C H A P T E R

International Environment and Strategy

Kamal Fatehi Managing Internationally

Chapter 6 International Environment and Strategy

Table of Contents
Chapter Vignette Cultural Aspects of Strategy International Environmental Forces Host Government, Political and Legal Issues The Competition Generic MNC Strategies Global Integration Strategy Host Country Focus Strategy Hybrid International Strategy Industry Characteristic and Strategy Global Industries Multi-domestic Industries International Industries
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Chapter Vignette Samsung

Chaebol
Korean culture

Shift in strategic orientation

From low-cost to more differentiation Higher perceived quality More prestigious distribution outlets

Competitiveness with Sony

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Strategy Formulation Process

Mission and goals

External environmental scanning (opportunities/threats) Goals, objectives, strategy alternatives

Internal capability assessment (strengths/weaknesses)

Implementation

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Control

Chapter 6 International Environment and Strategy

Cultural Aspects of Strategy

Identification of environmental forces that influence on the organization
Environmental Scanning
Gathering of Information

Relationship with the Environment Relationship Among People

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Chapter 6 International Environment and Strategy

International Environmental Forces

Cultural difference (the Chapter on Culture) International Finance, and Currency Exchange Rates (International Finance course) Host Government, Political, and Legal Issues Competition from:
local Businesses, Host Government Other MNCs
Kamal Fatehi Managing Internationally Chapter 6 International Environment and Strategy

Host Governments and Political/Legal Issues

Host governments use sovereign power by assisting or restricting MNCs.
Could provide incentives to attract and maintain MNCs Could impose restrictions on MNCs if goals are not met

Developing countries and the MNCs

Some welcome MNCs Others feel that the objectives of the MNCs are not compatible with the host country objectives.

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Chapter 6 International Environment and Strategy

Host Governments and Strategic Goals of MNCs

Host Gov. Increase National Income Employment Skill development Support of domestic firms Diversification of economic activities
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MNC ROI Efficient, low-costs Selective hiring Specialization of production Acquisition of indigenous capacity
Chapter 6 International Environment and Strategy

Host Governments and Strategic Goals of MNCs

Domestic R&D Investment in backward areas Balance of payments. Control of pattern of econ develop Maximize revenues
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Location of R&D Locate in large cities Currency convertibility Free trade and investment Minimize tax
Chapter 6 International Environment and Strategy

Developing Countries and MNCs

Love-Hate Relationship Wealth expectation Value incongruity Technology transfer Host Gov Concerns MNC flexibility Interdependency and control
Chapter 6 International Environment and Strategy

Kamal Fatehi Managing Internationally

Host Government Concerns

The Flexibility of MNCs Interdependency and Control Efficiency The Effect on the Domestic Strategic Industries Taxation MNC headquarters as the decision center
Kamal Fatehi Managing Internationally Chapter 6 International Environment and Strategy

Characteristics of MNC-Host Country Relationships MNCs Bargaining Power Bargaining Power of Host Countries Deterioration of Relationships
Nationalization Expropriation Creeping Expropriation Confiscation Domestication

Political Risk
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The Competition
Competition from Domestic and StateControlled Firms Competition from Other MNCs

Kamal Fatehi Managing Internationally

Chapter 6 International Environment and Strategy

Generic MNC Strategies

Global Integration Strategy
Capitalize on the economies of scale; take advantage of diverse opportunities for cost reduction. The efficiency choice

Host Country Focus Strategy

The effectiveness option. Subsidiaries are treated as autonomous national firms.

Hybrid International Strategy

Benefits of combining benefits of global integration and host country focus strategies.
Kamal Fatehi Managing Internationally Chapter 6 International Environment and Strategy

Industry Characteristics and MNC Strategy Product and Market Requirements: 1. Product Specifications Size, Color, Shape, Taste, Function, Features 2. Market Characteristics Distribution Channels, Service Needs and Expectations
Kamal Fatehi Managing Internationally Chapter 6 International Environment and Strategy

Industry Characteristics and MNC Strategy

Operational Requirements
Gain Competitive Position: Examples: 1. Economies of Scale 2. Investment Requirements in R&D and Manufacturing Facilities

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Chapter 6 International Environment and Strategy

Industry Characteristics and MNC Strategy

Global

International

MultiDomestic National (Country)

Product/Market Requirements Operational Requirement

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Worldwide Worldwide

Global

National

National

Chapter 6 International Environment and Strategy

Industry Characteristics and MNC Strategy

World Market
Made of three industries: Global, International and Multidomestic

Global Industries
Exploit economies of scale and experience, location, product differentiation, process technology and control of distribution channels.
Highly centralized large scale manufacturing and R&D Products are produced, sold and serviced worlwide, without many variations.
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Industry Characteristics and MNC Strategy

Multidomestic Industries
Local product and market requirements National, cultural, social and political differences lead to diverse product standards and different consumer tastes. National subsidiaries behave like domestic firms. Host country focus - appropriate strategy for Multidomestic industries.

Kamal Fatehi Managing Internationally

Chapter 6 International Environment and Strategy

Industry Characteristics and MNC Strategy

International Industries Characteristics:
Technological forces Need to develop and distribute innovations in multiple markets Success depends on: ability to exploit technological forces, produce new products, duplicate the process in different national markets.

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Chapter 6 International Environment and Strategy