1. Multinational strategy
Chapter 8
Multinational strategy

2. Multinational strategy
Objectives
Introduction
Strategic orientations
Strategic formulation
Strategic implementation
Control and evaluation.

3. Objectives
Define the term strategic planning and discuss the strategic orientations that affect this planning process.
Explain how strategy is formulated, giving particular emphasis to external and internal environmental assessment.
Describe how strategy is implemented, with particular attention to location, ownership decisions and functional area implementation.
Discuss the ways in which MNEs control and evaluate their strategies.

4. Introduction
The FSA and CSA framework is related to the special nature of strategic management.
Cell 1 will build competitive advantages due to its home country CSAs.
Cell 4 can best be described by the resource-based view (RBV) of strategy.
Cell 3 is where country and firm effects are combined requiring the integration of firm and country advantages in a sustainable and long-run manner.

5. Introduction (Continued)
Strategic planning: the process of evaluating the enterprise’s environment and its internal strengths, identifying long- and short-range objectives and implementing a plan of action for attaining these goals.

6. Strategic orientations

7. Strategic orientations
Ethnocentric predisposition: the tendency of a manager or multinational company to rely on the values and interests of the parent company in formulating and implementing the strategic plan.
Polycentric predisposition: the tendency of a multinational to tailor its strategic plan to meet the needs of the local culture.
Regiocentric predisposition: the tendency of a multinational to use a strategy that addresses both local and regional needs.
Geocentric predisposition: the tendency of a multinational to construct its strategic plan with a global view of operations.

8. Table 8.1 Typical strategic orientations of MNEs
Source: Adapted from “Strategic Planning for a Global Business” Columbia Journal of World Business, Summer 1985 Copyright © Elsevier Science & Technology Journals, permission conveyed through Copyright Clearance Center, Inc (Chakravarthy, B.S and Perlmutter, H.V)

9. Strategic formulation

10. Strategy formulation
Strategic formulation: the process of evaluating the enterprise’s environment (opportunities) and its internal strengths (resources).
External environmental assessment:
information gathering;
information assessment.
Internal environmental assessment:
physical resources and personnel competencies;
value chain analysis.

11. Conducting an environmental scan
Four of the most common methods for conducting an environmental scan are:
Asking experts in the industry to discuss industry trends and to make projections about the future.
Using historical industry trends to forecast future developments.
Asking knowledgeable managers to write scenarios describing what they foresee for the industry over the next two to three years.
Using computers to simulate the industry environment and to generate likely future developments.

12. Examining the five forces that determine industry competitiveness
One of the most common approaches to make an overall evaluation is based on the five forces that determine industry competitiveness:
buyers
suppliers
potential new entrants to the industry
the availability of substitute goods and services
rivalry among the competitors.

13. Figure 8.2 The five-forces model applied to the semiconductor industry
Source: Scott Beardsley and Kinji Sakagami, “Advanced Micro Devices: Poised for Chip Greatness,” Unpublished student paper, Sloan School of Management, MIT, Reported in Arnoldo C. Hax and Nicolas S. Majluf, The Strategy Concept and Process: A Pragmatic Approach (Englewood Cliffs, NJ: Prentice Hall, 1991), p. 46

14. Internal environmental assessment
Internal environmental assessment helps to pinpoint MNE strengths and weaknesses.
There are two specific areas the MNE will examine in this assessment:
physical resources and personnel competitiveness;
the way in which value chain analysis can be used to bring these resources together in the most synergistic and profitable manner.

15. Physical resources and personnel competencies
The physical resources are the assets the MNE will use to carry out its strategic plan.
The degree of integration that exists within the operating units of the MNE.
Vertical integration: To obtain control over the supply and to reduce costs.
Virtual integration: A networking strategy based on cooperation.
Personnel competencies are the abilities and talents of the people.

16. Value chain analysis
Value chain: The way in which primary and support activities are combined.
Primary activities: inbound logistics, operations, outbound logistics, marketing & sales and service.
Support activities: firm infrastructure, HRM, technology management and procurement.
Analysis of the value chain can also help a company to determine the type of strategy that will be most effective.

17. Figure 8.4 The value chain for IBM
Source: Reported in Arnoldo C. Hax and Nicolas S. Majluf, The Strategy Concept and Process: A Pragmatic Approach (Englewood Cliffs, NJ: Prentice Hall, 1991), p. 82

18. Three generic strategies
Cost strategy: A strategy that relies on low price through the pursuit of cost reductions
Differentiation strategy: A strategy directed toward creating something that is perceived as being unique
Focus strategy: A strategy that concentrates on a particular buyer group and segments

19. Strategy implementation

20. Strategy implementation
Strategy implementation is the process of attaining goals by using the organizational structure to execute the formulated strategy properly.

21. Strategy implementation (Continued)
There are many areas of focus in this process, some of the most important are:
Location
Ownership decisions
A strategic alliance is an agreement between two or more competitive MNEs for the purpose of serving a global market.
An international joint venture (IJV) is an agreement between two or more partners to own and control an overseas business (setting up a new business entity).
Functional area implementation
Marketing, manufacturing, finance, procurement, technology and human resources.

22. Control and evaluation

23. Control and evaluation
The strategy formulation and implementation processes are a prelude to control and evaluation.
This process involves an examination of the MNE’s performance for the purpose of determining:
how well the organization has done;
what actions should be taken in the light of this performance.

24. Common methods of measurement
Six of the most common methods of measurement used for control and evaluation purposes:
return on investment (ROI)
sales growth and/or market share
costs
new product development
MNE/host-country relations
management performance.

25. Figure 8.6 The control and evaluation process