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Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Multinational strategy

Chapter 8

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Multinational strategy

• Objectives• Introduction• Strategic orientations• Strategic formulation• Strategic implementation• Control and evaluation.

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Objectives

• Define the term strategic planning and discuss the strategic orientations that affect this planning process.

• Explain how strategy is formulated, giving particular emphasis to external and internal environmental assessment.

• Describe how strategy is implemented, with particular attention to location, ownership decisions and functional area implementation.

• Discuss the ways in which MNEs control and evaluate their strategies.

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Introduction

• The FSA and CSA framework is related to the special nature of strategic management.– Cell 1 will build competitive advantages due to its

home country CSAs.

– Cell 4 can best be described by the resource-based view (RBV) of strategy.

– Cell 3 is where country and firm effects are combined requiring the integration of firm and country advantages in a sustainable and long-run manner.

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• Strategic planning: the process of evaluating the enterprise’s environment and its internal strengths, identifying long- and short-range objectives and implementing a plan of action for attaining these goals.

Introduction (Continued)

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Strategic orientations

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• Ethnocentric predisposition: the tendency of a manager or multinational company to rely on the values and interests of the parent company in formulating and implementing the strategic plan.

• Polycentric predisposition: the tendency of a multinational to tailor its strategic plan to meet the needs of the local culture.

• Regiocentric predisposition: the tendency of a multinational to use a strategy that addresses both local and regional needs.

• Geocentric predisposition: the tendency of a multinational to construct its strategic plan with a global view of operations.

Strategic orientations

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Table 8.1 Typical strategic orientations of MNEsSource: Adapted from “Strategic Planning for a Global Business” Columbia Journal of World Business, Summer 1985 Copyright © Elsevier Science & Technology Journals, permission conveyed through Copyright Clearance Center, Inc (Chakravarthy, B.S and Perlmutter, H.V)

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Strategic formulation

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Strategy formulation

• Strategic formulation: the process of evaluating the enterprise’s environment (opportunities) and its internal strengths (resources).

• External environmental assessment:– information gathering;

– information assessment.

• Internal environmental assessment:– physical resources and personnel competencies;

– value chain analysis.

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Conducting an environmental scan

• Four of the most common methods for conducting an environmental scan are: – Asking experts in the industry to discuss industry

trends and to make projections about the future.

– Using historical industry trends to forecast future developments.

– Asking knowledgeable managers to write scenarios describing what they foresee for the industry over the next two to three years.

– Using computers to simulate the industry environment and to generate likely future developments.

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Examining the five forces that determine industry competitiveness• One of the most common approaches to make

an overall evaluation is based on the five forces that determine industry competitiveness:– buyers

– suppliers

– potential new entrants to the industry

– the availability of substitute goods and services

– rivalry among the competitors.

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Figure 8.2 The five-forces model applied to the semiconductor industrySource: Scott Beardsley and Kinji Sakagami, “Advanced Micro Devices: Poised for Chip Greatness,” Unpublished student paper, Sloan School of Management, MIT, 1988. Reported in Arnoldo C. Hax and Nicolas S. Majluf, The Strategy Concept and Process: A Pragmatic Approach (Englewood Cliffs, NJ: Prentice Hall, 1991), p. 46

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Internal environmental assessment

• Internal environmental assessment helps to pinpoint MNE strengths and weaknesses.

• There are two specific areas the MNE will examine in this assessment:– physical resources and personnel

competitiveness;

– the way in which value chain analysis can be used to bring these resources together in the most synergistic and profitable manner.

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Physical resources and personnel competencies

• The physical resources are the assets the MNE will use to carry out its strategic plan.

• The degree of integration that exists within the operating units of the MNE. – Vertical integration: To obtain control over the

supply and to reduce costs.– Virtual integration: A networking strategy based on

cooperation.• Personnel competencies are the abilities and

talents of the people.

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Value chain analysis

• Value chain: The way in which primary and support activities are combined. – Primary activities: inbound logistics, operations,

outbound logistics, marketing & sales and service.

– Support activities: firm infrastructure, HRM, technology management and procurement.

• Analysis of the value chain can also help a company to determine the type of strategy that will be most effective.

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Figure 8.4 The value chain for IBMSource: Reported in Arnoldo C. Hax and Nicolas S. Majluf, The Strategy Concept and Process: A Pragmatic Approach (Englewood Cliffs, NJ: Prentice Hall, 1991), p. 82

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Three generic strategies

• Cost strategy: A strategy that relies on low price through the pursuit of cost reductions

• Differentiation strategy: A strategy directed toward creating something that is perceived as being unique

• Focus strategy: A strategy that concentrates on a particular buyer group and segments

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Strategy implementation

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Strategy implementation

• Strategy implementation is the process of attaining goals by using the organizational structure to execute the formulated strategy properly.

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• There are many areas of focus in this process, some of the most important are:– Location– Ownership decisions

A strategic alliance is an agreement between two or more competitive MNEs for the purpose of serving a global market.

An international joint venture (IJV) is an agreement between two or more partners to own and control an overseas business (setting up a new business entity).

– Functional area implementation Marketing, manufacturing, finance, procurement,

technology and human resources.

Strategy implementation (Continued)

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Control and evaluation

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• The strategy formulation and implementation processes are a prelude to control and evaluation.

• This process involves an examination of the MNE’s performance for the purpose of determining:– how well the organization has done;

– what actions should be taken in the light of this performance.

Control and evaluation

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Common methods of measurement

• Six of the most common methods of measurement used for control and evaluation purposes:– return on investment (ROI)

– sales growth and/or market share

– costs

– new product development

– MNE/host-country relations

– management performance.

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Figure 8.6 The control and evaluation process

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