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International strategic

management
• The process by which a firm’s managers
evaluate the future prospects of the firm and
decide on appropriate strategies to achieve
long-term objectives is called strategic
planning.
• The basic means by which the company
competes – its choice of business or businesses
in which to operate and the ways in which it
differentiates itself from its competitors – is its
strategy.
• Strategic Management: the process of
determining an organization’s basic
mission and long-term objectives, then
implementing a plan of action for pursuing
the mission and attaining objectives
• Growing need for strategic management
related to increasingly diversified
operations in continuously changing
international environment
Approaches to Strategic
Planning
Economic
Economic
Imperative
Imperative

Administrative
Administrative Political
Political
Coordination
Coordination Imperative
Imperative

Quality
Quality
Imperative
Imperative
• Focusing on economic imperative
• Addressing the political imperative
• Emphasizing the quality imperative
• Implementing an administrative
strategy
Economic Imperative
• Strategy based on cost leadership,
differentiation, and segmentation
• Product mix
– Value added in the upstream activities
of the industry’s value chain
– generic good (not name brand or
support service dependent)
• Global sourcing to shorten the
production or buying cycle
Political Imperative
• Strategy country- responsive and
designed to protect local market
niches
• Success of the product or service
depends heavily on marketing, sales
or service
– Customer or client-focused
• Approach most often used by MNCs
pursuing a country-centered or
multidomestic strategy.
Quality Imperative
• Two possible paths
– Change in attitudes to raise expectation for
service quality
– Implementation of practices to make
quality improvement an ongoing process
• “Total quality management” (TQM)
– Cross-training personnel
– Process re-engineering
– Reward systems designed to reinforce
quality
Administrative Coordination
• Decision making based on the merits
of the individual situation rather than
a predetermined economic or political
strategy
– Coordination of global supply chains
– Localized marketing of products and
services
• Least common approach given the
pressures on MNCs to coordinate
strategy both regionally and globally
Global Strategy
• Pressures for global integration
– universal needs - consumer tastes in different
countries are similar with regard to certain types of
products
• create strong pressures for a global strategy
– pressures to reduce costs - impetus for global
integration of manufacturing
• key international competitors located where factor costs
are low
– global strategic coordination - response to global
competitive threats
• centralize decisions regarding the competitive strategies of
foreign subsidiaries
Global Strategy (cont.)

• Pressures for local responsiveness


– consumer tastes and preferences differ
significantly among countries
• requires customized product and/or marketing
messages
– differences in traditional practices
among countries
– differences in distribution channels and
sales practices among countries
– economic and political demands imposed
by the host government
Pressures for global integration

Transnational
Global
Specialized facilities permit local
High Views the world as a single market.
responsiveness. Complex
Operations are controlled centrally
coordination mechanisms provide
from the corporate office.
global integration.

International Multinational
Uses existing capabilities to Several subsidiaries operating as
Low
expand into foreign markets. stand-alone business units in
multiple countries.

Low High
Pressures for local responsiveness
Global Strategy (cont.)
• Choosing a global strategy
– international model - helps companies exploit their existing
core capabilities to expand into foreign markets
• uses subsidiaries in each country
• ultimate control exercised by the parent company
• core functions are centralized in the parent company
• advantage - facilitates the transfer of skills and know-how
from the parent company to the subsidiaries
• disadvantages
– does not provide maximum latitude for responding to local
conditions
– does not provide the opportunity to achieve a low-cost
position by means of scale economies
Global Strategy (cont.)
• Choosing a global strategy (cont.)
– multinational model - uses subsidiaries with
substantial discretion to respond to local conditions
with ultimate control exercised by the parent company
• each subsidiary is a self-contained unit
• each subsidiary can customize its products and
strategies
• advantage - less need for coordination and direction
from corporate headquarters
• disadvantages
– higher manufacturing costs
– cannot realize scale economies
– difficult to launch coordinated global attacks
against competitors
– duplication of effort
Global Strategy (cont.)
• Choosing a global strategy (cont.)
– global model - enables a company to market a
standardized product in the global marketplace
• product manufactured in locations where mix of costs and
skills is most favorable
• characterized by centralized decision making and tight
control by the parent company over most aspects of
worldwide operations
• companies tend to become the low-cost players in any
industry
• advantage - often able to realize scale economies
• disadvantages
– less responsive to consumer demands in different countries
– requires increased coordination, paperwork, and staff
Global Strategy (cont.)
• Choosing a global strategy (cont.)
– transnational model - centralization of
certain functions in locations that best
achieve cost economies
• base other functions in national subsidiaries to
facilitate greater local responsiveness
• major components may be manufactured in
centralized production plants to realize scale
economies and then shipped to local plants
– local plants finish product assembly to fit local needs
• fosters communications among subsidiaries by
requiring:
– formal mechanisms such as transnational committees
– transfers of managers among subsidiaries
– headquarters must play a proactive role in coordinating
activities
Strategic management
Elements of Strategic Planning
for International Management
External
External Environmental
Environmental Internal
Internal Resource
Resource
Scanning
Scanning for
for MNC
MNC Analysis
Analysis of
of MNC
MNC
Opportunities
Opportunities and
and Strengths
Strengths and
and
Threats
Threats Weaknesses
Weaknesses

Strategic
Strategic Planning
Planning
Goals
Goals

IMPLEMENTATION
IMPLEMENTATION

Adapted from Figure 8–2: Basic Elements of Strategic Planning for International Management
Environmental Scanning
 Provide management with
accurate forecasts of trends that
relate to external changes in
geographic areas where the firm
is currently doing business or
considering setting up operations
 These changes relate to the
economy, competition, political
stability, technology, and
demographic consumer data
• PEST ANALYSIS
• COMPETITOR ANALYSIS
Internal Resource Analysis
 Evaluate managerial, technical,
material, and financial strengths
and weaknesses
 Determine ability to take advantage
of international market
opportunities
 Match external opportunities
(environmental scan) with internal
capabilities (internal resource
analysis)
 Key question: Do we have the
people and resources that can help
Strategic Planning Goals
 Goal formulation often precedes the
first two steps
 However, more specific goals come
out of external scanning and
internal analysis
 Typically serve as an umbrella for
subsidiaries and international
operations
 Profitability and marketing goals
almost always dominate
 Once set, the MNC will develop
specific operational goals and
Elements of Strategic
Planning:

Implementation
Provides goods and services in accord with
plan of action
• Plan often will have overall philosophy or
guidelines to direct process
• Considerations in selecting country:
– Advanced industrialized countries offer largest
markets for goods/services
– Amount of government control
– Restrictions on foreign investment
– Specific benefits offered by host countries
Elements of Strategic
Planning:
Implementation
• Local issues
(continued)
– Once country has been decided, firm
must choose specific locale
– Important factors influence this choice:
• Access to markets
• Proximity to competitors
• Availability of transportation and electric
power
• Desirability of location for employees
coming in from outside
The Role of Functional Areas

in Implementation
• Production
– Traditionally handled through domestic operations
– Increasingly consideration of world wide production is
important
– Recent trend away from scattered approach and
toward global coordination of operations
– If product labor intensive, farm out product to low-cost
sites (e.g., Mexico)
• Marketing
– country-by-country basis
– built around well-known 4 P’s (product, price,
promotion, place)
The Role of Functional Areas

• Finance
(continued)
– Normally developed at home office
– Carried out by overseas affiliate or branch
– MNCs have learned that transferring
funds from one place in world to other, or
borrowing funds in international money
markets often less expensive than reliance
on local sources
– Major headache is reevaluation of
currencies
SPECIALIZED
STRATEGIES

1. First-Mover Strategies
2. “Bottom of the Pyramid” Strategies
3. “Born-Global” Strategies
First-Mover Strategies
Useful in rapidly changing markets
◦ Market opening in developing economies
◦ Market reforms in transition economies
◦ Privatization of state-operated enterprises
Advantages and risks
◦ Capture benefits of learning
◦ Form alliances with attractive local partners
◦ Uncertain pace of reform
◦ Opportunity costs of premature entry
“Base of the Pyramid”
Strategies
• Strategies for Base of Pyramid (BOP): 4-5
billion potential customers around the globe
heretofore ignored by global business
– with local governments, small entrepreneurs,
and BOP forces global business to rethink their
strategies. Must consider relationships
nonprofits rather than depend on established
partners such as central government.
– BOP strategies challenging to implement
– Represents opportunity to incubate new,
leapfrog technologies
– Successful BOP strategies can travel profitably
to higher income markets
(2) Entrepreneurship
Strategy and

New Ventures
Increasingly small and medium size enterprises,
often in the form of new ventures, are
becoming involved in international
management.
• The earlier in its existence an innovative firm
internationalizes, the faster it is likely to grow
both overall and in foreign markets.
• Venture performance (growth and ROE) is
improved by technological learning gained from
international environments.
International
Entrepreneurship
• Defined as “a combination of
innovative proactive, and risk-
seeking behavior that crosses
national borders and is intended to
create value in organizations”
International New Ventures
and
“Born Global” Firms
• “Born global”: firms that engage in significant
international activity a short time after being
established.
• Most important business strategies employed by
born global firms are global technological
competence, unique products development, quality
focus, and leveraging of foreign distributor
competencies.
• Truly born global firms tend to survive longer than
other seemingly global companies.
Implications for Managers
• The complexity and interdependence of the
global economy increases the need for firms
to plan strategically
• Effective strategies must balance tensions
between
– Top-down and bottom-up strategies
– Economies of scale and differentiation
• Managers need to anticipate the future
evolution of the firm and global markets

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