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international strategic management

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1 international strategic management
chapter 11 international strategic management

2 Chapter Objectives 1 Characterize the challenges of international strategic management Assess the basic strategic alternatives available to firms Distinguish and analyze the components of international strategy 11-2

3 Chapter Objectives 2 Describe the international strategic management process Identify and characterize the levels of international strategies 11-3

4 International Strategic Management
International strategic management is a comprehensive and ongoing management planning process aimed at formulating and implementing strategies that enable a firm to compete effectively internationally. International strategic management results in the development of various international strategies, which are comprehensive frameworks for achieving a firm's fundamental goals. Conceptually, there are many similarities between developing a strategy for competing in a single country and developing one for competing in multiple countries. 11-4

5 Strategic Planning The process of developing a particular international strategy is often referred to as strategic planning. Strategic planning is usually the responsibility of top-level executives at corporate headquarters and senior managers in domestic and foreign operating subsidiaries. Most larger firms also have a permanent planning staff to provide technical assistance for top managers as they develop strategies. Disney is the opening case for this chapter. Disney's planning staff, for example, gathered demographic and economic data that the firm's decision-makers used to select the French site for Euro Disney and the Hong Kong site for its latest Asian park. 11-5

6 Fundamental Questions
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? These are the fundamental questions that must be answered whether a company is competing in a single country or in multiple companies. 11-6

7 Factors Affecting International Strategic Management
Language Culture Politics Economy Governmental interference Labor Labor relations Financing Market research Advertising Money Transportation/ communication Control Contracts Managers developing a strategy for a domestic firm must deal with one national government, one currency, one accounting system, one political and legal system, and, usually, a single language and a comparatively homogeneous culture. Managers responsible for developing a strategy for an international firm must understand and deal with multiple governments, multiple currencies, multiple accounting systems, multiple political systems, multiple legal systems, and a variety of languages and cultures. These and other differences in domestic and international operations and how they affect a firm's strategy are summarized in Table The factors that affect international strategic management (and emphasized in Table 11.1) are listed in the slide. 11-7

8 Sources of Competitive Advantage
Global efficiencies Multinational flexibility International businesses have the ability to exploit three sources of competitive advantage unavailable to domestic firms. Global efficiencies. International firms can improve their efficiency with location efficiencies, economies of scale, and economies of scope. These are discussed on the next slide. Multinational flexibility. There are wide variations in the political, economic, legal, and cultural environments of countries, and these environments are constantly changing: new laws are passed, new governments are elected, economic policies are changed, new competitors may enter (or leave) the national market, and so on. International businesses thus face the challenge of responding to these multiple diverse and changing environments. Worldwide learning. The diverse operating environments of MNCs may also contribute to organizational learning. Differences in these operating environments may cause the firm to operate differently in one country than another. An astute firm may learn from these differences and transfer this learning to its operations in other countries. Worldwide learning 11-8

9 Global Efficiencies Location efficiencies Economies Economies of scope
of scale International firms may achieve location economies by locating their facilities anywhere in the world that yields them the lowest production or distribution costs or that best improves the quality of service they offer their customers. Similarly, by building factories to serve more than one country, international firms may also lower their production costs by capturing economies of scale. By broadening their product lines in each of the countries they enter, international firms may enjoy economies of scope, lowering their production and marketing costs and enhancing their bottom lines. 11-9

10 Location Efficiencies
Mercedes-Benz has achieved economies of scale by focusing production of its M-class at its assembly plant in Vance, Alabama. 11-10

11 Strategic Alternatives
Home replication strategy Multidomestic strategy Global strategy There are four strategic alternatives that MNCs may adopt in their attempt to balance the three goals of global efficiencies, multinational flexibility, and worldwide learning. In the home replication strategy, a firm utilizes the core competency or firm-specific advantage it developed at home as its main competitive weapon in the foreign markets that it enters. It takes what it does exceptionally well in its home market and attempts to duplicate it in foreign markets. A multidomestic corporation views itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market. Each of these subsidiaries is free to customize its products, its marketing campaigns, and its operations techniques to best meet the needs of its local customers. The multidomestic approach is effective when there are clear differences among national markets; when economies of scale for production, distribution, and marketing are low; and when the cost of coordination between the parent corporation and its various foreign subsidiaries is high. A global corporation views the world as a single marketplace and has as its primary goal the creation of standardized goods and services that will address the needs of customers worldwide. The global strategy is almost the exact opposite of the multidomestic strategy. The transnational corporation attempts to combine the benefits of global scale efficiencies, such as those pursued by a global corporation, with the benefits and advantages of local responsiveness, which is the goal of a multidomestic corporation. Transnational strategy 11-11

12 Figure 11.1 Strategic Alternatives
Pressures for Global Efficiencies Global Strategy Firm views the world as single marketplace. Goal is to create standardized products. Transnational Strategy Firm combines benefits of global scale efficiencies with benefits of local responsiveness High Low Home Replication Firm uses core competency or firm- specific advantage Multidomestic Strategy Firm operates as a collection of relatively independent subsidiaries Figure 11.1 assesses these four strategic approaches against two criteria, the need for local responsiveness and the need to achieve global integration. Firms must pay particular attention to local conditions when consumer tastes or preferences vary widely across countries, when large differences exist in local laws, economic conditions, and infrastructure, or when host-country governments play a major role in the particular industry. Pressures for global integration arise when the firm is selling a standardized commodity with little ability to differentiate its products through features or quality, such as agricultural goods, bulk chemicals, ores, and low-end semiconductor chips. If trade barriers and transportation costs are low, such firms must strive to produce their goods at the lowest possible cost. Conversely, if the product features desired by consumers vary by country or if firms are able to differentiate their products through brand names, after-sales support services, and quality differences, the pressures for global integration are lessened. Low High Pressures for Local Responsiveness/Flexibility 11-12

13 Components of International Strategy
Distinctive competence Scope of operations Resource deployment Synergy After determining the overall international strategic philosophy of their firm, managers who engage in international strategic planning then need to address the four basic components of strategy development. These components are distinctive competence, scope of operations, resource deployment, and synergy. Each will be discussed on the following slides. 11-13

14 Distinctive Competence
Answers the question What do we do exceptionally well, especially as compared to our competitors? Represents important resource to the firm A firm's distinctive competence may be cutting-edge technology, efficient distribution networks, superior organizational practices, or well-respected brand names. Without a distinctive competence, a foreign firm will have difficulty competing with local firms that are presumed to know the local market better. The Disney name, image, and portfolio of characters, for example, is a distinctive competence that allows the firm to succeed in foreign markets. Whatever its form, this distinctive competence represents an important resource to the firm. A firm often wishes to exploit this advantage by expanding its operations into as many markets as its resources allow. To a large degree, the internationalization strategy adopted by a company reflects the interplay between its distinctive competence and the business opportunities available in different countries. 11-14

15 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 Scope may be defined in terms of geographical regions, such as countries, regions within a country, and/or clusters of countries. It may focus on market or product niches within one or more regions, such as the premium-quality market niche, the low-cost market niche, or other specialized market niches. Because all firms have finite resources and because markets differ in their relative attractiveness for various products, managers must decide which markets are most attractive to their firm. Scope is tied to the firm's distinctive competence: if the firm possesses a distinctive competence only in certain regions or in specific product lines, then its scope of operations will focus on those areas where the firm enjoys the distinctive competence. 11-15

16 Resource Deployment Answers the question Resource specifics
Given that we are going to compete in these markets, how will we allocate our resources to them? Resource specifics Product lines Geographical lines Resource deployment might be specified along product lines, geographical lines, or both. This part of strategic planning determines relative priorities for a firm's limited resources. 11-16

17 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 The goal of synergy is to create a situation where the whole is greater than the sum of the parts. Disney has excelled at generating synergy in the United States. People know the Disney characters from television, so they plan vacations to Disney theme parks. At the parks they are bombarded with information about the newest Disney movies, and they buy merchandise featuring Disney characters, which encourage them to watch Disney characters on TV, starting the cycle all over again. 11-17

18 Developing International Strategies
Strategy formulation Strategy implementation Firms generally carry out international strategic management in two broad stages, strategy formulation and strategy implementation. Simply put, strategy formulation is deciding what to do and strategy implementation is actually doing it. In strategy formulation, the firm establishes its goals and the strategic plan that will lead to the achievement of those goals. In international strategy formulation, managers develop, refine, and agree on which markets to enter (or exit) and how best to compete in each. This chapter and the next two chapters focus on strategy formulation. In strategy implementation, the firm develops the tactics for achieving the formulated international strategies. Strategy implementation is usually achieved via the organization's design, the work of its employees, and its control systems and processes. Chapters 12 through 15 deal primarily with implementation issues. 11-18

19 Figure 11.2 Steps in International Strategy Formulation
Develop a mission statement Perform a SWOT analysis Set strategic goals Develop tactical goals and plans These are the steps in international strategy formulation. Each step will be discussed in the following slides. Develop a control framework 11-19

20 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 Most organizations begin the international strategic planning process by creating a mission statement, which clarifies the organization's purpose, values, and directions. The mission statement is often used as a way of communicating with internal and external constituents and stakeholders about the firm's strategic direction. It may specify such factors as the firm's target customers and markets, principal products or services, geographical domain, core technologies, concerns for survival, plans for growth and profitability, basic philosophy, and desired public image. MNCs may have multiple mission statements--one for the overall firm and one for each of its various foreign subsidiaries. 11-20

21 Mission Statements Wells Fargo Carpenter Technology
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 11-21

22 SWOT Analysis Strengths Weaknesses Opportunities Threats 11-22
The second step in developing a strategy is conducting a SWOT analysis. SWOT is an acronym for "Strengths, Weaknesses, Opportunities, and Threats." A firm typically initiates its SWOT analysis by performing an environmental scan (environmental scanning is defined on the next slide). In conducting a SWOT analysis, a firm's strategic managers must also assess the firm's internal environment, that is, its strengths and weaknesses (the S and W in SWOT). Organizational strengths are skills, resources, and other advantages the firm possesses relative to its competitors. Potential strengths, which form the basis of a firm's distinctive competence, might include an abundance of managerial talent, cutting-edge technology, well-known brand names, surplus cash, a good public image, and strong market shares in key countries. A firm also needs to acknowledge its organizational weaknesses. These weaknesses reflect deficiencies or shortcomings in skills, resources, or other factors that hinder the firm's competitiveness. They may include poor distribution networks outside the home market, poor labor relations, a lack of skilled international managers, or product development efforts that lag behind competitors'. 11-22

23 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. When members of a planning staff scan the external environment, they try to identify both opportunities (the O in SWOT) and threats (the T in SWOT) confronting the firm. They obtain data about economic, financial, political, legal, social, and competitive changes in the various markets the firm serves or might want to serve. External environmental scanning also yields data about environmental threats to the firm, such as shrinking markets, increasing competition, the potential for new government regulation, political instability in key markets, and the development of new technologies that could make the firm's manufacturing facilities or product lines obsolete. 11-23

24 Figure 11.3 The Value Chain 11-24
One technique for assessing a firm's strengths and weaknesses is the value chain. The value chain is a breakdown of the firm into its important activities—production, marketing, human resource management, and so forth—to enable its strategists to identify its competitive advantages and disadvantages. Each primary and support activity depicted in Figure 11.3 can be the source of an organizational strength (distinctive competence) or weakness. For example, the quality of Caterpillar's products (Research and Development in the figure) and the strength of its worldwide dealership network (Marketing, Sales, and Service in the figure) are among its organizational strengths, but a history of contentious labor relations (Human Resources in the figure) represent one of its organizational weaknesses. 11-24

25 Strategic Goals Strategic goals are the major objectives the firm wants to accomplish through pursuing a particular course of action. With the mission statement and SWOT analysis as context, international strategic planning is largely framed by the setting of strategic goals. Strategic goals are the major objectives the firm wants to accomplish through pursuing a particular course of action. By definition, they should be measurable, feasible, and time-limited (answering the questions "how much, how, and by when?"). 11-25

26 Tactical Goals and Plans
Middle management issues Details of implementation Examples Hiring Compensation Career paths Distribution and logistics After a SWOT analysis has been performed and strategic goals set, the next step in strategic planning is to develop specific tactical goals and plans, or tactics. Tactics usually involve middle managers and focus on the details of implementing the firm’s strategic goals. 11-26

27 Control Framework A control framework is the set of managerial and organizational processes that keep the firm moving toward its strategic goals. The final aspect of strategy formulation is the development of a control framework. Each set of responses stems from the control framework established to keep the firm on course. The control framework can prompt revisions in any of the preceding steps in the strategy formulation process. It is discussed further in chapter 14. 11-27

28 Figure 11. 4 Levels of International Strategy
Given the complexities of international strategic management, many international businesses—especially MNCs—find it useful to develop strategies for three distinct levels within the organization. These levels of international strategy are illustrated in Figure 11.4 in the text. Each will be discussed on the following slides. 11-28

29 Corporate Strategy Single-Business Strategy Related Diversification
Unrelated Diversification Corporate strategy attempts to define the domain of businesses the firm intends to operate. The single-business strategy calls for a firm to rely on a single business, product, or service for all its revenue. The most significant advantage of this strategy is that the firm can concentrate all its resources and expertise on that one product or service. However, this strategy also increases the firm's vulnerability to its competition and to changes in the external environment. Related diversification, the most common corporate strategy, calls for the firm to operate in several different but fundamentally related businesses, industries, or markets at the same time. This strategy allows the firm to leverage a distinctive competence in one market in order to strengthen its competitiveness in others. The goal of related diversification and the basic relationship linking various operations are often defined in the firm's mission statement. A third corporate strategy international businesses may use is unrelated diversification, whereby a firm operates in several unrelated industries and markets. 11-29

30 Advantages of Related Diversification
Less dependence on single product Greater economies of scale Entry into additional markets more efficient and effective First, the firm depends less on a single product or service, so it is less vulnerable to competitive or economic threats. or example, if Disney faces increased competition in the theme park business, its movie, television, and licensing divisions can offset potential declines in theme park revenues. Second, related diversification may produce economies of scale for a firm. For example, The Limited, Inc., takes advantage of its vast size to buy new clothing lines at favorable prices from Far Eastern manufacturers and then divides the purchases among its Limited, Express, Lerner, and other divisions. Third, related diversification may allow a firm to use technology or expertise developed in one market to enter a second market more cheaply and easily. For example, Pirelli SpA used its expertise in producing rubber products and insulated cables, refined over 100 years ago, to become the world's fifth largest producer of automobile tires. Pirelli has also transferred its knowledge of rubber cables to become a major producer of fiber optic cables. 11-30

31 Overall cost leadership
Business Strategy Differentiation Overall cost leadership Whereas corporate strategy deals with the overall organization, business strategy focuses on specific businesses, subsidiaries, or operating units within the firm. Business strategy seeks to answer the question "How should we compete in each market we have chosen to enter?" Firms that pursue corporate strategies of related diversification or unrelated diversification tend to bundle sets of businesses together into strategic business units (SBUs). In firms that follow the related diversification strategy, the products and services of each SBU are somewhat similar to each other. A differentiation strategy attempts to establish and maintain the image (either real or perceived) that the SBU's products or services are fundamentally unique from other products or services in the same market segment. The overall cost leadership strategy calls for a firm to focus on achieving highly efficient operating procedures so that its costs are lower than its competitors'. This allows it to sell its goods or services for lower prices. A successful overall cost leadership strategy may result in lower levels of unit profitability due to lower prices but higher total profitability due to increased sales volume. A focus strategy calls for a firm to target specific types of products for certain customer groups or regions. Doing this allows the firm to match the features of specific products to the needs of specific consumer groups. These groups might be characterized by geographical region, ethnicity, purchasing power, tastes in fashion, or any other factor that influences their purchasing patterns. Focus 11-31

32 Functional Strategies
Financial Human resources Marketing R&D Operations Functional strategies attempt to answer the question "How will we manage the functions of finance, marketing, operations, human resources, and research and development (R&D) in ways consistent with our international corporate and business strategies?" International financial strategy deals with such issues as the firm's desired capital structure, investment policies, foreign-exchange holdings, risk-reduction techniques, debt policies, and working-capital management. Typically, an international business develops a financial strategy for the overall firm as well as for each SBU. International marketing strategy concerns the distribution and selling of the firm's products or services. It addresses questions of product mix, advertising, promotion, pricing, and distribution. International operations strategy deals with the creation of the firm's products or services. It guides decisions on such issues as sourcing, plant location, plant layout and design, technology, and inventory management. International human resource strategy focuses on the people who work for an organization. It guides decisions regarding how the firm will recruit, train, and evaluate employees and what it will pay them, as well as how it will deal with labor relations. International R&D strategy is concerned with the magnitude and direction of the firm's investment in creating new products and developing new technologies. 11-32

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