© 2006 Prentice Hall6-1 Chapter 6 Formulating Strategy PowerPoint by Kristopher Blanchard North Central University

© 2006 Prentice Hall6-2 Strategic Planning and Strategy 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.

© 2006 Prentice Hall6-3 Reasons for Going International AOL Europe is emerging as an upbeat counterpoint to AOL’s sagging business in the United States. Partly a matter of timing, as Europe follows the United States online … but also reflecting differences in strategy and execution. AOL Europe lobbied hard … to establish rules guaranteeing AOL Europe equal access to telecommunications networks. - September 8, 2003www.nytimes.com

© 2006 Prentice Hall6-4 Reasons for Going International Reactive or defensive Proactive or aggressive The threat of decreased competitiveness is the overriding reason many large companies adopt a strategy of aggressive globalization

© 2006 Prentice Hall6-5 Reactive Globalization of competitors Trade barriers Regulations and restrictions Customer demands

© 2006 Prentice Hall6-6 Proactive Economies of scale Growth opportunities Resource access and cost savings Incentives From rain forests to remote Chinese villages, the queen of cosmetics (Avon) is cleaning up across the globe. China is our single biggest growth opportunity. [Now] we have beauty boutiques, with 5,000 store representatives in every province including Tibet. A corollary on the [WTO] bill said that China would reestablish the legitimacy of direct selling in the marketplace. It could be in the next couple of years. —Susan Kropf, President,Avon Products,January 12, 2004.

© 2006 Prentice Hall6-7 Strategic planning Deterministic: long-range, methodical Emergent: day to day decisions of key managers accumulate to what can be discerned retroactively as a strategic direction.

© 2006 Prentice Hall6-8 Strategic Formulation Process

© 2006 Prentice Hall6-9 Strategic Formulation Process First phase is the planning phase – company establishes (or clarifies) its mission and overall objective Second part is the implementation phase – requires the establishment of the structure, systems, processes suitable to make the strategy work

© 2006 Prentice Hall6-10 Mission and Objective Mission of an organization is its overall raison d’etre or the function it performs in society Objectives flow from mission and guide the formulation of international strategy Return

© 2006 Prentice Hall6-11 Environmental Assessment Gathering information and forecasting relevant trends, competitive actions and circumstances that will affect operations in a geographic area; should include: –Political instability –Currency instability –Nationalism –International competition –Environmental scanning Return

© 2006 Prentice Hall6-12 Environmental scanning Political instability Currency instability Nationalism –Import controls, repatration of profits limitations, local content requirements, lax patent and protection laws, infrastructure International competition

© 2006 Prentice Hall6-13 Internal Analysis Internal analysis determines which areas of the firm’s operations represent strengths or weaknesses (currently or potentially) compared to competitors, so that the firm may use that information to its strategic advantage It focuses on the company’s resources and operations, and global synergies Strengths and weaknesses of the firm’s financial and managerial expertise and functional capabilities are evaluated to determine the key success factors

© 2006 Prentice Hall6-14 Competitive Analysis Assess the firm’s capabilities and key success factors compared to those of its competitors Enables strategic planners to determine where the firm has distinctive competencies that will give it an advantage Most companies develop strategies around key strengths or core competencies This stage is often called a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis

© 2006 Prentice Hall6-15 Global/International Strategic Alternatives Global Strategic Alternatives determines the overall approach to the global marketplace Entry Strategy Alternatives determine what specific entry strategy is appropriate for each country the firm plans to operate in

© 2006 Prentice Hall6-16 Approaches to World Markets GlobalizationGlobalization is a term that refers to the establishment of worldwide operations and the development of standardized products and marketing. RegionalizationRegionalization (or multi-local) is where local markets are linked together within a region, allowing more local responsiveness and specialization.

© 2006 Prentice Hall6-17 Integrative Strategies Multinational Corporations will develop their operations to the point of being fully integrated –Both vertical and horizontal –Includes suppliers, productive facilities, marketing and distribution outlets, and contractors Some move quickly to the stage of integration through acquisition Other companies use a variety of strategies and enter the country in stages

© 2006 Prentice Hall6-18 Entry Strategies

© 2006 Prentice Hall6-19 Using E-business for expansion The real story is the profound impact this medium will have on corporate strategy, organization and business models. Our research reveals that the Internet is driving global marketplace transformation and paradigm shift in how companies get things done, how they compete and how they serve their customers.” -

© 2006 Prentice Hall6-20 Global B2B/B2C Strategy To assess the potential competitive position of the company, managers must ask themselves the following questions with respect to B2B/B2C: Does the exchange provide a technology solution that helps industry-trading partners to do business more efficiently? Is the exchange known to be among the top 3-5 within its vertical industry? Does the exchange offer industry-specific technology and expertise that gives it an advantage over generic exchange- builders?

© 2006 Prentice Hall6-21 Conditions Favoring E-Global “The global beachhead strategy makes sense when trade is global in scope; when the business does not involve delivering orders; and when the business model can be hijacked relatively easily by local competitors.” M. Sawhney and S. Mandal

© 2006 Prentice Hall6-22 Conditions Favoring E-Local “[The e-local/regional approach] is preferable under three conditions: when production and consumption are regional rather than global in scope; when customer behavior and market structures differ across regions but are relatively similar within a region; and when supply-chain management is very important to success.” Sawhney and Mandal

© 2006 Prentice Hall6-23 Entry Strategy Alternatives

© 2006 Prentice Hall6-24 Comparative Management in Focus: Planning for the EU Market As of May 2004 the European Union is: –A 25-nation unified market –A market of more than 400 million people With the addition of Central and Eastern European countries companies have access to: –The EU –Cheaper wages, lower corporate taxes, and educated workforces –Eliminated currency risk for Europe

© 2006 Prentice Hall6-25 Comparative Management in Focus: Planning for the EU Market The EU has developed a protectionist wall –Tariffs, quotas, local content laws and competitive tactics –Designed to keep the US and Japan out The EU has created opportunities for nonmembers as well

© 2006 Prentice Hall6-26 Strategic Choice The strategic choice of one or more of the entry strategies will depend on –a critical evaluation of the advantages (and disadvantages of each in relation to the firm’s capabilities, –the critical environmental factors –the contribution that each choice would make to the overall mission and objectives of the company.

© 2006 Prentice Hall6-27 Looking Ahead Chapter 7 – Global Alliances and Strategy Implementation –Strategic Alliances –Strategic Implementation

© 2006 Prentice Hall6-28 Globalization Increasing competitive clout resulting from regional trading blocs Declining tariffs, which encourage trading across borders and open up new markets The information technology explosion, which makes the coordination of far-flung operations easier and also increases the commonality of consumer tastes Return

© 2006 Prentice Hall6-29 Regionalization Unique consumer preferences resulting from cultural or national differences Domestic subsidies New production technologies that facilitate product variation for less cost than before. Return