Section FourThe Organizational Environment

by Ball, McCulloch, Frantz, Geringer, and Minor

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International CompetitiveInternational Competitive StrategyStrategy

International Businessby Ball, McCulloch, Frantz,

Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

This chapter covers:

•International strategy and competitive advantage

•Steps in global strategic planning

•The purpose of mission statements, objectives and goals

•Global, multidomestic and transnational straties

•New directions in strategic planning

•Industrial espionage

Chapter ObjectivesChapter Objectives

Understand international strategy and competencies and international competitive advantage

Describe the steps in the global strategic planning process

Understand the purpose of mission statements, objectives, goals, and strategies

Understand global, multidomestic, and transnational strategies and when to use them

Describe the new directions in strategic planningDescribe the sources of competitive informationUnderstand the importance of industrial espionage

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International StrategyInternational Strategy

The way firms make choices about acquiring and using scarce resources in order to achieve their international objectives

Involves decisions that deal with all the various functions and activities of a company

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International StrategyInternational Strategy

The goal is to achieve and maintain a unique and valuable position both within a nation and globally This position has

been termed competitive advantage Competitive

advantage is the ability for a firm to have higher rates of profits than its competitors

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To create a sustainable competitive advantage, a company tries to develop skills that Create value for

customers Are rare Are difficult to

imitate or substitute for

Are organized in a way that the company can fully exploit

Global Strategic PlanningGlobal Strategic Planning

Provides a means to identify opportunities and threats Formulate strategies to handle them Stipulate how to finance implementation

Provides consistency of action Requires participants to consider

ramifications Provides a thorough, systematic

foundation for making decisions

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Global Strategic Planning ProcessGlobal Strategic Planning Process

The process of strategic planning provides a formal structure in which managers

Analyze the company’s external environments

Analyze the company’s internal environment

Define the company’s business and mission Set corporate objectives Quantify goals Formulate strategies Make tactical plans

Global Planning ProcessGlobal Planning Process

Same format as domestic firm Variations in values

of uncontrollable forces make more complex

Must know present values of forces and where they are headed

Must include domestic, international, and foreign environments

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Analyze Corporate Analyze Corporate Controllable VariablesControllable Variables

Situational analysis Forecast Value Chain Analysis

Who are the target customers?

What value doe we deliver?

How will customer value be created?

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Knowledge as a Controllable Corporate Resource Capabilities of

employees Structures, systems

and routines Build knowledge

database and transfer best practices

Protect knowledge from competitors

Define the Corporate Business,Define the Corporate Business, Vision, and Mission Statements Vision, and Mission Statements

These broad statements communicate to the corporation’s stakeholders what the company is and where it is going The vision should be a vibrant and

compelling image of the organization’s purpose

The mission statement typically defines the scope of what the company does

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Set Corporate ObjectivesSet Corporate Objectives

Objectives Direct the firm’s

course of action Maintain it within

the boundaries of the stated mission

Ensure its continuing existence

Objectives should be quantified as much as possible

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Formulate Competitive StrategiesFormulate Competitive Strategies

Corporate Strategies Action plans to enable

organizations to reach their objectives

Generally, participants in the strategic planning process will formulate alternative corporate strategies, or action plans, that seem plausible

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In the international market companies confront two opposing forces Reduction of costs Adaptation to local

markets As a consequence,

companies have basically three strategies they can use Multidomestic Global Transnational

Global StrategyGlobal Strategy

Used when a company faces strong pressure for reducing costs, and limited pressure to adapt products

Strategy and decision making centralized Company offers standardized products and

services Value chain activities in only one or a few

areas Results in limited ability to adjust and

change to meet customer needs and higher transportation costs

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Multidomestic StrategyMultidomestic Strategy

Used when there is strong pressure for adaptation to local market

Decision making decentralized to allow for quick change

Increases cost structure Too much adaptation

may take away from product

Cost and complexity of coordination can be substantial

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Transnational StrategyTransnational Strategy

Used when a company confronts pressures for both cost effectiveness and local adaptation

Company locations based on where most beneficial for each activity Upstream value chain activities will be more

centralized Downstream activities will be more

decentralized Achieving an optimal balance is challenging Strategic decisions, structures and systems

will be much more complex13-14

ScenariosScenarios

Multiple, plausible stories about the future. Often, the “what if” questions raised

reveal weaknesses in present strategies Types of subjects for scenarios include

large and sudden changes in sales (up or down)

sudden increases in the price of raw materials

sudden tax increases a change in the political party in power

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Types of PlansTypes of Plans

Contingency Plans Worst and best

case scenarios Critical events

Tactical Plans Also called

operational Spell out in detail

how objectives will be reached

Short-term

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Strategic Plan FeaturesStrategic Plan Features

Sales Forecasts and BudgetsSales Forecasts

Provides management with an estimate of the revenue to be received and the units to be sold

Serve as a basis for planning in other areas

BudgetsDuring planning, budgets coordinate the

functions within the firm and provide management with a detailed statement of future operating results

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Plan Implementation FacilitatorsPlan Implementation Facilitators

Policies Broad guidelines to

assist lower-level managers in handling recurring problems

Permit discretionary action and interpretation

The object is to economize managerial time and promote consistency among the various operating units

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Procedures

Prescribe how certain activities will be carried out

Ensure uniform action on the part of all corporate members

Facilitate comparison among operational units

Kinds of Strategic PlansKinds of Strategic Plans

Time Horizon Strategic plans may be classified as short-,

medium-, or long-term Actual length varies according to age of firm

and stability of market Level in the Organization

Each organizational level will have its level of plan

Each will be more specific than the level above Functional areas will have their own plans

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Methods of PlanningMethods of Planning

Top-down planning corporate headquarters

develops and provides guidelines that include the definition of the

business the mission

statement company objectives financial assumptions the content of the

plan special issues

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Advantage The home office

should be able to formulate plans that ensure the optimal corporatewide use of the firm’s scarce resources

Disadvantage Restricts initiative

at the lower levels and shows insensitivity to local conditions

Method of PlanningMethod of Planning

Bottom-Up Planning Lowest operating levels

inform top management what they expect to do

Total becomes firm’s goals

Advantage People responsible for

attaining goals are formulating goals

Disadvantage No guarantee affiliates’

goals will coincide with headquarters

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Methods of Planning Methods of Planning

Iterative Planning

Repetition of bottom-up or top-down

planning process until all differences are

reconciled

Iterative planning is becoming more popular

Especially in global companies that seek to

have a single global plan while operating in

many diverse foreign environments13-22

New Directions in PlanningNew Directions in Planning

Who Does the PlanningMany firms have

introduced innovation to the planning process

Bringing in customers and suppliers to have firsthand experience with the firm’s markets

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How Planning is Done Many firms have

moved toward less structured formats and much shorter documents

Contents of the Plan Top managers much

more concerned with issues, strategies, and implementation

Analysis of Competitive ForcesAnalysis of Competitive Forces

Success in strategic planning depends on Quality of information Interpretation of

information Common practice to

talk to competitors’ customers and distributors To test competitors’

products View competitors

exhibits at trade shows

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Competitor AnalysisCompetitor Analysis

Industrial Espionage Some companies have resorted to spying

on a competitor to learn secrets about its strategy and operations

Today’s top level managers recognize that Increased competition has created a need

for more knowledge of competitor The firm should have a competitor

intelligence system (CIS)

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Competitor Intelligence SystemsCompetitor Intelligence Systems

CIS can result in legal and ethical acquisition of valuable information and allow the company Improved bidding success Better target marketing and sales efforts Identification of competitors’ expansion

plans or changes in strategy Improved understanding of competitors’

products and processes

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Sources of InformationSources of Information

Within the Firm Sales representatives Librarians Technical and R&D

people Published Material

Technical journals Databases Internet Industry reports Public documents

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Suppliers/Customers May know in

advance about new products

Purchasing agents can ask suppliers

Competitors’ employees Actual or past

Direct observation or physical evidence Plant tours Reverse engineering Trash hauler

International Business ChallengesInternational Business Challenges

Industrial Espionage Briefcases, laptops,

hotel rooms searched Key targets R&D,

customer lists, financial data

Technology makes theft easier

Government has passed laws to attempt to help

Companies try new security systems

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BenchmarkingBenchmarking

Measuring your company against others Four types

Internal – comparing one operation in the firm with another

Competitive – comparing the firm’s operation with a direct competitor

Functional – comparing similar functions of firms in your industry

Generic – comparing operations in totally unrelated industries

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