International Strategic Management - Unit 3

International
Strategic
Management
International Business Management
Unit III
By
Prof. Salil Saran
1
International Strategic Management
International strategic management is a
comprehensive and ongoing management planning
process aimed at formulating and implementing
strategies that enable a firm to compete effectively
internationally.
It is a strategic planning process of developing
international strategy in the direction of achieving
strategic-fit between the organisation's competence &
resources and the global environment under which it
tends to operate. It is an ongoing process that adhere an
organization to compete in an international scenario.
Strategic management is usually the responsibility of top-
level executives at corporate headquarters and senior
managers in domestic and foreign companies.
International Strategic Management is a planning process of developing

international strategy in the direction of achieving strategic-fit between the
organisation's competence & resources and the global environment under
which it tends to operate. It is an ongoing process that adhere an organization
to compete in an international scenario.
2
What is Strategy?
Strategy is a well defined roadmap of an organization. It
defines the overall mission, vision and direction of an
organization. The objective of a strategy is to maximize an
organization‘s strengths and to minimize the strengths of
the competitors.
“Strategy; a set of commitments and actions, which is
fully integrated and coordinated. It’s goal is to utilize core
competencies and develop competitive advantages”
Strategy in an international context is a plan for the
organization to position itself vis-a-vis its competitors,
and resolve how it wants to configure its value chain
activities on a global scale.
International Strategic Management is a planning process includes the

“strategy”. So What is strategy?
Strategy is an action that managers take to attain one or more of the organization‘s
goals. Strategy can also be deﬁned as ―A general direc on set for the company and
its various components to achieve a desired state in the future.
Strategy in International context?
3
What is Strategy Management?
Strategic Management, is defined as the dynamic process
of formulation, implementation, evaluation and control of
strategies to realize the strategic intent of the
organization..
“Strategic management: A management process to
asses a company and its competitors. Furthermore, it
meets all these competitors by setting appropriate goals
and strategies. Finally, it evaluates these goals and
strategies to see whether or not they have been successful
or need to be replaced by new strategy or goals.”
Strategic management is a continuous process that
appraises the business and industries in which the
organization is involved; appraises it‘s competitors; and
fixes goals to meet all the present and future competitor‘s
and then reassesses each strategy.
What is Strategic Management ?

The strategic management process means defining the organization‘s strategy. It is
also defined as the process by which managers make a choice of a set of strategies
for the organization that will enable it to achieve better performance.
4
Strategic Management Process Four Steps:
Environmental Scanning- Environmental scanning refers
to a process of collecting, scrutinizing and providing
information for strategic purposes. It helps in analyzing
the internal and external factors influencing an
organization. After executing the environmental analysis
process, management should evaluate it on a continuous
basis and strive to improve it...
Strategy Formulation- Strategy formulation is the
process of deciding best course of action for
accomplishing organizational objectives and hence
achieving organizational purpose. After conducting
environment scanning, managers formulate corporate,
business and functional strategies
The environment scanning- in which the organization operates prior to formulating a

strategy, as well as the plan for implementation and control of the strategy.
5
Strategy Formulation Cont…
Strategy formulation, the process of planning strategies,
is often divided into three levels: Corporate-level
strategy, Business-level strategy and Functional-level
strategy. Together, these three levels of strategy can be
illustrated in a so called ‘Strategy Pyramid’
Corporate Level : The top of pyramid is corporate-level
strategy, concerned with the overall scope of an
organization and how value will be added to the different
parts (business units) of the organization. This could
include issues of geographical coverage, diversity of
products/services or business units, and how resources
are to be allocated between the different parts of the
organization.
6
Business Level Strategy: The second level is business-
level strategy, which is about how the various businesses
included in the corporate strategy should compete in
their particular markets. For this reason, business-level
strategy is sometimes called competitive strategy.
The Business-level strategy is what most people are
familiar with and is about the question “How do we
compete?”, “How do we gain (a sustainable) competitive
advantage over rivals?”. In order to answer these
questions it is important to first have a good
understanding of a business and its external
environment.
Business-level strategy typically concerns issues such as
pricing strategy, innovation or differentiation, for instance
by better quality or a distinctive distribution channel.
7
Functional Level Strategy: The third level of strategy is at the
functional or operating end of an organization.
Functional-level strategy is concerned with the question “How
do we support the business-level strategy within functional
departments, such as Marketing, HR, Production and R&D?”.
These strategies are often aimed at improving the
effectiveness of a company’s operations within departments.
Within these department, workers often refer to their
‘Marketing Strategy’, ‘Human Resource Strategy’ or ‘R&D
Strategy’.
Functional strategy is therefore the approach a functional area
takes to achieve corporate and business unit objectives and
strategies by maximizing resource productivity. It is concerned
with developing and nurturing a distinctive competence to
provide a company or business unit with a competitive
advantage
8
Let’s use Samsung as an example. Samsung
is a conglomerate consisting of multiple
strategic business units (SBU’s) with a diverse
set of products. Samsung sells smartphones,
cameras, TVs, microwaves, refrigerators,
laundry machines, and even chemicals and
insurances. Each product or strategic
business unit needs a business strategy in
order to compete successfully within its own
industry. However, at the corporate level
Samsung has to decide on more
fundamental questions like: “Are we going to
pursue the camera business in the first
place?” or “Is it perhaps better to invest more
into the smartphone business or should we
focus on the television screen business
instead?”.
Levels of Strategy In Sum

The most common level of strategy is Business strategy and exist within
strategic business units with as goal to gain competitive advantage in a
certain market. If a company has multiple SBU’s, there needs to be an
overarching Corporate strategy that ties all SBU’s together through
corporate configuration. Here, top management must decide on resource
allocation and where to invest and where to divest. Lastly, Functional
strategy exist within departments such as Marketing, HR and Production.
Ideally, we should refer to tactics instead of strategies because of the
operational nature of the decisions made within these departments
9
Strategy Implementation- Strategy implementation
implies making the strategy work as intended or putting
the organization‘s chosen strategy into action. Strategy
implementation includes designing the organization‘s
structure, distributing resources, developing decision
making process, and managing human resources.
Strategy Evaluation- Strategy evaluation is the final step
of strategy management process. The key strategy
evaluation activities are: appraising internal and external
factors that are the root of present strategies, measuring
performance, and taking remedial / corrective actions.
Evaluation makes sure that the organizational strategy as
well as it‘s implementation meets the organizational
objectives
10
Management Planning Process
Strategies
Compete Effectively in the

Global Marketplace
11
Components Of An International Strategy
There are many similarities between developing a
strategy for competing in a single country and
developing a strategy for competing in multiple
countries. In both cases, the firm’s strategic planners must
answer the same fundamental questions:
• What products and/or services does the firm
intend to sell?
• Where and how will it make those products or
services?
• Where and how will it sell them?
• Where and how will it acquire the necessary
resources?
• How does it expect to outperform its competitors?
12
• developing an international strategy is far more
complex than developing a domestic one.
Managers developing an international strategy
must understand and deal with multiple
governments, currencies, accounting systems,
political systems, and legal systems, as well as a
variety of languages and cultures.
They must also implement strategic plans among
business units located in different parts of the world,
as well as monitor and control strategic outcomes.
13
Sources of Competitive Advantage :
International businesses have the ability to exploit three sources of competitive advantage
unavailable to domestic firms.
Global Efficiencies. International firms can improve their efficiency with location
efficiencies, economies of scale, and economies of scope.
• International firms may achieve location economies by locating their facilities anywhere
in the world that yields them the lowest production or distribution costs or that best
improves the quality of service they offer their customers. For Example - Japanese
MNC Matsushita has location efficiencies by producing microwaves in Shanghai to take
advantage of China’s low labor costs
• Similarly, by building factories to serve more than one country, international firms may
also lower their production costs by capturing economies of scale. For Example -
Mercedes-Benz has achieved economies of scale by focusing production of its M-class
at its assembly plant in Vance, Alabama. The plant in Tuscaloosa was the first major
Mercedes-Benz passenger car production facility outside Germany and is regarded as
the nucleus of the automotive industry in Alabama.
Vance is a town in Tuscaloosa and Bibb counties in the U.S. state of Alabama.
The Town of Vance is located in the heart of West Central Alabama. Located
between Tuscaloosa and Birmingham,
14
Sources of Competitive Advantage Cont..
• By broadening their product lines in each of the countries they enter, international firms
may enjoy economies of scope, lowering their production and marketing costs and
enhancing their bottom lines.
Multinational Flexibility. There are wide variations in the political, economic, legal, and
cultural environments of countries, and these environments are constantly changing: new
laws are passed, new governments are elected, economic policies are changed, new
competitors may enter (or leave) the national market, and so on. International businesses
thus face the challenge of responding to these multiple diverse and changing
environments.
Worldwide Learning. The diverse operating environments of MNCs may also contribute to
organizational learning. Differences in these operating environments may cause the firm to
operate differently in one country than another. An astute firm may learn from these
differences and transfer this learning to its operations in other countries.
International business success is largely determined by the degree to which the firm
achieves these three goals of efficiency, flexibility, and learning.
15
Strategic Alternatives
There are four strategic alternatives that MNCs may adopt in their attempt to balance
the three goals of global efficiencies, multinational flexibility, and worldwide learning.
Pressures for Global Efficiencies
Global Strategy Transnational Strategy

The firm views the world as The firm attempts to combine
High single marketplace. Primary the benefits of global scale
goal is to create standardized efficiencies with the benefits
products of local responsiveness
Home Replication Multidomestic Strategy
Low The firm uses the core com- The firm operates as a
patency or firm-specific collection of relatively
advantage it developed at independent Subsidiaries
home focusing on domestic market
Low High
Pressures for Local Responsiveness and Flexibility
16
Home Replication
In the home replication strategy, a firm utilizes the core
competency or firm-specific advantage it developed at
home as its main competitive weapon in the foreign markets
that it enters. It takes what it does exceptionally well in its
home market and attempts to duplicate it in foreign markets.
Multidomestic Strategy
multidomestic corporation views itself as a collection of relatively independent operating
subsidiaries, each of which focuses on a specific domestic market. Each of these
subsidiaries is free to customize its products, its marketing campaigns, and its operations
techniques to best meet the needs of its local customers. The multidomestic approach is
effective when there are clear differences among national markets; when economies of
scale for production, distribution, and marketing are low; and when the cost of
coordination between the parent corporation and its various foreign subsidiaries is high.
Multidomestic Strategy Example : Nestle is a perfect example of a company

employing multi-domestic strategy. The firm uses a specific sales approach
and marketing for every market it operates in. The organization also adapts
different products for each market according to consumer preferences.
17
Global Strategy
A global corporation views the world as a single
marketplace and has as its primary goal the creation of
standardized goods and services that will address the needs
of customers worldwide. The global strategy is almost the
exact opposite of the multidomestic strategy.
Transnational Strategy
The transnational corporation attempts to combine the benefits of
global scale efficiencies, such as those pursued by a global
corporation, with the benefits and advantages of local
responsiveness, which is the goal of a multidomestic corporation.
Transnational Strategy Example :McDonald's in India are different from a

McDonald's at Singapore and even more different from a McDonald's in China.
And yet, why everything about their food, their ambiance and their promise to
you feels exactly the same? These are some characteristics of a Transnational
Strategy
18
Unilever's Product Portfolio Around The World.
Unilever makes a good example of a transnational business model. Its

subsidiaries are given strategic roles to play by the parent company and help
determine the customer wants. These subsidiaries also function as centers of
excellence for the company
19
Strategic Compulsions
In order to sustain in this competitive business
environment, the businesses are compel to go global and
trade in international markets. And growing markets
impose different constraints and compulsions, and thus
drive different strategic behavior, than mature or
contracting markets. Growing markets obviously compel
companies to focus on reaching new customers, while
mature and contracting markets compel companies to
focus on outcompeting their peers.
It is necessary to come up with new strategies to gain
more customers. So, strategic management becomes a
process of systematically analyzing various opportunities
and threats vis-à-vis organizational strengths and
weaknesses, formulating and arriving at strategic choices
through critical evaluation of alternatives and
implementing them to meet the set objectives of the
organization. For Eg: Tata, Sony, Pepsi, Maruti Suzuki etc
Strategic Compulsions means that the companies face the compulsion to be global if
they want to gain the global market and more values. But in the modern context
strategic management faces many compulsions. The present and future development
of the field of strategic management is likely to be driven by compulsions like
contemporary developments in social and economic theory and recent changes in the
nature of the business and economic context.
20
The path of strategic management is activated by
constraints such as modern developments in societal
and economic theory and recent changes in the form
of business, outside the economic context.
Areas of Strategic Compulsions
• E-commerce and Internet Culture − Expansion
of internet and information technology made the
business move towards e-commerce. Online
shopping /Selling and Advertising are important
issues. These factors comp Hyperactive
Competition el the businesses to go modern.
• Hyperactive Competition − Businesses now are
hyper-competitive which compel them to draw a
competitive strategy that includes general
competitive intelligence to win the market share.
•E-commerce and Internet Culture – Some of the factors such as online

shopping online advertising and e-commerce are essential factors that are
required to enhance the business to turn out modern and adopt modern
practices.
•Hyperactive Competition – In order to survive in the competitive international
market, businesses always have to be hyper-competitive which enables them
to develop competitive strategy and thus gain the market share.
21
Areas of Strategic Compulsions cont..
Diversification − Uncertainty and operational
risks have increased in the current global
markets. Companies now need to protect
themselves by diversifying their products and
operations. Businesses now are compelled to
focus on more than one business, or get
specialized in one business.
Active Pressure Groups − Contemporary
pressure groups direct businesses to be more
ethical in their operations. Most of the
multinationals are now spending a good deal
to address their Corporate Social
Responsibility (CSR).
•Diversification – In order protect and play safe against the uncertainty and
operational risk, business should diversify their product base and also the
operations. Therefore it has become essential for the businesses to
concentrate on more than one business.
•Active Pressure Groups – Corporate Social Responsibility has now become
an essential part for the business groups and hence business should
concentrate more on addressing the issues related to corporate social
responsibility.
22
Strategic Compulsion- Example
The COVID-19 pandemic sent hundreds of millions of students home worldwide. Work from
home is now the only option for many. In this crisis, cloud companies suddenly are the
backbone of a global virtual learning and collaboration experiment on a scale never
previously experienced.
Amazon Web Services (AWS) is providing highly scalable and reliable infrastructure capacity,
technical support, and AWS services to help customers with their research, remote work and
learning, and other solutions to address their needs and the effects this is having on
communities and businesses.
Amazon Web Services (AWS), Microsoft Azure, Google, IBM and Alibaba. Other global cloud
players include Salesforce, Oracle Cloud, Tencent Cloud, Rackspace, VMware – and Netflix.
Yes, Netflix is basically a cloud content distribution service, hosted by AWS. The collaboration,
conferencing, and digital workplace tools pressed into urgent COVID-19 duty by schools and
firms — including Zoom Video, Slack, Monday, Blackboard, Microsoft Teams, WebEx (owned
by Cisco), Canvas, Google Classroom and Hangouts Meet, AnyMeeting, open source Moodle,
and Workspace One among others — typically all run on public cloud infrastructure.
23
Standardisation vs. Differentiation
Standardization and differentiation are the two sides of globalization. By standardization, we
mean to show the global representation, while differentiation looks upon local
competitiveness. The following figure depicts how standardization differs from
differentiation.
24
Different aspects of Standardization vs
Differentiation
• Regional Perspective (Ex. EU, NAFTA,
SAARC)
• Marketing Process Perspective
• Marketing Components / Marketing Mix
Perspective (Eg: Google, Nokia,
Microsoft)
25
Basis of Difference Standardization Differentiation

Application in marketing Companies should apply 4Ps in the It is supported by strong market variety by
means Same way in World wide. Market individualism and uniqueness.
Reason for Application IntegrationAccess Regional or local Conditions
Product Offered Complete standardization Altering relevant feature according to individual

or geographic
Characteristics Doesn’t have special Characters Product is differential from competitors product.
Approach Increasing Commonality of product Detailing the differentiation that exists between
products and services
Economics of scale Higher productivity and lowers the Increasing cost of production and lower
total cost productivity
Need Satisfy the heterogeneous needs of Satisfy a particular need of buyer
the buyer
End Result Benefits buyer by lowering price Show sense of value to the buyer
26
Factors Favouring Standardisation Factors Favouring Differentiation
Economies of scale, e.g. in R&D, production and Local environment-induced adaptation, e.g.
marketing (experience curve effects) government and regulatory influences, legal
issues, differences in technical standards (no
experience curve effects)
Global competition Local Competition
Convergence of tastes and consumer needs Variation in consumer needs (consumer needs
(consumer preferences are homogeneous) are heterogeneous, e.g. because of cultural
differences)
Centralized management of international Fragmented and decentralized management
operations (possible to transfer experience across with independent country subsidiaries
borders)
27
Factors Favouring Standardisation Factors Favouring Differentiation
A standardized concept is used by competitors An adapted concept is used by competitors
high degree of transferability of competitive L:ow degree of transferability of

advantages from market to market competitive advantages from market to
market
Easier communication, planning and control
(e.g. through Internet and mobile technology)
28
Factors Affecting Strategic Options
The selection of the best strategic option depends on considering some of the essential
and influential factors. They are as follows -
External Constraints – The essential fundamentals to the business are to be properly
communicated and interacted for any business to survive and prosper. The essential
fundamentals of the business include the customers, owners, competitors, government
etc.
Intra-organizational Forces – The various groups of the business which have a power
stake influence the major decisions of any business. The choice of the strategy always
depends on the choices made by the low level management and also the strategic
management people.
Values and Preferences towards Risk – Some of the values have to be possessed by the
manager for being successful such as being pragmatic, dynamic, progressive and goal
oriented. Those who prefer taking risks turn out to be more innovative and thus it
becomes easy for them to enter into the new markets.
•External Constraints − The survival and prosperity of a business firm is fully

dependent on interaction and communication with the elements that are
intrinsic to the business. It includes the owners, customers, suppliers,
competitors, government, and the stakeholders of the community.
•Intra-organizational Forces − The big decisions of a company are often
influenced by the power-play among various interest groups. The strategic
decision-making processes are no exception. It depends on the strategic
choices made by the lower Management and top notch strategic management
people.
•Values and Preferences towards Risk − Values play a very important role, It
has been observed hat the successful managers have a more pragmatic,
interactive and dynamic progressive and achievement seeking values. The risk
takers in the high-growth less-stable markets prefer to be the pioneers or
innovators. They seek an early entry into new, untapped markets.
29
Factors Affecting Strategic Options
The selection of the best strategic option depends on considering some of the essential
and influential factors.
Impact of Past Strategies – Past strategies have an impact on the current strategies.
These determine the development of a new strategy.
Time Constraints – Any strategy option that is being chosen is bounded by time
constraints and hence has to be completed within the specified time.
Information Constraints – The information availability is also one of the essential factors
for selection of the strategic options. The uncertainty and risk always depend on the
information availability. Risk is considered to be more when the information available is
less.
Competitor’s Risk – while concentrating on selection of the strategic options, the
selection also depends on the choices made by the competitors. The management
should keep an eye on the competitor who has adopted the counter-strategy. The
strategic choices are influenced by the reaction of the competitors.
•Impact of Past Strategies − A strategy made earlier may affect the current
strategy too. Past strategies are the starting point of building up a new
strategies
•Time Constraints − There may be deadlines to be met. There may be a
period of commitment, which would require a company to take immediate
action.
•Information Constraints − The choice of a strategy depends heavily on the
availability of information. A company can deal with uncertainty and risks
depending on the availability of information at its disposal. Lesser the amount
of information, greater the probability of risks.
•Competitor’s Risk − It is important to weigh the strategic choices the
competitors may have. A competitor who adopts a counter-strategy must be
taken into account by the management. The likelihood of a competitor’s
strength to react and its probable impact will influence the strategic choices.
30
Global Portfolio Management
The combination of the assets that are being invested
in either international or foreign markets is known as
Global Portfolio Management.
Global Portfolio Management, also known
as International Portfolio Management or Foreign
Portfolio Management, refers to grouping of
investment assets from international or foreign
markets rather than from the domestic ones.
The asset grouping in GPM mainly focuses on
securities. The most common examples of Global
Portfolio Management are −
•Share purchase of a foreign company
•Buying bonds that are issued by a foreign
government
•Acquiring assets in a foreign firm
What is Portfolio Management?

We have come across the term portfolio many times whenever we plan any
investment. But very few of us know what a portfolio is and what is the significance
of having one for getting the most out of your investments.
A portfolio defines a group of investment tools such as stocks, shares, mutual funds,
bonds, cash and so on depending on the investor’s income, budget and limited time
frame.
What is Global Protfolio Management?
Global portfolio investment means the purchase of stocks, bonds, and money market
instruments by foreigners for the purpose of realizing a financial return which does
not result in foreign management, ownership, or control.
•Buying shares of the foreign company

•Buying bonds of foreign government
•Purchasing the assets of the foreign company
31
Factors Affecting Global Portfolio Investment –
Global Portfolio Management (GPM) requires an
acute understanding of the market in which
investment is to be made. The major financial
factors of the foreign country are the factors
affecting GPM. The following are the most
important factors that influence GPM decisions.
• Tax Rates
• Interest Rate
• Exchange Rate
In order to invest in the international market, it is essential to understand and

have the knowledge about the market in which the business is investing. The
Global Portfolio Management is affected by the financial factors of the foreign
country. The decisions regarding the Global Portfolio Management are
influenced by some of the major factors such as -
32
–
Tax Rates
Tax rates on dividends and interest earned is a major
influencer of GPM. Investors usually choose to invest in
a country where the applied taxes on the interest
earned or dividend acquired is low. Investors normally
calculate the potential after-tax earnings they will secure
from an investment made in foreign securities.
Interest Rates
High interest rates are always a big attraction for investors.
Money usually flows to countries that have high interest rates.
However, the local currencies must not weaken for long-term as
well.
33
Factors Affecting Global Portfolio Investment –
Exchange Rates
When investors invest in securities in an international
country, their return is mostly affected by −
The apparent change in the value of the security.
The fluctuations in the value of currency in which
security is managed.
Investors usually shift their investment when the value
of currency in a nation they invest weakens more than
anticipated.
34
Modes of Global Portfolio Management -

Foreign securities or depository receipts
can be bought directly from a particular
country’s stock exchange. Two concepts are
important here which can be categorized
as Portfolio Equity and Portfolio Bonds.
These are supposed to be the best modes
of GPM.
35
Modes of Global Portfolio Management
-
Portfolio Equity
Portfolio equity includes net inflows from
equity securities other than those
recorded as direct investment and
including shares, stocks, depository
receipts (American or global), and direct
purchases of shares in local stock
markets by foreign investors.
Portfolio Equity
The income that is earned from the equity securities excluding the direct
investment such as shares, stocks, depository receipts and share purchases
by the foreign investors constitute Portfolio Equity.
36
Portfolio Bonds
The investments that are either long-term or medium-term
are termed as bonds. The following are the situations that
are considered appropriate for investing in portfolio bonds
−
• When there are additional funds to invest
• When there is either any one or a combination of income
and growth potential
• When the investor is ready to block the investment for a
loner period of say about five years
• When the investor is ready to take the risk
• When the investor need to pay tax and falls under any
one of the basic, higher or additional-rate category.
Portfolio Bonds
On the other hand, portfolio bonds include group investments that are transacted in
bonds. These are often long-term and are perfect for those who have a higher
appetite for risks.
37
Global Mutual Funds
Global mutual funds can be a preferred mode if the Investor
wants to buy the shares of an internationally diversified
mutual fund. In fact, it is helpful if there are open-ended
mutual funds available for investment.
Closed-end Country Funds

Closed-end funds invest in internationals securities against the
portfolio. This is helpful because the interest rates may be higher,
making it more profitable to earn money in that particular
country. It is an indirect way of investing in a global economy.
However, in such investments, the investor does not have ample
scope for reaping the benefits of diversification, because the
systematic risks are not reducible to that extent.
Global Mutual Funds

When the investor desire to invest in the shares of mutual funds which are
internationally diversified global Mutual funds is the right choice for such
investors. The mutual-funds which are open-ended serves to be even more
better option for the investors
A closed-end country fund: If you prefer a more conservative way of investing in
another economy, then a closed-end country fund might suit your appetite. It is not
as diversified as your other options and it invests in international securities, giving
you space to indirectly invest money. Closed-end country funds are funds that
issue a fixed number of shares and invest the proceeds largely in equity
securities from a particular (local) country.
38
Drawbacks of Global Portfolio Management
• Unfavorable Exchange Rate Movement − Investors are
unable to ignore the probability of exchange rate changes in
a foreign country. This is beyond the control of the investors.
These changes greatly influence the total value of foreign
portfolio and the earnings from the investment. The
weakening of currency reduces the value of securities as well.
• Frictions in International Financial Market − There may be
various kinds of market frictions in a foreign economy. These
frictions may result from Governmental control, changing tax
laws, and explicit or implicit transaction costs. The fact is
governments actively seek to administer international
financial flows. To do this, they use different forms of control
mechanisms such as taxes on international flows of FDI and
applied restrictions on the outflow of funds.
While generally considered safe and conservative, there are certain drawbacks
attached to global portfolio management that you need to be aware of.
Currency might not work in your favor
The exchange rate is something that is beyond your control and that of your portfolio
manager. For something so volatile, this largely dictates the value of your foreign
portfolio. However, the good thing is that these fluctuate rather often, and might just
work in your favor.
The government can get involved
The government in some countries has a say in the security prices. They could
possibly take a chunk of the share of securities that are in stock exchanges.
39
Drawbacks of Global Portfolio Management
• Manipulation of Security Prices − Government and
powerful brokers can influence the security prices.
Governments can heavily influence the prices by modifying
their monetary and fiscal policies. Moreover, public sector
institutions and banks swallow a big share of securities
traded on stock exchanges.
• Unequal Access to Information − Wide cross-cultural
differences may be a barrier to GPM. It is difficult to
disseminate and acquire the information by the international
investors beforehand. If information is tough to obtain, it is
difficult to act rationally and in a prudent manner.
•Manipulation of Security Prices – The prices of the securities can be

influenced by some of the powerful brokers and government bodies.
Government can make it possible by making changes to the monetary and
fiscal policies. A majority of the securities that are being traded on the stock
exchanges are owned by banks and other public sector institutions.
•Unequal Access to Information – Global Portfolio Management may also be
influenced by the cross-cultural differences. The information with regard to
the international investors very difficult to know before. In the situations where
obtaining information is very difficult than investment turns out to be more
risky.
40
Global Entry Strategy
Any company/business must analyze the market opportunity as
well as their internal capabilities to determine which approach
will be the best fit. Often businesses start with a lower-risk
strategy and progress to other strategies involving additional
investment and risk and additional opportunity after they have
proven initial success.
“A Global Entry Strategy is the planned method of delivering
goods or services to a new target market and distributing them
there. When importing or exporting services, it refers to
establishing and managing contracts in a foreign country.”
The need for a solid market entry decision is an integral part
of a global market entry strategy.
Entry decisions will heavily influence the firm’s other marketing-
mix decisions.
41
The long-term advantages of doing international
business in a particular country depend upon the :−
• Size of the market demographically
• The purchasing power of the consumers in that market
• Nature of competition
By considering the above-mentioned factors, firms can
rank countries in terms of their attractiveness and
profitability. The timing of entry into a nation is a very
important factor. If a firm enters the market ahead of
other firms, it may quickly develop a strong customer
base for its products.
42
Mode of Global Entry is Classified Into Three Categories
Trade Related Contractual Investment Entry
Exporting Franchising Over Seas Assembly
Indirect Direct Turn Key Projects Foreign Direct Investment
Piggy- Backing Management Contracts Mergers & Acquisitions
Counter Trade Licensing Joint Venture
Contract Manufacturing Wholly Owned

Subsidiaries
Strategic Alliance
1
8
43
Mode of Entry Into Global Market
Trade Relalted –Exporting :
Exporting is the most traditional and well established form of operating in foreign markets.
Exporting can be defined as the marketing of goods produced in one country into another.
Whilst no direct manufacturing is required in an overseas country, significant investments in
marketing are required.
The tendency may be not to obtain as much detailed marketing information as compared to
manufacturing in marketing country;
Exporting commonly requires coordination between four players –
• Exporter
• Importer
• Transport Provider
• Government
Exporting means sending goods produced in one country to sell them in another
country. Exporting is a low-risk strategy that businesses find attractive for several
reasons. First, mature products in a domestic market might find new growth
opportunities overseas. Second, some firms find it less risky and more profitable to
export existing products, instead of developing new ones. Third, firms that face
seasonal domestic demand might choose to market their offerings abroad to balance
out seasonal demand in their revenue streams. Finally, some firms might export
because there is less competition overseas.
44
Direct Exporting : Direct export is the sale by an exporter
directly to an importer located in another country, without
using another person or organization to make
arrangements for them. The exporter will be responsible
for handling the sales process, logistics of shipment,
foreign distribution, and for collecting payment. Direct
Exporter sell its product to an international market,
through – sales representatives, distributors, or foreign
retailers – or directly selling the product to the end user.
An example of this would be directly selling computer
parts to a computer manufacturing plant. Direct exporting
requires market research to locate markets for the
product, international distribution of the product, creating
a link to the consumers, and collections.
45
Trade Relalted –Exporting -Direct Exporting :
Advantages: Disadvantages :
• Control over selection of markets and • Higher start-up costs and higher risks
choice of representative companies as opposed to indirect exporting
• Good information feedback from target • Requires higher investments of time,
market resources and personnel and also
• Better protection of trademarks, organizational changes
patents, goodwill, and other intangible • Greater information requirements
property • Longer time-to-market as opposed to
• Potentially greater sales, and therefore indirect exporting
greater profit
46
Indirect Exporting : Indirect exporting is the
process of selling products to an intermediary, who
will then sell your products directly to customers or
importing wholesalers. When looking for an
intermediary to help you with indirect exporting,
the easiest way is to find one in your own country.
47
Trade Relalted –Exporting - Indirect Exporting :
• Fast market access. • Little or no control over distribution,
• Concentration of resources towards sales, marketing, etc. as opposed to
production. direct exporting.
• Little or no financial commitment. • Wrong choice of distributor, and by
• Low risk exists for companies who effect, market, may lead to inadequate
consider their domestic market to be market feedback.
more important. • Potentially lower sales as compared to
• Export management is outsourced, direct exporting.
alleviating pressure from management • Export partners that incorrectly select
team. a specific distributor/market may
• No direct handle of export processes. hinder a firm's functional ability.
48
Piggyback : Piggyback is a form of distribution in foreign markets in which a SME
company (the “rider”), deals with a larger company (the “carrier”) which already operates in
certain foreign markets and is willing to act on behalf of the rider that whishes to export to
those markets. This enables the carrier to utilize fully its established export facilities (sales
subsidiaries) and foreign distribution. The carrier is either paid by commission and so acts
as an agent or, alternatively, as an independent distributor buying the products.
Countertrade : Countertrade means exchanging goods or services which are paid for, in
whole or part, with other goods or services, rather than with money. A monetary valuation
can however be used in countertrade for accounting purposes. In dealings between
sovereign states, the term bilateral trade is used.
This means using a company with an established export distribution system to sell
your product as well as its own.
49
Trade Relalted –Exporting - Piggyback Exporting :
• You don’t have to have international • Little or no control over distribution,
experience yourself. sales, marketing, etc. as opposed to
direct exporting.
• Will gain fast entry to the international • Wrong choice of distributor, and by
market. effect, market, may lead to inadequate
market feedback.
• Will have little or no increased financial • Potentially lower sales as compared to
commitment. direct exporting.
• Export partners that incorrectly select
a specific distributor/market may
hinder a firm's functional ability.
50
Contractual: A contractual entry mode in which a
company that owns property grants another firm
the right to use that property for a specified period
of time Contractual entry modes are better suited
to intangible products
Since some products are intangible, companies

can use a variety of contractual entry modes to
market to market highly specialized assets and
skills in international markets
It Includes Licencing, franchising, manufacturing

contracts, turnkey projects etc.
51
Mode of Entry Into Global Market -Contractual :
Franchising -
In this mode, an independent firm called
the franchisee does the business using the name of
another company called the franchisor. In
franchising, the franchisee has to pay a fee or a
fraction of profit to the franchisor. The franchisor
provides the trademarks, operating process,
product reputation and marketing, HR and
operational support to the franchisee.
52
Mode of Entry Into Global Market -Contractual - Franchising:
• Low political risk • Maintaining control over franchisee
• Low cost may be difficult.
• Allows simultaneous expansion into • Conflicts with franchisee are likely,
different regions of the world including legal disputes.
• Well selected partners bring financial • Preserving franchisor's image in the
investment as well as managerial foreign market may be challenging.
capabilities to the operation • Requires monitoring and evaluating
performance of franchisees, and
providing ongoing assistance.
• Franchisees may take advantage of
acquired knowledge and become
competitors in the future.
53
Licensing -
Under a licensing agreement, a firm (licensor)
provides a product to a foreign firm (licensee) by
granting that firm the right to use the licensor’s
manufacturing process, brand name, patents, or
sales knowledge, in return for payment. The
licensee obtains a competitive advantage in this
arrangement, while the licensor obtains
inexpensive access to a new market.
54
Mode of Entry Into Global Market -Contractual - Licensing :
• Obtain extra income for technical • Lower income than in other entry
know-how and services. modes.
• Reach new markets not accessibleby • Loss of control of the licensee
export from existing facilities. manufacture and marketing operations
• Quickly expand without much risk and and practices leading to loss of quality.
large capital investment. • Risk of having the rademark and
• Pave the way for future investments in reputation ruined by an incompetent
the market. partner.
• Retain established markets closed by • The foreign partner can also become a
trade restrictions. competitor by selling its production in
places where the parental company is
already in.
55
Manufacturing -
Manufacturing is a contractual mode of market
entry that can give your brand and company local
manufacturing cost advantages whilst you still
retain marketing, sales and distribution rights and
responsibilities for your brand
56
Mode of Entry Into Global Market -Contractual - Manufacturing :
• Saving in capital expenditure. • Communication Barriers.
• Reduced upfront risk associated. • Dependence on Suppliers.
• Two-way technology transfer and • If suppliers make poor choices, it could
learning. result in higher costs, declining product
• Intellectual property around your quality and inefficient production
product composition or manufacturing practices.
process. • The reputation of a company and its
brands can be damaged by sending
production abroad.
57
Turnkey Project
It is a special mode of carrying out international
business. It is a contract under which a firm agrees
– for a remuneration – to fully carry out the design,
create, and equip the production facility and shift
the project over to the purchaser when the facility
is operational.
58
Mode of Entry Into Global Market -Contractual - Trunkey :
• Possibility for a company to establish a • Risk of revealing companies secrets to
plant and earn profits in a foreign rivals
country especially in which foreign
direct investment opportunities are • Takeover of their plant by the host
limited and lack of expertise in a country
specific area exists
• Entering a market with a turnkey
• Industrial companies that specialize in project can prove that a company has
complex production technologies no long-term interest in the country
normally use turnkey projects as an
entry strategy
59
Management Contracts
Here, one company provides another company
with managerial expertise for a specified period of
time. Sectors that commonly use management
contracts are utilities services
60
Mode of Entry Into Global Market -Contractual - Management Contracts
:
• Benefit from hiring a contract • Loss of privacy issue and rise of
management company to handle the confidential disputes. These contracts
day-to-day details of your company. make the business expose to ethical
• Responsibilities you can turn over to the breaches, fraud and public exposure.
management team . • Management contract companies
• Expertise of an entire management have the information of the business
team that usually brings to the table finance also. This puts the business in
experience in a number of a vulnerable position
management areas, such as employee • If a country is going through a political
tax codes, marketing and accounting. or social turmoil, the managers life is
put at a risk to carry on the business in
such a situation.
61
Strategic Alliance
A strategic alliance is an agreement between two or
more parties to pursue a set of agreed upon
objectives needed while remaining independent
organizations. Partners may provide the strategic
alliance with resources such as products, distribution
channels, manufacturing capability, project funding,
capital equipment, knowledge, expertise, or
intellectual property.
62
Mode of Entry Into Global Market -Contractual - Strategic Alliance :
• The partnerships allow the involved • In a Strategic Alliance the partners
companies to offset their market must share resources and profits and
exposure. often skills and know-how. This can be
• Using the partner´s distribution critical if business secrets are included
networks in combination with taking in this knowledge.
advantage of a good brand image can • Focusing and committing is necessary
help a company to grow faster. to run a Strategic Alliance successfully
• Partnerships can help to lower costs, but might discourage from taking
especially in non-profit areas like other opportunities.
research & development. • Sometimes the decision powers are
distributed very unevenly.
63
Mode of Entry Into Global Market –Investment :
Assembly Operations
Assembling is a compromise between exporting and
foreign manufacturing. The firm produces domestically
all or most of the components or ingredients of its
product and ships them to foreign markets to be put
together as a finished product.
By shipping CKD (completely knocked down), the firm

is saving on transportation costs and also on custom
tariffs which are generally lower on unassembled
equipment than on finished products. Another benefit
is the use of local employment which facilitates the
integration of the firm in the foreign market.
Assembling is often used to overcome the import restrictions in target

countries. Supplies from other suppliers are often sourced at the foreign
assembly site. In the food and pharmaceutical industry, the equivalent of
assembly is known as mixing wherein imported ingredients are used at the
firm’s overseas facilities.
Examples of foreign assembly are the automobile and farm equipment industries. In
similar fashion, Coca-Cola ships its syrup to foreign markets where local bottle plants
add the water and the container.
Another Example of Japanese automobile manufacturers had to begin

assembling in Europe mainly to deal with import barriers. As the local content
in these assembly operations was negligible, these were also termed as ‘screw
driving operations’.
64
Mode of Entry Into Global Market - Investment - Assembly Operations
-Advantages: Disadvantages :
:• It ensures lower cost because of • Security is also generally less certain
the availability of cheap overseas overseas than in the U.S., sometimes
labor , land, etc. significantly so. Crime, terrorism,
• Outsourced labor -- especially corruption and political instability can all
overseas labor -- often includes cut into your bottom line.
technically skilled, highly • Outsourcing your production, particularly
educated and multilingual overseas, usually means that you cede a
workers certain amount of daily control to your
contractor.
65
Foreign Direct Investment (FDI)
A foreign direct investment (FDI) is an investment

made by a firm or individual in one country into
business interests located in another country.
Generally, FDI takes place when an investor
establishes foreign business operations or acquires
foreign business assets in a foreign company.
.
66
Mode of Entry Into Global Market - Investment - Foreign Direct Investment (FDI)
-Advantages: Disadvantages :
:• Foreign direct investment can • As it focuses its resources elsewhere other
stimulate the target country’s than the investor’s home country, it can
economic development, sometimes hinder domestic invest
creating a more conducive
environment • Because political issues in other countries
can instantly change, it is very risky.
• Foreign direct investment creates
new jobs, as investors build new • It can affect exchange rates to the
companies in the target country, advantage of one country and the
create new opportunities.
detriment of another.
• One big advantage brought
about by FDI is the development • Political changes can also lead to
of human capital resources expropriation, which is a scenario where
the government will have control over
• Can receive tax incentives your property and assets.
67
Mergers & Acquisitions
In Mergers & Acquisitions, a home company may

merge itself with a foreign company to enter an
international business. Alternatively, the home
company may buy a foreign company and acquire
the foreign company’s ownership and control.
M&A offers quick access to international
manufacturing facilities and marketing networks.
68
Mode of Entry Into Global Market - Investment - Mergers & Acquisitions
:
• Immediate ownership and control over • Complex process and requires experts
the acquired firm’s assets; Probability of from both countries; No addition of
earning more revenues; The host capacity to the industry; Government
country may benefit by escaping restrictions on acquisition of local
optimum capacity level or overcapacity companies may disrupt business;
level Transfer of problems of the host
country’s to the acquired company.
69
Joint Venture
When two or more firms join together to create a

new business entity, it is called a joint venture. The
uniqueness in a joint venture is its shared
ownership. Environmental factors like social,
technological, economic and political
environments may encourage joint ventures.
.
70
Mode of Entry Into Global Market - Investment Joint Venture -
:
• Joint ventures provide significant funds

for major projects; Sharing of risks • Conflicts may develop; Delay in
between or among partners; Provides decision-making of one affects the
skills, technology, expertise, marketing other party and it may be costly; The
to both parties. venture may collapse due to the entry
of competitors and the changes in the
partner’s strength; Slow decision-
making due to the involvement of two
or more decision-makers.
71
Wholly Owned Subsidiaries
A firm expands internationally to have complete
control over its overseas operations by way of 100
per cent ownership in the new entity, known as
wholly owned subsidiary. Besides ownership and
control, wholly owned subsidiaries help the
internationalizing firm protect its technology and
skills from external sharing.
• A wholly owned subsidiary includes: Greenfield
investment and Acquisitions
• Greenfield investment is high risk due to the costs
of establishing a new business in a new country.
• Acquisition has been increasing because it is a
way to achieve greater market power
72
Mode of Entry Into Global Market –Investment : Wholly Owned Subsidiaries
Wholly owned subsidiaries often face numerous prejudices in host countries.
• Completely owned operations are generally not allowed in vital and sensitive
industrial sectors such as defense, nuclear energy, media, select infrastructure, etc.
• Since virtually there is little control over wholly owned foreign subsidiaries, the host
country’s governments generally set stricter scrutiny and operational norms, such as
pollution control, foreign exchange administration, technology level, etc.
• There exist high vulnerability to criticism by various social activists, NGOs, political
parties, and other interest groups in the host country.
Therefore, for successful operation of a wholly owned subsidiary, one has to take
care to:
• Actively involve indigenous people at all levels of managerial and operational
decision making
• Ensure extensive use of local marketing and supply channels, to the extent possible
Firms invest overseas either by way of Greenfield operations or mergers and

acquisitions (M&As). The choice of FDI mode is largely influenced by industry-
specific factors, as Greenfield investment is the preferred mode of expansion in
technology-intensive industries.
The choice may also be influenced by institutional, cultural, and transaction
cost factors, in particular the attitude towards takeovers, conditions in capital
markets, liberalization policies, privatization, regional integration, currency
risks, and the role played by intermediaries (for example, investment bankers)
actively seeking acquisition opportunities and taking initiatives in making
deals.
73
Mode of Entry Into Global Market - Investment - Wholly Owned Subsidiaries
• Wholly-owned subsidiary reduces • Most costly method of market Entry.
risk over losing control when • Risk associated with learning to do
there is technological business in a new culture.
competence. • By applying acquisitions, some
• Give firm tight control over companies significantly increased their
operations in country- engage in levels of debt which can have negative
strategic coordination with effects on the firms.
profits.
• Can realize location & experience
curve economies – centrally
determined decisions
74
International Organisational Structure
An organizational structure defines how activities
such as task allocation, coordination, and supervision
are directed toward the achievement of
organizational aims.
Organizational structure affects organizational action

and provides the foundation on which standard
operating procedures and routines rest. It
determines which individuals get to participate in
which decision-making processes, and thus to what
extent their views shape the organization's actions.
Organizational structure can also be considered as
the viewing glass or perspective through which
individuals see their organization and its
environment.
What is Organizational Structure?
Organisational structure is ultimately driven by strategy; however,

strategy is shaped by organisational structure, because structure
provides a constraint to
Structure is relatively immobile in the short run; in the longer term, it
can (and does) change.
75
The Global Strategy of an International Organization
for designing a Organization Structure is to provide,
maintain, and develop organizational structures that
work toward the achievement of corporate goals i.e.
work well in diverse locations, while aiding
coordination, and allowing for quick responsiveness to
market demands.
The purpose of designing organization structure is
Global Integration and Local Responsiveness. Every
business seeks efficiency and effective structures to
organize tasks. In the global environment, structures
take on differing forms in order to effectively answer
cultural demands and respond to global environments.
Why there is need of a strategy to design International Organization

Structure?
76
Organizational Issues of International Business:
The following approaches help managers determine
organization structure. These structures are basic
organizational structures, which are then adapted to
an organization's needs. All these approaches
combine varying elements of mechanistic and
organic structures.
• International division's structure

• Functional division's structure
• Product division structure
• Geographic (Area) division structure
• Matrix division structure
Every international business firm has to face various issues related to

organizational policies. These organizational issues are to be addressed
carefully in order to keep the business healthy and profitable. Although there
are numerous issues, both small and big, we will primarily concentrate only on
the major issues that need to be addressed.
77
Organization Structure
• Formal division of the organization into subunits
• Location of decision-making responsibilities within that structure (centralized versus
decentralized)
• Establishment of integrating mechanisms to coordinate the activities of subunits
including cross-functional teams or pan-regional committees
Three Dimensions
Vertical Differentiation -Location of decision-making responsibilities within a firm
Horizontal Differentiation - Formal division of the organization into subunits
Integrating Mechanisms -Mechanisms for coordination between subunits
78
Vertical Differentiation - Centralization vs. Decentralization
• Centralization is the systematic and consistent reservation of authority at central
points in the organization. In centralization, the decision-making capability lies with a
few selected employees. The implications of centralization are
• Decision making power is reserved at the top level.
• Operating authority lies with the mid-level managers.
• Operation at lower level is directed by the top level.
Almost every important decision and operational activities at the lower level are
taken by the top management.
• Decentralization is a systematic distribution of authority at all levels of management.
In a decentralized entity, major decisions are taken by the top management to build
the policies concerning the entire organization. Remaining authority is delegated to
the mid- and lower-level managers.
79
Vertical Differentiation - Centralization vs. Decentralization
Centralization : Decentralization :
• Facilitates coordination • Relieves the burden of centralized
• Helps ensure that decisions are decision-making
consistent with the organization’s • Individuals with freedom and control are
objectives motivated
• Gives top-level managers the • Permits greater flexibility to environmental
means to bring about changes
organizational change • Results in better decisions made closer to
• Avoids duplication of activities the situation
across subunits • Increases control by creating subunit
accountability
The choice between centralization and decentralization is not absolute

and depends on the:
– type of decision being made
– firm’s strategy
80
Horizontal Differentiation -
• Concerned with how the firm decides to
divide itself into sub-units. The decision is
usually based on:
• Organizational Function
• Type Of Business
• Geographical Area
Any international business organization, depending on its requirements and

operations, would have an organization structure to streamline all its
processes. In this section, we will try to understand some of the major types of
organizational structures.
81
Horizontal Differentiation - Export Department Structure
Exports are often looked after by a company’s marketing or sales department in the
initial stages when the volume of exports sales is low.
Exports activities are controlled by a company’s home-based office through a designated

head of export department, i.e. Vice President, Director, or Manager (Exports). The role of
the HR department is primarily confined to planning and recruiting staff for exports,
training and development, and compensation.
82
Horizontal Differentiation - Export Department Structure….
However, with increase in exports

turnover, an independent exports
department is often setup and
separated from domestic
marketing.
83
Horizontal Differentiation - Use Of Subsidiary During The Early Stages of
Internationalization-
International firms, especially the fully-
owned ones, usually have a board of
directors to oversee and direct the top-level
management. The major responsibilities of
board-members are to −
• Advice, approve, and appraise local
management.
• Help the management unit in providing
response to local conditions.
• Assist the top management in strategic
planning.
• Supervise the firm’s ethical issues.
84
Horizontal Differentiation - Initial Division Structures
Initial division structures are common in

subsidiaries, export firms, and on-site
manufacturers. Subsidiaries that follow this
kind of organization structure include firms
where the main export is expertise, for
example, consultants and financial
firms. Export firms include those having
technologically advanced products and
manufacturing units. Companies having on-
site manufacturing operations follow this
structure to cut down their costs.
85
Horizontal Differentiation - International Division Structure
This structure is built to handle all

international operations by a division
created for control. It is often adopted by
firms that are still in the development stages
of international business operations.
The Structure, with domestic business and
all international operations shifted to a
“specialist” international division.
The international division structure
centralizes all the international operations
86
Horizontal Differentiation -International Division Structure
Advantages
• It reduces the CEO’s burden of direct operation of overseas subsidiaries and
domestic operations
• International attitude gets the attention of top management.
• United approach to international operations.
Disadvantages
• Separates domestic managers from their international counterparts.
• Difficulty in ideating and acting strategically and in allocating resources
globally.
87
Horizontal Differentiation - Global Product Division
Global product divisions include

domestic divisions that are allowed
to take global responsibility for
product groups. These divisions
operate as profit centers.
Global divisions are responsible for
Global Product Design and operate
in divisional, cluster, or holding
company formats
88
Horizontal Differentiation - Global Product Division
Advantages
• Helps manage product, technology, customer diversity.
• Ability to cater to local needs.
• Marketing, production, and finance gets a coordinated approach on a product-by-
product, global basis.
Disadvantages
• Duplication of facilities and staff personnel within divisions.
• Division manager gets attracted to geographic prospects and neglects long-term
goals.
• Only the local market is concentrated by the division managers.
89
Horizontal Differentiation - Global Area Division
Global area division structure is

used for operations that are
controlled on a geographic rather
than a product basis. Firms in
mature businesses with select
product lines use it.
It is most appropriate for a
multidomestic strategy.
Its ability to facilitate local
responsiveness is both a strength
and a weakness.
When the operations of a business are controlled on the basis of geographical

location rather than the type of product, it is known as Global Area Division.
Many companies that are usually in the business which has only selected
products adopt this global area division.
90
Horizontal Differentiation - Global Area Division
Advantages
• International operations and domestic operations remain at the same level
• Global division managers manage business operations in selected geographic area
• Ability to reduce cost per unit and price competitively
Disadvantages
• Difficult to align product emphasis in a geographically oriented manner.
• New R&D efforts are often ignored, as sale in mature market is where the focus is.
91
Horizontal Differentiation - Global Functional Division
This structure is to primarily

organize global operations based
on function; product orientation is
secondary for firms using global
function division structure.
When an organization has a global functional division mode, operations are

arranged so that the production division oversees all its production activities
worldwide, the marketing division oversees all its marketing activities
worldwide, and so on. Companies with a narrow range of similar products
might prefer this type of structure, especially if similar production, marketing
and other functional methods are used for the entire product range. This
structure is found, for example, in mining and extraction companies such as
Royal Dutch/Shell.
92
Horizontal Differentiation - Global Functional Division
Advantages
• It emphasizes on functional leadership, centralized-control, and leaner managerial staff.
• Favorable for firms that require a tight, centralized coordination and control over
integrated production mechanisms.
• Helps those firms that need to transport products and raw materials between
geographic areas.
Disadvantages
• Not suitable for all types of businesses. Applicable to only oil and mining firms.
• Difficult to coordinate manufacturing and marketing processes.
• Managing multiple product lines can be challenging, as production and marketing are
not integrated.
93
Integrating Mechanisms - Global Mixed Matrix
This structure combines global product,
area, and functional arrangements and it
has a cross-cutting committee structure
It is an integrated organizational
structure, which super-imposes on each
other more than one dimension. The
global matrix structure might consist of
product divisions intersecting with
various geographical areas or functional
divisions Unlike functional,
geographical, or product division
structures, the matrix structure shares
joint control over firm’s various
functional activities..
94
The Mixed Structure is most common in

the Multinational Enterprise. It uses
localization in product development,
marketing, sales, and service. At the
same time functions that benefit from
scale advantages, like purchasing, are
centralized .
95
96
Advantages
• Can be designed to meet individual needs
• Promotes an integrated strategic approach tailored to local needs and priorities
Disadvantages
• Complex structure, coordinating and getting everyone to work toward common goals
becomes difficult.
• Too many independent groups in the structure
97
Controlling of International Business
Control is management’s planning, implementation, evaluation, and correction of
performance to ensure the organization meets its objectives.
“Controlling is the measurement & correction of performance activities of subordinates in

order to make sure that the enterprise objectives and plans desired to obtain them as being
accomplished.”
- Harold Koontz
“Control of an undertaking consists of seeing that everything is being carried out in
accordance with the plan which has been adopted, the orders which have been given, and
the principles which have been laid down. Its object is to point out mistakes in order that
they may be rectified and prevented from recurring”
-Henri Fayol
Management must balance global needs while adapting to country-level differences
Control keeps a company’s direction or strategy on track
Control mechanisms play an important role in any business organization,

without which the roles of managers get constrained. Control is required for
achieving the goals in a predefined manner because it provides the
instruments which influence the performance and decision-making process of
an organization. Control is in fact concerned with the regulations applied to the
activities within an organization to attain expected results in establishing
policies, plans, and practices.
Control mechanisms can be set according to functions, product attributes,
geographical attributes, and the overall strategic and financial objectives.
98
Objectives of Control
There are three major objectives for having a control
mechanism in an international firm. They are −
• To get data and clues for the top management
for monitoring, evaluating, and adjusting their
decisions and operational objectives.
• To get clues based on which common objectives
can be set to get optimum coordination among
units.
• To evaluate the performance metrics of
managers at each level.
99
Types of Control Mechanisms
The control can be performed by using various
modes.
• Personal Controls
• Bureaucratic Controls
• Output Controls
• Cultural Controls
100
Personal Controls : Personal controls are achieved
via personal contact with the subordinates. It is the
most widely used type of control mechanism in
small firms for providing direct supervision of
operational and employee management. Personal
control is used to construct relationship processes
between managers at different levels of employees
in multinational companies. CEOs of international
firms may use a set of personal control policies to
influence the behavior of the subordinates.
101
Bureaucratic Controls : These are associated with
the inherent bureaucracy in an international firm.
This control mechanism is composed of some
system of rules and procedure to direct and
influence the actions of sub-units.
The most common example of bureaucratic control
is found in case of capital spending rules that
require top management’s approval when it
exceeds a certain limit.
102
Output Controls : Output Controls are used to set
goals for the subsidiaries to achieve the targeted
outputs in various departments. Output control is an
important part of international business
management because a company’s efficiency is
relative to bureaucratic control.
The major criteria for judging output controls
include productivity, profitability, growth, market
share, and quality of products.
Example : The number of microwave ovens an
assembly line produces per week, and the number
of vehicles a car salesperson sells per month
103
Cultural Controls : Corporate culture is a key for
deriving maximum output and profitability and
hence cultural control is a very important attribute to
measure the overall efficiency of a firm. It takes form
when employees of the firm try to adopt the norms
and values preached by the firm.
Employees usually tend to control their own
behavior following the cultural control norms of the
firm. Hence, it reduces the dependence on direct
supervision when applied well. In a firm with a
strong culture, self-control flourishes automatically,
which in turn reduces the need for other types of
control mechanisms.
Team Work, Adherence of Timing for lunch
104
Approaches to Control Mechanisms
Market Approach : The market approach says that
the external market forces shape the control
mechanism and the behavior of the management
within the organizational units of an MNC. Market
approach is applied in any organization having a
decentralized culture. In such organizations, transfer
prices are negotiated openly and freely. The
decision-making process in this approach is largely
directed and governed by the market forces.
Market control involves the use of price competition to evaluate output. Managers
compare profits and prices to determine the efficiency of their organization. In order
to use market control, there must be a reasonable level of competition in the goods
or service area and it must be possible to specify requirements clearly.
105

Rules Approach : The rules approach applies to a
rules-oriented organization where a greater part of
decision-making is applied to strongly impose the
organizational rules and procedures. It requires
highly developed plan and budget systems with
extensive formal reporting. Rules approach of
control utilizes both the input and output controls in
an organized and exclusively formalized manner.
106
Corporate Culture Approach: In organizations that
follow the corporate culture approach, the
employees internalize the goals by building a strong
set of values. This value-syndication influences the
operational mechanism of the organization. It has
been observed that even when some organizations
have strong norms of behavioural controls, they are
informal and less explicit. Corporate culture
approach requires more time to bring the aimed
changes or adjustments in an organization.
107

Reporting Culture : Reporting culture is a powerful
control mechanism. It is used while allocating
resources or while the top management wants to
monitor the performance of the firm and the
employees. Rewarding the personnel is a common
practice in such approaches of control. However, to
get the maximum out of reporting approach, the
reports must be frequent, correct, and useful.
108
Visits to Subsidiaries : Visiting the subsidiaries is a
common control approach. The disadvantage is that
all the information cannot be exchanged via visits.
Corporate staff usually and frequently visit
subsidiaries to confer and socialize with the local
management. Visits can enable the visitors to collect
information about the firm which allows them to
offer advice and directives.
109

Management Performance Evaluation : Management
performance Evaluation is used to evaluate the
subsidiary managers for the subsidiary’s performance.
However, as decision-making authority is different from
the operational managers, some aspects of control
cannot be managed via this approach. Slow growth
rates of firms and risky economical and political
environment requires this kind of approach.
110
Cost and Accounting Comparisons
Cost and Accounting Comparisons is a financial
approach. It arises due to the difference in
expenditure among various units of the subsidiaries.
A meaningful comparison of the operating
performances of the units is necessary to get the full
output from this approach. Cost accounting
comparisons use a set of rules that are applicable to
the home country principles to meet local reporting
requirements.
111
Constraints of Control Approaches
Control mechanisms can never be uniform in every country. International firms have to face
severe constraints based on which they modify their control mechanisms in every country.
Here is a list of major constraints that affect an organization in setting its managerial control
mechanism −
Distance − Geographical distances and various forms of cultural disparities is a big
constraint of control systems. Nowadays, email and fax transmissions have replaced the
human communication, changing the meaning of distance among units and employees of
an organization.
Diversity − It is hard to apply a common control system to everyone due to diversity. It
requires the managers to be locally responsive to address the needs of the country in which
the firm operates. Diverse attributes may exist in the form of labor, cost, currency, economic
factors, business standards, etc.
Degree of Uncertainty − Data relating to the reporting mechanism may be inaccurate and
incomplete, raising serious challenges to control mechanisms. Due to uncertainities, control
mechanisms must focus on setting goals and developing plans to meet the goals.
112
Performance Of Global Business
It is an important part of every business
organization to measure the performance of
both employees and the firm as a whole. We
will, however, restrict our focus on
organizational performance measurement.
Performance Of Global Business is a set of
analytic processes that enables the
management of an
organization's performance to achieve pre-
selected goals. A wide range of indicators
that can focus on profitability, growth, or
social performance of companies.
Performance measurement and evaluation is crucial for the success of any

business. Performance of the employee as well as business performance has
to be measured and evaluated. This chapter concentrates on the performance
measurement and evaluation of the business. A standard process is being
developed for measuring the performance of the global business.
113
Establish Standard of Performance
Standard of performance is applicable to
cost, quality, and customer service. More
than one standard may be necessary
because they reflect expected levels of
various units of the manufacturing
performance. This includes process yields,
product quality, overhead spending levels,
etc.
114
Measure Actual Performance

To measure actual performance, the use of
automated data collection systems is
suggested to gather information. A
standard cost measurement system
includes man-hours, machine-hours, and
material usage.
The actual performance is measured by collecting the information. In order to

facilitate with accurate data collection, some of the automated data collection
systems are provided. The performance can be measured in terms of working
hours which includes man-hours, machine-hours and material usage.
115
Analyze the Performance and Compare it with
standards
Once the data and information is collected, the
actual performance is compared with the standard
performance levels and is analyzed for the
deviations. The standard set for comparison should
be achievable and realistic. The performance is
analyzed such that the rules can be modified
further.
Once the data and information is collected, the actual performance is

compared with the standard performance levels and is analyzed for the
deviations. The standard set for comparison should be achievable and
realistic. The performance is analyzed such that the rules can be modified
further.
116
Construct and Implement an Action Plan

Constructing and implementing an action
plan is key to success. Variance analysis can
be used to detect potential problem areas.
Finding the source of the problem and
improving the situation may be useful. Its
effectiveness depends on the management’s
adaptability to the information obtained.
Once the performance is analyzed, in accordance with deviations further

course of action is constructed and implemented. The problem areas can be
identified by using variance analysis. This analysis enables to identify the root
cause and the source of the problem and accordingly determine the ways in
which the situation can be useful. Again the effectiveness of the variance
analysis depends on the correctness of the information.
117
Review and Revise Standards

Review and revise is an important step, as modern
organizations are in a constant state of change. If the
variances are significant, the performance standards
can be adjusted. Effective Performance
Measurement must be integrated with the overall
strategy. This step requires various financial and
non-financial indicators.
Finally the standards are being reviewed and revised. The standards are adjusted
according if the variances are significant an in accordance with the overall strategy
the performance measurement is effectively integrated.
118
Performance Evaluation System-Global Business
Effective Performance Measurement System
For getting an effective performance measurement
system −
The measurement objectives must be owned and
supported throughout the organization.
The process must be applied top-down for maximum
benefits. The measures applied must be fair and
achievable.
The measurement system and the reporting structure
must be simple, clear, and recognizable.
The firms need to prioritize and focus to address only
the key performance indicators.
119
A performance evaluation system must contain periodic review of operations so that the
objectives of the firm are accomplished. It is important to have the accounting information to
evaluate domestic and foreign operations’ costs and profit abilities.
It is not all that simple to measure the performance of an individual, a division, a subsidiary, or
even a company as a whole. It is a lengthy and hectic process. The objectives of performance
evaluation are to −
• Find the economic performance of the firm.
• Analyze each unit’s management performance.
• Monitor the progress of objectives, including the strategic goals.
• Assist in appropriate allocation of resources.
In order to achieve the objectives of the business organization, the operations

of the business has to be reviewed periodically, which is known as
performance evaluation system. The costs and profitability of the domestic
and foreign operations have to be evaluated by accurate accounting
information.
Evaluating the performance of an individual, a subsidiary or a company as a
whole is not an easy task.
120
Financial and Non-Financial Measures of Evaluation
ROI (Return on Investment) − ROI is the most common method to evaluate the
performance of an international firm. It shows the relationship between profit to invested
capital and encompasses almost all important factors related to performance. An improved
ROI can act as a logical motivator of the managers.
Budget as Success Indicator − Budget is an accepted tool for measuring and controlling the
operations. It is also used to forecast future operations. A budget is a clearly expressed set of
objectives that guide the managers to set their individual performance standards. A good
local or regional budget helps the company to facilitate its strategic planning process
smoothly.
Non-Financial Measures − The major non-financial measures that can be used to evaluate
performance are − Market Share, Exchange Variations, Quality Control, Productivity
Improvement, and Percentage of Sales.
ROI (Return on Investment)

The performance of the international firm can be evaluated by this Return on
Investment method. The relationship between the capital invested and profit is
estimated by this method. The good sign for the business is that the ROI
should be improving.
Budget as Success Indicator
The operations of the business are measured and controlled by budget. Added
to this, in order to forecast the future operations, budget can be used. The
performance standards of the individuals are set by the managers by using
the set of objectives defined in the budget. Budget also enables to facilitate
smooth functioning of the strategic planning process.
Non-Financial Measures
Market Share, Exchange Variations, Quality Control, Productivity Improvement,
and Percentage of Sales are some of the non-financial measures that are
being used for performance evaluation.
121
Types of Performance Evaluation Systems
Performance evaluation systems can be of the following types −
Budget Programming − Budget programming is prepared for
operational planning and financial control. It is an easy-to-calculate
system to evaluate the variance. It is used to measure the current
performance in relation to some comparable performance metric
from the past.
Management Audit − It is an extended form of financial audit

system which monitors the quality of management decisions in
financial operations. It is used for appraisal and performing
audit for management.
122
Programme Evaluation Review Technique (PERT) − Based on
CPM, PERT defines a given project or program into network of
activities or sub-activities. The goal is to optimize the time spent
by the managers. In this process, performance is measured by
comparing the scheduled time and the cost allocated with the
actual time and the cost.
Management Information System (MIS) − MIS is an ongoing

system designed to plan, monitor, control, appraise, and
redirect the management towards pre-defined targets and
goals. It is a universally acceptable practice which encompasses
the financial, budgeting, audit and control systems of the PERT.
PERT is a statistical method which is used to develop a project schedule when the
activity durations are not exactly known. While developing schedules in large and
complex projects, schedulers may have difficulty in estimating activity durations
because of the lack of historical records.
Programme Evaluation Review Technique (PERT) – A particular program or

project is being divided into activities and sub-activities. The main aim of
PERT is to optimise the time of the manager. The actual time along with the
cost and the scheduled time along with the cost are used for measuring the
performance.
Management Information System (MIS) – In order to redirect the

management towards the pre-defined goals and targets, the system is
designed which is meant to plan, monitor, and control and appraise the
management. All the financial, budgeting, audit and control system of PERT
are encompassed by MIS.
123
124

International Strategic Management - Unit 3

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

International Strategic Management - Unit 3

Uploaded by

Copyright:

Available Formats

International

International Strategic Management is a planning process of developing

International Strategic Management is a planning process includes the

Strategy in International context?

What is Strategic Management ?

The environment scanning- in which the organization operates prior to formulating a

Levels of Strategy In Sum

Compete Effectively in the

Global Strategy Transnational Strategy

Multidomestic Strategy Example : Nestle is a perfect example of a company

Transnational Strategy Example :McDonald's in India are different from a

Unilever makes a good example of a transnational business model. Its

•E-commerce and Internet Culture – Some of the factors such as online

Basis of Difference Standardization Differentiation

Product Offered Complete standardization Altering relevant feature according to individual

high degree of transferability of competitive L:ow degree of transferability of

•External Constraints − The survival and prosperity of a business firm is fully

What is Portfolio Management?

•Buying shares of the foreign company

In order to invest in the international market, it is essential to understand and

Modes of Global Portfolio Management -

Closed-end Country Funds

Global Mutual Funds

•Manipulation of Security Prices – The prices of the securities can be

Trade Related Contractual Investment Entry

Exporting Franchising Over Seas Assembly

Indirect Direct Turn Key Projects Foreign Direct Investment

Piggy- Backing Management Contracts Mergers & Acquisitions

Counter Trade Licensing Joint Venture

Contract Manufacturing Wholly Owned

Since some products are intangible, companies

It Includes Licencing, franchising, manufacturing

By shipping CKD (completely knocked down), the firm

Assembling is often used to overcome the import restrictions in target

Another Example of Japanese automobile manufacturers had to begin

Foreign Direct Investment (FDI)

A foreign direct investment (FDI) is an investment

Mergers & Acquisitions

In Mergers & Acquisitions, a home company may

When two or more firms join together to create a

• Joint ventures provide significant funds

Firms invest overseas either by way of Greenfield operations or mergers and

Organizational structure affects organizational action

What is Organizational Structure?

Organisational structure is ultimately driven by strategy; however,

Why there is need of a strategy to design International Organization

• International division's structure

Every international business firm has to face various issues related to

The choice between centralization and decentralization is not absolute

Any international business organization, depending on its requirements and

Exports activities are controlled by a company’s home-based office through a designated

However, with increase in exports

Initial division structures are common in

This structure is built to handle all

Global product divisions include

Global area division structure is

When the operations of a business are controlled on the basis of geographical

This structure is to primarily

When an organization has a global functional division mode, operations are

The Mixed Structure is most common in

“Controlling is the measurement & correction of performance activities of subordinates in

Control mechanisms play an important role in any business organization,

Team Work, Adherence of Timing for lunch