International Business Strategy

International Business Strategy Session 1 : Faculty: Prof. K. Rangarajan Session Date:

A Few Points to ponder • Africa is rated as the preferred destination for FDIs in the coming years. • Excess Capacity especially in the wake of WTO is becoming a strategic issue of top priority (Steel, Textile, Polyester etc.) • Greenfield Investments is the preferred form for investment in developing countries. • The No. of Parent Cos of TNCs operating in world economy is around 82k • Only 2 coys from India are ranked in the top 100 non-financial TNCs by Foreign Assets from the Developing Countries. • The R & D expenditure by Business firms in Tanzania is negligible • The downslide of Traditional industries like Textiles in Tanzania • Growing interdependence of global economies • Growing Economic Turbulence across the world • Crash of TNCs like Standard Oil, Union Carbide, Enron, Lehman ………

Challenge of Strategic Management Competitive success is transient...unless care is taken to preserve competitive position

StrategicCompetitiveness Achieved when a firm successfully formulates and implements a value-creating strategy Sustained Competitive Advantage Occurs when a firm develops a strategy that competitors are not simultaneously implementing Provides benefits which current and potential competitors are unable to duplicate Above-Average Returns Returns in excess of what an investor expects to earn from other investments with similar risk

Commitments Decisions Actions The Strategic Management Process Involves the full set of: which are required for firms to achieve: Strategic Competitiveness Sustained Competitive Advantage Above-Average Returns

Fundamental nature of competition is changing The pace of change is relentless.... and increasing • Rapid technological changes • Rapid technology diffusions Traditional industry boundaries are blurring, such as... • Dramatic changes in information and communication technologies • Computers • Telecommunications • Cons. Electronics • Increasing importance of knowledge 21st Century Competitive Landscape

Traditional sources of competitive advantage no longer guarantee success The global economy is changing • People, goods, services and ideas move freely across geographic boundaries • New opportunities emerge in multiple global markets • Markets and industries become more internationalized New keys to success include: • Flexibility • Innovation • Speed • Integration 21st Century Competitive Landscape

Concept of Strategy: Strategy is the direction and scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within the changing environment, to meet the needs of markets and to fulfill stakeholders’ expectations. Features - Concerned with or affect the long-term direction - Achieve some advantage for the organization - Scope of an organization - Match making of the activities of the organization with the environment - Building on or stretching an organisation’s resources/ competences

Strategy as Plan: Consciously intended course of action which may be in the form of guidelines/report guiding decision making. Strategy as Ploy: Short-term tactic or a maneuver, intended to outwit a competitor. Strategy as Pattern: It is after-the-fact view which emerges over a period of time.

Strategy as Position: Managers see their firm as occupying a space within an environment in terms of Market share, Profits, Assets etc. Strategy as Perspective: This is a way of perceiving the world, and individuals in an organization are united by common thinking and behaviour. Eg.: Lucent Tech. claims that it makes the things that make communications work.

Strategic Management: • Set of decisions and actions resulting in formation and implementation of strategies designed to achieve the objectives of an organization. • Determining the mission of the company • Developing a company profile that reflects internal conditions and capabilities • Assessment of the company’s external environment • Analysis of possible options & desirable options • Strategic choice of a particular set of long-term objectives and grand strategies • Development of business and operational strategies • Review & evaluation

Company mission What is possible? Internal Environment Company Profile External environment Operating and IndustryAnalysis What is desired? Strategic Choice Grand strategy Long-term objectives Policies Operating strategies Annual objectives Institutionalization of strategy Legend Major impact Minor impact Control and evaluation Strategic Management Process

Levels of Strategy: • Corporate Level – Choice of business, dividend policies, sources of long term financing and priorities for growth • Business Level – Plant location, marketing segmentation and geographic coverage, and distribution channels • Functional Level – Levels of Inventory, degree of supervision, selection of production equipment etc.

Managerial Decisions (Vs) Strategic Levels: Features Corporate Business Functional Type Conceptual Mixed Operational Measurability Judgments Semi Quantifiable Frequency Periodic/ Periodic/ Periodic Sporadic Sporadic Relation to Present Act Innovative Mixed Supplement Risk Wide Moderate Low Profit Potential Large Medium Small Cost Major Medium Modest Time Horizon Long-range Medium Short Flexibility High Medium Low CooperationRequired Considerable Moderate Little

Three Big Strategic Questions • Where Are We Now? • Where Do we Want to Go? • How Will We Get There?

Crafting a Strategy • HOW to out-compete rivals and win a competitive advantage • HOW to respond to changing industry and competitive conditions • HOW to defend against threats to company's well-being • HOW to pursue attractive opportunities

Actual Company Strategy Company Experiences, Know-how, Resource Strengths and Weaknesses, and Competitive Capabilities Abandoned strategy features PLANNED STRATEGY New initiatives plus ongoing strategy features continued form prior periods Adaptive reactions to changing circumstances REACTIVE STRATEGY A Company’s Actual Strategy Is Partly Planned and Partly Reactive

Responsibility of corporate-level managers A Single-Business Company Two-Way influence Responsibility of heads of major functional activities within a business Two-Way influence Responsibility of plant managers, geographic unit managers, and lower-level supervisors The Strategy-Making Pyramid Business Strategy Functional Strategies (R&D, manufacturing, marketing, finance, human resources, etc.) Operating Strategies (regions and districts, plants, departments within functional areas)

A Diversified Company Responsibility of corporate-level managers Corporate Strategy Responsibility of business-level general managers Two-Way influence Business Strategies Responsibility of heads of major functional activities within a business unit or division Two-Way influence Functional Strategies (R&D, manufacturing, marketing, finance, human resources, etc.) Responsibility of plant managers, geographic unit managers, and lower-level supervisors Two-Way influence Operating Strategies (regions and districts, plants, departments within functional areas) The Strategy-Making Pyramid

An organization’s Mission • Reflects Management’s vision of what the organization seeks to do and to become • Sets forth a meaningful direction for the organization • Indicates an intent to stake out a particular business position • Outline “Who we are, What we do, and Where we are headed”.

Mission Statement Enduring Statements of Purpose that distinguish one organisation from other similar enterprises. • Insure unanimity of purpose • Arouse positive feelings about the firm • Provide direction • Provide a basis for objectives and strategies • Serve as a focal point • Resolve divergent views among managers.

Components of Mission Statement • Customers (the target market) • Products/Services (offerings and value provided to customers) • Geographic Markets (where the firm seeks customers) • Technology (the technology used to produce and market products) • Concern for Survival/Growth/Profits (the firm’s concern for financial soundness) • Philosophy (the firm’s values, ethics, beliefs) • Public Image (contributions the firm makes to communities) • Employees (the importance of managers and employees) • Distinctive Competence (how the firm is different or better than competitors)

Examples: Mission and Vision Statements Microsoft Corporation Empower people through great software anytime, anyplace, and on any device. our mission is to enable people and businesses throughout the world to realize their full potential. We consider our mission statement a promise to our customers. We deliver on that promise by striving to create technology that is accessible to everyone—regardless of age or ability..

Microsoft - Values • As a company, and as individuals, we value integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. We are committed to our customers and partners and have a passion for technology. We take on big challenges, and pride ourselves on seeing them through. We hold ourselves accountable to our customers, shareholders, partners, and employees by honoring our commitments, providing results, and striving for the highest quality.

Examples: Mission and Vision Statements Intel Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce. Intel’s core missionis being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet.

Fresh Look at Intel • Our missionDelight our customers, employees, and shareholders by relentlessly delivering the platform and technology advancements that become essential to the way we work and live.Our valuesCustomer orientationResults orientationRisk takingGreat place to workQualityDisciplineOur objectivesExtend our silicon technology and manufacturing leadershipDeliver unrivaled microprocessors and platformsGrow profitability worldwideExcel in customer orientation

Examples: Mission and Vision Statements Mission Statement of Jet Airways Jet Airways will be the most preferred domestic airline in India. It will be the automatic first choice carrier for the travelling public and set standards, which other competing airlines will seek to match.Jet Airways will achieve this pre-eminent position by offering a high quality of service and reliable, comfortable and efficient operations. Jet Airways will be an airline which is going to upgrade the concept of domestic airline travel - be a world class domestic airline. Jet Airways will achieve these objectives whilst simultaneously ensuring consistent profitability, achieving healthy, long-term returns for the investors and providing its employees with an environment for excellence and growth.

Examples: Mission and Vision Statements Mission Statement of Videocon Vision & Mission Videocon’s mission: a reflection of continuity and change Videocon’s mission expression has been crafted to envelope both extant and emerging realities: “To delight and deliver beyond expectation through ingenious strategy, intrepid entrepreneurship, improved technology, innovative products, insightful marketing and inspired thinking about the future.”

Setting Objectives • The purpose is to convert the mission into Specific Performance Targets • Serve as yardsticks for tackling company progress and performance. • Should be set at levels that require stretch and disciplined effort.

Two Types of Objectives are Needed • FINANCIAL OBJECTIVES • STRATEGIC OBJECTIVES * Short-Run * Long-Run

Why is a Company’s Strategy Constantly Evolving? • Changing market conditions. • Moves of competitors. • New technologies and production capabilities. • Evolving buyer needs and preferences. • Political and regulatory factors. • New windows of opportunity. • Fresh ideas to improve the current strategy. • A crisis situation

International Business Strategy