Global Strategic Development

Headquarter Level Strategy

Global Strategic Development


n     Tata is now India’s largest and most admired conglomerate.

n     Tata began its activities in 1847 as a single business company operating as a textile mill.

n     Due to Government regulation Tata was forced to diversify itself into unrelated businesses.

n     Tata’s activities span most key sectors of the Indian economy including steels, auto manufacturing, hotels, telecommunication, financial services, chemical, electricity, IT consultancy, tea & watches.


n     Tata’s corporate strategy is to manage by a central group of corporate managers.

–   On the one hand their task is to act as a buffer between the different subsidiaries, so that each subsidiary is accountable for its activities.

–   On the other hand their task to act as a bridge across the different subsidiaries, so as to enable expansion into new businesses and regions and assistance to businesses that need capital help from the centre (venture capitalist).

Role of Corporate Parent

n     CP must determine the overall strategic direction and structure of the multinational firm: Global Sourcing

n     CP must determine the scope of operation by defining the extent of the firm’s involvement across different operations and countries: Diversification

n     The management team at the corporate level needs to develop basis for maintaining an overview of performance across all subsidiaries: managing a Global Portfolio

Global Sourcing Strategy

n     Sourcing refers to the process by which MNC’s manage the flow of components and finished goods to serve domestic and international markets.

n     GSS is the management of logistics identifying which production units will serve which particular markets and how components will be supplied for production.

n     GSS must enable firms to exploit both its own and its suppliers’ competitive advantages and the comparative locational advantages of various countries in global competition.

Global Sourcing Strategy

Vertical Integration

n     VI represents the expansion of the firm’s activities to include activities carried out by suppliers or customers.

–   Firm source components in-house when cost of producing them abroad outweigh the benefits.

–   Global intra-housing strategy- involves coordinating and integrating the flow of inputs both within and among subsidiaries in different countries.

Motives for VI

n    Lack of quality suppliers

n    Retain control over property knowledge

n    High entry barrier

n    Maintain quality

n    Add value at different stages of the value chain.

Problems of VI

n    Lost focus

n    Higher cost

n    Fast changing global business environment


n     Outsourcing by multinational firm comprises the inputs supplied to the multinational firm by independent suppliers from around the world.

n     Conditions of Outsourcing

–    Specify what attributes it needs from suppliers

–    Technology and processes to measure those attributes must be reliable and conveniently accessible

–    Variations in the deliveries needs to be incorporated and adjusted in the final product.

Types of Outsourcing

n     Firm’s prefer domestic outsourcing when the disadvantages of producing them abroad outweigh the advantage.

–    The cost of producing and distributing the components by a domestic supplier is lower than the cost of producing them by foreign suppliers

–    Where the foreign suppliers do not possess the necessary skills and technologies needed to produce the components

Advantages of Outsourcing

n    Cost Saving

n    Access to proprietary knowledge

n    Focus on core competence

n    Flexibility

n    Competition

Disadvantages of Outsourcing

n    Hollow firms

n    High failure rate

n    Operational & Cultural problem

n    Damage corporate image


Diversification Strategies

Focused Strategy: Single Business

Industrial Diversification

n     Two industrial diversification options are available for firms:

–   Diversify into closely related business- Related Diversification: RD measures dispersal of activities across business segments within industries

–   Diversify into completely unrelated business- Unrelated Diversification: URD measures the extent to which a firm’s activities are dispersed across different industries.

Related Diversification

n    Related diversification: companies acquire businesses that are similar in some way to their original or core business

–   Ex.: Nike adding clothing line to its shoe operations

Related Diversification

n    Opportunities:

–   Economies of scope: sharing of knowledge

–   Market power

–   R&D competencies

Unrelated Diversification

n    Unrelated diversification: firms acquire businesses in any industry

–   Sound financial investment: key  concern

–   Diversify risks

–   Market/ Profit opportunity

ØProblem of Contamination

Risks of Diversification

n    Demotivate better performing subsidiaries

n    Parent’s interference

Diversification in Emerging Economies

Diversification in Emerging Economies

Global Diversification

n     The key motivations for global diversifications are

–   Search for new market to exploit unique assets

–   To gain access to lower cost higher quality input

–   To build scale economies and other efficiencies

–   Pre-empt competitors

n     While global diversification has increased over time, industrial diversification has declined over the same period.

Global Diversification

n    Related & Unrelated GD

–   Related GD: the dispersion of a global firm’s activities across countries within relatively homogeneous cluster of countries

–   Unrelated GD: the dispersion of a global firm’s activities across heterogeneous geographic region

Global Diversification

n    Benefits

–   Increases shareholders value

–   Create flexibility- production, operation

–   Lower the overall tax liability

–   Increased power

–   Spreading risk

Global Diversification

n    Costs

–   More complex structure

–   Inefficient subsidiaries

–   Cost of coordination

Managing Portfolio: BCG Share Matrix

BCG Share Matrix

n    Division into four categories based on market share and relative market share

–   Stars: the most successful firm

–   Dogs: businesses with low market shares in low-growth industries

–   Cash cows: businesses in slow-growth industries where company has strong market-share position

–   Problem children: businesses in high-growth industries where company has a poor market share

Managing Global Portfolio

Country Attractiveness: Ford

Competitive Strength: Ford

CA vs. CS