by Nikola Tesla to prove that battery-powered
cars could be better than gas-powered cars. Their primary investor was PayPal
co-founder Elon Musk who then served as Chairman until 2008 when he also became
the CEO.
While certainly not a mass-market car (the Tesla Roadster started out at US$109,000), the company had no
problem selling every car they made. Tesla opened car information locations at malls in the United States where
customers would learn about the car, its features, and how to order one. Customers can use a Web site to select the
features they want, pay a deposit, and wait for Tesla to build their car. Tesla offers financing and accepts third-party
loans, but delivers the cars directly to the customer that ordered it. The organization has been structured around
a retail concept that is more oriented toward providing information rather than selling. The price of the vehicle is
not negotiated and every feature is clearly labelled on the Web site. There are no teams of employees working with
franchisees, no logistics teams negotiating car allotments, no sales groups crafting the next “big” sale/marketing
campaign.
General Motors has almost 4,900 franchise dealers in North America and the company is prohibited from
selling directly to consumers because of contracts with those dealers and state laws that protect the dealerships from factory competition. General Motors has invested significant resources in attempting to prevent
Tesla from entering markets. They successfully prevented a move into Michigan, but failed in the courts of
Massachusetts.

295

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PART 4 Strategy Implementation and Control
If Tesla is forced to deal through a franchise dealer system it will radically affect the
structure and design of the organization. Sometimes the reality of the markets dictates
how a company is organized.
SOURCES: “Tesla Takes on the Dealerships—and GM,” Bloomberg BusinessWeek, March 7–13, 2016,
pp. 28–32; N. Chambers, “Tesla is Turning the Car Sales Model on Its Head,” AutoTrader, November
2011 (.autotrader.com/car-news/tesla-is-turning-the-car-sales-model-on-its-head-132587);
B. Schreiber, “Tesla Motors,” Encyclopedia Britannica (.britannica.com/topic/Tesla-Motors);

Strategy Implementation
10-1. Describe
the major issues
that impact successful strategy
implementation

Strategy implementation is the sum total of the activities and choices required for the
execution of a strategic plan. It is the process by which objectives, strategies, and policies are put into action through the development of programs and tactics, budgets,
and procedures. Implementation should be evaluated as strategy is being formulated
although many companies separate the two. Implementation is the key part of strategic
management for without implementation we have nothing. Strategy formulation and
strategy implementation should be considered as two sides of the same coin.
Poor implementation has been blamed for a number of strategic failures. Merger
and acquisitions activities are clear types of very visible implementations. Some studies have shown that half of all acquisitions fail to achieve what was expected of them
while recent studies have reported that 83% of companies fail to achieve the goals of a
merger.1 The most mentioned problems reported in post-merger integration were poor
communication, unrealistic synergy expectations, structural problems, missing master
plans, lost momentum, lack of top management commitment, and unclear strategic fit.
A study by A. T. Kearney found that a company has just two years in which to make
an acquisition perform. After the second year, the window of opportunity for forging
synergies has mostly closed. Kearney’s study was supported by further independent
research by Bert, MacDonald, and Herd. Among the most successful acquirers studied,
70% to 85% of all merger synergies were realized within the first 12 months, with the
remainder being realized in year two.2
The implementation process requires strategy makers to consider these questions:
Who are the people who will carry out the strategic plan?
■■ What must be done to align the company’s operations in the new intended direction?
■■ How is everyone going to work together to do what is needed?
■■

These questions and similar ones should have been addressed initially when the pros
and cons of strategic alternatives were analyzed. They must also be addressed again
before successful implementation plans can be made. Unless top management can
answer these basic questions satisfactorily, even the best planned strategy is unlikely to
provide the desired outcome.
A survey of 93 Fortune 500 firms revealed that more than half of the corporations
experienced the following 10 big issues when they attempted to implement a strategic
change. These problems are listed in order of frequency.
1. Implementation took more time than originally planned.
2. Unanticipated major problems arose.
3. Activities were ineffectively coordinated.

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CH A PTER 10 Strategy Implementation: Organizing and Structure

297

4. Competing activities and crises took attention away from implementation.
5. The involved employees had insufficient capabilities to perform their jobs.
6. Lower-level employees were inadequately trained.
7. Uncontrollable external environmental factors created problems.
8. Departmental managers provided inadequate leadership and direction.
9. Key implementation tasks and activities were poorly defined.
10. The information system inadequately monitored activities.3

Who Implements Strategy?
Depending on how a corporation is organized, those who implement strategy will
probably be a much more diverse set of people than those who formulate it. From
large, multi-industry corporations to small entrepreneurial ventures, the reality is
that the implementers of strategy are everyone in the organization. Vice presidents
of functional areas and directors of divisions or strategic business units (SBUs) work
with their subordinates to put together large-scale implementation plans. Plant managers, project managers, and unit heads put together plans for their specific plants,
departments, and units. SaaS-based company presidents work with their project
managers and developers to meet the latest needs of their customers. Therefore,
every operational manager down to the first-line supervisor and every employee is
involved in some way in the implementation of corporate, business, and functional
strategies.
Many of the people in the organization who are most crucial to successful strategy
implementation probably had little to do with the development of the corporate and
even business strategy. Therefore, they might be entirely ignorant of the vast amount of
data and work that went into the formulation process. Unless changes in mission, objectives, strategies, and policies and their importance to the company are communicated
clearly to every person in the organization, there can be a lot of resistance and footdragging. Some line managers might hope to influence top management into abandoning its new plans and returning to its old ways. This is one reason why involving people
from all organizational levels in the formulation and implementation of strategy tends
to result in better organizational performance.4

What Must Be Done?
10-2. Explain how you
would develop programs, budgets, and
procedures to implement strategic change

The managers of divisions and functional areas work with their fellow managers to
develop programs, budgets, and procedures for the implementation of strategy. They
also work to achieve synergy among the divisions and functional areas in order to establish and maintain a company’s distinctive competence.

Developing Programs, Budgets, and Procedures
Strategy implementation involves establishing programs and tactics to create a series
of new organizational activities, budgets to allocate funds to the new activities, and
procedures to handle the day-to-day details.

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PART 4 Strategy Implementation and Control

Programs and Tactics
The purpose of a program or a tactic is to make a strategy action-oriented. As we discussed in Chapter 1, the terms are somewhat interchangeable. In practice, a program
is a collection of tactics and a tactic is the individual action taken by the organization
as an element of the effort to accomplish a plan. For example, when Xerox Corporation undertook a turnaround strategy, it needed to significantly reduce its costs and
expenses. Management introduced Lean Six Sigma. This program was developed to
identify and improve a poorly performing process. Xerox first trained its top executives
in the program and then launched around 250 individual Six Sigma projects throughout
the corporation. The result was US$6 million in savings in one year, with even more
expected the next.5 (Six Sigma is explained later in this chapter.)
Most corporate headquarters have around 10 to 30 programs in effect at any one
time.6 The U.S. Army instituted the Lean Six Sigma Excellence Awards Program,
known as LEAP to celebrate the successes within the Army. One project applied distance learning practices, eliminated all travel temporary duty assignment from the training delivery and achieved the removal of 97% of recurring labor hours and reduced
process cycle time from 124 days to five days.7 Apple used a program to find a recycled
and yet elegant pulp tray to hold the original iPhone that became the inspiration for
a business out to change the way bottles are produced. For more information on this
innovative approach to bottle design, see the Sustainability Issue feature.

Competitive Tactics
Studies of decision making report that half the decisions made in organizations fail
because of poor tactics.8 A tactic is a specific operating plan that details how a strategy

SUSTAINABILITY issue
A BETTER BOTTLE—ECOLOGIC BRANDS
Some of the ideas that
transform business practice
are born in the simplest of
places. Julie Corbett’s started
when she bought her first
iPhone in 2007. She was fascinated
by the paper pulp tray that it arrived in. The tray was elegant, sturdy, and biodegradable. She immediately thought
of how it could be used to reduce the vast amounts of plastic needed for plastic bottles holding liquids. Combining
the sturdiness of the paper pulp with an interior bladder to
hold the liquid, she created Ecologic Brands.
Winner of the 2012 Gold Award from the Industrial
Designers Society of America, the “bottle” is instantly recognizable as eco-friendly and yet extremely comfortable to
touch and use. The bottles use 70% less plastic than regular ones and are the first of their type to hit store shelves.
In addition, the bottle shells are made from 100% recycled
cardboard and newspaper. The company didn’t need to
use any exotic materials or techniques to create the bottles.

M10_WHEE5488_15_GE_C10.indd 298

However, they have patents on the processes for connecting the components and have new products on the way.
Ecologic is creating a demand for pulp paper in an industry
that has been battered for many years.
Seventh Generation Laundry Detergent was one of the
first brands to use the bottles and saw a 19% increase in
sales after switching. The company has designed packaging for such widely varying companies as Bodylogix protein
powder and Truett Hurst wine.
The company has received several significant rounds of
funding and in 2013 opened a 60,000 square foot facility
in an economically depressed area of California. They are
on a path to make the Ecologic bottle comparable in cost
to the plastic competition.
SOURCES: J. Griffin, “Good things come in reusable packages,”
Entrepreneur, January 13, 2015 (entrepreneur.com/article/241059);
“Bottles Inspired by the iPhone,” Bloomberg Businessweek,
October 29, 2012, p. 45 .ecologicbrands.com
/about_eco.html; .fastcodesign.com/1664838
/tk-years-in-the-making-a-cardboard-jug-for-laundry-detergent.

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CH A PTER 10 Strategy Implementation: Organizing and Structure

299

is to be implemented in terms of when and where it is to be put into action. By their
nature, tactics are narrower in scope and shorter in time horizon than are strategies.
Tactics, therefore, may be viewed (like policies) as a link between the formulation and
implementation of strategy. Some of the tactics available to implement competitive
strategies are timing tactics and market location tactics.

Timing Tactics: When to Compete
A timing tactic deals with when a company implements a strategy. The first company
to manufacture and sell a new product or service is called the first mover (or pioneer).
Some of the advantages of being a first mover are that the company is able to establish
a reputation as an industry leader, move down the learning curve to assume the costleader position, and earn temporarily high profits from buyers who value the product or
service very highly. A successful first mover can also set the standard for all subsequent
products in the industry. A company that sets the standard “locks in” customers and is
then able to offer further products based on that standard.9 Microsoft was able to do
this in software with its Windows operating system by being the first to commercialize the product successfully. Research does indicate that moving first or second into a
new industry or foreign country results in greater market share and shareholder wealth
than does moving later.10 Some studies have found that being first provides a company
profit advantages for about 10 years in consumer goods and about 12 years in industrial
goods.11 This is true, however, only if the first mover has sufficient resources to both
exploit the new market and to defend its position against later arrivals with greater
resources.12 Gillette, for example, has been able to keep its leadership of the razor category (70% market share) by continuously introducing new products.13
Being a first mover does, however, have its disadvantages. These disadvantages
can be, conversely, advantages enjoyed by late-mover firms. Late movers may be able
to imitate the technological advances of others (and thus keep R&D costs low), keep
risks down by waiting until a new technological standard or market is established, and
take advantage of the first mover’s natural inclination to ignore market segments.14
Research indicates that successful late movers tend to be large firms with considerable resources and related experience.15 Microsoft is one example. Once Netscape had
established itself as the standard for Internet browsers in the 1990s, Microsoft used
its huge resources to directly attack Netscape’s position with its Internet Explorer. It
did not want Netscape to also set the standard in the developing and highly lucrative
intranet market inside corporations. By 2004, Microsoft’s Internet Explorer dominated
Web browsers, and Netscape was only a minor presence. Nevertheless, research suggests that the advantages and disadvantages of first and late movers may not always
generalize across industries because of differences in entry barriers and the resources
of the specific competitors.16

Market Location Tactics: Where to Compete
A market location tactic deals with where a company implements a strategy. A company
or business unit can implement a competitive strategy either offensively or defensively.
An offensive tactic usually takes place in an established competitor’s market location.
A defensive tactic usually takes place in the firm’s own current market position as a
defense against possible attack by a rival.17
Offensive Tactics. Some of the methods used to attack a competitor’s position are:
■■

M10_WHEE5488_15_GE_C10.indd 299

Frontal assault: The attacking firm goes head to head with its competitor. It matches
the competitor in every category from price to promotion to distribution channel.
To be successful, the attacker must have not only superior resources, but also the

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PART 4 Strategy Implementation and Control

willingness to persevere. This is generally a very expensive tactic and may serve
to awaken a sleeping giant, depressing profits for the whole industry. This is what
Kimberly-Clark did when it introduced Huggies disposable diapers against P&G’s
market-leading Pampers. The resulting competitive battle between the two firms
depressed Kimberly-Clark’s profits.18
■■ Flanking maneuver: Rather than going straight for a competitor’s position of
strength with a frontal assault, a firm may attack a part of the market where the
competitor is weak. Texas Instruments, for example, avoided competing directly
with Intel by developing microprocessors for consumer electronics, cell phones,
and medical devices instead of computers. Taken together, these other applications
are worth more in terms of dollars and influence than are computers, where Intel
dominates.19
■■ Bypass attack: Rather than directly attacking the established competitor frontally or
on its flanks, a company or business unit may choose to change the rules of the game.
This tactic attempts to cut the market out from under the established defender by
offering a new type of product that makes the competitor’s product unnecessary.
For example, instead of competing directly against Microsoft’s Pocket PC and Palm
Pilot for the handheld computer market, Apple introduced the iPod as a personal
digital music player. It was the most radical change to the way people listen to music
since the Sony Walkman. By redefining the market, Apple successfully sidestepped
both Intel and Microsoft, leaving them to play “catch-up.”20
■■ Encirclement: Usually evolving out of a frontal assault or flanking maneuver, encirclement occurs as an attacking company or unit encircles the competitor’s position
in terms of products or markets or both. The encircler has greater product variety
(e.g., a complete product line, ranging from low to high price) and/or serves more
markets (e.g., it dominates every secondary market). For example, Steinway was a
major manufacturer of pianos in the United States until Yamaha entered the market with a broader range of pianos, keyboards, and other musical instruments. The
company was taken private in 2013 and focuses almost exclusively on the very high
end of the market producing their 600,000th piano in 2015.21 Oracle is using this
strategy in its battle against market leader SAP for enterprise resource planning
(ERP) software by “surrounding” SAP with acquisitions.22
■■ Guerrilla warfare: Instead of a continual and extensive resource-expensive attack
on a competitor, a firm or business unit may choose to “hit and run.” Guerrilla warfare is characterized by the use of small, intermittent assaults on different market
segments held by the competitor. In this way, a new entrant or small firm can make
some gains without seriously threatening a large, established competitor and evoking some form of retaliation. To be successful, the firm or unit conducting guerrilla
warfare must be patient enough to accept small gains and avoid pushing the established competitor to the point that it must respond or else lose face. Microbreweries,
which make beer for sale to local customers, use this tactic against major bre…
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