152

CHAPTER 10
International Strategic Management

After studying this chapter, students should be able to:

> Characterize the challenges of international strategic management.

> Assess the basic strategic alternatives available to firms.
> Distinguish and analyze the components of international strategy.
> Describe the international strategic management process.
> Identify and characterize the levels of international strategies.

LECTURE OUTLINE

OPENING CASE: Global Mickey

The opening case explores the Walt Disney Company’s international strategy. In
particular, the case examines the difficulties Disney has faced in establishing a theme
park in France.

Key Points

• The Walt Disney Company is a $23 billion MNC that currently earns over $150
million a year in royalties and licensing fees.

• Disney expanded its popular theme park concept in 1984 from its original two
sites in the U.S. to Japan. To limit its risk, Disney signed an agreement with the
Oriental Land Company which financed and owns Tokyo Disneyland and pays
Disney royalties. Tokyo Disneyland proved to be an enormous success, and
prompted Disney to seek other foreign opportunities.

• Disney chose Paris, France as the site for its next theme park in 1988. Paris
was selected because some 350 million people live within a two hour plane ride of
the city, and because the French government offered numerous incentives,
including bargain-priced land and an extension of the Parisian rail system to the
park. Disney was permitted to retain up to 49 percent of the stock in the new theme
park.

• Euro Disneyland however, proved not to have the fairy tale success of its
Japanese counterpart. Critics feared that it would threaten the French culture, and
likened it to “a cultural Chernobyl,” farmers condemned the decision of the
153 > Chapter 10

government to sell their land to Disney, and the company found itself under fire for
its dress code, training practices, and plans to ban alcohol from the park.

• So far, although some 11 million people visit the park each year, the project has
been struggling financially. Construction costs were higher than expected, visitors
have spent less than anticipated on food and lodging, and the company has had to
increase its staff and number of computer reservation terminals.

• The park reached a major financial crisis after just 18 months of operation.
Disney and its banks agreed to new financial arrangements in 1994, which included
an agreement by Disney to relinquish royalty payments and management fees paid
by Euro Disney. In addition, the project received an injection of much needed
capital from a Saudi Arabian investor.

• Disney executives remain optimistic about the park’s future, noting an

anticipated rise in discretionary spending in France. In fact, by 1997 the park had
become the number one tourist destination in Europe. Currently, the company has
plans to expand its Japanese operations with the addition of a second theme park,
Tokyo DisneySea.

Case Questions

1. What factors could have improved Disney’s chances for success in Europe?

It appears that Disney, buoyed by its success in Japan, entered the European
market without carefully researching it first. For example, Disney failed to anticipate
the negative reactions of France’s cultural elite and farmers to the park. Further,
the company seriously misgauged the consumption patterns of visitors to the park.
Euro Disney might have been a bigger success had Disney been in a position to
incorporate the consumption differences into its original development plans, and
anticipate the negative reaction the park initially received.

2. Do you think that Euro Disney has already hit its low point? Why or why not?

Most students will probably argue that Euro Disney could still have problems. They
will probably point to the fact that many of the original problems still exist. For
example, the shorter stays than anticipated by park visitors and their associated
lower consumption of food and souvenirs are problems that Disney must still
contend with. However, some students may note that the park is attracting large
numbers of visitors, some 17 million in its first 18 months, in fact. In addition, the
Chunnel traffic is expected to make it even easier to visit the park. Students will
probably also point out that the park is now a primary tourist destination in Europe.

Additional Case Application

Instructors may want to use this case to combine the topics of Chapters 9 and 10
and focus on the effect that culture can have on a firm’s strategy. Disney tried to
take a distinctively American pastime to two different environments--the Japanese
culture and the French culture. In the former, it was very successful; in the latter, it
experienced numerous problems. The connection between international strategy
and culture can be made by holding a round table discussion in which “American
Disney executives” survey “French” and “Japanese” vacationers about their leisure
 International Strategic Management > 154

time preferences. Students who are not part of the round table discussion can track
how culture might affect Disney’s international strategy.

CHAPTER SUMMARY

Chapter Ten explores the issue of international strategic management. The chapter
begins with a discussion of the basic components of international strategy, and then
moves on to consider the strategy formulation and implementation process. Finally,
strategy development is examined at the corporate level, the business level, and the
functional level.

I. THE CHALLENGES OF 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. The process of developing
a particular international strategy is referred to as strategic planning. Top-level
executives and senior managers are normally responsible for strategic planning.

Teaching Note:
Instructors may want to point out that students who are
taking or who have taken a course in business policy and
strategy will find that a fair amount of overlap will probably exist between the
discussion of this material and the concepts that were presented in the business
policy and strategy course. In other words, it should be stressed that many of the
same techniques are used in strategic planning, regardless of whether one is
considering a domestic market or a foreign market.

• Strategic planners responsible for both domestic and international strategies

must answer the same fundamental questions: what products and/or services does
the firm intend to sell? Where and how will it make those products or deliver the
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? Discuss
Table 10.1 here.
• International strategic planners must also contend with cultural, political, and
geographical differences among countries.

Discuss Venturing Abroad: It may not be as easy as it

seems
Going international online may be convenient, but it still poses
many challenges. Web sites must still conform to cultural
norms in their design. They must still be in the appropriate language. They still need
to ship their goods, clear customs, and so on. Selling overseas is more
complicated than setting up a web page.

• International companies are in a position to exploit three sources of competitive

advantage -- global efficiencies, multinational flexibility, and worldwide learning --
that are unavailable to domestic firms. The text provides examples of each type of
competitive advantage.

Discuss Bringing the World into Focus:

155 > Chapter 10

Teaching an Old Dog New Tricks

General Motors provides an example of the benefits of worldwide learning. Through
its joint venture with Toyota it mastered kaizen and JIT inventory management. It
later applied the lessons learned to other plants, significantly increasing efficiency
worldwide.

II. STRATEGIC ALTERNATIVES

• MNCs typically follow one of four strategic alternatives. The first, the home
replication strategy, utilizes the firm’s domestically developed core competency or
firm-specific advantage as its main weapon in the foreign markets it enters. The
second alternative, the multidomestic strategy, requires the firm to view itself as a
collection of relatively independent operating subsidiaries, each of which focuses on
a specific domestic market. The global strategy, in which the firm views the world
as a single marketplace and has a primary goal of creating standardized goods and
services that will meet the needs of customers worldwide, is the third alternative for
international firms. Finally, some firms may choose to follow the transnational
approach in which an attempt is made to combine the benefits of global scale
efficiencies with the benefits of local responsiveness.
• The home replication strategy may be appropriate for firms when both the
pressures for global integration and the need for local responsiveness are low,
while the multidomestic approach is often employed when pressures for local
responsiveness are high but pressures for global integration are low. The text
notes that Toys-R-Us uses the home replication strategy, while Kraft and Cadbury
Schweppes follow the multidomestic approach.
• Sony and Matsushita both follow the global strategy to respond to high
pressures for global integration (with the need for local responsiveness low) while
Ford Motor employs the transnational strategy as it attempts to meet needs for both
global integration and local responsiveness. Figure 10.1 summarizes the strategic
alternatives.

III. COMPONENTS OF AN INTERNATIONAL STRATEGY

The four basic components of an international strategy are distinctive competence,

scope of operations, resource deployment, and synergy.

Distinctive Competence

• Distinctive competence answers the question “what do we do exceptionally

well, especially as compared to our competitors?” A firm then tries to build a
sustainable competitive advantage (an advantage over its competitors that can
be maintained over time) based on its distinctive competence. A firm may have the
same distinctive competence in every market (Coca-Cola), or a unique distinctive
competence in each market.
• Dunning’s eclectic theory (see Chapter 3) suggests that it may be necessary for
a firm to have an ownership advantage (distinctive competence) for it to
successfully compete in foreign markets. The international strategies a firm adopts
frequently reflect the interplay between its distinctive competence and foreign
business opportunities. The text provides examples of how various firms use their
distinctive competencies to exploit international markets.
 International Strategic Management > 156

Scope of Operations

• The scope of operations answers the question “where are we going to conduct
business?” The response to the question may be in terms of geographic regions, or
in terms of market or product niches within one or more regions. The text illustrates
both types of responses using the Grupo Luksics, a conglomerate operation, and
Disney’s theme parks as examples.

Resource Deployment

• Resource deployment answers the question “given that we are going to

compete in these markets, how will we allocate our resources to them?” Resources
can be allocated along product lines, geographical lines, or both. The text provides
examples of each type of resource deployment.

Synergy

• Synergy answers the question “how can different elements of our business
benefit each other?” The text illustrates this concept by examining how Sharp
achieved synergy in its 33 plants and the synergy Disney gains in its operations.

IV. DEVELOPING INTERNATIONAL STRATEGIES

• International strategic management is usually carried out in two broad stages:

strategy formulation and strategy implementation. During the strategy formulation
stage, the firm establishes its goals and the strategic plan that will lead to the
achievement of those goals. During the strategy implementation stage, the firm
develops the processes it will use to achieve the formulated international strategies
by means of specific tactics.

Discuss Wiring the World: A Real (Lack of) Differentiation

Though often Internet firms try to succeed by being different,
Yahoo Japan has taken a different approach. Yahoo Japan
looks and works exactly like its U.S. counterpart. This strategy
flies in the face of conventional Japanese wisdom, which suggests that patience
and meticulous attention to local tastes are necessary ingredients for success.

• The formulation of international strategy can be further broken down into five
specific steps. First, a company develops a mission statement, then it analyzes its
internal and external environment to determine its strengths, weaknesses,
opportunities, and threats (a SWOT analysis). Third, the firm sets strategic goals,
and then develops tactical goals and plans. Finally, the firm develops a strategic
control framework. Discuss steps in the strategic planning process described in
Figure 10.2 here.
157 > Chapter 10

Mission Statement

• A mission statement attempts to clarify an organization’s values, purposes,

and directions. It may be used as a starting point in the strategic planning process
or it may be developed after the process is finished. Mission statements may
specify 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.
• A firm may have multiple mission statements--one for the overall firm and one
for each foreign subsidiary.

Teaching Note:
Instructors may want to ask students to compare and
contrast the mission statements of several domestic and
international companies. Mission statements can usually be obtained from a
company’s annual report or their website.

Environmental Scanning and the SWOT Analysis

• The second step in the strategy development process is an assessment of the

firm’s strengths, weaknesses, opportunities, and threats (SWOT analysis).
Environmental scanning (the systematic collection of data about all elements of the
firm’s internal and external environments) is used to identify a firm’s SWOT.
• Firms using environmental scanning to collect information about opportunities
and threats facing the firm obtain data about economic, financial, political, legal,
and competitive changes in various markets the firm serves or might want to serve.
Some of this information is also used for political risk analysis and country market
analysis. The text provides examples of how Boeing and Disney have used
environmental scanning to identify external threats and opportunities.
• A firm also assesses its strengths and weaknesses during this stage of the
strategy planning process. One technique for assessing a firm’s strengths and
weaknesses is the value chain. The value chain breaks down the firm into its
important activities such as production, marketing, human resource management,
and so forth to enable its managers to identify competitive strengths and
weaknesses. Discuss Figure 10.3 here.
• Information derived from the SWOT analysis can be used to develop strategies
that exploit environmental opportunities and organizational strengths, neutralize
environmental threats, and protect or overcome organizational weaknesses.

Strategic Goals

• Strategic goals are the major objectives the firm wants to accomplish through
pursuing a particular course of action. They should be measurable, feasible, and
time-limited. The text provides examples of how Disney set goals for its European
operations.
 International Strategic Management > 158

Tactics

• Tactics (specific tactical goals and plans) involve middle managers and focus
on the details of how to implement strategic plans. The text illustrates this concept
with an example of how Grand Metropolitan handled tactical issues during its recent
merger with Guinness.

Control Framework

• A control framework is the managerial and organizational process used to

keep the firm on target toward its strategic goals. The control framework can
prompt revisions in any of the preceding steps in the strategy formulation process.
The text provides an example of Euro Disney’s control framework.

V. LEVELS OF INTERNATIONAL STRATEGY

Most companies develop strategies for three distinct levels within the organization:
corporate, business, and functional. These strategy levels are illustrated in Figure 10.4.

Corporate Strategy

Corporate strategy helps a firm define the domain of business in which it intends to
operate. A firm might adopt any of three forms of corporate strategy: single-business,
related diversification, or unrelated diversification.

1. The Single-Business Strategy

• The single-business strategy calls for a firm to rely on a single

business, product, or service for all its revenue. The main advantage of this
strategy is that it allows a firm to concentrate on one product or service.
However, firms following this strategy may be more vulnerable to changes in the
external environment than firms following a different strategy. The text provides
an example of how firms including Air Canada, McDonalds, and Compaq pursue
single-business strategies.

2. Related Diversification

• The most common corporate strategy, related diversification, calls for

the firm to operate in several different, but related businesses, industries, or
markets at the same time. A firm employing this type of strategy can leverage a
distinctive competence in one market in order to strengthen its competitiveness
in others.
• The text provides an example of how Disney follows a strategy of related
diversification and also of Accor’s related diversification strategy.
• The advantages of a related diversification strategy are numerous. First,
a firm is less vulnerable to competitive or economic threats since it does not
depend on a single product or service. Second, a firm may be able to achieve
economies of scale across its related units. Third, a firm may be able to use
technology or expertise developed in one market to facilitate entry into a second
market.
159 > Chapter 10

• A main disadvantage of related diversification is the cost of coordinating

the operations of the related divisions. A firm may also find that all of its
business units are affected simultaneously by changes in economic conditions.

3. Unrelated Diversification

• A firm following a strategy of unrelated diversification operates in

several unrelated industries and markets. During the 1960s, when unrelated
diversification was the most popular investment strategy, firms became
conglomerates (comprised of unrelated businesses).
• There are several advantages to an unrelated diversification strategy.
First, the corporate parent is often able to raise capital more easily than any of
its independent units can separately. Second, overall risk may be reduced
because a firm is less vulnerable to business cycle fluctuations. Third,
competitive threats may pose a lesser risk since any given threat is only likely to
affect a portion of the firm’s total operations. Finally, a firm can more easily
divest unprofitable operations and acquire new operations.
• The main disadvantage of an unrelated diversification strategy is that
there is not synergy across business units. Moreover, managing a
conglomerate is complex because it requires that executives be familiar with a
much wider array of businesses and markets than if operations are related.

Business Strategy

• Business strategy focuses on each line of business within an organization and

answers the question “how should we compete in each market we have chosen to
enter?” Firms that follow a diversification strategy (either related or unrelated)
usually group lines of business into strategic business units (SBUs).
• A firm may develop a unique strategy for each of its SBUs, or it may follow the
same strategy for all of them. The three basic forms of business strategy are
differentiation, overall cost leadership, and focus.

1. Differentiation

• The most common strategy is differentiation whereby a firm attempts to

establish and maintain the image that the SBU’s products or services are
fundamentally unique from other products or services in the same market
segment. The text provides several examples of firms that have adopted this
type of strategy.

2. Overall Cost Leadership

• A firm following a strategy of overall cost leadership focuses on

achieving highly efficient operating procedures so that its costs are lower than
its competitor’s. A firm then attempts to sell products in high volumes at low
prices. The text provides examples of firms that follow an overall cost
leadership strategy.
 International Strategic Management > 160

3. Focus

• A focus strategy calls for a firm to target specific types of products for
certain customer groups or regions. Firms match the specific product features
to the needs of specific consumer groups. The text provides several examples
of companies pursuing this type of strategy.

* Discuss Going Global: Volkswagen Tries to Shift Gears

This Going Global Box examines Volkswagen’s attempts to
change its image and strategy. In recent years, it has been trying
to become a premium motor company like BMW or Mercedes. The
company’s makeover, however, has not been well received in the
U.S., where consumers tend to associate Volkswagen with low-priced
cars. This Box fits in well with the discussion of business strategies,
as well as with Review Question 4.

Functional Strategies

• Functional strategy answers the question, “how will we manage the functions of
finance, marketing, operations, human resources, and research and development in
ways consistent with our international corporate and business strategies?”
• International financial strategy is covered in depth in Chapter 18. The topic of
Chapter 16 is international marketing strategy. International operations strategy is
the focus of Chapter 17, and international human resource strategy is emphasized
in Chapter 20.
CA

OS
SE

CL
IN
G

The New Consquistador

The closing case explores the activities of Telefonica de Espana, discussing the
deregulation of the Spanish telecommunications market and concentrating on
Telefonica's aggressive expansion into South American markets.

Key Points

• Telefonica de Espana was a state-owned phone company is Spain for most of

its existence.

• With the EU's abolishment of state-sponsored telephone monopolies in 1998,

Telefonica privatized, modernized and re-analyzed its strategy.

• Telefonica's management decided to target Latin America for expansion, feeling

its linguistic and historical ties gave it a competitive advantage.

• Having been a state-owned monopoly itself, Telefonica invested in several

phone companies being privatized in Latin America and successfully turned them
around. However, the case also details some of the troubles Telefonica has had in
competing successfully in South America.
161 > Chapter 10

Case Questions

1. Go back in time to 1986. Do a SWOT analysis for Telefonica de Espana. Does

your analysis lead to the same conclusions as Telefonica's managers?

Not entirely. In 1986 Latin America was a long way from its move toward
privatization in the 1990's. Thus, the opportunity to move aggressively into Latin
America could not be forseen. The threat of increased competition from other
European competitors, however, could be expected as Spain joined the EU and
barriers to trade and investment across Europe began to fall. One of Telefonica's
strengths would have been its government ownership in 1986 (no longer a strength
today), and its greatest internal weakness would have been inefficiency -- a
weakness addressed in the late 1990's.

2. Identify and describe the components of the Kerry Group’s strategy.

Related diversification through acquisition. They expanded in industries traditionally

related to the telephone industry (cellular service, internet).

3. Minority investors in Telefonica's South American subsidiaries were unhappy

with the parent corporation. Suppose you are a senior manager at the parent
corporation. How would you handle the problem with the minority investors? What
would you recommend to the CEO should be done about the minority investors?

This question allows for a lot of latitude on the part of students, as well as creative
thinking. There is no "right" answer and students should be encouraged to consider
a wide range of alternatives. The problem with minority stockholders is not yet
severe. The management fees it charges its South American subsidiaries erodes
their profitability while improving the profitability of the main office. In today's global
equity market, investors can choose to invest other stocks related to Telefonica.
Telefonica may wish to re-examine the pricing of its spin-offs and internal sales.
The stagnation of share values in South America may hurt the company in the long
run.

4. Many South American countries are in the process of deregulating their

telephone industries. How should Telefonica respond to the increased likelihood of
new entrants into its formerly protected markets?

One key factor in creating barriers to new market entrants is to develop customer
loyalty. As a first mover into the market, Telefonica has the opportunity to "win
over" customers before many other competitors enter. Thus, it becomes important
for Telefonica to offer high quality service at a good price. Continued development
of new technology will also help reduce its vulnerability to new entrants.
 International Strategic Management > 162

VI

R
R

A
H
C
E

P
T
1. What is 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 in the global marketplace.

2. What are the three sources of competitive advantage available to international businesses
that are not available to purely domestic businesses?

The three sources of competitive advantage available to international businesses are

global efficiencies, multinational flexibility, and worldwide learning.

3. Why is it difficult for firms to exploit these three competitive advantages simultaneously?

It is difficult to exploit the three competitive advantages simultaneously because each

advantage requires a different strategic perspective. For example, to exploit global
efficiencies, a firm often centralizes control; however, this limits its ability to exploit
multinational flexibility. Pursuing either global efficiencies or multinational flexibility may
inhibit a company’s ability to promote worldwide learning, since in the case of global
efficiencies the centralization of power may limit the ability to glean information from other
parts of the firm, while the decentralization of power that is associated with multinational
flexibility may also impair worldwide learning as units operate in isolation from each other.

4. What are the four basic philosophies that guide strategic management in most MNCs?

The four basic philosophies that guide strategic management include the home replication
strategy, the multidomestic strategy, the global strategy, and the transnational strategy.

5. How do international strategy formulation and international strategy implementation differ?

International strategy formulation involves the creation of a firm’s international strategies.

During this stage of the strategy process the firm establishes its goals and the strategic
plan that will help it achieve the goals. International strategy implementation is the process
by which a strategy is achieved.

6. What are the steps in international strategy formulation? Are these likely to vary among
firms?

The key steps in international strategy formulation are developing a mission statement;
analyzing the firm and its environment to determine strengths, weaknesses, opportunities,
and threats; setting strategic goals; developing tactical goals and plans; and developing a
strategic control framework. These steps are used by most firms.
163 > Chapter 10

7. Identify the four components of an international strategy.

The four components of an international strategy are scope of operations, resource

deployment, distinctive competence, and synergy. Defining the scope of operations
involves determining where business will be conducted. Resource deployment identifies
how resources will be allocated to each market the firm will compete in. Distinctive
competence identifies what the firm does exceptionally well, especially when compared to
the competition. Finally, synergy involves determining how different elements of a
business benefit each other.

8. Describe the role and importance of distinctive competence in international strategy

formulation.

Distinctive competence is the first component of international strategy, and answers the
question “what do we do exceptionally well, compared to our competitors?” It is thought to
be a necessary condition for competing in international markets.

9. What are the three levels of international strategy? Why is it important to distinguish
among the levels?

The three levels of international strategy are corporate, business, and functional. It is
important to distinguish among the three levels because it helps to ease the complexity of
international strategic management.

10. Identify and distinguish among the three common approaches to corporate strategy.

The three common approaches to corporate strategy are single business, related
diversification, and unrelated diversification. A single business strategy requires firms to
rely on a single business for its livelihood. In contrast, a firm that has diversified into
related areas operates in several different but related businesses simultaneously. Finally,
a firm that has diversified into unrelated areas operates in several unrelated businesses at
the same time.

11. Identify and distinguish among the three common approaches to business strategy.

The three basic forms of business strategy are differentiation, overall cost leadership, and
focus. A firm following a differentiation strategy tries to establish and maintain the image
that its products/services are unique from competing products/services. An overall cost
leadership strategy involves focusing on achieving highly efficient operating procedures so
that a firm’s costs are lower than its rivals, and selling products/services at lower prices.
Finally, a focus strategy requires a firm to target specific types of products/services for
certain customer groups.

12. What are the basic types of functional strategies most firms use? Is it likely that some firms
have different functional strategies?

The most common types of functional strategies include financial strategy, marketing
strategy, operations strategy, human resource strategy, and R&D strategy. While most
firms employ these basic functional strategies, some firms may emphasize certain areas
more than others.
 International Strategic Management > 164

Questions for Discussion

1. What are the basic differences between a domestic strategy and an international strategy?

Strategic planners answer many of the same questions regardless of whether they are
developing strategies for international markets or for domestic markets. However,
international strategy development is more complex because planners must contend with
cultural, political, language, economic, governmental, and geographic differences.
Students may wish to refer to Table 10.1 for a summary of common differences between
domestic and international operations that affect strategic management.

2. Should the same managers be involved in both formulating and implementing strategy, or
should each part of the process be handled by different managers? Why?

In most cases, strategy formulation and strategy implementation will be handled by

different managers. The process of developing an international strategy, or strategic
planning, is typically the responsibility of top-level executives at corporate headquarters
and senior managers in subsidiaries. In contrast, tactics, the development of specific
tactical goals and plans, typically involves middle mangers.

3. Successful implementation of the global and transnational approaches requires high levels
of coordination and rapid information flows between corporate headquarters and
subsidiaries. Accordingly, would you expect to find many companies adopting either of
these approaches in the nineteenth century? Prior to World War II? Prior to the advent of
personal computers?

Home replication and multidomestic strategies allow subsidiaries to operate with more
autonomy than the global and transnational strategies do. The day to day control and
coordination of subsidiary activities was impossible with good communication technology.
Thus, global and transnational strategies were impossible up until World War II. Even after
WWII, when international phone calls and telegrams came into more widespread use, it
was still nearly impossible for such strategies to be implemented. With direct dial
international calls, fax technology and satellite communications, firms began pursuing such
strategies in the 1960s and 1970s. The personal computer, email, teleconferencing (1980s
and beyond) made such strategies viable options for almost any company.

4. Study mission statements from several international businesses. How do they differ, and
how are they similar?

Depending on which companies are studied, students may find many differences in
mission statements, or just a few. Some factors that should be analyzed include 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.
165 > Chapter 10

5. How can a poor SWOT analysis affect strategic planning?

The purpose of a SWOT analysis is to identify a firm’s strengths, weaknesses,

opportunities, and threats. The SWOT then becomes a basis from which a company’s
strategy is built. Therefore, a SWOT analysis that failed to correctly identify a company’s
strengths, weaknesses, opportunities, and threats would potentially have a negative impact
on the company’s competitiveness.

6. Why do relatively few international firms pursue a single-product strategy?

Companies that pursue a single-business strategy are more vulnerable to competition and
to changes in the external environment than firms following a diversification strategy. A
strategy of related diversification, however, allows a firm to leverage a distinctive
competency in one market and increase its competitiveness in others. In addition, a firm
pursuing a strategy of related diversification may be able to achieve scale economies. A
firm following a strategy of unrelated diversification may have an advantage in raising
capital, and may be less vulnerable to fluctuations in business cycles and competitive
threats.

7. How are the components of international strategy (scope of operations, resource

deployment, distinctive competence, and synergy) likely to vary across different types of
corporate strategy (single-business, related diversification, and unrelated diversification)?

A company that follows a single-business strategy will probably have a narrower scope of
operations than firms following either of the other two strategies. In addition, because a
single-business firm is focused on just one area, it can use all of its resources to strengthen
that particular business and improve its distinctive competence. Companies following a
single-business strategy will probably have fewer opportunities for synergy than a firm
following a strategy of related diversification. Firms following strategies of either related
diversification or unrelated diversification will probably have to make tradeoffs between
units when deploying resources and developing sustainable competitive advantages.

8. The scheduled opening for the new Disney Studios theme park adjacent to Disneyland
Paris is 2002. Develop a list of at least five ways other units of the Disney corporation can
help promote and publicize the park's opening.

Students will probably have a range of ideas as to how Disney should promote its new
venture. Many students will probably focus on efforts at existing European operations as a
starting point, and then explore options for promoting Disney Studios Paris within the
company’s U.S. parks, stores, and TV station.

9. Is a firm with a corporate strategy of related diversification more or less likely than a firm
with a corporate strategy of unrelated diversification to use the same business strategy for
all SBUs? Why or why not?

Both firms that are pursuing strategies of related diversification and firms that are pursuing
strategies of unrelated diversification tend to group businesses into SBUs. In the former
situation, the products and services of each SBU are alike in some ways, while in the latter
case, the products and services of each SBU are not alike. The type of strategy,
differentiation, overall low cost producer, or focus chosen for each SBU will reflect the
 International Strategic Management > 166

environment within which the SBU operates. In some cases, the same basic strategy is
chosen for all SBUs; in other cases, strategies will differ.

10. Identify products you use regularly that are made by international firms that use the three
different business strategies.

Responses to this question will vary according to the products and companies chosen by
students. However, some common products and associated strategies include Bic pens
(overall low cost leadership), Levi's jeans (differentiation), and Honda Accord station
wagons (focus).

11. Related and unrelated diversification represent extremes on a continuum. Discuss why a
firm might want to take a mid-range approach to diversification, as opposed to being purely
one or the other.

Firms may take a mid-range approach to diversification in an effort to capitalize on the

benefits of both strategies, while minimizing the disadvantages. For example, firms often
pursue related diversification strategies in an effort to gain economies of scale, or profit
from a firm-specific advantage. However, a firm may find its operations in jeopardy if
economic conditions change. In contrast, a strategy of unrelated diversification would
protect a firm to some extent from this sort of situation. Hence, a mid-range strategy may
be a good option for some MNCs.

12. What are some of the issues a firm might need to address if it decides to change its
corporate or business strategy? For example, how would an MNC go about changing from
a strategy of related diversification to a strategy of unrelated diversification?

There are a wealth of issues to consider when changing strategy. For example, a firm that
changes its strategy from related diversification to unrelated diversification would have to
consider whether it had the resources (capital and human) to operate its new ventures. It
would also need to consider coordination and organizational structure issues.
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Essence of the exercise

This exercise requires students to utilize information from company websites to identify
internationalization and business strategies. Students are asked to determine which of the
four strategic alternatives (home replication, multidomestic, global or transnational) is being
used, and which competitive strategy (differentiation, cost leadership, or focus) is being
pursued.
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Essence of the exercise
This exercise is designed to provide students with a greater understanding of the steps
involved in assessing the market potential of a foreign country. The exercise requires students
to explore the potential for four unrelated products in several different marketplaces.

Answers to the follow-up questions.

1. Characterize the current business strategies the company appears to be following with
each of its four existing businesses.

There may be some debate as to which of the three business strategies (differentiation,
cost leadership, or focus) the company is using in each of its divisions. Because
information about each business is limited, students may have to make assumptions as
they characterize each business.

2. Evaluate the extent to which there are any bases of relatedness among any of the four
existing businesses.

Most students will probably suggest that the four areas are basically unrelated. However,
some students may focus on issues such as target customers and argue that there is
indeed some degree of relatedness among the four lines of business.

3. Using the criterion your group prefers, select any single business and assume that you will
recommend that it be kept and the other three sold.

This is an area where students will find that a good SWOT analysis comes in handy (see
additional application below).

4. Identify existing competitors for the business you chose to keep, including both domestic
and international firms.

Again, students who have taken the time to create a good SWOT analysis should be aware
of who the firm’s competitors are and their likely reaction to changes in the business
environment.

5. Identify three other countries where there might be potential for business expansion.
Explain why.

Responses to this question will vary depending on which line of business a group has
chosen to keep. Students should again refer to their SWOT when answering this question,
and should consider not only market size and growth, but also issues such as the
competition and trade barriers.
 International Strategic Management > 168

6. Think of at least two other businesses that are related to the business you will keep and
which might be targets for acquisition.

As in the previous question, responses to this will vary depending on which area students
have decided to keep. Students may find it beneficial to discuss their responses with other
groups that have chosen to keep the same line of business.

Other Applications
This exercise requires students to identify various pieces of information and make
recommendations based upon that information. Much of the information required to make
these decisions would be found in a company’s SWOT analysis. Students can be asked to
develop an extensive SWOT analysis as a starting point for this exercise. Many students
find that it is helpful to work in a group format when developing this information.