International Strategy Lesson Plan Feb 21, 2001

Overview, Introduction Chapter focus, definitions, …

Four strategy options (international, global, multidomestic, transnational)

1. (note that this is the key topic of the day)

Components of an international strategy distinctive competence, scope of operations, resource

deployment, and synergy

Strategy formulation & implementation processes 5 steps in strategy formulation

How is SWOT likely to differ in a global industry?

3 levels of international strategy (corporate, business, functional)

1. (note that cost leadership, differentiation, and focus line-of-business strategies are also very important to understand for the next several lessons and for the final exam)

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Overview, Introduction

Chapter 10 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.

International Strategic Management

“A comprehensive and ongoing management planning process aimed at formulating and implementing strategies that enable a firm to compete effectively internationally.” p.283

International Strategy

“A comprehensive framework for achieving a firm’s fundamental goals.” paraphrasal from p.283

Many of the same techniques are used in strategic planning, regardless of whether one is considering a domestic market or a foreign market.

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Overview, Introduction

Strategic planners responsible for both domestic and international strategies must answer the same fundamental questions:

1. What products and/or services does the firm intend to sell? 2. Where and how will it make those products or deliver the services? 3. Where and how will it sell them? 4. Where and how will it acquire the necessary resources? 5. How does it expect to outperform its competitors?

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.

Also, international companies tend to confront more variation in external environments as they operate and sell in more and more nations, which makes the task of managing the firm more complex and more challenging.

Therefore, strategy formulation and implementation tends to differ once a firm “goes international” because of differences in an international firms’ environment and resources.

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Four strategy options

Multinational corporations (MNCs) typically follow one of four strategic alternatives.

(1) The international strategy, utilizes the firm’s domestically developed core competency or firm-specific advantage as its main weapon in the foreign markets it enters.

(2) 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.

(3) The global strategy requires the firm to view the world as a single marketplace and involves adopting a primary goal of creating standardized goods and services that will meet the needs of customers worldwide.

(4) Under the transnational approach, firms attempt to combine the benefits of global scale efficiencies with the benefits of local responsiveness.

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Four strategy options

The transnational approach demands case-by-case, moment-by-moment decision making about whether to act in favor of achieving global efficiencies or local responsiveness.

The other 3 strategies imply a consistent focus across all situations, whether it be on capitalizing on domestically derived firm-specific advantages (international), capturing global efficiencies (global), or achieving local responsiveness (multidomestic).

* See Figure 10.1: Strategic Alternatives for Balancing Pressures for Global Integration and Local Responsiveness

The international 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.

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.

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Four strategy options

Firms versus strategies

Don’t confuse types of firms with types of strategies. What a firm does is strategy, what it is or is capable of doing is something separate

A firm which is only capable of implementing an international, global, or multidomestic strategy cannot implement a transnational strategy

A firm that can successfully implement a transnational strategy can adopt whatever of the 4 strategy choices seems to make the most sense, given the firm’s environment

Group Exercise:

1. Sort the following firms into the type of firm they are.2. Identify what you believe their strategy to be.

Microsoft, Nestle, General Motors, Compaq, IBM, Merck

Note: There will be no exam questions asking that students classify firms into firm or strategy types. This exercise is only to help in understanding the ideas presented about how to classify firms and strategies.

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Components of an international strategy

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.

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.

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.

Synergy

Synergy answers the question “how can different elements of our business benefit each other?”

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International strategy formulation and implementation

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.

The formulation of international strategy can be further broken down into five specific steps, as outlined in Fig 10.2.

* See Figure 10.2: Steps in International Strategy Formulation

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International strategy formulation and implementation

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.

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.

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International strategy formulation and implementation

Environmental Scanning and the SWOT Analysis

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. Political risk analysis (Ch 3) and selection of national markets in which investment or disinvestment seem attractive (issues from section of course before midterm, plus issues related to collecting market specific information in Ch 11) carried out here.

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 a production, marketing, human resource management, and so forth to enable its managers to identify competitive strengths and weaknesses. Material from Ch 11-20 proves particularly useful for this step.

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.

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International strategy formulation and implementation

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.

Tactics

Tactics (specific tactical goals and plans) involve middle managers and focus on the details of how to implement strategic plans.

Control Framework

A control framework is the managerial and organizational processes 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. This is dealt with in more detail through material addressed in class at a later time, drawn from Chapter 15.

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How is a SWOT analysis likely to differ in a global industry?

Mechanics

Need to scan more widely, analyze multiple firms and nations dispersed around the globe

Value chain analysis becomes much more challenging because portions of the value chain may be geographically dispersed

Complications

Need to analyze the prospects of multiple nations instead of one

Complications from multiple cultures, multiple political & legal regimes, differences in geography & climate that can affect activities in every portion of the value chain, as well as strategic planning

Integration of knowledge, technology, insights from around the globe much more challenging

Implications

More threats, more opportunities Geographic dimension to strengths, weaknesses because

nations in which you hold market leadership tend to become “strengths”, and nations in which you have little market share can be “weaknesses”.

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Levels of International Strategy

Corporate strategy

Single-business strategy, related diversification, unrelated diversification

Business strategy (single business units, or SBUs)

Cost leadership, differentiation, focus

Cost leadership is based on economies of scope, economies of scale, “exploiting the experience curve”, superior logistics management, bargaining power vis a vis suppliers, …

Differentiation involves finding one or more non-cost, “miscellaneous” sources for a sustainable competitive advantage (ie: quality, on-time delivery, customization to customer needs, …)

A focus strategy involves focusing on a subset of the total possible customer base, then selecting a cost leadership or differentiation strategy to capture as large and profitable a share as possible of sales to that specific subset of all customers

Functional strategies Financial, marketing, operations, HRM, R&D

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