Presentation

on
International Business

Unit No.III
 INTERNATIONAL STRATEGIC MANAGEMENT

Strategic compulsions-Standardization Vs Differentiation –

Strategic options – Global portfolio management- global entry
strategy – different forms of international business –
advantages - organizational issues of international business –
organizational structures – controlling of international
business – approaches to control – performance of global
business- performance evaluation system.
Introduction

• Characterize the challenges of international strategic management

• Assess the basic strategic alternatives available to firms
• Distinguish and analyze the components of international strategy
• Describe the international strategic management process
• Identify and characterize the levels of international strategies
What Is Strategy?

A plan of action that channels an organization’s

resources so that it can effectively differentiate itself
from competitors, accomplish distinctive goals, and
achieve superior performance.

• Managers develop strategies based on the organization’s strengths

and weaknesses, and evaluation of opportunities and threats.

• Managers primarily make decisions about the firm’s production and

marketing activities, and the development and allocation of resources
devoted to these.
• Formulate a strong international vision
• Allocate scarce resources on a worldwide basis
• Participate in major markets
• Implement global partnerships
• Engage in global competitive moves
• Configure value-adding activities on a global scale
 International Strategic Management
•
• Strategic planning:
– The process of developing a particular
international strategy is often referred to as
strategic planning.
• 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?
Strategic Compulsion:
Global Integration
• A characteristic of global industries in which firms coordinate their
value-chain activities across many countries in order to maximize
efficiency, effectiveness, flexibility, and learning.

• Global integration promotes learning and cross-fertilization, as well

as reduction of wasteful duplication (‘redundancy’), across the firm’s
operations worldwide.
Pressures for Global Integration
• Economies of Scale. Concentrating manufacturing in a few
select locations to achieve economies of mass production.
• Capitalize on converging consumer trends and universal
needs. Companies such as Nike, Dell, ING, and Coca-Cola
offer products that appeal to customers everywhere.
• Uniform service to global customers. Services are easier to
standardize when their creation and delivery are centralized
• Global sourcing of raw materials, components, energy,
and labor. Sourcing from large-scale, centralized suppliers
provides economies of scale and consistent performance.
• Global competitors. Global coordination is necessary to
monitor and respond to global competitive threats.
• Availability of media that reaches customers in multiple
markets. Firms now take advantage of the Internet and
cross-national television to promote offerings in many
countries simultaneously.
Factors Affecting International Strategic
Management
• Language • Financing
• Culture • Market research
• Politics • Advertising
• Economy • Money
• Governmental • Transportation/
interference communication
• Labor • Control
• Labor relations • Contracts
Areas of strategic Compulsion
• Orientation of Globalization
• Emerging E-commerce and Internet Culture
• Cut –Throat Competition
• Diversification
• Active Pressure Groups
• Motive for Corporate Social Responsibility (CSR)
PURSUING COMPETITIVE ADVANTAGE
BY COMPETING MULTINATIONALLY

• Achieving Locational Advantage

• Transferring Competencies and Capabilities across borders
• Coordinating Cross border activities
 STANDARDIZATION VS
DIFFERENTIATION

• Two sides of debate of globalization

• Represent Local Marketing Versus Global Marketing
• Standardized(Global)
• Differentiated(Local)
• These are basically two distinguishable strategies applied in
international marketing – marketing standardization and
differentiation
Differences B/w Standardization and Differentiation
Sources of Competitive Advantage

Global
efficiencies

Multinational
flexibility

Worldwide
learning

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Global Efficiencies

Location
efficiencies

Economies Economies
of scale of scope

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 Location Efficiencies

Mercedes-Benz
has achieved
economies of
scale by focusing
production of its
M-class at its
assembly plant in
Vance, Alabama.

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Strategic Alternatives

Home replication strategy

Multidomestic strategy

Global strategy

Transnational strategy

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Figure 11.1 Strategic Alternatives

Global Strategy Transnational Strategy

Firm views the world as Firm combines benefits
High single marketplace. Goal of global scale
is to create standardized efficiencies with benefits
Pressures for Global

products. of local responsiveness

Multidomestic Strategy
Home Replication
Firm operates as a
Firm uses core
Efficiencies

Low competency or firm-

collection of relatively
independent subsidiaries
specific advantage

Low High
Pressures for Local Responsiveness/Flexibility

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Home Replication Strategy
•The firm views international business as separate from, and
secondary to, its domestic business.
•International business typically pursued to generate
additional sales for domestic products
•Products are designed with domestic customers in mind;
i.e., not adapted for foreign markets.
•The firm expects little knowledge flows from foreign
operations.
•Usually based on simple exporting
Multidomestic Strategy
•Headquarters delegates much autonomy to each country
manager, allowing him/her to operate independently and
pursue local responsiveness.
•The managers substantially adapt products and practices to
suit local conditions.
•The managers function independently, with little incentive to
share knowledge with managers elsewhere.
•The firm ends up with a collection of disconnected markets,
with no coordination or integration of national markets.
Global Strategy
•Headquarters pursues global integration, seeking to control
country operations in order to minimize duplication, and
maximize efficiency, effectiveness, and learning worldwide.
•Emphasizes centralized coordination and control of R&D,
production, marketing, and after-sales service
•Management views the world as one large marketplace.
•The firm offers standardized products, using standardized
marketing
•Main advantages: lower costs; easier to manage
Transnational Strategy
•A tug of war – the firm attempts to strike some ideal balance
between global and multidomestic strategies.
•Combines the major advantages of multidomestic and global
strategies, while minimizing their disadvantages.
•Applies the model ‘standardize whenever possible; adapt
when necessary.
GLOBAL PORTFOLIO MANAGEMENT

GPM, International Portfolio Mgt, Foreign

Portfolio Mgt means a grouping of investment
assets that focuses on securities form foreign
markets rather than domestic ones.
Examples of portfolio mgt:
•Purchase of shares in a foreign company
•Purchase of bonds issued by a foreign
government
•Acquisition of assets in a foreign company
Modes of Global Portfolio Management
Buying foreign securities or depository receipts directly from
the domestic stock exchange
Portfolio Equity
Portfolio bonds
Approaching Global Mutual Funds
-Investor buys the shares of internationally diversified
mutual funds
Approaching close-end country
- Close end funds are different from open ended
- former makes and investment in internationals securities
against the portfolio
Buying directly the securities of domestic companies
having global operations
- Indirect way of participating in global economy
-
Problems of Global Portfolio Management
• Unfavorable Exchange rate movement
Cannot ignore the possibility of exchange rate changes
If the Indian rupee depreciates, the value of Indian securities
in terms of U.S dollar will be lower
• Frictions in International Financial Market
Market frictions manifesting in Governmental control, varying
tax laws and explicit and implicit transaction costs.
• Manipulation of Security Prices
Government influence them through monetary and fiscal
policy
• Unequal access to information
wide cross cultural differences that inhibit global portfolio
investment
It is difficult to collect the information by the international
investor
MODES OF ENTRY INTO AN
INTERNATIONAL BUSINESS
Modes of entry:
•Exporting
•Licensing
•Franchising
•Turnkey Project
•Mergers & Acquisitions
•Joint Venture
•Acquisitions & Mergers
•Wholly Owned Subsidiary
ORGANIZATIONAL ISSUES IN IB
1. Centralization versus Decentralization:

• Decentralization allows managers of subsidiaries to make decisions

which serve host country needs best, but overall interests of the firm
are compromised.
• Centralization of decision-making helps the firm retain control at
headquarters and protect the overall interests of the company, but
the ability of subsidiary managers to respond quickly and effectively
to changes in their local market conditions in curbed.
2. Use of subsidiary Board of Directors:

• Four major areas in which MNC’S use subsidiary boards have been
identified:
• To advice, approve, and appraise local management
• To help the unit in responding to local conditions.
• To assist in strategic planning.
• To supervise the subsidiary’s ethical conduct.
3. Non-traditional organizational Arrangements:
Acquisitions and joint ventures.
4. Role of Information technology
5. Integrating Mechanism:
• Formal integrating Mechanisms:
•Direct contact
•Liaison Roles
•Teams
•Matrix structures
•Informal integrating mechanisms:
6. Control system
•Distance
•Diversity
•Degree of uncertainty
•Differences in Approach
7. Culture in International Business
Corporate culture is the set of shared values that defines for its
members what the organization stands for, how it functions, and what it
considers important.
8.Managing Change in International business
Change takes place because of environmental changes and change in
technology and cultural values and mores.
Organizational Structure
•The reporting relationships inside the firm – “the boxes and
lines” that specify the linkages among people, functions, and
processes that allow the firm to carry out its operations.
•In larger international firms, organizational structure includes
subsidiaries, affiliates, suppliers, and various other partners.
•A fundamental issue concerns the choice between
centralization and decentralization of decision-making and
value-chain activities.
Alternative Organizational Arrangements
• The export department, with the international
division as a variant.
• The decentralized structure involves
geographic area division
• The centralized structure involve either
product or functional division
• A global matrix structure blends the
geographic, product and functional structures
although this is complex and difficult to
achieve.
Initial Division Structures

• Subsidiary

– Common for financial and other service firms

where main export is expertise
• Export Arrangements

– Common among manufacturing firms,

especially those with technologically advanced
products
International Division Structure
• Description

– Handles all international operations out of a division

created for this purpose
• Advantages

– Assures that international focus receives top

management attention
– Unified approach to international operations
– Often adopted by firms still in the developmental states
of international business operations
• Disadvantages

– Separates domestic from international managers

– May find it difficult to think and act strategically, or to
allocate resources on a global basis
Global Product Division
• Description

– Domestic divisions given worldwide responsibility for product groups

– Global product divisions operate as profit centers
• Advantages

– Helps manage product, technology, customer diversity

– Ability to cater to local needs
– Marketing, production and finance can be coordinated on a product-by-
product global basis
• Disadvantages

– Duplication of facilities and staff personnel within divisions

– Division manager may pursue currently attractive geographic prospects
and neglect others with long-term potential
– Division managers my spend too much time tapping local rather than
international markets
Global Area Division
• Description

– Global operations are organized on a geographic rather than a product

basis
• Advantages

– International operations are put on the same level as domestic operations

– Global division managers are responsible for all business operations in
their designated geographic area
– Often used by firms in mature businesses with narrow product lines
– By manufacturing in a region, the firm is able to reduce cost per unit and
price competitively
• Disadvantages

– Difficult to reconcile a product emphasis with a geographic orientation

– New R&D efforts often ignored because divisions are selling in mature
market
• Global Functional Division
• Description

– Organizes worldwide operations primarily based on function and

secondarily on product
• Advantages

– Emphasizes functional expertise, centralized control, and

relatively lean managerial staff
– Favored by firms that
• Need tight, centralized coordination and control of integrated production processes

• Are involved in transporting products and raw materials between geographic areas

• Disadvantages

– Approach not used except by extractive companies such as oil

and mining firms
– Coordination of manufacturing and marketing often is difficult
• Managing multiple product lines can be very challenging because of the separation of
production and marketing into different departments
• Description

– Combination of global product, area, and functional arrangements

• Cross-cutting committee structures

• Matrix structures

• Advantages

– Structure can be designed to best meet needs

– Promotes an integrated strategic approach tailored to local needs
and priorities
• Disadvantages

– As the matrix design’s complexity increases, coordinating the

personnel and getting everyone to work toward common goals
often become difficult
• Too many groups go their own way
Global Matrix Structure
• An arrangement that blends the geographic area,
product, and functional structures in an attempt to
leverage the benefits of a purely global strategy
and maximize global organizational learning, while
remaining responsive to local needs.
• It is an attempt to capture the benefits of the
geographic area, product, and functional
organization structures simultaneously, while
minimizing their shortcomings.
• Closely associated with Transnational Strategy
CONTROLLING OF IB

• For achieving the goals predefined processes and instruments are

required which influences the performance of the organization
• Control is essentially concerned with regulating the activities within
the organization so that they are accord with the expectations
established in policies , plans and practices.
• Objectives of Control
• It supply data for top management for monitor, evaluate and adjust
• Provide the means for coordination of the units toward common
objectives
• It provide the basis for evaluating the performance of the units and
managers at each level
Types/Methods of Control System
• Personal Controls:
• Personal contact with the subordinates
• Most widely used in the small firms, where direct supervision
• Also structures the relationships between managers at different
levels in MNE
• CEO may use a deal of personal contact to influence the behaviour
of his immediate subordinates.
• Bureaucratic Controls
• A System of rules and procedure that directs the actions of sub-units
• Capital spending rules require headquarters management to approve
exceed certain limit
• Output Controls
• It involves setting goals for subsidiaries to achieve the objectives
• Objectives criteria Productivity, Profitability, Growth, Market share
and quality
• Cultural Controls
• It exists when employees “buy into” the norms and value systems of
the firm
• Employees tend to control their own behaviour which reduces need
for direct supervision
• In a firm with strong culture, self control reduces the need for other
control systems
Approaches to Control
• Market Approach
- External market forces allowed to control the behaviour of the
management within the units of MN’s
- Organisation are decentralized and transfer prices are freely
negotiated
- The decisions are largely directed by the market
Rules Approach
- Rules oriented organization
- Greater reliance on strongly imposed rules and procedures
- Highly developed planning and budgeting system with extensive formal
reporting
- This types of control uses both the input and output controls in highly
formalized way.
• Corporate Culture Approach
- The members of the organization internalize the goals by developing a
strong set of beliefs and values which influence their operations
- Though the orgn.have strong norms of behaviour they are informal and
less explicit
- Major changes naturally takes more time to bring the needed
organizational changes or adjustments
• Reports
- Powerful control mechanism
- Allocate resources/monitor the performance
- Reward personnel
- Reports must be frequent, accurate and up-to-date
• Visit to Subsidiaries
- Not all the information exchange through
- Corporate staff often visit subsidiaries to confer and socialize with local
managers
- Visit can serve the goal of controlling foreign operations because they
enable the visitors to collect information and offer advice and
directives.
• Management Performance Evaluation
- Evaluate subsidiary managers separately from their subsidiary
performance
- Because of decision making authority differences something are
beyond the control
- Slow growth and risky economical and political environment
- The company should still reward the country’s managers for doing a
good job in the face of diversity
• Cost and Accounting Comparisons
- Different cost among subsidiaries
- Meaningful comparison of their operating performance
- Set of book that are consistent with home country principles another to
meet local reporting requirements
 CONSTRAINTS IN CONTROL SYSTEM
• Distance
- Geographical distance and cultural disparities
- But advent of email and fax transmission has replaced the human in
communication
• Diversity
- Needs locally responsive – adjusting needs of the country in which
operates – Labour, cost, currency, factors, setting standards etc.
• Degree of Uncertainty
- Data relating to that are inaccurate and incomplete
- Control implies setting goals and developing plans to meet the goals
• Differences in approach
- Approaches are different in different countries
- They are not at par in the approaches to controls are concerned
PERFORMANCE MEASUREMENT OF
GLOBAL BUSINESS
Objectives of Performance Evaluation
• To evaluate the economic performance of its international operations
• To evaluate the unit’s management performance
• To monitor progress toward corporate objectives including strategic
goals
• To assist the efficient allocation of resources
• Various Performance Indicators
Financial Measures
- ROI (Return on Investment)
-ROI = Division return(Segment Margin)
-Investment In division
- ROI = Division controllable return(Manager’s Contribution
• Controllable Investment
Most common method to evaluate the return on investment
Relation ship of profit to invested capital
It encompasses all the important factors in a single measure
Logical motivator of the managers since they are evaluated by ROI, they
will act to maximize the ROI of their units
• Non Financial Measure
• - Market Share
• - Percentage of Sales
• - Exchange Variations
• - Quality Control
• - Productivity Improvement
• Budget Programming
• - Prepared for planning and financial control
• - Easy to compute the variance
• - To measure current performance in relation to comparable
performance in the past
• Management Audit
• - Extended financial audit system
• - Monitors the quality management decisions in financial
operations
• - It appraises and audits the functioning of the management
Types of Performance Evaluation System
• PERT(Programme Evaluation Review Technique)
- It is based on CPM(Critical Method)
- It delineates a given project or program into network of activities or
sub-activities with a view to optimize the time
- The performance is measured by comparing the scheduled time and
cost inputs with the actual time and cost inputs
• Management Information System
- Ongoing information system designed to plan, operate, appraise,
monitor, control and redirects the total management towards the
determined targets and goals
-MIS is all pervasive and encompass the financial, physical budgeting,
management audit and control systems of the PERT
Organizational Culture
• The pattern of shared values, norms of behavior,
systems, policies, and procedures that
employees learn and adopt. The ‘personality’ of
the firm.
• Leading MNEs attempt to instill a ‘global culture’
in the firm’s operations worldwide, by
emphasizing a ‘borderless mindset’, developing
internationally sophisticated managers, and
emphasizing the firm’s global performance. E.g.,
Nestle, Nissan, Schlumberger, Unilever
Organizational Processes
Managerial routines, mechanisms, and
technologies that allow the firm to function as
intended.

Examples
• GE digitizes all key documents and uses
intranets and the Internet to automate many
activities and reduce operating costs.
• Schlumberger keeps a huge database of skilled
individuals within the firm available to all
subsidiaries on the corporate intranet.
 Components of International Strategy

Distinctive Scope of
competence operations

Resource
Synergy
deployment

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Distinctive Competence

• Answers the question

– What do we do exceptionally well, especially

as compared to our competitors?
• Represents important resource to the firm

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Scope of Operations

• Answers the question

– Where are we going to conduct business?

• Aspects of scope
– Geographical region
– Market or product niches within regions
– Specialized market niches

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Resource Deployment

• Answers the question

– Given that we are going to compete in these

markets, how will we allocate our resources to
them?
• Resource specifics

– Product lines
– Geographical lines

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Synergy

• Answers the question

– How can different elements of our business
benefit each other?
• Goal is to create a situation where the whole is
greater than the sum of the parts

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Developing International Strategies

Strategy
formulation

Strategy
implementation

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Figure 11.2 Steps in International
Strategy Formulation

Develop a mission statement

Perform a SWOT analysis

Set strategic goals

Develop tactical goals and plans

Develop a control framework

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Mission Statements

• Clarifies the organization’s purpose, values,

direction
• Communicates firm’s strategic direction
• Specifies firm’s target customers and markets,
principal products, geographical domain, core
technologies, concerns for survival, plans for
growth and profitability, basic philosophy, and
desired public image

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Mission Statements

• Wells Fargo
– Satisfy all our customers’ financial needs, help them
succeed financially, be known as one of America’s
great companies and the number-one financial
services provider in each of our markets
• Carpenter Technology
– Major, profitable, and growing international producer
and distributor of specialty alloys, materials, and
components

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SWOT Analysis

• Strengths
• Weaknesses
• Opportunities
• Threats

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Environmental Scanning

An environmental scan is a systematic collection of data about all

elements of the firm's external and internal environments, including
markets, regulatory issues, competitors' actions, production costs, and
labor productivity.

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Figure 11.3 The Value Chain

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Strategic Goals

Strategic goals are the major objectives the firm wants to accomplish
through pursuing a particular course of action.

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Tactical Goals and Plans

• Middle management • Examples

issues – Hiring
• Details of – Compensation
implementation – Career paths
– Distribution and
logistics

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Control Framework

A control framework is the set of managerial and organizational

processes that keep the firm moving toward its strategic goals.

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 Figure 11. 4 Levels of
International Strategy

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Corporate Strategy

• Single-Business Strategy
• Related Diversification
• Unrelated Diversification

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Advantages of Related Diversification

• Less dependence on single product

• Greater economies of scale
• Entry into additional markets more efficient and effective

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Business Strategy

Differentiation

Overall cost leadership

Focus

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Functional Strategies

Financial

Human
Marketing
resources

R&D Operations

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