1. International Strategy and Organization11
International Strategy and Organization
Welcome to Chapter 11, International Strategy and Organization.
Copyright © 2014 Pearson Education, Inc.

2. Chapter Objectives
Explain the stages of identification and analysis that precede strategy selection
Identify the two international strategies and the corporate-level strategies that companies use
Identify the business-level strategies of companies and the role of department-level strategies
Discuss the important issues that influence the choice of organizational structure
Describe each type of international organizational structure, and explain the importance of work teams
In this chapter, you will explore how companies select their international strategies and structures.
You will also:
Learn about the variety of strategies that companies use in international business.
Examine the organizational structures used in international operations.
And understand factors relevant to selecting these strategies and structures.
Copyright © 2014 Pearson Education, Inc.

3. Ryanair Employs a low-cost business strategy
Charges far less than national airlines
Uses low-cost airports near major cities
Ryanair shuttles nearly 80 million passengers a year across Europe at fares that are around 50 percent lower than Europe’s big national carriers.
Ryanair’s strategy is to use less congested, secondary airports just outside Europe’s biggest cities. Instead of serving London’s Heathrow or Gatwick airport, Ryanair flies into Stansted. This lets Ryanair negotiate airport fees that are one-tenth that charged by Europe’s major airports.
Ryanair is hot on the heels of big national carriers, such as British Airways, Lufthansa in Germany, and Alitalia in Italy.
Copyright © 2014 Pearson Education, Inc.
11 - 3 3

4. Planning and Strategy Planning Strategy
Planning is the process of identifying and selecting a company’s objectives and deciding how the firm will achieve those objectives.
Strategy is the set of planned actions that managers take to help a company meet its objectives. A well-defined strategy coordinates divisions and departments to achieve company-wide goals effectively and efficiently.
Identifying and selecting objectives and deciding how to achieve those objectives
Set of planned actions that managers take to help a company meet its objectives
Copyright © 2014 Pearson Education, Inc.

5. Strategy-Formulation Process
Firms must determine what products to produce, where to produce them, and where and how to market them. Whether as a site for operations or as a potential market, each location comprises a mixture of cultural, political, legal, and economic traditions and processes that complicate decision making.
The strategy formulation process allows managers a chance to step back from day-to-day activities and get a fresh perspective on the direction of the company and its industry.
Copyright © 2014 Pearson Education, Inc.

6. Identify Mission and Goals
Mission statements
must consider:
Company activities
Business objectives
Stakeholders
Stockholders
Customers
Residents
Environment
and much more…
A mission statement explains why a company exists and what it plans to accomplish. It often describes how a company’s operations are likely to affect stakeholders in all nations where the firm is active.
High-level company objectives are stated in general terms, as in “to be the largest global company in each industry in which we compete.”
Business-unit objectives tend to be more specific, as in “to mass produce a zero-pollution-emissions automobile by 2020.”
And department-level objectives often carry numerical performance targets, as in “to increase global market share by 5 percent in each of the next three years.”
Copyright © 2014 Pearson Education, Inc.

7. Identify Core Competency
Special ability of a company that competitors find extremely difficult or impossible to equal
Coordination of multiple skills
To formulate strategies, managers should analyze the company, its industry, and the markets in which it is active and those it plans to enter.
This type of analysis helps managers identify activities that create value for customers and discover a company’s core competency.
A core competency refers to the coordination of multiple skills to form a single technological outcome, develops over a long period of time, and is difficult to teach.
Develop over lengthy period of time
Difficult to teach
Copyright © 2014 Pearson Education, Inc.

8. Value Chain Analysis
Value chain analysis is the process of dividing a company’s activities into primary and support activities and identifying those that create value for customers. Each business activity is a source of strength or weakness for a company. Insights gained from this analysis are then fed into the strategy formulation process.
Primary activities include inbound and outbound logistics, production, marketing and sales, and customer service. When analyzing primary activities, managers look for areas in which the company can directly increase customer value.
Support activities include business infrastructure, human resources, technology development, and sourcing. These assist in the performance of primary activities.
Copyright © 2014 Pearson Education, Inc.

9. Business Environment
National differences are inherent in analyzing a firm’s unique abilities
Cultural differences
Political processes
Legal matters
Economic systems
Labor issues
Consumer forces
and much more…
National and international business environments are extremely important to strategy formulation. Differences in language, religious beliefs, customs, traditions, and climate complicate strategy formulation.
Manufacturing processes must sometimes adapt to local customs, traditions, work practices, and labor supply. Marketing practices must also often adapt to cultural, political, and legal differences among markets.
Copyright © 2014 Pearson Education, Inc.

10. Discussion Question
What are the three stages of the strategy-formulation process, and what is involved at each stage?
What are the three stages of the strategy-formulation process, and what is involved at each stage?
Copyright © 2014 Pearson Education, Inc.

11. Answer to Discussion Question
Stage one is to identify company mission and goals. This means defining the business and its main objectives.
Stage two is to identify company core competency and value-creating activities. This means analyzing a firm’s unique abilities, primary and support activities, and the business environment.
Stage three is to formulate strategies. This means selecting a multinational or global strategy and then formulating corporate-, business-, and department-level strategies.
Answer:
Stage one is to identify company mission and goals. This means defining the business and its main objectives. Stage two is to identify company core competency and value-creating activities. This means analyzing a firm’s unique abilities, primary and support activities, and the business environment. Stage three is to formulate strategies. This means selecting a multinational or global strategy and then formulating corporate-, business-, and department-level strategies.
Copyright © 2014 Pearson Education, Inc.

12. Multinational Strategy
Adapting products and their marketing strategies to local preferences in each national market
Respond quickly to buyer preferences
Generally speaking, companies approach international markets using one of two international strategies. When following a multinational strategy, a company adapts its products and marketing to local preferences in each national market.
The benefit of this approach is that it allows a company to monitor buyer preferences in each local market and respond quickly and effectively to changes in buyer preferences.
The drawback is that a firm may not be able to exploit scale economies in product development, manufacturing, or marketing, which can make it ill-suited to price-competitive industries.
Difficult to exploit economies of scale
Copyright © 2014 Pearson Education, Inc.

13. Global Strategy
Offering the same products using the same marketing strategy in all national markets
Cost savings from standardization
When following a global strategy, a company offers the same products using the same marketing strategy in all markets. This approach helps firms take advantage of scale and location economies by producing entire inventories or components in a few, optimal locations.
The benefit of this approach is the cost savings from standardized products and marketing. Also, lessons learned in one market can be shared with other markets.
The drawback is that it allows for only simple modifications in features. If a firm overlooks an unmet customer need, a competitor may step in and create a niche market for itself by satisfying that need.
May overlook varying buyer preferences
Copyright © 2014 Pearson Education, Inc.

14. Levels of Company Strategy
Companies involved in more than one business must first formulate a corporate-level strategy by identifying the markets and industries in which it operates. The corporation develops overall objectives for different business units and determines the role of each unit in reaching those objectives.
Copyright © 2014 Pearson Education, Inc.

15. Growth Strategy Increase the scale (size of activities) or
Internally generated growth
Mergers and acquisitions
Joint ventures
Strategic alliances
Increase the scale (size of activities) or
scope (kinds of activities) of operations
One type of corporate strategy is a growth strategy, which is designed to increase the scale or scope of operations. Scale refers to the size of a corporation’s activities and scope refers to the kinds of activities it performs.
Firms can grow organically (that is, through internal sources of expansion) and by forming mergers and acquisitions, joint ventures, and strategic alliances. Potential partners for cooperation include competitors, suppliers, and buyers.
Copyright © 2014 Pearson Education, Inc.

16. Retrenchment Strategy
Reduce the scale or scope
of a corporation’s businesses
Reduce Scale
Reduce Scope
Close factories
Lay off workers
Sell unprofitable businesses
Sell unrelated businesses
Another corporate strategy is a retrenchment strategy, which reduces the scale or scope of a corporation’s businesses.
Corporations can cut back the scale of operations by closing factories and laying off employees, such as during difficult economic times or when competition increases.
They typically reduce the scope of activities by selling unprofitable business units or those in industries unrelated to the corporation’s main business.
Copyright © 2014 Pearson Education, Inc.

17. Guard against change and avoid growth or retrenchment
Stability Strategy
Guard against change and avoid
growth or retrenchment
No opportunities or threats
Strengths fully exploited
Weaknesses fully protected
Stated objectives are met
Another corporate strategy is a stability strategy, which guards against change and is used to avoid either growth or retrenchment. This strategy is seldom employed because it assumes that a corporation has met all objectives, is satisfied with all its accomplishments, and envisions no new opportunities or threats.
Copyright © 2014 Pearson Education, Inc.

18. Combination Strategy
Mix of growth, retrenchment, and stability strategies across business units
Invest in
promising units
Retrench for
less exposure
Stabilize
other units
The last corporate strategy is a combination strategy, which mixes growth, retrenchment, and stability strategies across a corporation’s business units. This approach is quite commonly used because rarely do international corporations follow identical strategies in all of its business units.
Copyright © 2014 Pearson Education, Inc.

19. Discussion Question
A company that adapts its products and marketing to local preferences in each national market follows a __________ strategy.
a. Global
b. Multinational
c. Preference
A company that adapts its products and marketing to local preferences in each national market follows a __________ strategy.
a. Global
b. Multinational
c. Preference
Copyright © 2014 Pearson Education, Inc.

20. Answer to Discussion Question
A company that adapts its products and marketing to local preferences in each national market follows a __________ strategy.
a. Global
b. Multinational
c. Preference
The correct answer is b. Multinational
Copyright © 2014 Pearson Education, Inc.

21. Business-Level Strategies
Low-cost leadership
Differentiation
Focus
A company must also formulate a business-level strategy for each business unit. It may need only one strategy if it has just one line of business, or require a number of strategies for a number of businesses. Key to an effective business-level strategy is developing an appropriate general competitive strategy in the marketplace, of which there are three: low-cost leadership, differentiation, and focus.
Copyright © 2014 Pearson Education, Inc.

22. Low-Cost Strategy Exploit economies of scale to have the lowest
cost structure of any competitor in an industry
Mantra is cutting costs
Quality remains important
Scale is barrier to new entrants
Perhaps low customer loyalty
A company pursuing a low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in its industry. This strategy works best with mass-marketed products aimed at price-sensitive buyers.
A company following this strategy must contain administrative costs and the costs of its primary activities, including marketing, advertising, and distribution.
Efficient production in large quantities can help a firm guard against attack by competitors because of the large start-up costs it requires.
A drawback of this strategy is that it can encourage low customer loyalty. Price-conscious buyers will purchase from any low-cost leader, all else being equal.
Copyright © 2014 Pearson Education, Inc.

23. Differentiation Strategy
Design products that buyers perceive
as unique throughout an industry
Differentiators
Effects
Quality
Brand image
Product design
Price premium
Customer loyalty
Portion of market only
Higher production costs
A company following a differentiation strategy designs products that buyers perceive as unique throughout an industry.
This approach tends to force a company into a lower-market-share position because it involves the perception of exclusivity or meeting the needs of a special group.
It can allow a company to develop a loyal customer base to offset a smaller market share and the higher costs of producing and marketing a unique product.
Special features are used to differentiate products on the basis of quality, brand image, product design, or a combination of these factors.
Copyright © 2014 Pearson Education, Inc.

24. Focus Strategy
Focus on narrow market segment by being the low-cost leader, differentiating, or both
Many sub-segments today
Need distinctive product
Single geography, ethnicity, etc.
A company following a focus strategy satisfies the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.
Intense competition forces many products to be distinguished by price, quality, or design. In turn, the resulting expanded range of available products leads to more refined market segments.
Some firms focus on a single geographic area whereas others serve the needs of one ethnic group.
Copyright © 2014 Pearson Education, Inc.

25. Department-Level Strategies
Departmental strategies are key to a company achieving its objectives:
Manufacturing
Marketing
Logistics
Research & development
and others…
Effective department-level strategies are integral to a company achieving its corporate- and business-level objectives. Department-level strategies rely on capabilities grounded in a company’s primary and support activities.
Each department creates customer value by helping to lower costs or by contributing to product differentiation. Manufacturing strategies can cut production costs and improve product quality, marketing strategies can promote differences from competitors’ products, efficient logistics can reap cost savings, and research and development strategies can identify unmet customer needs and design new products.
Source: Peng Neng/Newscom
Copyright © 2014 Pearson Education, Inc.

26. Discussion Question
What are the main differences between the three types of business-level strategy?
What are the main differences between the three types of business-level strategy?
Copyright © 2014 Pearson Education, Inc.

27. Answer to Discussion Question
A low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in an industry.
A differentiation strategy designs products that buyers perceive as unique throughout an industry.
A focus strategy focuses on the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.
Answer:
A low-cost leadership strategy exploits economies of scale to have the lowest cost structure of any competitor in an industry. A differentiation strategy designs products that buyers perceive as unique throughout an industry. A focus strategy focuses on the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or by doing both.
Copyright © 2014 Pearson Education, Inc.

28. Organizational Structure
Centralized
decision making
Decentralized
decision making
Organizational structure is the way in which a company divides and coordinates its activities among separate units.
Companies rarely centralize or decentralize all decision-making responsibilities, but strike a balance to maximize efficiency and effectiveness.
Centralization helps coordinate international subsidiary activities, control financial resources, and promote a global organizational culture.
On the other hand, decentralization improves local responsiveness in rapidly changing environments and increases personal accountability and commitment from managers and workers.
Coordination is paramount
Financial control & cost savings
Improves local responsiveness
Increases accountability
Copyright © 2014 Pearson Education, Inc.

29. International Division Structure
The international division structure separates domestic and international activities by creating a separate international division with its own manager. A general manager for each nation in which a company operates then controls product manufacturing and marketing within that market.
This structure concentrates international expertise in one division where the manager becomes a specialist in activities such as foreign exchange, exporting, and so forth. It can help a firm reduce costs and increase efficiency while preventing international activities from disrupting domestic operations.
Potential problems include poor coordination between the international division and the rest of the company, and destructive rivalries between country managers within the international division.
Copyright © 2014 Pearson Education, Inc.

30. International Area Structure
The international area structure organizes a company’s global operations into countries or regions. Each geographic division operates as a self-contained unit, with decision making decentralized to country or regional managers.
This structure works well when a business operates in countries with vastly different cultural, political, and economic characteristics. General managers, then, become experts on the unique needs of local customers.
A drawback is that units acting independently may cause resources to overlap and impair cross-fertilization of knowledge across units.
Copyright © 2014 Pearson Education, Inc.

31. Global Product Structure
The global product structure divides worldwide operations according to a company’s product areas. It is well-suited to a company that sells a diverse set of products. But with the primary focus on the product, domestic and international managers in each product division must coordinate their activities so they do not conflict.
Copyright © 2014 Pearson Education, Inc.

32. Global Matrix Structure
The global matrix structure splits the chain of command between product and area divisions. Each manager reports to two bosses who share decision making—the president of the product division and the president of the geographic area.
Bringing specialists together can create a team-type organization, increase local responsiveness, reduce costs, coordinate worldwide operations, and increase coordination.
Drawbacks can include slow decision making and reaction time due to the need for coordination, and fuzzy accountability due to shared responsibility.
Copyright © 2014 Pearson Education, Inc.

33. from similar levels but
Work Teams
Cross-functional
team
Group of employees
from similar levels but
different functional
departments
Self-managed
Employees from one
department take on
responsibilities of
former supervisors
Global
Top managers from
headquarters and
subsidiaries solve
company problems
Establishing work teams can improve responsiveness by cutting across functional boundaries that slow decision making. Work teams coordinate their efforts to arrive at solutions and then implement corrective action.
A self-managed team joins employees from a single department who accept the responsibilities of former supervisors. Quality-improvement teams are commonly used in manufacturing settings to improve efficiency, productivity, and product quality.
A cross-functional team joins employees who work at similar levels in different functional departments. They improve coordination and reduce inter-departmental barriers.
A global team brings together a group of top managers from headquarters and international subsidiaries who meet to solve company-wide problems. Global teams must overcome large distances between team members, lengthy travel times to meetings, and the inconvenience of working across time zones.
Copyright © 2014 Pearson Education, Inc.

34. Discussion Question
The organizational structure that divides worldwide operations according to a company’s product areas is called a(n) __________ structure.
a. Global matrix
b. Global product
c. International division
The organizational structure that divides worldwide operations according to a company’s product areas is called a(n) __________ structure.
a. Global matrix
b. Global product
c. International division
Copyright © 2014 Pearson Education, Inc.

35. Answer to Discussion Question
The organizational structure that divides worldwide operations according to a company’s product areas is called a(n) __________ structure.
a. Global matrix
b. Global product
c. International division
The correct answer is b. Global product
Copyright © 2014 Pearson Education, Inc.

36. Copyright © 2014 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright © 2014 Pearson Education, Inc.