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)


(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

(corporate, business, functional)


(note that cost leadership, differentiation, and
focus line
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

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.”

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

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


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

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


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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
advantage as its main weapon in the foreign markets it

(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

(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
case, moment
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

* 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

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

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.


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

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

specific steps, as outlined in Fig

* See Figure 10.2:
Steps in International


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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
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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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
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
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


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?


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


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


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

business strategy, related divers
ification, unrelated

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

“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


Functional st

Financial, marketing, operations, HRM, R&D