International Strategic Management

Strategic Formulation and Implementation

Mark McKenna BUS 162 (6), International and Comparative Management San Jose State University
Chapters 8, Hodgetts, Luthans and Doh, International Management: Culture, Strategy and Behavior , 6th edition (New York: McGraw-Hill Irwin, 2006)
Adapted from PowerPoint slides by R. Dennis Middlemist, Professor of Management, Colorado State University

OVERVIEW
1.

Strategic Management

2.
3. 4. 5.

Approaches to Strategic Planning

Global vs. Regional Strategies Elements of Strategic Planning Specialized Strategies

Strategic Management

Strategic management
Determining the firms basic mission and long-term objectives, and developing and implementing an appropriate plan of action
Where are we going? How are we going to get there?

Strategic management growing in importance because of the need to coordinate and integrate diverse operations

Benefits of Strategic Planning

Perceived benefits Coordinate and monitor operations Streamline product lines and supply chains Manage political, currency, and competitive risks Potential costs Micromanagement of subsidiary operations Misallocation of time and staff resources Over-planning and lower profitability

Approaches to Strategic Planning

Economic Imperative

Administrative Coordination

Political Imperative

Quality Imperative

Economic Imperative
Strategy based on cost leadership, differentiation, and segmentation Product mix

Value added in the upstream activities of the industrys value chain generic good (not name brand or support service dependent)

Global sourcing to shorten the production or buying cycle

Political Imperative
Strategy country- responsive and designed to protect local market niches Success of the product or service depends heavily on marketing, sales or service

Customer or client-focused

Approach most often used by MNCs pursuing a country-centered or multidomestic strategy.

Quality Imperative

Two possible paths

Change in attitudes to raise expectation for service quality Implementation of practices to make quality improvement an ongoing process

Total quality management (TQM)

Cross-training personnel Process re-engineering Reward systems designed to reinforce quality

Administrative Coordination

Decision making based on the merits of the individual situation rather than a predetermined economic or political strategy
Coordination of global supply chains Localized marketing of products and services

Least common approach given the pressures on MNCs to coordinate strategy both regionally and globally

Global vs. Regional Strategies

Global Integration
Products and services homogeneous in terms of type and quality Customers have common taste preferences

National Responsiveness
Segmented regional markets Need to respond to differing national standards and regulations Adaptation of tools and techniques to manage local workforces

Four Strategic Options

National responsiveness
Low High

Global integration

High

Global strategy

Transnational strategy

Low

International strategy

Multi-domestic strategy

Adapted from Figure 81: Global Integration vs. National Responsiveness

Choosing an Option
The right strategy is tailored to particular country and industry characteristics Reasons to choose each strategy

Global: low-cost strategy, commodification Multi-domestic: products and services differentiated by market International: core competencies set the MNC apart from local competitors Transnational:
Require management of contradictory pressures for cost reductions and differentiation Successful firms engage in glocalization, localizing their activities while maintaining a global focus

Elements of Strategic Planning for International Management

External Environmental Scanning for MNC Opportunities and Threats Internal Resource Analysis of MNC Strengths and Weaknesses

Strategic Planning Goals

IMPLEMENTATION

Adapted from Figure 82: Basic Elements of Strategic Planning for International Management

Environmental Scanning
Provide management with accurate

forecasts of trends that relate to external changes in geographic areas where the firm is currently doing business or considering setting up operations These changes relate to the economy, competition, political stability, technology, and demographic consumer data

Internal Resource Analysis

Evaluate managerial, technical, material,

and financial strengths and weaknesses

Determine ability to take advantage of

international market opportunities Match external opportunities (environmental scan) with internal capabilities (internal resource analysis)
Key question: Do we have the people and

resources that can help us to develop and sustain the necessary KFSs, or can we acquire them?

Strategic Planning Goals

Goal formulation often precedes the first

two steps However, more specific goals come out of external scanning and internal analysis
Typically serve as an umbrella for

subsidiaries and international operations Profitability and marketing goals almost always dominate Once set, the MNC will develop specific operational goals and controls for the subsidiary or affiliate level

Implementation

Selecting a country and location

Country factors: market openness, infrastructure, labor market flexibility Location: incentives, workforce, costs

Functional areas
Marketing: usually country specific Production: domestic to foreign, foreign to domestic, or foreign to foreign, dispersed or coordinated Finance: local sources, centralized control, international markets, or barter trade

SPECIALIZED STRATEGIES
1.

First-Mover Strategies

2.

Bottom of the Pyramid Strategies

Born-Global Strategies

3.

First-Mover Strategies

Useful in rapidly changing markets

Market opening in developing economies Market reforms in transition economies Privatization of state-operated enterprises

Advantages and risks

Capture benefits of learning Form alliances with attractive local partners Uncertain pace of reform Opportunity costs of premature entry

Base of the Pyramid Strategies

Targeting emerging market

People making less than $2,000 p/year (4 billion)

Marketing requires smaller-scale strategies

Building relationships with local governments, small entrepreneurs, and nonprofits Less dependence on central governments and large local companies

Born-Global Firms
Engage in significant international activity a short time after being established Successful firms leverage a distinctive mix of orientations and strategies

Global technological competence Unique-products development Quality focus Leveraging of foreign distributor competences

Implications for Managers

The complexity and interdependence of the global economy increases the need for firms to plan strategically Effective strategies must balance tensions between

Top-down and bottom-up strategies Economies of scale and differentiation

Managers need to anticipate the future evolution of the firm and global markets