Strategy Formulation and Implementation Chapter 8 Strategy Formulation and Implementation

Strategic Management Strategic Management The process of determining an organization’s basic mission and long-term objectives and then implementing a plan of action for pursuing the mission and attaining these objectives. Corporations need strategic management in order to keep track of their increasingly diversified operations in a continuously changing international environment.

Approaches to Formulating and Implementing Strategy Economic reasons Political reasons Quality reasons Administrative reasons

Economic imperative (unique product or service) Approaches to Formulating and Implementing Strategy Economic Imperative Economic imperative (unique product or service) Worldwide strategy based on cost leadership, differentiation, and segmentation Strategy is also used when the product is regarded as generic and therefore does not have to be sold based on name brand or support service.

Approaches to Formulating and Implementing Strategy Political Imperative Strategy formulation and implementation utilizing strategies that are country-responsive and designed to protect local market niches.

Approaches to Formulating and Implementing Strategy Quality Imperative The implementation of management practices designed to make quality improvement an ongoing process.

Approaches to Formulating and Implementing Strategy Administrative Coordination MNC makes strategic decisions based on the merits of the individual situation rather than using a predetermined economic or political strategy. Used when rapid, flexible decision making is needed to close the sale

Basic Elements of Strategic Planning for International Management

Environmental Factors Affecting Organizations

Elements of Strategic Planning Environmental Scanning Provides management with accurate forecasts of trends relating to external changes in geographic areas where the firm is doing business or considering doing business. Changes relate to environment factors that can affect the company Industry or market Technology Regulations Economic aspects Social aspects Political aspects

Elements of Strategic Planning Internal Resource Analysis Internal resource analysis is used to evaluate MNC’s current managerial, technical, material, and financial resources and capabilities to assess its strengths and weaknesses. Key question for MNC: Do we have the people and resources that can help us to develop and sustain the necessary Key Success Factors (KSF), or can we acquire them?

Elements of Strategic Planning Strategic Planning Goals Goal formulation often precedes first two steps (environmental scanning, internal analysis). More specific goals for strategic plan come from external scanning and internal analysis.

Areas for Formulation of MNC Goals

Strategy Implementation 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

Strategy Implementation Location Considerations Two primary considerations The country The specific locale within the chosen country The Country Traditionally MNCs invest in highly industrialized countries that offer the largest markets for goods and services. Developing countries like Mexico are becoming more attractive. The amount of government control and restrictions is a factor. Specific benefits offered by host countries include low tax rates, low/no interest loans, subsidies, but this trend is changing.

Strategy Implementation Location Considerations Local Issues Once the country has been selected, the firm must choose a specific locale. Important factors that influence this choice Access to markets Proximity to competitors Availability of transportation and electric power Desirability of location for employees coming in from outside

Strategy Implementation The Role of the Functional Areas Marketing What works in one market may not work in another Marketing may be dictated by the overall strategic plan Marketing strategy involves the four “Ps” Product Price Promotion Place

Strategy Implementation The Role of the Functional Areas Production When exporting goods to foreign markets, production has usually been handled through domestic operations.

Strategy Implementation The Role of the Functional Areas Finance Transferring funds from one place in the world to another, or borrowing funds in international money markets, is often less expensive than relying on local sources. Issues include Reevaluation of currencies Volatile monetary exchange rates

Specialized Strategies Strategies for Emerging Markets Emerging markets will compose more than half of global economic output by midcentury. “BRIC” economies: Brazil, Russia, India, and China Emerging markets present exceptional risks due to political and economic volatility. These risks show up in: Corruption Failure to enforce contracts Red tape and bureaucratic costs General uncertainty in legal and political environment

Specialized Strategies International Entrepreneurship A combination of innovative, proactive, and risk-seeking behavior that crosses national borders and is intended to create value in organizations.