© 2008 Pearson Prentice Hall 6-1 Chapter 6: Formulating Strategy PowerPoint by Hettie A. Richardson Louisiana State University

© 2008 Pearson Prentice Hall 6-2 Strategic Planning and Strategy Strategic planning: 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 Strategy: The basic means by which the firm competes

© 2008 Pearson Prentice Hall 6-3 Reasons for Going International Reactive (defensive) reasons Globalization of competitors Trade barriers Regulations and restrictions Customer demands

© 2008 Pearson Prentice Hall 6-4 Reasons for Going International Proactive (aggressive) reasons Economies of scale Growth opportunities Resource access and cost savings Incentives

© 2008 Pearson Prentice Hall 6-5 Strategic Formulation Process

© 2008 Pearson Prentice Hall 6-6 Mission and Objectives Marketing Worldwide, regional, national market share Production Production volume Economies of scale Finance Tax burden Capital structure Profitability ROA, ROE, ROI R & D Global patents

© 2008 Pearson Prentice Hall 6-7 Environmental Assessment Environmental scanning: The process of gathering information and forecasting trends, competitive actions, and circumstances that will affect operations Global, regional, national

© 2008 Pearson Prentice Hall 6-8 Environmental Scanning Political instability Example: Upheaval in the Middle East Currency instability Example: 1998 devaluation of the Mexican Peso Nationalism International competition

© 2008 Pearson Prentice Hall 6-9 Internal Analysis Key success factors: Technological capability: Microsoft Distribution channels: Wal-Mart Promotion capabilities: Disney

© 2008 Pearson Prentice Hall 6-10 Competitive Analysis Distinctive competencies Example: Sony’s ability to miniaturize SWOT analysis Competitive position analysis

© 2008 Pearson Prentice Hall 6-11 Strategic Decision-Making Models

© 2008 Pearson Prentice Hall 6-12 Global Strategy Treating the world as an undifferentiated worldwide marketplace The impetus: Regional trading blocs Declining tariffs Information technology explosion

© 2008 Pearson Prentice Hall 6-13 Regionalization/Localization Local markets are linked together within a region, allowing local responsiveness The impetus: Unique consumer preferences Domestic subsidies New production technologies

© 2008 Pearson Prentice Hall 6-14 Global Integrative Strategies Full vertical and horizontal integration Example: Dell Factories in Ireland, Brazil, China, etc. Assembly and delivery system from 47 locations around the world Little inventory, ability to change operations quickly

© 2008 Pearson Prentice Hall 6-15 E-Business for Global Expansion

© 2008 Pearson Prentice Hall 6-16 E-global or E-local? Going e-global makes sense when: Trade is global in scope Business does not involve delivering orders When the business model can be easily hijacked by local competitors

© 2008 Pearson Prentice Hall 6-17 E-global or E-local? Going e-local makes sense when: Production and consumption are regional in scope Customer behavior and market structures differ across regions, but are similar within a region Supply-chain management is very important to success

© 2008 Pearson Prentice Hall 6-18 Strategic Choice

© 2008 Pearson Prentice Hall 6-19 Entry Strategy Alternatives Exporting Jordan Toothbrush Licensing Anheuser-Busch Franchising Holiday Inn

© 2008 Pearson Prentice Hall 6-20 Entry Strategy Alternatives Contract manufacturing Nike Offshoring Toyota in the US Service sector outsourcing GE, Accenture, Oracle, Conseco

© 2008 Pearson Prentice Hall 6-21 Entry Strategy Alternatives Turnkey operations Fiat Management contracts

© 2008 Pearson Prentice Hall 6-22 Entry Strategy Alternatives International joint ventures Mittal Steel of India and Arcelor of France Wholly owned subsidiaries Philip Morris and Jacob Suchard

© 2008 Pearson Prentice Hall 6-23 Strategic Choice

© 2008 Pearson Prentice Hall 6-24 Timing Entry and Scheduling Expansions China and Japan have longer-term time horizons than the US High uncertainty avoidance cultures (e.g., Latin American, African countries) prefer non- equity modes of entry

© 2008 Pearson Prentice Hall 6-25 Timing Entry and Scheduling Expansions High power distance cultures (e.g., Arab countries and Japan) tend to use more equity modes of entry abroad