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 Planning Perceived benefits ◦ Coordinate and monitor operations ◦ Streamline product lines and supply chains ◦ Manage political, currency, and competitive risks Potential costs ◦ Micromanagement of subsidiary operations ◦ Misallocation of time and staff resources ◦ Over-planning and lower profitability

Approaches to Strategic Planning Economic Imperative Quality Imperative Political Imperative Administrative Coordination

Economic Imperative Strategy based on cost leadership, differentiation, and segmentation Product mix Value 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 paths Change 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 quality Customers have common taste preferences National Responsiveness Segmented regional markets Need to respond to differing national standards and regulations Adaptation 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 LowHigh Global integration Low High Adapted from Figure 8–1: Global Integration vs. National Responsiveness

Choosing an Option The right strategy is tailored to particular country and industry characteristics Reasons 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 Internal Resource Analysis of MNC Strengths and Weaknesses Strategic Planning Goals IMPLEMENTATION 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 Analysis Evaluate 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

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, 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