SEU_MGT672_Module09_PPT_Ch08.pptx

International Management

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Chapter 8

Strategy Formulation and Implementation

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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

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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

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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

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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

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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

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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

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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

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Approaches to Formulating and Implementing Strategy

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Focusing on the economic imperative

Addressing the political imperative

Emphasizing the quality imperative

Implementing an administrative coordination

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

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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

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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

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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)

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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

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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

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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

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Global Integration versus National Responsiveness

Global integration

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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Specialized Strategies

Strategies for developing and emerging markets

Strategies for international entrepreneurship and new ventures

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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

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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

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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

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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

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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

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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

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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

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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

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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?

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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

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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

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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?

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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?

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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?

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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)?

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Review and Discuss (continued 6)

What conditions have allowed some firms to be born global?

What are some examples of born-global companies?

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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

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