International Strategic

Management

Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.

What is Strategic management?

International Strategic Management (ISM) is an ongoing management planning process aimed at developing strategies to allow an organization to expand abroad and compete internationally. Strategic planning is used in the process of developing a particular international strategy.

International Strategic Management

An organization must be able to determine what products or services they intend to sell, where and how the organization will make these products or services, where they will sell them, and how the organization will acquire the necessary resources for these tasks. Even more importantly an organization must have a strategy on how it expects to outperform its competitors.

More specifically 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 strategic planning is usually the responsibility of top-level executives at corporate headquarters and senior managers in domestic and foreign operating subsidiaries

E.g. Disney Hong Kong & France.

1. What products/services does the firm intend to sell?

2. Where & how will it make those products/services?

3. Where and How will it sell them?4. Where and how will it acquire necessary

resources?5. How does it expect to outperform its

competitors?

The firm’s strategic planning must answer:

1. Multiple governments2. Multiple currencies3. Multiple accounting systems4. Multiple legal systems5. Variety of languages & cultures6. Managing operations in different time

zones7. Different economic conditions8. Monitoring & controlling the performances

internationally

Challenges of International Strategic management

1. Global efficiencies:◦ Location efficiencies(locating facility anywhere in world/

find lowest production & distribution means)◦ E.g. Nike & cheap labor◦ E.g. by building factories to serve more than one country

creates economy of scale(Cost advantages that a firm obtains due to expansion – Reducing cost per unit for single product firms) e.g. Mercedes-Benz sports utility vehicle in Alabama.

◦ Broadening product line 7 enjoying economy of scope(of scope' refers to lowering average cost for a firm in producing two or more products)

3 sources of competitive advantage unavailable to domestic firms:

2. Multiple Flexibility:◦ Variations in political, economic, social, cultural,

governmental, legal changes lead to international businesses respond to a change in one country by implementing a change in another country!

◦ E.G. chicken processor Tyson

3. World-wide learning◦ The diverse operating environments of MNCs may

also contribute to organizational learning. Therefore the subsidiary firms may operate differently and finally it leads to more experience & learning environment. E.g. Mc Donalds in Japan in comparison with Mc Donalds in USA which should be a freestanding entity!

1. Home Replication Strategy:◦ A firm utilizes the core competency on firm-

specific advantages it developed at home as its main competitive weapon in the foreign markets that it enters.

◦ E.g. Mercedes-Benz home replication strategy relies on its reputation for building well engineered, luxurious cars capable of travelling safely at a very high speed.

Strategic Alternatives

2. Multi-Domestic strategy◦ A collection of relatively independent operating

subsidiaries, each of which focuses on a specific domestic market. In addition each of these subsidiaries are free to customize the products, its marketing campaigns, operation techniques to best meet the needs of the domestic market.

◦ Companies prior to World War II opted for this strategy due to problems in controlling different operations in different countries.

3. Global Strategy◦ It views the world as a single marketplace and has

its primary goal the creation of standardized goods and services that will address the needs of customers world-wide.

◦ It is almost the exact opposite of Multi-domestic Strategy. E.g. Standard Chartered, Atkins, etc

4. Transnational corporation◦ It centralizes certain management functions and

decision making, such as research & development & financial operations at corporate headquarters.

◦ Other managemnet functions such as HR 7 marketing may be decentralized allowing managers of local subsidiaries to customize them.

◦ E.G. IKEA

Global Strategy

World - as single marketplacePrimary goal – to create standardized goods & services

Transnational Strategy

The firm attempts to combine the benefits of global scale efficiencies with benefits of local responsiveness

Home Replication

The firm uses the core competency it developed at home as its main competitive weapon in foreign markets.

Multi-Domestic Strategy

The firm views itself as a collection of independent operating subsidiaries each of which serve their own domestic/local market.

Pressures for local Responsiveness & Flexibility

Pressures for Global Efficiency

Distinctive Competence

◦ Distinct Competence is what the firm does exceptionally well! It has to answer the following questions:

◦ What do we do exceptionally well? Specially as compared to our competitors?

Components of ISM

Scope of Operations

◦ Scope of operations is the array of markets in which the firm plans to perform. It answers the following question:

◦ Where are we going to conduct business?

Resource Deplyment

◦ Resource deployment specifies how the firm will distribute its resources across different areas. It answers the following question:

◦ Given that we are going to compete in these markets, how will we allocate our resources to them?

Synergy

◦ Synergy is the degree to which different operations within the firm can benefit one another. It answers the question below:

◦ How can different elements of our business benefit each other?

◦ E.g. Disney can do free advertisements for its new products or characters through its theme park, movies, TV channel, etc…

Developing International Strategies

Develop a Mission

Statement

SWOT

Set Strategic

Goals

Develop Tactical goals & Plans

Develop a control

Framework

SWOT – Value Chain:

Value chain is the breakdown of the firm into its important activities such as marketing, Human resource management, production, etc – to enable its strategies to identify its competitive advantages and disadvantages.

Most firms develop strategy at 3 levels:

1. Corporate Strategy

2. Business Strategy

3. Functional Strategy

Levels of international strategy

It tells us the Domain of business or answers the question: ‘What business will we operate?’ e.g. Sony & Matsushita…

◦ Single business strategy ◦ Related diversification ◦ Unrelated diversification

1. Corporate strategy

◦ Single business strategy

◦ It calls for a firm to rely on a single business, product, or service for all its revenue. E.g. Dell, McDonalds, Singapore Airlines

◦ Advantage: The firm will focus all the resources on one product or service which will make it a quality product or service.

◦ Disadvantage: it increases the firm’s vulnerability to competition & to changes in external environment. E.g. VCR & DVD

Related diversification

It’s the most common strategy where it calls for the firm to operate in several different but fundamentally related business, industries or markets at the same time.E.g. Disney(theme park, movies, tv channels, merchandise, etc)

Advantage: Firm depends less on a single product/service so it is less vulnerable to competitive or economic threats. It creates Economies of scale & scope. And it may allow to use technology or expertise developed in one market to enter a second market cheaply &easily.

Disadvantage: Cost of cordinating operations, All business units may be affected by change simultaneously. E.g. another terrorist attack & tourism business!

Unrelated Diversification:

It is been used when a firm operates in several unrelated industries. E.g General electric(GE) owns TV network (NBC), a lighting manufacturer, a medical technology firm, an aircraft engine producer, an investment bank, etc)

2. Business Strategy◦ In related diversification & unrelated diversification

firms Where corporate strategy deals with overall organization, business strategy focuses on specific businesses, subsidiaries or operating units within the firm.

◦ It focuses on the performance of Strategic Business Units (SBUs). E.g Disney would define its SBUs as Parks & resorts, Studio entertainment (e.g. miramax studios, buena vista, touchstone), consumer products (publishings, characters licensing, disney stores) & Media networks (ABC, Disney Channel, ESPN)

◦ There are 3 basic forms of Business Strategy:1. Differentiation2. Overall Cost Leadership3. Focus

Differentiation

It is a very commonly used strategy that attempts to establish and maintain the image (either real or perceived) that the SBU’s products or services are fundamentally unique from other products or services in the same market. If successful as establishing a high quality image, they can charge higher prices for their products or services. E.g. rolexs, Nikon cameras.

Overall Cost Leadership

It calls for a firm to focus on achieving highly efficient operating procedures so that its costs are lower than its competitors. This allows it to sell its service/product for lower prices. E.g. Bic Pen company has sold more than 100 billion ballpoint pens! Timex watches, LG group (consumers electronics)…

Focus

It calls for a firm to target specific types of products for certain customer groups or regions. It matches the features of specific geographical region, ethnicity, purchasing power, tastes in fashion, etc. E.g. Cadbury fruit juice, McDonalds, Fashion galleries, etc…

Functional strategies attempt to answer the question “ how will we manage the functions of finance, marketing, operations, human resources and research & development.

3. Functional Strategies

International Financial Strategy: capital structure / investment policies / foreign exchange holdings / risk reduction techniques / debt policies / working capital management for each SBU.

International Marketing Strategy : Distribution & selling of the products or services / advertising / promotion / Pricing for each SBU.

International operations strategy : Sourcing / Plant location / Plant layout & design / technology & inventory management for each SBU.

International Human Resource Strategy : recruiting / Training / evaluating / Salary Payments / Labor relations / Manpower solutions for each SBU.

International Research & Development : Magnitude & direction of the firm’s investment / creating new products / developing new nechnologies for each SBU

Thank You