International Strategic Management

Strategic Formulation and Implementation

Chapters 8, Hodgetts, Luthans and Doh, International Management: Culture, Strategy and Behavior , 6th edition (New York: McGraw-Hill Irwin, 2006)
Adapted from PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University

OVERVIEW 1.Strategic Management

2.Approaches to Strategic Planning 3.Global vs. Regional Strategies 4.Elements of Strategic Planning 5.Specialized Strategies

Strategic Management
Strategic management
Determining the firms basic mission and long-term objectives, and developing and implementing an appropriate plan of action
Where are we going? How are we going to get there?

Strategic management growing in importance because of the need to coordinate and integrate diverse operations

Benefits of Strategic Planning

Perceived benefits
Coordinate and monitor operations Streamline product lines and supply chains Manage political, currency, and competitive risks

Potential costs
Micromanagement of subsidiary operations Misallocation of time and staff resources

Approaches to Strategic Planning

Economic Imperative Economic Imperative

Administrative Coordination Administrative Coordination

Political Imperative Political Imperative

Quality Imperative Quality Imperative

Economic Imperative
Worldwide

Strategy based on cost leadership, differentiation, and segmentation Product mix

Value is added in the upstream activities o the industrys value chain Product is regarded as a generic good (not name brand or support service dependent)
Global

sourcing to shorten the production or buying cycle Examples: Automobile, chemicals, heavy

Economic Imperative

Other

Examples:

European PC market Used to be dominated by IBM, Apple & Compaq.

International Textile or Trading companies Relying on global sourcing

Political Imperative
Strategy

country- responsive and designed to protect local market niches Success of the product or service depends heavily on marketing, sales or service
Customer or client-focused
Approach

most often used by MNCs pursuing a country-centered or Multidomestic strategy.

Quality Imperative
Two

possible paths :

Change in attitudes to raise expectation for service quality Implementation of practices to make quality improvement an ongoing process
Total

quality management (TQM) takes the following forms:

Cross-training personnel Process re-engineering Reward systems designed to reinforce quality performance.

Quality Imperative

Famous

Example:

Motorolas failure to recognize the importance of digital cell technology. Resultantly, it was almost wiped out by the new players like Samsung, & Ericsson. Whereas, previously in 1998 for instance, Motorola was dominating the U.S. handset market.

Administrative Coordination
Decision

making based on the merits of the individual situation rather than a predetermined economic or political strategy. example, Wal-Mart in Brazil introduced a computerized bookkeeping system which could not deliver results because of the complicated tax system of Brazil.

For

The Four Imperative

It

is not necessary for an MNC to pursue its strategic planning based on only one of the above mentioned imperatives. It is very much likely that firms may use the combination of the imperatives discussed above. For instance, IBM relies on economic imperative when in less developed countries, political & quality imperatives when in mature market of

Global vs. Regional Strategies Global Integration

Products and services homogeneous in terms of type and quality. Customers have common taste preferences. This approach has helped to spread international consumerism.

National Responsiveness
Segmented regional markets. Need to respond to differing national standards and regulations. Adaptation of tools and techniques to manage local workforces. For instance companies like Toyota, Mitsubishi & Honda have all abandoned their ideas of producing a global vehicle.

Global vs. Regional Strategies

Example of the ignorance of National Responsiveness by MNCs.

Famous
Toyotas

full size T100 pick up proved much too small to attract market share in U.S. This resulted in replacing the model with Tundra pickup that is powered y a V-8 engine and has a cabin design to accommodate a passenger wearing a 10-gallon cowboy hat! Honda has developed its new model with more Americanized features such as big interior rooms allowing passengers to eat and sleep in the vehicle.

Four Strategic Options

National responsiveness
Low High

Global integration

High

Global Global strategy strategy

Transnational Transnational strategy strategy

Low

International International strategy strategy

Multi-domestic Multi-domestic strategy strategy

Adapted from Figure 81: Global Integration vs. National Responsiveness

Choosing an Option
Global: low-cost strategy, based on price. Mergers & acquisitions are common. Firms facing high cost pressures must adopt global strategy. Multi-domestic: products and services differentiated by market. Catering to niche markt. International: core competencies set the MNC apart from local competitors. Firms enjoy valuable core competence. Transnational:
Require management of contradictory

Elements of Strategic Planning for International Management

External Environmental External Environmental Scanning for MNC Scanning for MNC Opportunities and Opportunities and Threats Threats Internal Resource Internal Resource Analysis of MNC Analysis of MNC Strengths and Strengths and Weaknesses Weaknesses

Strategic Planning Strategic Planning Goals Goals

IMPLEMENTATION IMPLEMENTATION

Adapted from Figure 82: Basic Elements of Strategic Planning for International Management

Environmental Scanning
nProvide management with accurate

forecasts of trends that relate to external changes in geographic areas where the firm is currently doing business or considering setting up operations nThese changes relate to the economy, competition, political stability, technology, and demographic consumer data
n

Internal Resource Analysis

nEvaluate managerial, technical,
nDetermine ability to take

material, and financial strengths and weaknesses

advantage of international market opportunities nMatch external opportunities (environmental scan) with internal capabilities (internal resource analysis)

nKey question: Do we have the people

and resources that can help us to develop and sustain the necessary KFSs, or can we acquire them?

Strategic Planning Goals

nGoal formulation often precedes

the first two steps nHowever, more specific goals come out of external scanning and internal analysis
nTypically serve as an umbrella

for subsidiaries and international operations nProfitability and marketing goals almost always dominate nOnce set, the MNC will develop specific operational goals and controls for the subsidiary or affiliate level

Implementation
Selecting a country and location
Country factors: market openness, infrastructure, labor market flexibility Location: incentives, workforce, costs

Functional areas
Marketing: usually country specific Production: domestic to foreign, foreign to domestic, or foreign to foreign, dispersed or coordinated Finance: local sources, centralized

SPECIALIZED STRATEGIES
1.First-Mover Strategies 2.Bottom of the Pyramid Strategies 3.Born-Global Strategies

First-Mover Strategies
Useful in rapidly changing markets
Market opening in developing economies Market reforms in transition economies Privatization of state-operated enterprises

Advantages and risks

Capture benefits of learning Form alliances with attractive local partners Uncertain pace of reform

4-5 billion people at the bottom of the economic pyramid represent fully two thirds of the worlds population. Targeting emerging market Marketing requires smaller-scale strategies
People making less than $2,000/year (4 billion)

Base of the Pyramid Strategies

Building relationships with local governments, small entrepreneurs, and nonprofits Less dependence on central governments and large local companies Best example : Bangladeshis Gerameen bank, introduced by M. Yousuf.

Born-Global Firms

The first reference to the term Born Global appears to have been made by Rennie (1993). During an
investigation into emerging Australian exporters on behalf of the Australian Manufacturing Council, the Mckinsey & Co consultants observed that approximately one quarter of the firms began exporting in substantial quantities very early in their organizational lifespan.

E n g a g e i si n i ca n t i te rn a ti n a l a cti ty a sh o rt ti e a fte r n g fi n o vi m b e i g e sta b l sh e d n i

Many firms now do not develop in incremental stages with respect to their international activities.

S u cce ssfu l fi s l ve ra g e a d i n cti m i o f o ri n ta ti n s rm e sti ve x e o a n d stra te g i s e

Global technological competence