International Strategic Management

Strategic Formulation and Implementation

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 firm’s 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 PlanningPerceived benefits◦Coordinate and monitor operations◦Streamline product lines and supply

chains◦Manage political, currency, and

competitive risksPotential costs◦Micromanagement of subsidiary

operations◦Misallocation of time and staff resources◦Over-planning and lower profitability

Approaches to Strategic Planning

Economic Imperative

Economic Imperative

Quality Imperative

Quality Imperative

Political Imperative

Political Imperative

Administrative Coordination

Administrative Coordination

Economic Imperative

Strategy based on cost leadership, differentiation, and segmentation

Product mixValue added in the upstream activities of the industry’s value chain

generic good (not name brand or support service dependent)

Global sourcing to shorten the production or buying cycle

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 pathsChange in attitudes to raise expectation for service quality

Implementation of practices to make quality improvement an ongoing process

“Total quality management” (TQM) Cross-training personnel

Process re-engineering

Reward systems designed to reinforce quality

Administrative Coordination

Decision making based on the merits of the individual situation rather than a predetermined economic or political strategy

Coordination of global supply chains

Localized marketing of products and services

Least common approach given the pressures on MNCs to coordinate strategy both regionally and globally

Global vs. Regional Strategies

Global Integration Products and services homogeneous in terms of type and qualityCustomers have common taste preferences

National ResponsivenessSegmented regional marketsNeed to respond to differing national standards and regulationsAdaptation of tools and techniques to manage local workforces

Four Strategic Options

Global strategy

Global strategy

International strategy

International strategy

Transnational strategy

Transnational strategy

Multi-domestic strategy

Multi-domestic strategy

National responsiveness

Low HighG

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Low

High

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

Choosing an OptionThe right strategy is tailored to particular

country and industry characteristicsReasons to choose each strategy◦Global: low-cost strategy, commodification◦Multi-domestic: products and services

differentiated by market◦ International: core competencies set the

MNC apart from local competitors◦ Transnational:

Require management of contradictory pressures for cost reductions and differentiation

Successful firms engage in “localization,” localizing their activities while maintaining a global focus

Elements of Strategic Planning for International Management

External Environmental Scanning for MNC Opportunities and

Threats

External Environmental Scanning for MNC Opportunities and

Threats

Internal Resource Analysis of MNC

Strengths and Weaknesses

Internal Resource Analysis of MNC

Strengths and Weaknesses

Strategic Planning Goals

Strategic Planning Goals

IMPLEMENTATIONIMPLEMENTATION

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

Environmental Scanning

Provide 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

These changes relate to the economy, competition, political stability, technology, and demographic consumer data

Internal Resource AnalysisEvaluate managerial, technical,

material, and financial strengths and weaknesses Determine ability to take advantage of

international market opportunities Match external opportunities

(environmental scan) with internal capabilities (internal resource analysis)

Key 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

Goal formulation often precedes the first two steps

However, more specific goals come out of external scanning and internal analysis Typically serve as an umbrella for

subsidiaries and international operations Profitability and marketing goals almost

always dominate Once set, the MNC will develop specific

operational goals and controls for the subsidiary or affiliate level

ImplementationSelecting 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 control, international markets, or barter trade

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◦Opportunity costs of premature entry

“Base of the Pyramid” Strategies

Targeting emerging market◦People making less than $2,000 p/year (4

billion)Marketing requires smaller-scale

strategies◦Building relationships with local

governments, small entrepreneurs, and nonprofits

◦ Less dependence on central governments and large local companies

“Born-Global” Firms

Engage in significant international activity a short time after being established

Successful firms leverage a distinctive mix of orientations and strategies◦Global technological competence◦Unique-products development◦Quality focus◦ Leveraging of foreign distributor

competences

Implications for Managers

The complexity and interdependence of the global economy increases the need for firms to plan strategically

Effective strategies must balance tensions between

Top-down and bottom-up strategies

Economies of scale and differentiation

Managers need to anticipate the future evolution of the firm and global markets