9-1 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved.

9-2 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Part Three: International Strategic Management International Management, 5th ed.

9-3 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. International Management, 5th ed. Hodgetts and Luthans Chapter Nine Strategic Planning

9-4 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved.  DISCUSS the meaning, needs, benefits, approaches, and predispositions of the strategic planning process for today’s MNCs  IDENTIFY the basic steps in strategic planning, including environmental scanning, internal resource analysis of the MNC’s strengths and weaknesses, and goal formulation  DESCRIBE how an MNC implements the strategic plan, such as how it chooses a site for overseas operations  EXPLAIN how an MNC implements an ownership and/or entry strategy  REVIEW the three major functions of marketing, production, and finance that are used in implementing a strategic plan Objectives of the Chapter

9-5 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. International Strategic Planning  Strategic planning  Process of determining an organization’s basic mission and long-term objectives, then implementing a plan of action for attaining these goals  Process takes on added dimensions when companies go international  Growing Need for Strategic Planning  MNC must keep track of diversified operations  Continually changing international environment  FDI has grown faster than both trade and world gross domestic product  Benefits of Strategic Planning  Evidence is mixed

9-6 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. International Strategic Planning (cont.)  Approaches to Formulating and Implementing Strategy  Economic Imperative  Worldwide strategy based on cost leadership, differentiation, and segmentation  Political Imperative  Strategic formulation and implementation utilizing strategies that are country-responsive and designed to protect local market niches  Quality Imperative  Strategic formulation and implementation utilizing strategies of total quality management to meet or exceed customers’ expectations and continuously improve products and/or services

9-7 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. International Strategic Planning (cont.)  Approaches to Formulating and Implementing Strategy (cont.)  Administrative Coordination  Strategic formulation and implementation in which the MNC makes strategic decisions based on the merits of the individual situation rather than using a predetermined economically or politically driven strategy  Large MNCs try to combine the economic, political, quality, and administrative approaches to strategic planning

9-8 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. International Strategic Planning (cont.)  Strategic Predispositions  Ethnocentric predisposition  Nationalistic philosophy of management whereby the values of the parent company guide the strategic decisions  Polycentric predisposition  Philosophy of management whereby strategic decisions are tailored to the cultures of the countries where the MNC operates  Regiocentric predisposition  Philosophy of management whereby the firm tries to blend its own interests with those of its subsidiaries on a regional basis  Geocentric predisposition  Philosophy of management whereby the company tries to integrate a global systems approach to decision making

9-9 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 9-1 Basic Elements of Strategic Planning for International Management External Environmental Scanning for MNC Opportunities and Threats Internal Resource Analysis of MNC strengths and weaknesses Strategic Planning GOALS IMPLEMENTATION

9-10 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Basic Steps in Formulating Strategy  Environmental Scanning  Process of providing management with accurate forecasts of trends related to external changes in geographic areas where the firm currently is doing business and/or is considering setting up operations  Internal Resource Analysis  Helps a firm to evaluate its current managerial, technical, material, and financial strengths and weaknesses  Key factor for success (KFS)  Factor necessary to effectively compete in a market niche  Must have people and resources to develop and sustain the necessary KFSs

9-11 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Table 9-2 Areas for Formulation of MNC Goals Profitability Level of profitsReturn on assets, investment, equity, sales Yearly profit growthYearly earnings per share growth Marketing Total sales volumeMarket share - worldwide, region, country Growth in sales volumeGrowth in market share Integration of country markets for marketing efficiency and effectiveness Operations Ratio of foreign to domestic production volumeQuality and cost control Economies of scale via international production integration Introduction of cost-efficient production methods Human Resources Recruitment and selectionDevelopment of managers with global orientation Compensation and benefitsManagement development of host-country nationals Finance Taxation - minimizing tax burden globallyOptimum capital structure Foreign exchange management - minimizing losses from foreign fluctuations Financing of foreign affiliates - retained earnings or local borrowing

9-12 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 9-2 Preferred Strategies for Global Expansion: Developed Markets North America Western Europe Japan Australia/New Zealand AllianceJoint venture Mergers/ acquisitions Expand facilities New facilities % of respondents

9-13 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Figure 9-2 Preferred Strategies for Global Expansion: Developed Markets North America Western Europe Japan Australia/New Zealand AllianceJoint venture Mergers/ acquisitions Expand facilities New facilities % of respondents

9-14 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved Figure 9-2 Preferred Strategies for Global Expansion: Emerging Markets China Southeast Asia Other East Asia India/Pakistan Brazil Mexico Other Latin America Middle East North Africa Eastern Europe Former Soviet Union AllianceJoint venture Mergers/ acquisitions Expand facilities New facilities % of respondents

9-15 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Strategy Implementation  Process of providing goods and services in accord with a plan of action  Location Consideration for Implementation  The Country  Industrialized countries are the recipients of most investments by MNCs  Offer the largest markets for goods and services  May have legal restrictions on imports that encourage a local presence  Local Issues  Access to markets  Proximity to competitors  Availability of transportation and utilities  Nature of of the workforce  Cost of doing business

9-16 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Strategy Implementation (cont.)  Ownership and Entry Consideration for Implementation  Wholly Owned Subsidiary  Overseas operation that is totally owned and controlled by an MNC  Increasingly acquiring subsidiaries through merger or acquisition  Provides MNC with complete control  Joint Venture  Agreement in which two or more partners own and control an overseas business  Nonequity venture - one group provides service to another  Equity joint venture - involves financial investment

9-17 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Advantages of Joint Ventures Joint Ventures Improvement of efficiency Access to knowledge Collusion or restriction of competition Political factors

9-18 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Strategy Implementation (cont.)  Ownership and Entry Consideration for Implementation (cont.)  Licensing  Agreement that allows one party to use an industrial property right in exchange for payment to the other party  Used under a number of common conditions  Franchising  Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee  Export/Import  Useful for firms wanting to begin international expansion with a minimum investment

9-19 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Strategy Implementation (cont.)  Role of the Functional Areas in Implementation  Marketing  Strategy implementation must be determined on a country-by- country basis  Built around the “four Ps”  Product, price, promotion and place  Usually dominates strategy implementation  Production  Consideration of worldwide production is important  Multidomestic company  Firm that operates production plants in different countries but makes no attempt to integrate overall operations

9-20 McGraw-Hill/Irwin© 2003 The McGraw-Hill Companies, Inc.,All Rights Reserved. Strategy Implementation (cont.)  Role of the Functional Areas in Implementation (cont.)  Finance  Strategy implementation developed at the home office and carried out by the overseas affiliates  Transferring funds from one place to another, or borrowing funds in the international money markets, often is less expensive than relying on local sources  Must be concerned about volatile monetary exchange rates