Transcript Document 7322346

BUSINESS STRATEGY
FMA3093
INTERNATIONAL BUSINESS
MANAGEMENT SEMINAR
International Strategic Management
International strategic management is a
comprehensive and ongoing management
planning process aimed at formulating and
implementing strategies that enable a firm
to compete effectively internationally.
Strategic Planning
The
process of developing a particular
international strategy is often referred to as
strategic planning.
top-level executives at corporate
headquarters
senior managers in domestic and foreign
operating subsidiaries
What Is Strategy?

Strategy is a plan of action that channels an
organization’s resources so that it can
effectively differentiate itself from competitors
and accomplish unique and viable goals.
 Managers develop strategies based on the
organization’s strengths and weaknesses
relative to the competition and assessing
opportunities.
 Managers decide which customers to target,
what product lines to offer, and with which
firms to compete.
Strategy in an International Context

Strategy in an international context is a plan
for the organization to position itself vis-a-vis
its competitors, and resolve how it wants to
configure its value chain activities on a global
scale.
 Its purpose is to help managers create an
international vision, allocate resources,
participate in major international markets, be
competitive, and perhaps reconfigure its value
chain activities given the new international
opportunities.
Strategy Should Pinpoint to Actions
Formulate a strong international vision
 Allocate scarce resources on a
worldwide basis
 Participate in major markets
 Implement global partnerships
 Engage in global competitive moves
 Configure value-adding activities on a
global scale

Strategic Planning

Developing international strategy is more
complex than developing a domestic one
 Managers need to consider various factors,
such as:
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Culture
Political economy
Governmental interference
Labor relations
Coordination of implementation
Strategic Planning

International businesses have the ability
to exploit three sources of competitive
advantages not available to domestic
firms:
Global efficiencies
 Multinational flexibility
 Worldwide learning

Sources of Competitive Advantage
Global
efficiencies
Multinational
flexibility
Worldwide
learning
The Purpose of international Strategy
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Bartlett and Ghoshal argue that managers
should look to “…develop, at one and the
same time, global scale in efficiency,
multinational flexibility, and the ability to
develop innovations and leverage knowledge
on a worldwide basis”.
 These three strategic objectives – efficiency,
flexibility, and learning – must be sought
simultaneously by the firm that aspires to
become a globally competitive enterprise.
Three Strategic Objectives

Efficiency –lower the cost of operations and
activities

Location efficiencies, economies of scale,
economies of scale
Flexibility –tap local resources and
opportunities to help keep the firm and its
products unique
 Learning -- add to its proprietary technology,
brand name and management capabilities by
internalizing knowledge gained from
international ventures.
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Trade-Offs among the Three Objectives
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International business success is largely
determined by the degree to which the firm
achieves these three goals of efficiency,
flexibility, and learning.
 But it is often difficult to excel in all three areas
simultaneously. Rather, one firm may excel at
efficiency, while another may excel at
flexibility, and a third at learning.
 Sustainability over time is also a challenge.
Multinational Strategies: Dealing with the
Global-Local Dilemma

Understand how global markets,
products, competition, and risk influence
the choice of a multinational strategy and
the choice of a market-entry strategy.
The IR Framework
The discussion about the pressures on
the firm of achieving global integration
and local responsiveness has become
known as the integrationresponsiveness (IR) framework.
Integration-Responsiveness Framework
 The
Integration-Responsiveness
Framework summarizes two basic
strategic needs: to integrate value
chain activities globally, and to create
products and processes that are
responsive to local market needs.
Multinational Strategies: Dealing with the
Global-Local Dilemma
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Global-local dilemma –
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a fundamental strategic dilemma faced by all multinational
companies when competing internationally
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Pressures to respond to the unique needs of the markets in
each country in which a company does business – Local
responsiveness option
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Efficiency pressures that encourage companies to deemphasize local differences and conduct business similarly
throughout the world – Global integration option
Integration-Responsiveness Framework
 Global
integration means coordinating
the firm’s value chain activities across
many markets to achieve worldwide
efficiency and synergy to take
advantage of similarities across
countries.
Objectives of Global Integration
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Global integration seeks economic efficiency on a
worldwide scale, promoting learning and crossfertilization within the global network, and reducing
redundancy.
Headquarters personnel justify global integration by
citing converging demand patterns, spread of global
brands, diffusion of uniform technology, availability of
pan-regional media, and the need to monitor
competitors on a global basis.
Companies in such industries as aircraft
manufacturing, credit cards, and pharmaceuticals are
more likely to emphasize global integration.
Pressures for Global Integration
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Economies of Scale. Concentrating manufacturing in a few
select locations to achieve economies of mass production.
Capitalize on converging consumer trends and universal
needs. Companies such as Nike, Dell, ING, and Coca-Cola offer
products that appeal to customers everywhere.
Uniform service to global customers. Services are easiest to
standardize when firms can centralize their creation and delivery.
Global sourcing of raw materials, components, energy, and
labor. Sourcing of inputs from large-scale, centralized suppliers
provides benefits from economies of scale and consistent
performance.
Global competitors. Global coordination is necessary to monitor
and respond to competitive threats in foreign and domestic
markets.
Availability of media that reaches customers in multiple
markets. Firms now take advantage of the Internet and crossnational television to advertise their offerings in numerous
countries simultaneously.
Pressures for Local Responsiveness
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Unique resources and capabilities available to the
firm. Each country has national endowments that the
foreign firm should access.
 Diversity of local customer needs. Businesses,
such as clothing and food, require significant
adaptation to local customer needs.
 Differences in distribution channels. Small retailers
in Japan understand local customs and needs, so
locally responsive MNEs use them.
Pressures for Local Responsiveness
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Local competition. When competing against
numerous local rivals, centrally-controlled MNEs will
have difficulty gaining market share with global
products that are not adapted to local needs.
Cultural differences. For those products where
cultural differences are important, such as clothing and
furniture, local managers require considerable
freedom from HQ to adapt the product and marketing.
Host government requirements and regulations.
When governments impose trade barriers or complex
business regulations, it can halt or reverse the
competitive threat of foreign firms.
The Four Strategies Emerging
from the IR Framework
1.
2.
3.
4.
Home replication/International
strategy
Multi-domestic strategy
Global strategy
Transnational strategy
Pressures for Global Efficiencies
Strategic Alternatives
High
Global Strategy
Firm views the world as
single marketplace. Goal
is to create standardized
products.
Low
Home Replication
Firm uses core
competency or firmspecific advantage
Transnational Strategy
Firm combines benefits
of global scale
efficiencies with benefits
of local responsiveness
Multidomestic Strategy
Firm operates as a
collection of relatively
independent subsidiaries
Low
High
Pressures for Local Responsiveness/Flexibility
Home Replication Strategy
(Export Strategy or International Strategy)
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The firm views international business as
separate from, and secondary to, its domestic
business. Such a firm may view international
business as an opportunity to generate
incremental sales for domestic product lines.
 Products are designed with domestic
customers in mind, and international business
is sought as a way of extending the product
lifecycle and replicating its home market
success.
 The firm expects little knowledge flows from
foreign operations.
Multi-Domestic Strategy
(Multi-Local Strategy)
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Headquarters delegates considerable autonomy to
each country manager allowing him/her to operate
independently and pursue local responsiveness.
With this strategy, managers recognize and
emphasize differences among national markets. As a
result, the internationalizing company allows
subsidiaries to vary product and management
practices by country.
Country managers tend to be highly independent
entrepreneurs, often nationals of the host country.
They function independently and have little incentive
to share knowledge and experiences with managers
elsewhere.
Products and services are carefully adapted to suit the
unique needs of each country.
Advantages of Multi-Domestic Strategies
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If the foreign subsidiary includes a factory,
locally produced goods and products can be
better adapted to local markets.
 The approach places minimal pressure on
headquarters staff because management of
country operations is delegated to individual
managers in each country.
 Firms with limited international experience
often find multi-domestic strategy an easy
option as they can delegate many tasks to
their country managers (or foreign distributors,
franchisees, or licensees, where they are
used).
Disadvantages of Multi-Domestic
Strategy
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The firm’s foreign managers tend to develop strategic
vision, culture, and processes that differ substantially
from those of headquarters.
Managers have little incentive to share knowledge and
experience with those in other countries, leading to
duplication of activities and reduced economies of scale.
Limited information sharing also reduces the possibility of
developing knowledge-based competitive advantage.
Competition may escalate among the subsidiaries for the
firm’s resources because subsidiary managers do not
share a common corporate vision.
It leads to inefficient manufacturing, redundant
operations, a proliferation of products designed to meet
local needs, and generally higher costs of international
operations than other strategies
Global Strategy
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With global strategy, the headquarters seeks
substantial control over its country operations in an
effort to minimize redundancy, and achieve
maximum efficiency, learning, and integration
worldwide.
 In the extreme case, global strategy asks why not
make ‘the same thing, the same way, everywhere?’
It favors greater central coordination and control
than multi-domestic strategy, with various product or
business managers having worldwide responsibility.
 Activities such as R&D and manufacturing are
centralized at headquarters, and management tends
to view the world as one large marketplace.
Advantages of Global Strategy
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Global strategy provides management with a greater
capability to respond to worldwide opportunities
 Increases opportunities for cross-national learning
and cross-fertilization of the firm’s knowledge base
among all the subsidiaries
 Creates economies of scale, which results in lower
operational costs.
 Can also improve the quality of products and
processes -- primarily by simplifying manufacturing
and other processes. High-quality products promote
global brand recognition and give rise to customer
preference and efficient international marketing
programs.
Limitations of Global Strategy
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It is challenging for management, particularly in
highly centralized organizations, to closely
coordinate the activities of a large number of widelydispersed international operations.
 The firm must maintain ongoing communication
between headquarters and the subsidiaries, as well
as among the subsidiaries.
 When carried to an extreme, global strategy results
in a loss of responsiveness and flexibility in local
markets.
 Local managers who are stripped of autonomy over
their country operations may become demoralized,
and lose their entrepreneurial spirit.
Transnational Strategy: A Tug of War
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A coordinated approach to
internationalization in which the firm strives
to be more responsive to local needs while
retaining sufficient central control of
operations to ensure efficiency and
learning.
Transnational strategy combines the major
advantages of multi-domestic and global
strategies, while minimizing their
disadvantages.
Transnational strategy implies a flexible
approach: standardize where feasible;
adapt where appropriate.
What Transnational Strategy Implies
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Exploiting scale economies by sourcing from a
reduced set of global suppliers; concentrating
the production of offerings in relatively few
locations where competitive advantage can be
maximized.
Organizing production, marketing, and other
value-chain activities on a global scale.
Optimizing local responsiveness and flexibility.
Facilitating global learning and knowledge
transfer.
Coordinating competitive moves --how the firm
deals with its competitors, on a global, integrated
basis.
How IKEA Strives for Transnational
Strategy
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Some 90% of the product line is identical
across more than two dozen countries. IKEA
does modify some of its furniture offerings to
suit tastes in individual countries.
IKEA’s overall marketing plan is centrally
developed at company headquarters in
response to convergence of product
expectations; but the plan is implemented
with local adjustments.
IKEA decentralizes some of its decisionmaking, such as language to use in
advertising, to local stores.
Difficulty of Implementing
Transnational Strategy
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Most firms find it difficult to implement
transnational strategy.
In the long run, almost all firms find that they need
to include some elements of localized decisionmaking because each country has idiosyncratic
characteristics. Few people in Japan want to buy
a computer that includes an English-language
keyboard.
While Dell can apply a mostly global strategy to
Japan, it must incorporate some multi-domestic
elements as well. Even Coca-Cola, varies its
ingredients slightly in different markets. While
consumers in the U.S. prefer a sweeter CocaCola, the Chinese want less sugar.
Components of International Strategy
Distinctive
competence
Scope of
operations
Resource
deployment
Synergy
Distinctive Competence
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Answers the question
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What do we do exceptionally well,
especially as compared to our competitors?
Represents important resource to the
firm
Scope of Operations
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Answers the question
Where are we going to conduct business?
 Aspects of scope
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Geographical region
Market or product niches within regions
Specialized market niches
Resource Deployment
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Answers the question
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Given that we are going to compete in these
markets, how will we allocate our resources
to them?
Resource specifics
Product lines
 Geographical lines
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Synergy
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Answers the question
 How can different elements of our business
benefit each other?
 Goal is to create a situation where the whole is
greater than the sum of the parts
Developing International Strategies
Strategy
formulation
Strategy
implementation
Steps in International
Strategy Formulation
Develop a mission statement
Perform a SWOT analysis
Set strategic goals
Develop tactical goals and plans
Develop a control framework
Levels of
International Strategy
Corporate Strategy
Single-Business Strategy
 Related Diversification
 Unrelated Diversification
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Advantages of Related Diversification
Less dependence on single product
 Greater economies of scale
 Entry into additional markets more
efficient and effective
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Business Strategy
Differentiation
Overall cost leadership
Focus
Functional Strategies
Financial
Human
resources
Marketing
R&D
Operations