1. International Management

2. Strategy Formulation and Implementation
Chapter 8
Strategy Formulation and Implementation

3. Learning Objectives
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 strategies

4. Learning Objectives (continued 1)
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

5. Learning Objectives (continued 2)
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

6. Pharmerging Markets
Emerging markets hold tremendous growth potential for the pharmaceutical industry
Reason for disproportionate sales growth
Companies will have to increasingly depend on consumers in developing economies to continue to maintain growth
Expanding into emerging markets is accompanied by difficult growing pains

7. Indian Drug Markets Are uniquely positioned for manufacturing
Offer attractive labor costs and skilled workforce
Face issues related to protection of intellectual property, quality and safety, and pricing and profit margin

8. Strategic Management Process of:
Determining an organization’s basic mission and long-term objectives
Implementing a plan of action for pursuing the mission and attaining the objectives
Required to keep track of firms' increasingly diversified operations in a continuously changing international environment

9. Strategic Planning
Helps an MNC coordinate and monitor its far-flung operations and deal with:
Political risk
Competition
Currency instability
Evidence for effectiveness of planning is mixed
Planning does not always result in higher profitability
Specifics will dictate the success of the process

10. Approaches to Formulating and Implementing Strategy
Focusing on the economic imperative
Addressing the political imperative
Emphasizing the quality imperative
Implementing an administrative coordination

11. Economic Imperative Worldwide strategy based on:
Cost leadership
Differentiation
Segmentation
MNCs sell products for which a large portion of value is added in upstream activities of industry’s value chain

12. Economic Imperative (continued)
Much of a product’s value is created through research and development, manufacturing, and distribution
Used when a product is regarded as a generic good and does not have to be sold based on name brand or support service
Global sourcing - Useful in formulating and implementing strategy

13. Political Imperative
Strategy formulation and implementation utilizing strategies that are country-responsive and designed to protect local market niches
MNCs sell products for which a large portion of value is added in downstream activities of value chain
Success of product/service depends on marketing, sales, and service
Country-centered/multi-domestic strategy is used

14. Quality Imperative Takes two interdependent paths
Change in attitudes and raising of expectations for service quality
Implementation of management practices designed to make quality improvement an ongoing process
Total quality management (TQM)

15. Forms of TQM
Cross-train personnel to do jobs of all members in work group
Process reengineering designed to help identify and eliminate redundant tasks and wasteful effort
Reward system designed to reinforce quality performance

16. TQM Summarized
Quality - Operationalized by meeting or exceeding customer expectations
Quality strategy - Formulated at top management level and diffused throughout the organization
TQM techniques - Traditional inspection and statistical quality control and cutting-edge human resource management techniques

17. Administrative Coordination
MNC makes strategic decisions based on merits of the individual situation
Does not use 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

18. Global Integration versus National Responsiveness
Production and distribution of products and services of a homogenous type and quality on a worldwide basis
National responsiveness: Need to:
Understand different consumer tastes in segmented regional markets
Respond to different national standards and regulations imposed by autonomous governments and agencies

19. Basic International Strategies
International strategy: Mixed strategy combining low demand for integration and responsiveness
Multi-domestic strategy: Differentiated strategy emphasizing local adaptation
Global strategy: Integrated strategy based primarily on price competition

20. Basic International Strategies (continued)
Transnational strategy: Integrated strategy emphasizing both global integration and local responsiveness
Appropriateness of each strategy depends on pressures for cost reduction and local responsiveness in each country served

21. Steps in Formulating Strategy
Scanning the external environment for opportunities and threats
Conducting an internal resource analysis of company strengths and weaknesses
Formulating goals in light of the external scanning and internal analysis

22. Environmental Scanning
Provides management with accurate forecasts of trends
Related to external changes in geographic areas where the firm is doing business or considering setting up operations

23. Environmental Scanning (continued)
Changes:
Relate to environmental factors that can affect the company
Include the industry or market, technology, regulatory, economic, social, and political aspects
Central to discovering if an MNC can survive in a particular region
Effective only when it is done consistently

24. Internal Resource Analysis
Helps firms evaluate their current managerial, technical, material, and financial resources and capabilities
To better assess their strengths and weaknesses
Determines firms' ability to take advantage of international market opportunities
Identifies key success factors (KSF) that will dictate how well a firm is likely to do

25. Goal Setting
Precedes the first two steps of environmental scanning and internal analysis
More specific goals for strategic plan come from external scanning and internal analysis
Areas for formulation of MNC goals
Profitability, marketing, operations, finance, and human resources
Profitability and marketing goals top the plans and tend to be more externally environmentally responsive

26. Strategy Implementation
Process of providing goods and services in accord with a plan of action
Includes:
Consideration of location for implementation
Execution of entry and ownership strategies
Implementation of functional strategies in marketing, production, and finance

27. Considerations in Selecting a Country
Advanced industrialized countries that offer large markets for goods and services
Amount of government control and restrictions on foreign investment
Specific benefits offered by host countries
Low tax rates, rent-free land and buildings, low-interest or no-interest loans, subsidized energy and transportation rates, and good infrastructure

28. Considerations for Choosing a Specific Locale
Access to markets
Proximity to competitors
Availability of transportation and electric power
Desirability of location for employees coming in from outside
Nature of workforce
Cost of doing business

29. Frontier Markets Unique subset of emerging economies
Less correlated to ups and downs of the global economy
Offer potentially high rewards, but with high risk
Business initiatives require careful strategic considerations
Potential strategy - Joint-venture with a local company with cultural knowledge of the market

30. Role of Marketing in Implementation
Strategy implementation must be determined on a country-by-country basis
May be dictated by the overall strategic plan, which is based on market analysis
Marketing strategy involves four Ps
Product
Price
Promotion
Place

31. Role of Production in Implementation
Production traditionally has been handled through domestic operations when exporting goods to foreign markets
Recent trends
Consideration of worldwide production
Global coordination of operations
Farming the product out to low-cost sites

32. Role of Production Finance in Implementation
Transferring funds or borrowing funds in international money markets is less expensive than relying on local sources
Issues
Reevaluation of currencies
Inherent risk of volatile monetary exchange rates

33. Specialized Strategies
Strategies for developing and emerging markets
Strategies for international entrepreneurship and new ventures

34. Strategies for Emerging Markets
MNCs are increasingly focusing on emerging economies
Foreign direct investment (FDI) flows into developing countries
Emerging markets present exceptional risks due to political and economic volatility
Corruption
Failure to enforce contracts

35. Strategies for Emerging Markets (continued)
Red tape and bureaucratic costs
General uncertainty in legal and political environment
Types
First-mover strategies
Strategies for the base of the pyramid

36. First-Mover Strategies
First-mover or early-entry positioning - Being the first or one of the first to enter a market
Capturing learning effects important for increasing market share
Achieving scale economies that accrue from opportunities for capturing that greater share
Developing alliances with the most attractive local partner

37. First-Mover Strategies (continued)
Privatization supports the competitive effects of first-mover positioning
First movers who succeed in taking over newly privatized state-owned enterprises possess a significant advantage over later entrants

38. Strategies for Base of Pyramid (BOP)
Strategy targeting low-income customers in developing countries
BOP forces companies to consider smaller-scale strategies
Ideal for incubating new, leapfrog technologies that reduce environmental impacts and increase social benefit
Business models can travel profitably to higher-income markets if successful

39. Strategies for Base of Pyramid (BOP) (continued)
Challenging to implement - Companies must:
Offer affordable goods that are highly available in a community that is willing to accept the product
Bring awareness of the product to the general populace

40. International Entrepreneurship
Combination of innovative, proactive, and risk-seeking behavior
Crosses national borders and is intended to create value in organizations
Innovative firms tend to grow faster when they internationalize earlier
Venture performance is improved by technological learning gained from international environments

41. 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-products development
Quality focus
Leveraging of foreign distributor competencies

42. Be the Management Consultant
Given that the country is actively seeking foreign investors and appears to be creating a pro-business atmosphere, what non-oil businesses do you think would be best suited for expanding into Saudi Arabia?
If you were a foreign investor, what concerns would you have about the country? Would you make an investment in the country?

43. 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

44. Review and Discuss (continued 1)
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

45. Review and Discuss (continued 2)
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?

46. Review and Discuss (continue 3)
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?

47. Review and Discuss (continued 4)
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?

48. Review and Discuss (continued 5)
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)?

49. Review and Discuss (continued 6)
What conditions have allowed some firms to be born global?
What are some examples of born-global companies?

50. Review and Discuss (continued 7)
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