International Strategy Formulation

The Changing World Globalization is the buzzword! Change in traditional approaches towards more innovative strategies Firms forced to trade off between globalization and localization Transformation is hindered by to anti- globalization protests but greatly facilitated by the Internet

Pressures towards Globalization Broad factors making global competition possible  Freer Trade GATT, WTO agreements Creation of free trade zones, regional trading blocks like EU, ASEAN  Global financial services and capital markets Growth seen in FDIs Growth of overseas venture capitalists and trans-national banks

Pressures towards Globalization Broad factors making global competition possible  Advances in communications technology Ease of organizational control  The Internet Facilitates ease of communication CRM, EDI systems are now in place in many companies Internet exchanges link buyers and sellers worldwide and have opened up new markets

Pressures towards Globalization (cont.) Industry Specific Factors  Universal customer needs  Global customers Many MNCs sell to other MNCs and need to keep up with the international expansion of the customers  Global competitors

Pressures towards Globalization (cont.) Industry Specific Factors  High investment intensity High investments required for R&D, advertising due to increased competition When investment intensity is high, many companies are eager to amortize expenses by selling products globally  Pressures for cost reduction Economies of scale and learning are important in price-sensitive markets

Pressures towards Localization Country specific Factors  Trade barriers - Tariffs, subsidizing domestic production, voluntary export restrictions, competing technical standards  Cultural differences - Cultural and religious beliefs, purchasing power, weak enforcement of laws  Nationalism  Anti-globalization activism

Pressures towards Localization (cont.) MNC-Specific Pressures  Organizational resistance to change  Logistics limitations  Management skills and competencies

Business Strategies Exhibit 8-1 Mapping Industries Need for Local Responsiveness Low High Semiconductors Watches Civil Aircraft Automobiles Telecommunications Aerospace White Goods Packaged Foods Funeral Homes Cement Need for Vertical Integration Global Industries Multidomestic Industries Regional Industries

Key Recommendations for Managing the Formulation Process Invest heavily in data collection  Use multiple data sources, tap external sources and develop internal sources to overcome suspect data Determine the potential for critical scale economies Patience

Key Recommendations for Managing the Formulation Process Rotate country managers more frequently to help them develop a global vision  CEO international work experience benefits Be prepared to reassess your performance measurement system and reward system Take a balanced approach