CH. 6 FORMULATING STRATEGY

1. CH. 6 FORMULATING STRATEGY By Helen Deresky

2. I. FEDEX IN CHINA • A. GOING GLOBAL – LOCAL PARTNERING • RedEx joint venture with China • Open 100 branch offices by 2005 • Use local connections to develop business • Reflects global traffic between China and rest of world • UPS launching 6 direct flights between US and China • Wooed Chinese officials by shipping pandas to Atlanta zoo • B. GOALS OF GLOBALEXPANSION • New markets • Acquisitions • Alliances

3. C. STRATEGIC PLANNING • Evaluation of future prospects • Process of developing actions to achieve goal • Can be incremental, messy, personal process, too • II. REASONS FOR GOING INTERNATIONAL • A. REACTIVE REASONS • 1. Globalization of competitors • 2. Trade barriers • 3. Regulations andrestrictions • 4. Customer demands • McDonald’s demands suppliersgo overseas

4. B. PROACTIVE REASONS • 1. Economies of scale • Achieve world-scale volume • Full use of capital-intensive manufacturing • Amortize R&D and production costs • Allows for higher sales • 2. Growth opportunities • Saturated market at home • Mature product/service at home,new abroad • As demand and lifestyle changes athome, may expand abroad • Avon: selling door-to-door inAmazon; China trade shows

5. 3. Resources access and cost savings • Raw materials available abroad • Lower labor costs • Lower operational costs: power, transportation, financing • Trinidad: inexpensive energy, skilled and educated labor, wages ¼ US • 4. Incentives • Host governments seek: capital, technology • They offer: tax exemptions, subsidies, loans, property • III. STRATEGIC FORMULATION PROCESS • A. PARALLELS PROCESS OF DOMESTIC FIRMS • Variables and process more complex • Look for opportunities • Can be proactive or reactive • Planning, then implementation

6. IV. STEPS IN DEVELOPING INTERNATIONAL AND GLOBAL STRATEGIES • A. MISSION AND OBJECTIVES • What the firm does/makes • What it wants to accomplish: profits, market share, technology • B. ENVIRONMENTAL ASSESSMENT • Environmental scanning • Political instability • Currency instability: Peru 1988,2000% inflation • Nationalism • International competition • Current and potential competition • Should be done on 3 levels: global,regional, national

7. Sources of Environmental Information • Public: over 200 business information services online • Internal: Mitsubishi has 60,000 market analysts worldwide • Secondary sources • Government • May be unreliable • C. INTERNAL ANALYSIS • Identify strengths and weaknesses • Resources, operations, synergies • Financial, management,marketing expertise • Technology, product/servicesuperiority • Wal-Mart: distribution,Disney: promotion

8. D. COMPETITIVE ANALYSIS • Key success factors • Firm’s competitive position in market • Imagine strategic intent of competitors: like chess game • SWOT analysis • Philip Morris: cigarette kiosks blown up,left after $520 M • Core competencies • What firm does better than competitors • Built into all products • E. GLOBAL AND INTERNATIONAL STRATEGIC ALTERNATIVES • 1. Approaches to World Markets • A) Globalization • Look worldwide for production and marketing opportunities • Worldwide economies of scale

9. Offshore manufacturing • International cash flows • Strategic alliances • Hard to coordinate • Hi environmental risk • Lack of local flexibility • Like to standardize • B) Regionalization • Multidomestic industries:country-by-country • Hi local responsiveness • Differentiate • Decentralize strategy • C) Choice depends on industry and company

10. 2. Global Integrative Strategies • A) Many MNCs are fully integrated • Owns sourcing, production, and marketing • Global sourcing, production, marketing • B) Societe Nationale Industrielle Aerospatiale • 3. Using E-business to Go Global • Makes market entry easier • Different cultures and computer systems • Different tax, legal, and IPR protection • Not extensions of current business,is whole new business • 4. Entry Strategy Alternatives • A) Exporting • B) Licensing • C) Franchising • D) Contract Manufacturing

11. E) Turnkey Operations • F) Management Contracts • G) International Joint Ventures (IJVs) • H) Fully Owned Subsidiaries • F. STRATEGIC CHOICE • Factors affecting choice ofentry mode • Firm factors • Industry factors • Location factors • Venture-specific factors

12. Hierarchical model of choice of entry modes • Non-equity • Export: direct, indirect, others • Contractual Agreements: licensing, R&D contracts, alliances, others • Equity • JVs: minority EJV, 50% share EJV, majority EJV • Wholly owned subsidiary: Greenfield, acquisition, others • Alternative modes of entry • Export or produce locally • Extent of ownership control overactivities performed locally • Timing entry and schedulingexpansions • Entry needs to be part of well-thoughtout overall plan • Avoid licensing if going to enter market

13. The influence of culture on strategic choice • China and Japan had longer time horizons in planning than US • Latins and Africans are risk averse • High power distance (Arab, Japan) prefer equity modes of entry • V. E-BIZ BOX: SIEMENS E-BUSINESS • All aspects of value chain will be online • VI. STRATEGIC PLANNINGFOR EU MARKET • A. EURO LEADS TO PANEUROPEAN THINKING • Balance national andcontinental thinking • Not homogeneous market:national preferences

14. UPS problems in going “Brown” • French drivers protested no wine with lunch • British drivers protested – no dogs in trucks • Spanish brown trucks looked like hearses • German brown shirts had bad memories of “brown shirts” Some firms experiencing greater efficiencies • Mergers and acquisitions make sense • Shake out of less competitive firms • Purchasing power: $2.5 trillion • Like to keep out US and Japan