International strategic management

• The process by which a firm’s managers evaluate the future prospects of the firm and decide on appropriate strategies to achieve long-term objectives is called strategic planning. • The basic means by which the company competes – its choice of business or businesses in which to operate and the ways in which it differentiates itself from its competitors – is its strategy.

• Strategic Management: the process of determining an organization’s basic mission and long-term objectives, then implementing a plan of action for pursuing the mission and attaining objectives • Growing need for strategic management related to increasingly diversified operations in continuously changing international environment

Approaches to Strategic Planning Economic Economic Imperative Imperative Administrative Administrative Coordination Coordination Political Political Imperative Imperative Quality Quality Imperative Imperative .

• • • • Focusing on economic imperative Addressing the political imperative Emphasizing the quality imperative Implementing an administrative strategy .

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 .Economic Imperative • Strategy based on cost leadership. differentiation.

Political Imperative • Strategy country. sales or service – Customer or client-focused • Approach most often used by MNCs pursuing a country-centered or multidomestic strategy. .responsive and designed to protect local market niches • Success of the product or service depends heavily on marketing.

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 .

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 .Global Strategy • Pressures for global integration – universal needs .response to global competitive threats • centralize decisions regarding the competitive strategies of foreign subsidiaries .impetus for global integration of manufacturing • key international competitors located where factor costs are low – global strategic coordination .

) • 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 .Global Strategy (cont.

Complex coordination mechanisms provide global integration. Multinational Several subsidiaries operating as stand-alone business units in multiple countries. Transnational Specialized facilities permit local responsiveness. Low International Uses existing capabilities to expand into foreign markets.Pressures for global integration High Global Views the world as a single market. Low High Pressures for local responsiveness . Operations are controlled centrally from the corporate office.

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 .Global Strategy (cont.) • Choosing a global strategy – international model .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 .

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 .Global Strategy (cont.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 .) • Choosing a global strategy (cont.) – multinational model .

often able to realize scale economies • disadvantages – less responsive to consumer demands in different countries – requires increased coordination.) • Choosing a global strategy (cont.Global Strategy (cont.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 . paperwork.) – global model . and staff .

) • Choosing a global strategy (cont.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 .) – transnational model .Global Strategy (cont.

Strategic management .

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Elements of Strategic Planning for International Management External Environmental External Environmental Scanning for MNC Scanning for MNC Opportunities and Opportunities and Threats Threats Internal Resource Internal Resource Analysis of MNC Analysis of MNC Strengths and Strengths and Weaknesses Weaknesses Strategic Planning Strategic Planning Goals Goals IMPLEMENTATION IMPLEMENTATION Adapted from Figure 8–2: Basic Elements of Strategic Planning for International Management .

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and demographic consumer data .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. technology. competition. political stability.

• PEST ANALYSIS • COMPETITOR ANALYSIS .

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Internal Resource Analysis  Evaluate managerial. 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 . material. technical.

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 .

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• 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 .

Mexico) • Marketing – country-by-country basis – built around well-known 4 P’s (product. price.g..The Role of Functional Areas • Production in Implementation – 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. promotion. farm out product to low-cost sites (e. place) .

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

“Born-Global” Strategies .SPECIALIZED STRATEGIES 1. First-Mover Strategies 2. “Bottom of the Pyramid” Strategies 3.

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 .

• Strategies for Base of Pyramid (BOP): 4-5 billion potential customers around the globe heretofore ignored by global business – with local governments. and BOP forces global business to rethink their strategies. small entrepreneurs. Must consider relationships nonprofits rather than depend on established partners such as central government. leapfrog technologies – Successful BOP strategies can travel profitably to higher income markets “Base of the Pyramid” Strategies . – BOP strategies challenging to implement – Represents opportunity to incubate new.

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• (2) Entrepreneurship Strategy and Newand medium size enterprises. . the faster it is likely to grow both overall and in foreign markets. Ventures Increasingly small often in the form of new ventures. are becoming involved in international management. • The earlier in its existence an innovative firm internationalizes. • Venture performance (growth and ROE) is improved by technological learning gained from international environments.

and riskseeking behavior that crosses national borders and is intended to create value in organizations” .International Entrepreneurship • Defined as “a combination of innovative proactive.

and leveraging of foreign distributor competencies. • Truly born global firms tend to survive longer than other seemingly global companies.International New Ventures and “Born Global” in significant Firms • “Born global”: firms that engage international activity a short time after being established. • Most important business strategies employed by born global firms are global technological competence. quality focus. . unique products development.

Implications for Managers • The complexity and interdependence of the global economy increases the need for firms to plan strategically • Effective strategies must balance tensions between – Top-down and bottom-up strategies – Economies of scale and differentiation • Managers need to anticipate the future evolution of the firm and global markets .

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