Chapter: IV (First Slide)

International Strategic
Management

Sudhir Bogati
 International Strategic
Management
• It’s a ongoing planning process aimed at
formulating and implementing strategies that enable
a firm to compete effectively internationally.

• It is an ongoing process that bond an organization to

compete in an international scenario.

Strategic Planning
The process of developing a particular international
strategy is often referred to as strategic planning
 Some Reasons for…
• To enter more favorable markets, e.g., faster
growing, more profitable, better government
climate...
• To reach new customers

• To gain access to lower-cost labor markets and/or

key/lower-cost raw materials
• To spread business risk across a wider base

• To gain other advantages inherent in location

Components of International Strategy
Distinctive competence
•Answers the question
– What do we do
exceptionally well, especially as
compared to our competitors?
•Represents important resource
to the firm
Eg: Coke formula
Resource deployment
•Answers the question
–How will we allocate our
resources to them?
•Resource specifics
–Product lines
–Geographical lines
Scope of operations
•Answers the question
– Where business are we going to
conduct?
•Aspects of scope
– Array market in which firm plans
– to operate.
Specialized niches market
–
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
 Roles of Strategy in IB (Objectives)
1. Efficiency: minimize the cost of operations and activities
2. Effectiveness: maximize revenues
3. Flexibility: tap local resources and opportunities to
maximize options for the firm
4. Learning: add to proprietary technology, brand name
and management capabilities by internalizing
knowledge gained from international ventures.

5. Conclusion: all above mentioned roles/objective should

be achieved to make firm globally competitive &
sustainable.
 Estimating/ Assessing Market Potential
• Simply Means: Is there a MARKET?

• Estimating the possible sales of the category products for all companies
(Industry Demand or Market Potential), then estimate its own market share
potential (Company Demand or Company Sales Potential).

• Six steps to estimating market potential

i. Define the market segment (target market).
ii. Define the geographic boundaries of the market
iii. Define the competition
iv. Define the market size.
v. Estimate market share
vi. Determine the average annual consumption

Stage Involved
1. Estimating Industry Market Potential
2. Estimating Company Sales Potential
 1. Estimating Industry Market Potential
I. Determine the potential buyers /users of the products.
II. Determine no. of customers in each group of buyers.
III. Estimate the potential purchasing/usage rate.

• Actual industry sales are usually less than market

potential:
because it takes time to convince people to buy non-
compulsory items such as Washing Machine, Air Purifier
etc.
because some people can’t afford them.
Factors/ Indicators for Assessing Industry
Market Potential
1. GNP (measures value of g/s produced by nation)
2. Population (mkt. size & potential of country)
3. Personal Income
4. Cultural Factors
5. Buyers Behavior
 Estimating Company Sales Potential
• Multiply market potential by desired or “best” possible
market share.
• An estimate of the share/industry sales, that the firm expects
to generate in a particular target market.

Sales Forecast: Estimate from Sales Potential

Use purchase intention surveys/qualitative methods.
Forecasts for frequently-purchased items combine test market
or early sales data with brand awareness, trial, repeat
purchase, or usage rate data
 Factors that Determine Company Sales Potential

1. Pricing & Financing of Sales

2. Qty. of Human Resource
3. Qty. of Financial Resource
4. Access to distribution channels: Ability to set up and use
intermediaries and channel infrastructure.
5. Market penetration timetable: Fast or slow? Each has advantages
and disadvantages.
6. Risk tolerance of senior managers
7. Special links, contacts, capabilities of the firm: The firm’s network
in the market.
8. Reputation: Success may be faster if customers are already familiar
with the firm’s brands and reputation
 Approaches to Global Management
Ethnocentric
i.All key management positions are filled by parent – country nationals.
ii.One’s own culture is superior
iii.Overlooks important cultural factors
iv.Host country lacks qualified professional
v.E.g.: Procter & Gamble, Toyota and

Polycentric
i.Decentralized control
ii.Business Units in different countries have autonomy from home office, like a local Co.
iii.No standard forms or procedures
iv.Recruits host country nationals to manage subsidiaries, while parent country nationals occupy key
positions at corporate HQ.

v.Less expensive to implement

• Regiocentric
Regional groups of subsidiaries reflecting
organization’s strategy and structure work as a
unit.

Geocentric
i. It seeks the best people for key jobs, throughout the organization, regardless of
nationality.
ii. Hybrid of Ethno and Poly
iii. Based on informed knowledge of home and host countries.
iv. Helps building a strong unifying corporate culture and informal management
network.
v. Reduces cultural myopia
vi. Enhance local responsiveness
Choosing a Strategy / Types of Strategic
Management
High

Trans-national
Global Strategy
Strategy

International Multi-Domestic
Strategy Strategy

Low

Low High
Pressures for local
responsiveness
 1. INTERNATIONAL STRATEGY
• It try to create value by transferring valuable skills and products to
foreign markets where local indigenous competitors lack those
skills and products.

• In reality, the most international firms have created value by

transferring different products & offerings developed at home to
new overseas market.

• They tend to centralize product development at home and

establish only local manufacturing and marketing units at the
overseas market.

• Examples are McDonalds, IBM, Wal-Mart, Microsoft etc.

ADVANTAGES

 Ability to exploit transfer core competencies to

foreign market.
 Ability to economize global supplies.

DISADVANTAGES
 Lack of local responsiveness.
 Inability to realize location economies.
 Inability to exploit experience curve effects.
 2. MULTI-DOMESTIC STRATEGY
(Localisation Strategy)

 This strategy is to customize the firm’s product & offering,

management strategy and business strategy to the
conditions of the foreign countries where it is operating.

 This strategy is based on an English adage “when you are

at rome, live in the roman style; when you are elsewhere,
live as they live elsewhere.”

 Most desirable when there are high pressures for local

responsiveness and low pressures for cost reductions.
ADVANTAGE
SAbility
 to customize product offerings and marketing
in accordance with local responsiveness.
 Ability to make quicker response to policy changes,
market changes and opportunities at the local
market.

DISADVANTAGES
 Inability to realize location economies.
 Inability to exploit experience curve effects.
 Failure to transfer core competencies to foreign
market
 Possibility of decrease in profit
 3. GLOBAL STRATEGY
(Global Standardization)
 A global strategy is focus on pursuing loe-cost
tactics.

This strategy is not to customize the firm’s product offering

and marketing strategy to local conditions of the foreign
countries because customization rises cost.

Under this strategy firm concentrates its production,

marketing and R&D activities only in a few favorable locations.
ADVANTAGES

 Ability to exploit experience curve effects.

 Ability to exploit location economies.

DISVANTAGES

 Lack of local responsiveness.

 Difficulty in handling the resistance from subsidiary
employees over production system and marketing
techniques.
 4. TRANS-NATIONAL STRATEGY

 This strategy involves simultaneous focus on reducing

costs, transferring skills & products, and boosting local
responsiveness in foreign market.

 It is balanced combination of all other strategy.

 Recommended when a firm faces high pressures for both

cost reductions and local responsiveness and when there
are significant opportunities for leveraging valuable skills
within the firm’s global network of operation.

 Example, Samsung
ADVANTAGE
S
 Ability to exploit experience curve effects.

 Inability to realize location economies.

 Ability to customize product offerings and marketing

in accordance with local responsiveness.
 Ability to reap benefits of global learning.

 Well balanced mechanism on authority-

responsibility sharing.

DISADVANTAGES
 Difficulties in implementation
 High cost of exercising flexibility from headquarter.
 High cost for controlling & monitoring of
subsidiaries.
 MNCs and Foreign Direct Investment
(FDI) in the world economy
MULTI-NATIONAL CORPORATION
• An enterprise operating in several countries but managed from one
(home) country.
•Generally, any company or group that derives a quarter of its revenue
from operations outside of its home country is considered a multinational
corporation.

there are four categories of multinational corporations

i.multinational corporations
ii.global corporations
iii.international corporations
iv.transnational corporations
 GLOBAL, TRANSNATIONAL,
INTERNATIONAL
AND MULTINATIONAL COMPANY

INTERNATIO MULTINATI GLOBAL TRANSNATI

NAL ONAL COMPANIES ONAL
COMPANIES COMPANIES COMPANIES
FACTORS CONTRIBUTED FOR
GROWTH OF MNCs
• EXPANSION OF MARKET
TERRITORIES
• MARKET SUPERIORITIES
• FINANCIAL SUPERIORITIES
• TECHNOLOGICAL
SUPERIORITIES
ADVANTAGE & DISADVANTAGE OF
MNCs TO HOST
ADVANTAGECOUNTRY
•INCREASE ECONOMIC & INDUSTRIAL ACTIVITY.

•INCREASE EMPLOYMENT & INCOME LEVEL.

•DOMESTIC INPUT SUPPLIERS GET MORE BUSINESS.

•DOMESTIC INDUSTRY GET SOPHISTICAL MANAGEMENT TECHNIQUES.

•MNCS ERN FOREIGN EXCHANGE BY EXPORTING TO NEIGHBORING COUNTRIES.

DISADVANTAGE

•MNCS MAY NOT OPERATE WITHIN NATIONAL AUTONOMY AND REGULATION.

•MONOPOLISTIC PRACTICES OF MNCS MAY KILL DOMESTIC INDUSTRY.

 ADVANTAGE & DISADVANTAGE OF MNCs
TO HOME
ADVANTAGE
COUNTRY
• CREATE THE DEMAND FOR THE HOME COUNTRY PRODUCTS.
• BOOST UP THE INDUSTRIAL ACTIVITY OF THE HOME COUNTRY
• CREATE EMPLOYMENT FOR HOME COUNTRY PEOPLE

• PRODUCE THE PRODUCT REQUIRED BY THE DOMESTIC CONSUMER IN FOREIGN

COUNTRIES WITH FORGINES RESOURCES.

DISADVANTAGE

• TRANSFER CAPITAL TO OTHER COUNTRIES AND CAUSE UNFAVOURABLE BALANCE OF

PAYMENTS.
• MAY NOT CREATE EMPLOYMENT OPPORTUNITIES TO DOMESTIC PEOPLE

• MAY NEGLECT THE INDUSTRIAL DEVELOPMENT OF HOME COUNTRY AS THE

TRANSNATIONAL
COMPANIESFOLLOW THE SECULAR APPROACH.
 STRATEGIC MANAGEMENT OF MNC’S

THE BASIC STEPS IN STRATEGIC MANAGEMENT INCLUDE:

•FORMULATION OF MISSION, OBJECTIVES AND GOALS

•ANALYSIS OF INTERNAL AND EXTERNAL ENVIRONMENT

•FORMULATION OF ALTERNATIVE STRATEGIES

•EVALUATION OF ALTERNATIVE STRATEGIES AND SELECTING

RIGHT ONES

•IMPLEMENTATION OF STRATEGIES
 FDI…
 Foreign direct investment (FDI) is defined as a
long-term investment by a foreign direct investor in
an enterprise resident in an economy other than
that in which the foreign direct investor is based.

 The FDI relationship, consists of a parent

enterprise and a foreign affiliate which together form a
transnational corporation (TNC).
 In order to qualify as FDI the investment must afford the
parent enterprise control over its foreign affiliate.

 The UN defines control in this case as owning 10% or more

of the ordinary shares or voting power of an incorporated
firm or its equivalent for an unincorporated firm.
 Types of FDI
1. Greenfield Investment:
• Direct investment in new facilities or the expansion of existing
facilities.
• Greenfield investments are the primary target of a host nation’s
promotional efforts because they create new production capacity
and jobs, transfer technology and know-how, and can lead to
linkages to the global marketplace.

2. Mergers and Acquisition

• transfers of existing assets from local firms to foreign firms takes
place; the primary type of FDI.
• Cross-border mergers occur when the assets and operation of
firms from different countries are combined to establish a new legal
entity.
3. Horizontal Foreign Direct Investment:
•investment in the same industry abroad as a firm
operates in at home.

4. Vertical Foreign Direct Investment:

•Takes two forms:
1) backward vertical FDI: where an industry
abroad provides inputs for a firm's domestic
production process
2) forward vertical FDI: in which an industry abroad
sells the outputs of a firm's domestic production
 Advantages of FDI
• FDI encourages domestic investment by providing:
• New markets
• Demand for inputs
• New technology
• Labor is mobile and often moves from
• multinational firms to domestic firms
• Increased competition makes markets more efficient
• Investments in new sectors simulates the growth of new industry
and new products
• Employment Generation and Labor Skills
• Foreign firms generate hundreds or thousands of jobs and skills
• They generate employment in suppliers
• Foreign firms bring new technology
 Disadvantages of FDI
• FDI crowds out domestic investment by:
 Being a monopolistic competitor
 Raises demand for money
 Raises interest rates

• Foreign firms have more:

 Advertising power
 Ability to dominate the market
 Predatory pricing to prevent entry
 Financial inflows raise the exchange rates, making exports unattractive

• technology may be too capital-intensive

• Religion Attacks
• Political Pressure