Cm Ch Eight on Strategy Formulation and Implem

7/31/2019 Cm Ch Eight on Strategy Formulation and Implem

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International Strategic

ManagementStrategic Formulation andImplementation

Chapters 8, Hodgetts, Luthans and Doh, International Management:Culture, Strategy and Behavior, 6th edition (New York: McGraw-HillIrwin, 2006)

Adapted from PowerPoint slides by R. Dennis Middlemist, Professor ofManagement, Colorado State University


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OVERVIEW

1. Strategic Management

2. Approaches to Strategic Planning

3. Global vs. Regional Strategies

4. Elements of Strategic Planning

5. Specialized Strategies


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Strategic Management Strategic management

Determining the firms basic mission and long-term objectives, and developing andimplementing an appropriate plan of action

Where are we going?

How are we going to get there?

Strategic management growing inimportance because of the need to

coordinateand integratediverseoperations!


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Benefits of Strategic Planning

Perceived benefits Coordinate and monitor operations

Streamline product lines and supplychains

Manage political, currency, andcompetitive risks

Potential costs

Micromanagement of subsidiaryoperations

Misallocation of time and staff resources

Over-planning and lower profitability


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Approaches to Strategic Planning

EconomicImperative

QualityImperative

PoliticalImperative

AdministrativeCoordination


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Economic Imperative Worldwide Strategy based on cost leadership,

differentiation, and segmentation Product mix

Selling products for which large portion of value is

added in the upstream activities of the industrys value

chain

Product is regarded as a generic good, not name brand

Global sourcing to shorten the production or

buying cycle Examples: Automobile, chemicals, heavy electrical

systems, motorcycles & steel.


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Economic Imperative

Other Examples:

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

International Textile or Trading companies

Relying on global sourcing


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Political Imperative Strategy country- responsive and designed to

protect local market niches

Selling products for which large portion of valueis

added in the downstream activities of the

industrys value chain Success of the product or service depends

heavily on marketing, sales or service

Customer or client-focused

Approach most often used by MNCs pursuing acountry-centered or Multidomestic strategy.

Examples: Insurance and consumer packagedgoods industries.


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Quality Imperative

Two possible paths :

Change in attitudes to raise expectation forservice 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 qualityperformance.


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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. handsetmarket.


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Administrative Coordination

Decision making based on the merits ofthe individual situation rather than apredetermined economic or political

strategy.

For example, Wal-Mart in Brazil introduced

a computerized bookkeeping systemwhich could not deliver results because ofthe complicated tax system of Brazil.


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The Four Imperative

It is not necessary for an MNC to pursue itsstrategic planning based on only one of theabove mentioned imperatives.

It is very much likely that firms may use thecombination of the imperatives discussedabove.

For instance, IBM relies on economicimperative when in less developed countries,political & quality imperatives when in maturemarket of Europe or advanced countries.

Gl b l R i l St t i


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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 internationalconsumerism.

National Responsiveness Segmented regional markets.

Need to respond to differing national standards andregulations.

Adaptation of tools and techniques to manage localworkforces.

For instance companies like Toyota, Mitsubishi & Hondahave all abandoned their ideas of producing a global

vehicle

Global vs Regional Strategies


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Global vs. Regional Strategies

Famous Example of the ignorance of

National Responsiveness by MNCs.

Toyotas full size T100 pick up proved much toosmall to attract market share in U.S.

This resulted in replacing the model with Tundrapickup that is powered y a V-8 engine and has a cabindesign to accommodate a passenger wearing a 10-gallon cowboy hat!

Honda has developed its new model with moreAmericanized features such as big interior roomsallowing passengers to eat and sleep in the vehicle.


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Four Strategic Options

Global

strategy

Internationalstrategy

Transnational

strategy

Multi-domesticstrategy

National responsivenessLow High

Glo

balintegratio

n

Low

High

Adapted from Figure 8 1: Global Integration vs. National Responsiveness

Ch i O i


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Choosing an Option Global:low-cost strategy, based on price.

Mergers & acquisitions are common. Firms

facing high cost pressures must adopt globalstrategy.

Multi-domestic:products and servicesdifferentiated by market. Catering to niche

market. International:core competencies set the

MNC apart from local competitors. Firmsenjoy valuable core competence.

Transnational: Require management of contradictory pressures for

cost reductions and differentiation Successful firms engage in glocalization, localizing

their activities while maintaining a global focus


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Elements of Strategic Planning forInternational Management

External EnvironmentalScanning for MNCOpportunities and

Threats

Internal ResourceAnalysis of MNC

Strengths andWeaknesses

Strategic PlanningGoals

IMPLEMENTATION

Adapted from Figure 8 2: Basic Elements of Strategic Planning for International Management


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Environmental Scanning

Provide management with accurateforecasts of trends that relate toexternal changes in geographic areaswhere the firm is currently doingbusiness or considering setting upoperations

These changes relate to the economy,

competition, political stability,technology, and demographicconsumer data


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Internal Resource Analysis

Evaluate managerial, technical, material,and financial strengths and weaknesses

Determine ability to take advantage ofinternational market opportunities

Match external opportunities(environmental scan) with internalcapabilities (internal resource analysis)

Key question: Do we have the people andresources that can help us to develop andsustain the necessary KFSs, or can weacquire them?


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Strategic Planning Goals

Goal formulation often precedes the firsttwo steps

However, more specific goals come out ofexternal scanning and internal analysis

Typically serve as an umbrella forsubsidiaries and international operations

Profitability and marketing goals almost

always dominateOnce set, the MNC will develop specific

operational goals and controls for thesubsidiary or affiliate level


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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, dispersedor coordinated

Finance:local sources, centralized control,international markets, or barter trade


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SPECIALIZED

STRATEGIES

1. First-Mover Strategies

2. Bottom of the PyramidStrategies

3. Born-Global Strategies


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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

Opportunity costs of premature entry

Fi t M St t i


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First-Mover Strategies Do you know which companies launched the first

commercial versions of: Personal computer,

Word processing software,

Web browser, and

Internet search engine

Today, none of them is the market leader in those

categories or even anywhere near the top -despite the fact that all these products wereintroduced just 20 to 30 years ago.

Fi t M St t i


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First-Mover Strategies First Movers vs Market Leaders

First Mover:Altair (1975) Market Leader:Dell (2006)

First Mover:WordStar (1979) Market Leader:Microsoft Word (2006)

First Mover: Mosaic (1992) Market Leader: Microsoft Internet Explorer

(2006)

First Mover: Excite (1993) Market Leader: Google (2006)

B f th P id St t i


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Base of the Pyramid Strategies

4-5 billion people at the bottom of the

economic pyramid represent fully two thirds ofthe worlds population.

Targeting emerging market People making less than $2,000/year (4 billion)

Marketing requires smaller-scale strategies Building relationships with local governments,

small entrepreneurs, and nonprofits

Less dependence on central governments andlarge local companies

Best example : Bangladeshis Gerameen bank,introduced by M. Yousuf.

Born Global Firms


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Born-Global Firms

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

Engage in significant international activity a short time after being established

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

Successful firms leverage a distinctive mix of orientations and strategies

Global technological competence

Unique-products development

Quality focus

Reference : Rennie, M. W. 1993. Global Competitiveness: Born Global. The McKinsey Quarterly, 4(4): 45-52.

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Cm Ch Eight on Strategy Formulation and Implem