Strategy Formulation

and Implementation
❖ The specific objectives of this chapter are to
1. DISCUSS the meaning, needs, benefits, and
approaches of the strategic planning process for
MNCs.
2. UNDERSTAND the tension between pressures
for global integration and national responsiveness;
and the four basic international strategy options.
3. IDENTIFY the basic steps in strategic planning.
4. DESCRIBE how MNCs implement strategic plans.
5. REVIEW the three major functions of marketing,
production, finance that are used in strategic plan
implementation.
6. EXPLAIN specialized strategies appropriate for
emerging markets and international new ventures. 8-1
 Strategic Management

❖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

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 Approaches to Formulating
and Implementing Strategy
1. Economic Imperative
2. Political Imperative
3. Quality Imperative
4. Administrative Coordination

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 Approaches to Formulating
and Implementing Strategy
Economic Imperative
❖ Economic imperative
➢ Worldwide strategy based on cost leadership, differentiation,
and segmentation.
❖ Strategy is also used when the product is regarded as
generic and therefore is not sold on name brand or
support service
❖ Often sell products for which large portion of value is
added in upstream activities of industry value chain
➢ Research and development
➢ Manufacturing
➢ Distribution

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 Approaches to Formulating
and Implementing Strategy
Political Imperative
❖Political imperative
➢ Strategy formulation and implementation utilizing
strategies that are country-responsive and
designed to protect local market niches.
➢ These MNCs often use country-centered or multi-
domestic strategy
❖Success of product or service depends heavily
on
➢ Marketing
➢ Sales
➢ Service

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 Approaches to Formulating
and Implementing Strategy
Quality Imperative
❖Quality imperative
❖Has two paths
➢ Change in attitudes and a raising of expectations
for service quality.
➢ The implementation of management practices
designed to make quality improvement an ongoing
process.
❖TQM Total Quality Management

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 Total Quality Management

❖ Cross-train personnel to do jobs of all members in work group

❖ Process re-engineering designed to help identify/eliminate
redundant tasks
❖ Reward system designed to reinforce quality performance
❖ Quality operationalized by meeting or exceeding customer
expectations
❖ Quality strategy formulated at top management level and diffused
through organization
❖ TQM techniques: traditional inspection and statistical quality
control; cutting edge Human Resource Management techniques
such as self-managing teams and empowerment

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 Approaches to Formulating
and Implementing Strategy
Administrative Coordination
❖Administrative coordination
➢ MNC makes strategic decisions based on the
merits of the individual situation rather than a
predetermined economic or political strategy.
❖Least common approach to formulation and
implementation of strategy
❖Used when rapid, flexible decision making is
needed to close the sale
❖Many large MNCs work to combine all four of
the approaches to strategic planning
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Global and Regional Strategies

❖Fundamental Tension: The globalization vs.

national responsiveness conflict
❖Global integration
➢ Production and distribution of products and
services of a homogenous type and quality on a
worldwide basis.
❖National responsiveness
➢ The need to understand different consumer tastes
in segmented regional markets and respond to
different national standards and regulations
imposed by autonomous governments and
agencies.

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 Global Integration vs.
National Responsiveness

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 Summary and Implications
of the Four Basic Strategies
❖ Appropriateness of each strategy depends on
pressures for cost reduction and local responsiveness
in each country served
– International strategy make use of valuable core
competencies that host-country competitors lack.
combining low demand for integration and
responsiveness
– Multi-domestic strategy is useful with high
pressure for local responsiveness and low
pressures for cost reductions

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Summary and Implications
of the Four Basic Strategies
➢ Global strategy is an integrated strategy based
primarily on price competition. It is a low-cost
strategy attempting to benefit from scale economies
in production, distribution, marketing
➢ Transnational strategy is pursued when high cost
pressures and high demand for local
responsiveness exists

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Basic Elements of Strategic Planning
for International Management

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Elements of Strategic Planning
Environmental Scanning

❖Environmental scanning
➢ Provides management with accurate forecasts of
trends relating to external changes in geographic
areas where the firm is doing business or
considering doing business.
❖Changes relate to economy, competition,
political stability, technology, demographic and
consumer data

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Elements of Strategic Planning
Internal Resource Analysis

❖Internal resource analysis is used to evaluate

MNC’s current managerial, technical, material,
and financial strengths and weaknesses
➢ Assessment then used to determine ability to take
advantage of international market opportunities
➢ Match external opportunities (gained in
environmental scan) with internal capabilities
(gained through internal resource analysis)
➢ Key question for MNC: Do we have the people and
resources that can help us develop and sustain
necessary Key Success Factors, or can we
acquire them?

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Elements of Strategic Planning
Goal Setting

❖Precedes the first two steps of environmental

scanning and internal analysis
❖More specific goals for strategic plan come
from external scanning and internal analysis
❖Areas for formulation of MNC goals
➢ Profitability, marketing, operations, finance, and
human resources
❖Profitability and marketing goals top the plans
and tend to be more externally environmentally
responsive

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 Strategy Implementation

❖Strategy 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

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 Strategy Implementation
Location Considerations

❖ Two primary considerations

1. The country
2. The specific locale within the chosen country
❖ The Country
➢ Traditionally MNCs invest in highly industrialized countries
that offer the largest markets for goods and services
❖ Developing countries like Mexico becoming more
attractive
➢ The amount of government control and restrictions is a factor
➢ Specific benefits offered by host countries
❖ Low tax rates, low interest loans, subsidies , but this
trend is changing

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 Strategy Implementation
Location Considerations

❖Local Issues
➢ Once country has been decided, firm must choose
specific locale
➢ Important factors that influence this choice
❖Access to markets
❖Proximity to competitors
❖Availability of transportation and electric power
❖Desirability of location for employees coming in
from outside
❖Nature of workforce
❖Cost of doing business
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 Strategy Implementation
The Role of the Functional Areas

❖Marketing
➢ Strategy implementation must be determined on a
country-by-country basis
❖May be dictated by the overall strategic plan,
which is based on market analysis
➢ What works in one market may not work in another
➢ Marketing may be dictated by the overall strategic
plan
➢ Marketing strategy involves the four “Ps” – product,
price, promotion, and place

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 Strategy Implementation
The Role of the Functional Areas

❖Production
➢ When exporting goods to foreign markets,
production has usually been handled through
domestic operations
➢ More recently MNCs have found that whether they
export or produce goods locally in host country,
consideration of worldwide production is important
➢ Recent trend away from multi-domestic approach
and toward global coordination of operations
➢ If product labor intensive, farm out product to low-
cost sites (e.g., Mexico)

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 Strategy Implementation
The Role of the Functional Areas

❖Finance
➢ Transfer funds from once place in the world to
another, or borrowing funds in international money
markets is often less expensive than relying on
local sources
➢ Issues include
❖Reevaluation of currencies
❖Inherent risk of volatile monetary exchange
rates

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 Specialized Strategies
Strategies for Emerging Markets

❖The big emerging markets have captured the

bulk of investment and business interest from
MNCs and their managers in recent years
➢ Mexico, Brazil Argentina, South Africa, Poland,
Turkey, India, Indonesia, China, South Korea
❖Emerging markets present exceptional risks
due to political and economic volatility
➢ These risks show up in corruption, failure to enforce
contracts, red tape and bureaucratic costs, and
general uncertainty in legal and political
environment
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 Specialized Strategies
Strategies for Emerging Markets

❖First Mover Strategies

❖Strategies for Base of Pyramid (BOP)

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 Specialized Strategies
Strategies for Emerging Markets

First Mover Strategies

➢ Being the first or one of the first to enter a market
➢ Capturing learning effects important for increasing
market share
➢ Achieving scale economies that accrue from
opportunities for capturing that greater share
➢ Developing alliances with the most attractive local
partner
➢ Privatization supports the competitive effects of first-
mover positioning

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 Specialized Strategies
Strategies for Emerging Markets

Strategies for Base of Pyramid (BOP)

➢ Strategy targeting low-income customers in
developing countries
➢ BOP forces companies to consider smaller-scale
strategies
➢ Ideal for incubating new, leapfrog technologies that
help environment and increase social benefit
➢ Business models can travel profitably to higher-
income markets if successful
➢ Challenging to implement - Companies must offer
affordable goods and bring product awareness to the
general population
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 Specialized Strategies
International New Ventures
and “Born Global” Firms
❖International new ventures or “born global”
firms
➢ Firms that engage in significant international activity
a short time after being established.
➢ Successful born-global firms leverage a distinctive
mix of orientations and strategies
❖Global technological competence
❖Unique product development
❖Quality focus
❖Leveraging of foreign distributor competencies
➢ Truly born global firms tend to survive longer than
other seemingly global companies
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