International strategic management

The process by which a firms 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 organizations 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 Coordination

Political 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 industrys 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.

 Two possible paths

Quality Imperative

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

Pressures for global integration

High

Global Views the world as a single market. Operations are controlled centrally from the corporate office.

Transnational Specialized facilities permit local responsiveness. Complex coordination mechanisms provide global integration.

Low

International Uses existing capabilities to expand into foreign markets.

Multinational Several subsidiaries operating as stand-alone business units in 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

INTENT
Vision Mission Goals Objectives

STRATEGY FORMULATION
Environmental Appraisal Organizational Appraisal

STRATEGY IMPLEMENTATION Structural Behavioral

(corporate governance; strategic leadership; ethics & values..)

STRATEGIC EVALUATION
Set performance standards Measure performance Analyze variance

Corporate strategies Business level strategies Functional and Operating strategies

Functional

STRATEGIC CONTROL

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Elements of Strategic Planning for International Management

External Environmental Scanning for MNC Opportunities and Threats Internal Resource Analysis of MNC Strengths and Weaknesses

Strategic Planning Goals

IMPLEMENTATION

Adapted from Figure 82: 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

ENVIRONMENTAL SCANNING 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)
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Political (incl. Legal)

Environmental regulations and protection Tax policies

Economic
Economic growth Interest rates & monetary policies

Socio-cultural
Income distribution Demographics, Population growth rates, Age distribution

Technological
Government research spending Industry focus on technological effort

International trade regulations and restrictions

Contract enforcement law Consumer protection Employment laws

Government spending
Unemployment policy Taxation

Labor / social mobility

Lifestyle changes Work/career and leisure attitudes Entrepreneurial spirit Education Fashion, hypes Health consciousness & welfare, feelings on safety

New inventions and development

Rate of technology transfer Life cycle and speed of technological obsolescence Energy use and costs (Changes in) Information Technology (Changes in) Internet
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Government organization / attitude Competition regulation Political Stability

Exchange rates Inflation rates Stage of the business cycle

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 Ps (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

SPECIALIZED STRATEGIES

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

(2) Entrepreneurship Strategy 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