1. Formulating Strategy
Chapter 6

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.

3. Reasons for Going International
Reactive Reasons
Globalization of competitors
Trade barriers
Regulations and restrictions
Customer demands

4. Reasons for Going International (contd.)
Proactive Reasons
Economies of scale
Growth opportunities
Resource access and cost savings
Incentives

5. The Strategic Management Process (Exhibit 6-2)
Define/clarify mission
and objectives
Assess environment for
threats, opportunities
Strategic Planning Process
Assess internal strengths
and weaknesses
Consider alternative strategies
using competitive analysis
Choose strategy

6. The Strategic Management Process (contd.)
Implement strategy through
complementary structure, systems,
and operational processes
Implementation Process
Set up control and evaluation
systems to ensure success,
feedback to planning

7. Global Corporate Objective Dimensions
Profitability
Marketing
Production
Finance
Research & Development

8. Physical and Societal Influences on Strategic Formulation Process

9. Competitive Environment Influences
on Strategic Formulation Process

10. 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

11. SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats

12. SWOT Matrix for Strategy Formulation

13. Approaches to World Markets
Globalization is a term that refers to the establishment of worldwide operations and the development of standardized products and marketing.
Regionalization (or multilocal) is where local markets are linked together within a region, allowing more local responsiveness and specialization.

14. Pressures to Globalize
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.

15. Pressures to Regionalize
Unique consumer preferences resulting from cultural or national differences
Domestic subsidies
New production technologies that facilitate product variation for less cost than before.

16. The Usual Pattern of Internationalization

17. Pattern of Internationalization
Passive to active expansion
* Most new companies are
established for domestic needs.
* They response foreign opportunity
passively at first.
* After experiencing success, they
search opportunities actively.

18. Pattern of Internationalization
External to internal handing of operations
* The use of intermediaries during
early stages.
* Successful experiences make
companies more likely to handle
the operations with their own staff.

19. Pattern of Internationalization
Deepening mode of commitment
* Limited foreign functions, usually
export and import
* Limited foreign production and
multiple functions
* Extensive production abroad with
FDI and all functions.

20. Pattern of Internationalization
Geographic diversification
* Doing business in one or very few
countries at the beginning
* Tending to go to the locations that
are geographically close and with
similarity
* Moving to more distant countries
with less similarities.

21. Entry Strategy Alternatives (In order of ascending risk)
Exporting
Licensing
Franchising
Contract manufacturing
Turnkey operations
Management contracts
International joint ventures (IJVs)
Fully owned subsidiaries

22. International Entry Strategies: Advantages and Critical Success Factors (Exhibit 6-8)
Strategy Advantages Critical Success Factors
Exporting Low risk Choice of distributor
No long-term assets Transportation costs
Easy market access and exit Tariffs and quotas
Licensing No asset ownership risk Quality and trustworthiness
of licensee
Fast market access Appropriability of intellectual
property
Avoids regulations and tariffs Host-country royalty limits
Franchising Little investment or risk Quality control of franchisee
and franchise operations
Fast market access
Small business expansion

23. International Entry Strategies: Advantages and Critical Success Factors (contd.)
Strategy Advantages Critical Success Factors
Contract Limited cost and risk Reliability and quality of
manufacturing local contractor
Short-term commitment Operational control and
human rights issues
Turnkey operations Revenue from skills and Reliable infrastructure
technology where FDI Sufficient local supplies and labor
restricted Repatriable profits
Reliability of any govt. partner
Management Low-risk access to further Opportunity gain longer-term
contracts strategies position

24. International Entry Strategies: Advantages and Critical Success Factors (contd.)
Strategy Advantages Critical Success Factors
Joint ventures Insider access to markets Strategic fit and complementarity
Share costs and risk of partner, markets, products
Leverage partner’s skill base, Ability to protect technology
technology, local contacts Competitive advantage
Ability to share control
Cultural adaptability of partners
Wholly owned Realize all revenues and Ability to access and control
subsidiaries control economic, political and currency
Global economies of scale risk
Strategic coordination Ability to get local acceptance
Protect technology and Repatriability of profits
skill base
Acquisition provides rapid
entry into established
market

25. Factors Affecting Choice of International Entry Mode (Exhibit 6-9)
Factor Category
Firm Factors
Examples
International experience
Core competencies
Core capabilities
National culture of home country
Corporate culture
Firm strategy, goals, and motivation

26. Factors Affecting Choice of International Entry Mode (contd.)
Industry Factors
Location Factors
Industry globalization
Industry growth rate
Technical intensity of industry
Extent of scale and location economies
Country risk
Cultural distance
Knowledge of local market
Potential of local market
Competition in local market

27. Factors Affecting Choice of International Entry Mode (contd.)
Venture-specific Factors
Value of firm – assets risked in foreign location
Extent to which know-how involved in venture is informal (tacit)
Costs of making or enforcing contracts with local partners
Size of planned foreign venture
Intent to conduct research and development with local partners

28. Flow Chart for Choosing Where to Operate

29. 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, and
the contribution that each choice would make to the overall mission and objectives of the company.

30. Alliance-based Entry Modes
Alliance-based entry modes are more suitable under the following conditions:
Physical, linguistic, and cultural distance between the home and host countries is high
The subsidiary would have low operational integration with the rest of the multinational operations
The risk of asymmetric learning by the partner is low
The company is short of capital
Government regulations require local equity participation