International Strategy Lesson Plan Feb 21, 2001 Overview, Introduction Four strategy options (international, global, multidomestic, transnational)

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International Strategy Lesson Plan


Feb 21, 2001



Overview, Introduction



Chapter focus, definitions, …


Four strategy options



(international, global, multidomestic, transnational)

1.

(note that this is the key topic of the day)


Components of an internationa
l strategy



distinctive competence, scope of operations, resource
deployment, and synergy


Strategy formulation & implementation processes



5 steps in strategy formulation


How is SWOT likely to differ in a global industry?


3 levels of international strateg
y



(corporate, business, functional)

1.

(note that cost leadership, differentiation, and
focus line
-
of
-
business strategies are also very
important to understand for the next several
lessons and for the final exam)






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Overview, Introduction



Chapter 10 expl
ores the issue of international strategic
management.


The chapter begins with a discussion of the basic
components of international strategy, and then moves on to
consider the strategy formulation and implementation
process. Finally, strategy developme
nt is examined at the
corporate level, the business level, and the functional level.


International Strategic Management



“A comprehensive and ongoing management planning
process aimed at formulating and implementing strategies
that enable a firm to compe
te effectively internationally.”
p.283


International Strategy


“A comprehensive framework for achieving a firm’s
fundamental goals.” paraphrasal from p.283


Many of the same techniques are used in strategic planning,
regardless of whether one is consi
dering a domestic market
or a foreign market.


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Overview, Introduction



Strategic planners responsible for both domestic and
international strategies must answer the same fundamental
questions:


1. What products and/or services does the firm intend
to

sell?

2. Where and how will it make those products or
deliver the services?

3. Where and how will it sell them?

4. Where and how will it acquire the necessary
resources?

5. How does it expect to outperform its competitors?


International compan
ies are in a position to exploit three
sources of competitive advantage
--
global efficiencies,
multinational flexibility, and worldwide learning
--
that are
unavailable to domestic firms.


Also, international companies tend to confront more
variation in ext
ernal environments as they operate and sell
in more and more nations, which makes the task of
managing the firm more complex and more challenging.


Therefore, strategy formulation and implementation tends
to differ once a firm “goes international” becaus
e of
differences in an international firms’ environment and
resources.

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Four strategy options



Multinational corporations (MNCs) typically follow one of
four strategic alternatives.


(1) The international strategy, utilizes the firm’s
domestically d
eveloped core competency or firm
-
specific
advantage as its main weapon in the foreign markets it
enters.


(2) The multidomestic strategy requires the firm to view
itself as a collection of relatively independent operating
subsidiaries, each of which foc
uses on a specific domestic
market.


(3) The global strategy requires the firm to view the world
as a single marketplace and involves adopting a primary
goal of creating standardized goods and services that will
meet the needs of customers worldwide.


(4) Under the transnational approach, firms attempt to
combine the benefits of global scale efficiencies with the
benefits of local responsiveness.


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Four strategy options



The transnational approach demands case
-
by
-
case, moment
-
by
-
moment decision ma
king about whether to act in favor of
achieving global efficiencies or local responsiveness.


The other 3 strategies imply a consistent focus across all
situations, whether it be on capitalizing on domestically
derived firm
-
specific advantages (internati
onal), capturing
global efficiencies (global), or achieving local responsiveness
(multidomestic).


* See Figure 10.1:
Strategic Alternatives for Balancing
Pressures for Global Integration and Local Responsiveness


The international strategy may be approp
riate for firms
when both the pressures for global integration and the need
for local responsiveness are low, while the multidomestic
approach is often employed when pressures for local
responsiveness are high but pressures for global integration
are low.



Sony and Matsushita both follow the global strategy to
respond to high pressures for global integration (with the
need for local responsiveness low) while Ford Motor employs
the transnational strategy as it attempts to meet needs for
both global integr
ation and local responsiveness.


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Four strategy options


Firms versus strategies




Don’t confuse types of firms with types of strategies.
What a firm does is strategy, what it is or is capable
of doing is something separate




A firm which is only capable o
f implementing an
international, global, or multidomestic strategy
cannot implement a transnational strategy




A firm that can successfully implement a
transnational strategy can adopt whatever of the 4
strategy choices seems to make the most sense, given
the firm’s environment



Group Exercise:


1. Sort the following firms into the type of firm they are.

2. Identify what you believe their strategy to be.


Microsoft, Nestle, General Motors, Compaq, IBM, Merck


Note: There will be
no

exam questions asking

that students
classify firms into firm or strategy types. This exercise is only
to help in understanding the ideas presented about how to
classify firms and strategies.

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Components of an international strategy



Distinctive competence


Distinctive com
petence answers the question “what do we do
exceptionally well, especially as compared to our
competitors?” A firm then tries to build a sustainable
competitive advantage (an advantage over its competitors
that can be maintained over time) based on its di
stinctive
competence.


Scope of Operations


The scope of operations answers the question “where are we
going to conduct business?” The response to the question
may be in terms of geographic regions, or in terms of market
or product niches within one or mo
re regions.


Resource Deployment


Resource deployment answers the question “given that we
are going to compete in these markets, how will we allocate
our resources to them?” Resources can be allocated along
product lines, geographical lines, or both.


Syn
ergy


Synergy answers the question “how can different elements of
our business benefit each other?”


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International strategy

formulation and implementation




International strategic management is usually carried out
in two broad stages: strategy formulatio
n and strategy
implementation.




During the strategy formulation stage, the firm establishes
its goals and the strategic plan that will lead to the
achievement of those goals.




During the strategy implementation stage, the firm
develops the processes it

will use to achieve the formulated
international strategies by means of specific tactics.




The formulation of international strategy can be further
broken down into
five

specific steps, as outlined in Fig
10.2.


* See Figure 10.2:
Steps in International
Strategy
Formulation


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International strategy

formulation and implementation


Mission statement




A mission statement attempts to clarify an organization’s
values, purposes, and directions. It may be used as a
starting point in the strategic planning proc
ess or it may
be developed after the process is finished. Mission
statements may specify target customers and markets,
principal products or services, geographical domain, core
technologies, concerns for survival, plans for growth and
profitability, basic

philosophy, and desired public image.




A firm may have multiple mission statements
--
one for the
overall firm and one for each foreign subsidiary.



Environmental Scanning and the SWOT Analysis




The second step in the strategy development process is an
ass
essment of the firm’s strengths, weaknesses,
opportunities, and threats (SWOT analysis).
Environmental scanning (the systematic collection of data
about all elements of the firm’s internal and external
environments) is used to identify a firm’s SWOT.


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In
ternational strategy

formulation and implementation


Environmental Scanning and the SWOT Analysis




Firms using environmental scanning to collect information
about opportunities and threats facing the firm obtain
data about economic, financial, political,
legal, and
competitive changes in various markets the firm serves or
might want to serve. Political risk analysis (Ch 3) and
selection of national markets in which investment or
disinvestment seem attractive (issues from section of
course before midterm,
plus issues related to collecting
market specific information in Ch 11) carried out here.




A firm also assesses its strengths and weaknesses during
this stage of the strategy planning process. One technique
for assessing a firm’s strengths and weaknesse
s is the
value chain. The value chain breaks down the firm into
its important activities such a production, marketing,
human resource management, and so forth to enable its
managers to identify competitive strengths and
weaknesses. Material from Ch 11
-
2
0 proves particularly
useful for this step.




Information derived from the SWOT analysis can be used
to develop strategies that exploit environmental
opportunities and organizational strengths, neutralize
environmental threats, and protect or overcome
org
anizational weaknesses.

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International strategy

formulation and implementation


Strategic Goals


Strategic goals are the major objectives the firm wants to
accomplish through pursuing a particular course of action.
They should be measurable, feasible, an
d time
-
limited.


Tactics


Tactics (specific tactical goals and plans) involve middle
managers and focus on the details of how to implement
strategic plans.


Control Framework


A control framework is the managerial and organizational
processes used to k
eep the firm on target toward its strategic
goals. The control framework can prompt revisions in any
of the preceding steps in the strategy formulation process.
This is dealt with in more detail through material addressed
in class at a later time, drawn
from Chapter 15.



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How is a SWOT analysis likely

to differ in a global industry?



Mechanics




Need to scan more widely, analyze multiple firms and
nations dispersed around the globe



Value chain analysis becomes much more challenging
because portions of

the value chain may be
geographically dispersed


Complications




Need to analyze the prospects of multiple nations
instead of one



Complications from multiple cultures, multiple political
& legal regimes, differences in geography & climate
that can affect a
ctivities in every portion of the value
chain, as well as strategic planning



Integration of knowledge, technology, insights from
around the globe much more challenging


Implications




More threats, more opportunities



Geographic dimension to strengths, weak
nesses because
nations in which you hold market leadership tend to
become “strengths”, and nations in which you have
little market share can be “weaknesses”.

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Levels of International Strategy



Corporate strategy




Single
-
business strategy, related divers
ification, unrelated
diversification


Business strategy (single business units, or SBUs)




Cost leadership, differentiation, focus


Cost leadership is based on economies of scope, economies
of scale, “exploiting the experience curve”, superior
logistics man
agement, bargaining power vis a vis
suppliers, …


Differentiation involves finding one or more non
-
cost,

“miscellaneous” sources for a sustainable competitive


advantage (ie: quality, on
-
time delivery, customization

to customer needs, …)


A focus strat
egy involves focusing on a subset of the total

possible customer base, then selecting a cost leadership or

differentiation strategy to capture as large and profitable

a share as possible of sales to that specific subset of all

customers


Functional st
rategies



Financial, marketing, operations, HRM, R&D