2. Strategy Formulation and Implementation
Lecture-03
Strategy Formulation and Implementation

3. Strategy Formulation and Implementation
The specific objectives of this chapter are to
DISCUSS the meaning, needs, benefits, and approaches of the strategic planning process for today’s MNCs.
UNDERSTAND the tension between pressures for global integration and national responsiveness and the four basic options for international strategy.
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.
REVIEW the three major functions of marketing, production, and finance that are used in implementing a strategic plan.
EXPLAIN specialized strategies appropriate for emerging markets and international new ventures.

4. Strategic Management Strategic Management
The process of determining an organization’s basic mission and long-term objectives and then implementing a plan of action for pursuing the mission and attaining these objectives.
Corporations need strategic management in order to keep track of their increasingly diversified operations in a continuously changing international environment.

5. Benefits of Strategic Planning
According to one study, 70 percent of 56 U.S. MNC subsidiaries in Asia and Latin America had comprehensive 5- to 10-year plans.
Evidence for effectiveness of planning is mixed.
Strategic planning does not always result in higher profitability.
The specifics of the situation will dictate the success of the process.

6. Approaches to Formulating and Implementing Strategy
Economic Imperative
Political Imperative
Quality Imperative
Administrative Coordination

7. Approaches to Formulating and Implementing Strategy Economic Imperative
Worldwide strategy based on cost leadership, differentiation, and segmentation
Often products sold by MNCs have a large portion of value added in upstream activities of the industry’s value chain.
Research and development
Manufacturing
Distribution
Strategy is also used when the product is regarded as generic and therefore does not have to be sold based on name brand or support service.

8. Approaches to Formulating and Implementing Strategy Political Imperative
Strategy formulation and implementation utilizing strategies that are country-responsive and designed to protect local market niches.
Success of product or service depends on:
Marketing
Sales
Service
These MNCs often use country-centered or multi-domestic strategy.

9. Approaches to Formulating and Implementing Strategy Quality Imperative
Takes two interdependent paths:
A change in attitudes and a raising of expectations for service quality
The implementation of management practices designed to make quality improvement an ongoing process.
TQM Total Quality Management

10. Total Quality Management
TQM
Cross-train personnel to do jobs of all members in work group
Process re-engineering designed to help identify/eliminate redundant tasks and wasteful effort
Reward system designed to reinforce quality performance
TQM can be summarized:
Quality is operationalized by meeting or exceeding customer expectations.
Quality strategy is formulated at top management level and diffused throughout the organization.
TQM techniques: traditional inspection and statistical quality control; cutting edge Human Resource Management techniques, such as self-managing teams and empowerment

11. Approaches to Formulating and Implementing Strategy
Administrative Coordination
MNC makes strategic decisions based on the merits of the individual situation rather than using a predetermined economic or political strategy.
Used when rapid, flexible decision making is needed to close the sale
Least common approach to formulation and implementation of strategy
Many large MNCs work to combine all four of the approaches to strategic planning.

12. Global and Regional Strategies
Fundamental Tension: The globalization vs. national (or regional or local) responsiveness conflict
Global integration
Production and distribution of products and services of a homogenous type and quality on a worldwide basis
National responsiveness
The need to understand different consumer tastes in segmented regional markets and respond to different national standards and regulations imposed by autonomous governments and agencies

13. Global Integration vs. National Responsiveness

14. Summary and Implications of the Four Basic Strategies
Appropriateness of each strategy depends on pressures for cost reduction and local responsiveness in each country served
International strategy make use of valuable core competencies that host-country competitors lack.
Multi-domestic strategy is useful with high pressure for local responsiveness and low pressures for cost reductions.
Global strategy is a low-cost strategy when attempting to benefit from scale economies in production, distribution, marketing.
Transnational strategy is pursued when there are high cost pressures and high demand for local responsiveness.

15. Strategy around the World: Cost Reduction vs. Local Responsiveness
Tailor product and service offerings to fit local consumer preferences and host-country requirements
Higher cost
Example: McDonald’s uses mutton in India
Cost reduction:
MNEs enter global marketplace with the intention to reduce operation cost
Example: Toyota Prius
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.4.

16. The Integration-Responsiveness Framework
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.4.

17. Four Global Strategies
International strategy
Leveraging home-based core competencies
Selling the same products or services in both domestic and foreign markets
Example: Selling Starbucks coffee internationally
Localization (product differentiation) strategy
Maximize local responsiveness via a multi-domestic strategy
Consumers will perceive them to be domestic companies
Example: Nestlé’s customized product offerings in international markets

18. Four Global Strategies
Global standardization (cost leadership) strategy
Economies of scale and location economies
Pursuing a global division of labor based on best-of-class capabilities reside at the lowest cost
Example: Lenovo’s R&D in Beijing, Shanghai, and Raleigh; production center in Mexico, India, and China
Transnational strategy
Combination of localization strategy (high responsiveness) with global standardization strategy (lowest cost position attainable)
Example: German multimedia conglomerate Bertelsmann
: Caterpillar’s earth-moving equipment

19. Characteristics, Benefits, and Risks of Four Types of Global Strategy
Characteristics
Benefits
Risk
• Often the first step in
• Leveraging core
• No or limited local
internationalizing.
competence.
responsiveness.
• Used by MNEs with relatively large
• Economies of scale.
• Highly affected
domestic markets (e.g., MNEs from
• Low-cost implementation
by exchange rate
U.S., Germany, Japan).
through:
fluctuations.
International
• Well-suited for high-end products
• Exporting or licensing
• IP embedded in product
Strategy
(such as machine tools) and luxury
(for products)
or service could be
goods that can be shipped across
• Franchising (for services)
expropriated.
the globe.
• Licensing (for trademarks)
• Products and services tend to have
strong brands.
• Main competitive strategy tends to
be differentiation since exporting,
licensing, and franchising add
additional costs.
• Used by MNEs to compete in
• Highest-possible local
• Duplication of key
host countries with large and/or
business functions
lucrative but idiosyncratic domestic
• Reduced exchange-rate
in multiple countries
Localization
markets (e.g., Germany, Japan,
exposure.
leads to high cost of
(Multidomestic)
Saudi Arabia).
implementation.
• Often used in consumer products
• Little or no economies of
and food industries.
scale.
• Main competitive strategy is
• Little or no learning across
differentiation.
different regions.
• MNE wants to be perceived as local
• Higher risk of IP
company.
Expropriation.
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.4.

20. Characteristics, Benefits, and Risks of Four Types of Global Strategy
• Used by MNEs that are offering
• Location economies:
• No local responsiveness.
Standardization
standardized products and services
global division of labor
• Little or no product
Strategy
(e.g., computer hardware or
based on wherever best-of-
differentiation.
business process outsourcing).
class capabilities
• Some exchange-rate
• Main competitive strategy is price.
reside at lowest cost.
exposure.
• Economies of scale.
• “Race to the bottom” as
wages increase.
• Some risk of IP
expropriation.
Transnational
• Used by MNEs that pursue an
• Attempts to combine
• Global matrix structure
(Glocalization)
integration strategy at the business
benefits of localization and
is costly and difficult to
level by simultaneously focusing on
standardization strategies
implement, leading to high
product differentiation and low cost.
simultaneously by creating
failure rate.
• Mantra: Think globally, act locally.
a global matrix structure.
• Economies of scale,
location, and learning.
• Higher risk of IP expropriation.
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.4.

21. Basic Elements of Strategic Planning for International Management

22. Environmental Factors Affecting Organizations

23. Elements of Strategic Planning Environmental Scanning
Provides management with accurate forecasts of trends relating to external changes in geographic areas where the firm is doing business or considering doing business.
Changes relate to environment factors that can affect the company
Industry or market
Technology
Regulations
Economic aspects
Social aspects
Political aspects

24. Elements of Strategic Planning Internal Resource Analysis
Internal resource analysis is used to evaluate MNC’s current managerial, technical, material, and financial resources and capabilities to assess its strengths and weaknesses.
Assessment then used to determine ability to take advantage of international market opportunities
Match external opportunities (gained in environmental scan) with internal capabilities (gained through internal resource analysis)
Key question for MNC: Do we have the people and resources that can help us to develop and sustain the necessary Key Success Factors (KSF), or can we acquire them?

25. Elements of Strategic Planning Strategic Planning Goals
Goal formulation often precedes first two steps (environmental scanning, internal analysis).
More specific goals for strategic plan come from external scanning and internal analysis.
Goals serve as an umbrella beneath which subsidiaries and other international groups operate.
Profitability and marketing goals almost always dominate strategic plans.
Once strategic goals are set, the MNC develops specific operational goals and controls, usually through a 2-way process at the subsidiary or affiliate level.

26. Areas for Formulation of MNC Goals

27. Strategy Implementation
Provides goods and services in accord with plan of action
Plan often will have overall philosophy or guidelines that direct the process.
Considerations in selecting country
Advanced industrialized countries offer largest markets for goods/services
Amount of government control
Restrictions on foreign investment
Specific benefits offered by host countries

28. Strategy Implementation Location Considerations
Two primary considerations
The country
The specific locale within the chosen country
The Country
Traditionally MNCs invest in highly industrialized countries that offer the largest markets for goods and services.
Developing countries like Mexico are becoming more attractive.
The amount of government control and restrictions is a factor.
Specific benefits offered by host countries include low tax rates, low/no interest loans, subsidies, but this trend is changing.

29. Strategy Implementation Location Considerations
Local Issues
Once the country has been selected, the firm must choose a specific locale.
Important factors that influence this choice
Access to markets
Proximity to competitors
Availability of transportation and electric power
Desirability of location for employees coming in from outside

30. Strategy Implementation Location Considerations
Frontier Markets
Also called pre-emerging markets; a unique subset of emerging economies
Less correlated to ups and downs of global economy
Offer potentially high rewards, but with high risk
Often located in Africa and Asia
Potential strategy: joint venture with a local company with cultural knowledge of the market

31. Strategy Implementation The Role of the Functional Areas
Marketing
What works in one market may not work in another
Marketing may be dictated by the overall strategic plan
Marketing strategy involves the four “Ps”
Product
Price
Promotion
Place

32. Strategy Implementation The Role of the Functional Areas
Production
When exporting goods to foreign markets, production has usually been handled through domestic operations.
More recently MNCs have found that whether they export or produce goods locally in the host country, consideration of worldwide production is important.
Recent trend has been away from a multi-domestic approach and toward a global coordination of operations.
If product labor-intensive, the trend is to farm out the product to low-cost sites (e.g., Mexico).

33. Strategy Implementation The Role of the Functional Areas
Finance
Transferring funds from one place in the world to another, or borrowing funds in international money markets, is often less expensive than relying on local sources.
Issues include
Reevaluation of currencies
Volatile monetary exchange rates

34. Specialized Strategies
Some circumstances may require specialized strategies:
Strategies for developing and emerging markets
Strategies for international entrepreneurship and new ventures

35. Specialized Strategies Strategies for Emerging Markets
Emerging markets will compose more than half of global economic output by midcentury.
“BRIC” economies: Brazil, Russia, India, and China
Emerging markets present exceptional risks due to political and economic volatility. These risks show up in:
Corruption
Failure to enforce contracts
Red tape and bureaucratic costs
General uncertainty in legal and political environment

36. Specialized Strategies Strategies for Emerging Markets
First Mover Strategies
Significant economies associated with early entry include learning effects, scale economies, opportunities for developing alliances, and advantages over competitors.
There may be a narrow window of opportunity within which these opportunities can be best exploited.

37. Specialized Strategies Strategies for Emerging Markets
Strategies for Base of Pyramid (BOP)
5+ billion potential customers around the globe heretofore have been ignored by global business.
BOP forces global business to rethink their strategies.
Must consider relationships with local governments, small entrepreneurs, and nonprofits rather than depend on established partners such as central governments and large local companies
BOP strategies are challenging to implement
Represents opportunity to incubate new, leapfrog technologies
Successful BOP strategies can travel profitably to higher income markets
Marketing at BOP forces consideration of smaller-scale strategies

38. The World Population and Income Pyramid

39. Specialized Strategies Entrepreneurship Strategy and New Ventures
Increasingly small and medium size enterprises, often in the form of new ventures, are becoming involved in international management.
The earlier in its existence an innovative firm internationalizes, the faster it is likely to grow both overall and in foreign markets.
Venture performance (growth and ROE) is improved by technological learning gained from international environments.

40. Specialized Strategies International Entrepreneurship
A combination of innovative, proactive, and risk-seeking behavior that crosses national borders and is intended to create value in organizations.

41. Specialized Strategies International New Ventures and “Born Global” Firms
International New Ventures or Born-Global Firms
Firms that engage in significant international activity a short time after being established
Successful born-global firms leverage a distinctive mix of orientations and strategies:
Global technological competence
Unique product development
Quality focus
Leveraging of foreign distributor competencies
Truly born-global firms tend to survive longer than other seemingly global companies.

42. Review and Discuss
Of the four imperatives discussed in this chapter—economic, political, quality, and administration—which would be most important to IBM in its efforts to make inroads in the Pacific Rim market? Would this emphasis be the same as that in the United States, or would IBM be giving primary attention to one of the other imperatives? Explain.
Define global integration as used in the context of strategic international management. In what way might globalization be a problem for a successful national organization that is intent on going international? In your answer, provide an example of the problem.

43. Review and Discuss
Some international management experts contend that globalization and national responsiveness are diametrically opposed forces, and that to accommodate one, a multinational must relax its efforts in the other. In what way is this an accurate statement? In what way is it incomplete or inaccurate?
Consider that both a retail chain and a manufacturing company want to expand overseas. What environmental factors would have the most impact on these companies? What ratio of environmental scanning to internal analysis should each employ? What key factors of success differentiate the two?

44. Review and Discuss
Anheuser-Busch is attempting to expand in India, where beer is not widely consumed and liquor dominates the market. What areas should be targeted for strategic goals? What could be some marketing implications in the Indian market?
What particular conditions that MNCs face in emerging markets may require specialized strategies? What strategies might be most appropriate in response? How might a company identify opportunities at the “base of the pyramid” (i.e., low-income markets)?

45. Review and Discuss
What conditions have allowed some firms to be born global? What are some examples of born-global companies?
Mercedes changed its U.S. strategy by announcing that it is developing cars for the $30,000 to $45,000 price range (as well as its typical upper-end cars). What might have accounted for this change in strategy? In your answer, include a discussion of the implications from the standpoints of marketing, production, and finance.