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BUSINESS STRATEGY. FMA3093 INTERNATIONAL BUSINESS MANAGEMENT SEMINAR. International Strategic Management.

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business strategy

BUSINESS STRATEGY

FMA3093

INTERNATIONAL BUSINESS MANAGEMENT SEMINAR

international strategic management
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
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
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
  • 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
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 planning1
Strategic Planning
  • Developing international strategy is more complex than developing a domestic one
  • Managers need to consider various factors, such as:
    • Culture
    • Political economy
    • Governmental interference
    • Labor relations
    • Coordination of implementation
strategic planning2
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
Sources of Competitive Advantage

Global

efficiencies

Multinational

flexibility

Worldwide

learning

the purpose of international strategy
The Purpose of international Strategy
  • 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
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.
trade offs among the three objectives
Trade-Offs among the Three Objectives
  • 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
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 IR Framework

The discussion about the pressures on the firm of achieving global integration and local responsiveness has become known as the integration-responsiveness (IR) framework.

integration responsiveness 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 dilemma1
Multinational Strategies: Dealing with the Global-Local Dilemma
  • Global-local dilemma –
    • a fundamental strategic dilemma faced by all multinational companies when competing internationally
  • Pressures to respond to the unique needs of the markets in each country in which a company does business – Local responsiveness option
  • Efficiency pressures that encourage companies to de-emphasize local differences and conduct business similarly throughout the world – Global integration option
integration responsiveness framework1
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
Objectives of Global Integration
  • Global integration seeks economic efficiency on a worldwide scale, promoting learning and cross-fertilization 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
Pressures for Global Integration
  • 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 cross-national television to advertise their offerings in numerous countries simultaneously.
pressures for local responsiveness
Pressures for Local Responsiveness
  • 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 responsiveness1
Pressures for Local Responsiveness
  • 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
The Four Strategies Emerging from the IR Framework
  • Home replication/International strategy
  • Multi-domestic strategy
  • Global strategy
  • Transnationalstrategy
strategic alternatives
Strategic Alternatives

Pressures for Global Efficiencies

Global Strategy

Firm views the world as

single marketplace. Goal

is to create standardized

products.

Transnational Strategy

Firm combines benefits

of global scale

efficiencies with benefits

of local responsiveness

High

Low

Home Replication

Firm uses core

competency or firm-

specific advantage

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
Home Replication Strategy(Export Strategy or International Strategy)
  • The firmviews 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
Multi-Domestic Strategy(Multi-Local Strategy)
  • 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
Advantages of Multi-Domestic Strategies
  • 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
Disadvantages of Multi-Domestic Strategy
  • 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
Global Strategy
  • 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
Advantages of Global Strategy
  • 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
Limitations of Global Strategy
  • It is challenging for management, particularly in highly centralized organizations, to closely coordinate the activities of a large number of widely-dispersed 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
Transnational Strategy: A Tug of War
  • 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 andglobal strategies, while minimizing their disadvantages.
  • Transnational strategy implies a flexible approach: standardize where feasible; adapt where appropriate.
what transnational strategy implies
What Transnational Strategy Implies
  • 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
How IKEA Strives for Transnational Strategy
  • 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 decision-making, such as language to use in advertising, to local stores.
difficulty of implementing transnational strategy
Difficulty of Implementing Transnational Strategy
  • 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 decision-making 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 Coca-Cola, the Chinese want less sugar.
components of international strategy
Components of International Strategy

Distinctive

competence

Scope of

operations

Resource

deployment

Synergy

distinctive competence
Distinctive Competence
  • Answers the question
    • What do we do exceptionally well, especially as compared to our competitors?
  • Represents important resource to the firm
scope of operations
Scope of Operations
  • Answers the question
    • Where are we going to conduct business?
  • Aspects of scope
    • Geographical region
    • Market or product niches within regions
    • Specialized market niches
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?
  • Resource specifics
    • Product lines
    • Geographical lines
synergy
Synergy
  • 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
Developing International Strategies

Strategy

formulation

Strategy

implementation

steps in international strategy formulation
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

corporate strategy
Corporate Strategy
  • Single-Business Strategy
  • Related Diversification
  • Unrelated Diversification
advantages of related diversification
Advantages of Related Diversification
  • Less dependence on single product
  • Greater economies of scale
  • Entry into additional markets more efficient and effective
business strategy1
Business Strategy

Differentiation

Overall cost leadership

Focus

functional strategies
Functional Strategies

Financial

Human

resources

Marketing

R&D

Operations