Danaher Corporation Global Competitive Strategy - Case Study Example

Introduction Danaher Corporation designs, manufactures, and markets professional, medical, industrial, and consumer products. It operates through four segments: Professional Instrumentation, Medical Technologies, Industrial Technologies, and Tools and Components. Danaher sells its products primarily in North America, Europe, and Asia. The company, formerly known as DMG, Inc., was founded in 1969. It changed its name to Diversified Mortgage Investors, Inc. in 1978 and to Danaher Corporation in 1984. The modus operandi of the firm has been to expand through acquisitions. This has had several benefits. First it allows expansion within a vertical by acquiring similar business or business that is supportive of one or the other acquisition. This assists in creating synergies that lead to enhanced productivity and economies of scale or congruence. Second it avoids a gestation period for the new business to develop as well as give it a head start in the new venture. Third it offers the opportunity to branch out more quickly and expand either into backward or forward integration. Fourthly it offers opportunity to hire already experienced and exposed talent. However there are pitfalls too. The encumbrances, both financial and technological have to be shed sooner or later. Fresh training needs to be carried out for newcomers to mould into the existing and regulated culture of the parent company. Some divestments cause both resentment as well as fear in the workforce and Human Resources can become restive and less productive. The overall size is also difficult to handle with ease. On top of it all, new geographies, new set of customers and the cultural conflicts, both of human resources as well as the customers demand a mature organization that will not panic easily. Despite all above odds Danaher has been able to add several hundred subsidiaries of all shapes and sizes over the last two decades. They number well over six hundred companies and over fifty thousand employees over three continents. Their turnover has jumped from $ ten billion in 2003 to over $ 19 billion in 2008 and is slated to cross $ 22 billion by 2012. They are not a glamorous company but do have an enviable record of giving their shareholders a consistent 25% return annually for over twenty years that is the envy of much larger corporations. Literature Review International Trade has witnessed several strategies that have been adopted by different companies for entry, survival and success. These have been covered in the academic literature quite exhaustively. By and large it is the motive that determines a company’s strategy; the methods follow and implementation issues bring about changes, both in mid-course and often after a crisis. To be competitive and to remain so is the fundamental objective of a firm as described by Porter (1985, 1996) who has described several strategies over a long period of his academic pursuit citing Competitive Advantage to be the driver both at home and abroad. Dunning (1977, 1980, 1993, 1998, 2001, 2002) has been another prolific writer who created a paradigm in suggesting that firms invest externally when they develop and exploit their OLI (ownership, locational and internalization) advantages. On the other hand Mintzberg and Waters (1985) have described five kinds of strategies deployed by leaders. They have named their models as, emergent, intended, deliberate, realized and unrealized. Later Mintzberg (1987) writing by himself expounded the 5Ps of Positioning strategy as an insight to how business strategy often works. On the other hand, Hamel and Prahalad (1996) have argued that core competencies are the route to future developments and that they define the inventive and transformational aspect of business today that looks for future positioning. Strategies Danaher had adopted a mixture of all above strategies. Its clear objective was to expand through acquisitions and it used the competitive advantage together with the OLI leverage that it had acquired over the years. It used the resources of the acquired companies to augment further takeovers and used all the ploys to position itself in a dominant position in its chosen fields of operations. But in 1988 Danaher faced a crisis of sorts when it found that acquisitions had led to huge debts without adequate returns on investments. The reason was not far to see. It was acquiring firms but was also taking on the flab. It lacked the flexibility and dynamism that was required of a large conglomerate. However its managers were quick to learn from their mistakes. They adopted the lean manufacturing strategy from Toyota, introduced the Just in Time concept and have since then astutely followed this. This was the development of a core competence that was lacking in its strategy and Danaher was prudent enough to adopt this strategy first for survival and then for sustenance. Analysis Although Danaher has chosen its segments wisely yet one factor that can disturb it was and could not have been envisaged by it. The current global financial crisis has affected all companies, even if they were nowhere involved in its mechanism. The outcome of reduced manufacturing, the financially weak banking system, rising unemployment and lower consumer spending will take its toll. Demand will be weak for its products as buyers will be hesitant and inventories will be scaled down by all. There are two new strategies that it could now adopt. One could be to expand its activities deeper into the emerging markets of China, India, Brazil and Russia. These markets are relatively better equipped to face the global crisis as they have huge populations and as yet underdeveloped markets. They offer opportunities that have dried up in its existing markets and a number of corporate are reviewing their approach and interest in this direction. The second approach is going in reverse by divesting some of its acquired subsidiaries. This will well be extending its lean system into its management and assets. For any company that has taken the acquisition rout for expansion this should come easy. The strategy is to re-assess the economics of today and re-evaluate its return on investment. Divestment strategy is based on the contention that the subsidiarys own resource and capability profile and its relationship with other units in the MNE network determines its subsidiary context, or network position and importance in the network and this influences whether or not it should be divested and what divestment mode should be used. It is posited that the fit or matching the divestment strategy to the subsidiary context is positively associated with sustainability of MNE advantages. Equally, if not more important than the effect of divestiture on performance is the effect of divestiture on sustainability of the MNEs competitive advantage. Most business management literature has “analyzed the persistence of competitive advantages” based on the resource-based view (Rodriguez, Ricard and Sanchez, 2002). Advocates of the resource-based view argue that the RBV is a theory of sustainable competitive advantage (Peteraf and Barney, 2003) and the implications of this statement for divestment of foreign subsidiaries are significant. Firms go abroad with certain advantages and sustaining or maintaining those advantages is key to survival. Furthermore, the different organisational units that make up the MNE web are dependent on the network for proper operation and survival and severing one or more of these linkages pose a significant threat to the rest of the network because “sustainability is (also) based on the interrelationships that develop over time” (Williams, 1992, pg. 49, as in those between the organisational units. Conclusions A number of varying strategies have been reviewed and it has been observed that Danaher has borrowed from all of them. This evidences dynamism and flexibility on its part. This is mainly due to the fact that the company is owned by two brothers who hold a fifth of the company. They are able to take swift decisions which are an important factor both for making and implementing strategies. It is believed that the same suppleness will benefit the company in forging new strategies to face new challenges. Bibliography Dunning, J. H., (1977). ‘Trade, location of economic activity and the MNE: A search for an eclectic approach’. In: Ohlin, B. et al. (Eds.), The International Allocation of Economic Activity pp. 395–418, London: Macmillan Press. Dunning, J.H., 1980. Toward an eclectic theory of international production: Some empirical tests. Journal of International Business Studies, 11 (Spring/Summer): 9-31. Dunning, J. H. (1993). Multinational Enterprises and the Global Economy. New York: Addison-Wesley. Dunning, J. H., (1998). ‘Location and the multinational enterprise: A neglected factor?’ Journal of International Business Studies, 29(1), 45–66. Dunning, J. H., (2001). ‘The eclectic (OLI) paradigm of international production: Past, present and future’. International Journal of the Economics of Business, 8(2), 173–90. Dunning, J. H., (2002). ‘Relational assets, networks, and international business activity’. In Contractor, F. J. and Lorange, P. (Eds.), Cooperative Strategies and Alliances pp. 569–93. Oxford: Elsevier. Hamel, Gary. and Prahalad, C.K., (1996), Competing for the Future, Harvard Business Review, May-June, Mintzberg, Henry., (1987), The Strategy Concept I: Five Ps For Strategy, California Management Review; Fall 1987; 30, 1; ABI/INFORM Global Mintzberg, H., & Waters, J. (1985). Of strategies deliberate and emergent. Strategic Management Journal, 6,257-272. Peteraf and Barney, 2003 Porter, M. E. (1985). Competitive Strategy. New York: The Free Press. Porter, M.E., ( 1996) What is Strategy, Harvard Business Review. Rodriguez, M.A., Ricart, J. E. and Sanchez, P. (2002) Sustainable development and the sustainability of competitive advantage: A dynamic and sustainable view of the firm. Creativity and Innovation Management, 11(3): 135 Williams, J. R. (1992) How sustainable is your competitive advantage. California Management Review 34(3): 29-52. Read More