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 The process by which a firm’s managers evaluate the

future prospects of the firm and decide on appropriate


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

Administrative Political
Coordination Imperative

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

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

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

Low High
Pressures for local responsiveness
Global Strategy (cont.)
 Choosing a global strategy
 international model - helps companies exploit their
existing core capabilities to expand into foreign markets
 uses subsidiaries in each country
 ultimate control exercised by the parent company
 core functions are centralized in the parent company
 advantage - facilitates the transfer of skills and know-how from
the parent company to the subsidiaries
 disadvantages
 does not provide maximum latitude for responding to
local conditions
 does not provide the opportunity to achieve a low-cost
position by means of scale economies
Global Strategy (cont.)
 Choosing a global strategy (cont.)
 multinational model - uses subsidiaries with substantial
discretion to respond to local conditions with ultimate
control exercised by the parent company
 each subsidiary is a self-contained unit
 each subsidiary can customize its products and strategies
 advantage - less need for coordination and direction from
corporate headquarters
 disadvantages
 higher manufacturing costs
 cannot realize scale economies
 difficult to launch coordinated global attacks against
competitors
 duplication of effort
Global Strategy (cont.)
 Choosing a global strategy (cont.)
 global model - enables a company to market a
standardized product in the global marketplace
 product manufactured in locations where mix of costs and skills
is most favorable
 characterized by centralized decision making and tight control by
the parent company over most aspects of worldwide operations
 companies tend to become the low-cost players in any industry
 advantage - often able to realize scale economies
 disadvantages
 less responsive to consumer demands in different countries

 requires increased coordination, paperwork, and staff


Global Strategy (cont.)
 Choosing a global strategy (cont.)
 transnational model - centralization of certain
functions in locations that best achieve cost economies
 base other functions in national subsidiaries to facilitate greater
local responsiveness
 major components may be manufactured in centralized
production plants to realize scale economies and then shipped
to local plants
 local plants finish product assembly to fit local needs

 fosters communications among subsidiaries by requiring:


 formal mechanisms such as transnational committees

 transfers of managers among subsidiaries

 headquarters must play a proactive role in coordinating


activities
Strategic management
COMPREHENSIVE MODEL OF STRATEGIC
MANAGEMENT
STRATEGIC STRATEGY STRATEGY STRATEGIC
INTENT FORMULATION IMPLEMENTATION EVALUATION

Environmental Organizational •Structural •Set


•Vision Appraisal Appraisal • Behavioral performance
(corporate governance; standards
•Mission Corporate strategies •Measure
•Goals strategic leadership;
Business level strategies performance
ethics & values..)
•Objectives Functional and Operating strategies
•Analyze
•Functional
variance

STRATEGIC CONTROL

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Elements of Strategic Planning for
International Management
External Environmental Internal Resource
Scanning for MNC Analysis of MNC
Opportunities and Strengths and
Threats Weaknesses

Strategic Planning
Goals

IMPLEMENTATION

Adapted from Figure 8–2: Basic Elements of Strategic Planning for International Management
Environmental Scanning
 Provide management with accurate
forecasts of trends that relate to external
changes in geographic areas where the
firm is currently doing business or
considering setting up operations
 These changes relate to the economy,
competition, political stability, technology,
and demographic consumer data
TECHNIQUES
PEST (Political, Economic, Socio-cultural &
Technological )Analysis

ETOP (Environmental Threat & Opportunity Profile)


Analysis
PEST Analysis

Assesses the macro-environment

•Political (and legal) forces


• Economic forces
• Sociocultural forces, and
• Technological forces

(known as PEST factors) 24


Political (incl. Economic Socio-cultural Technologica
Legal) l
Environmental regulations and Economic growth Income distribution Government research
protection spending

Tax policies Interest rates & monetary Demographics, Industry focus on


policies Population growth rates, technological effort
Age distribution

International trade regulations Government spending Labor / social mobility New inventions and
and restrictions development

Contract enforcement law Unemployment policy Lifestyle changes Rate of technology


Consumer protection transfer

Employment laws Taxation Work/career and leisure Life cycle and speed of
attitudes technological
Entrepreneurial spirit obsolescence

Government organization / Exchange rates Education Energy use and costs


attitude

Competition regulation Inflation rates Fashion, hypes (Changes in)


Information
Technology
Political Stability Stage of the business Health consciousness & (Changes in) Internet
cycle welfare, feelings on safety
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Industry PEST Analysis-Starbucks
Coffee
 Political Influences
 Relationships between coffee producing nations and US
 State & Local government controls

 Economic Influences
 Constant demand for food and beverages
 Changes in disposable income could influence purchase levels

 Social Influences
 Consumer preferences could shift from coffee to other beverages

 Technological Influences
 Use of technology can improve operational efficiencies
ETOP (Environmental Threat & Opportunity Profile) Analysis
 Suggested by Glueck (1984)

Structures the environmental appraisal


by identifying the threats and
opportunities

Sub-divides the environmental factors


and assess its impact on the organization

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COMPETITOR ANALYSIS
Internal Resource Analysis
 Evaluate managerial, technical, material, and
financial strengths and weaknesses
 Determine ability to take advantage of
international market opportunities
 Match external opportunities (environmental
scan) with internal capabilities (internal
resource analysis)
 Key question: Do we have the people and
resources that can help us to develop and
sustain, or can we acquire them?
Strategic Planning Goals
 Goal formulation often precedes the first two
steps
 However, more specific goals come out of
external scanning and internal analysis
 Typically serve as an umbrella for subsidiaries
and international operations
 Profitability and marketing goals almost always
dominate
 Once set, the MNC will develop specific
operational goals and controls for the subsidiary
or affiliate level
Elements of Strategic Planning:
Implementation
 Provides goods and services in accord with plan of
action
 Plan often will have overall philosophy or
guidelines to direct process
 Considerations in selecting country:
 Advanced industrialized countries offer largest markets
for goods/services
 Amount of government control
 Restrictions on foreign investment
 Specific benefits offered by host countries
Elements of Strategic Planning:
Implementation (continued)
 Local issues
 Once country has been decided, firm must choose
specific locale
 Important factors influence this choice:
 Access to markets
 Proximity to competitors
 Availability of transportation and electric power
 Desirability of location for employees coming in from outside
The Role of Functional Areas
in Implementation
 Production
 Traditionally handled through domestic operations
 Increasingly consideration of world wide production is
important
 Recent trend away from scattered approach and toward
global coordination of operations
 If product labor intensive, farm out product to low-cost
sites (e.g., Mexico)
 Marketing
 country-by-country basis
 built around well-known 4 P’s (product, price,
promotion, place)
The Role of Functional Areas
(continued)
 Finance
 Normally developed at home office
 Carried out by overseas affiliate or branch
 MNCs have learned that transferring funds from one
place in world to other, or borrowing funds in
international money markets often less expensive than
reliance on local sources
 Major headache is reevaluation of currencies
1. First-Mover Strategies
2. “Bottom of the Pyramid” Strategies
3. “Born-Global” Strategies
First-Mover Strategies
 Useful in rapidly changing markets
◦ Market opening in developing economies
◦ Market reforms in transition economies
◦ Privatization of state-operated enterprises
 Advantages and risks
◦ Capture benefits of learning
◦ Form alliances with attractive local partners
◦ Uncertain pace of reform
◦ Opportunity costs of premature entry
“Base of the Pyramid”
Strategies
• Strategies for Base of Pyramid (BOP): 4-5 billion
potential customers around the globe heretofore
ignored by global business
– with local governments, small entrepreneurs, and
BOP forces global business to rethink their
strategies. Must consider relationships nonprofits
rather than depend on established partners such as
central government.
– BOP strategies challenging to implement
– Represents opportunity to incubate new, leapfrog
technologies
– Successful BOP strategies can travel profitably to
higher income markets
and
New Ventures
 Increasingly small and medium size enterprises,
often in the form of new ventures, are becoming
involved in international management.
 The earlier in its existence an innovative firm
internationalizes, the faster it is likely to grow both
overall and in foreign markets.
 Venture performance (growth and ROE) is
improved by technological learning gained from
international environments.
International Entrepreneurship
 Defined as “a combination of innovative proactive, and
risk-seeking behavior that crosses national borders
and is intended to create value in organizations”
International New Ventures and
“Born Global” Firms
 “Born global”: firms that engage in significant
international activity a short time after being
established.
 Most important business strategies employed by
born global firms are global technological
competence, unique products development,
quality focus, and leveraging of foreign distributor
competencies.
 Truly born global firms tend to survive longer than
other seemingly global companies.
Implications for Managers
 The complexity and interdependence of the
global economy increases the need for firms to
plan strategically
 Effective strategies must balance tensions
between
 Top-down and bottom-up strategies
 Economies of scale and differentiation
 Managers need to anticipate the future evolution of
the firm and global markets