Chapter 11

International Strategic Management

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 1

Learning Objectives
Characterize the challenges of international strategic management Assess the basic strategic alternatives that are available to firms Distinguish and analyze the components of international strategy Learn the process of international strategic management Review levels of international strategies
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 2

 Chapter 11 explores the issue of international strategic management. The chapter begins with a discussion of the basic components of international strategy, and then moves on to consider the strategy formulation and implementation process. Finally, strategy development is examined at the corporate level, the business level, and the functional level.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 3

The Challenges of International Strategic Management

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 4

 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. The process of developing a particular international strategy is referred to as strategic planning. Top-level executives and senior managers are normally responsible for strategic planning.

Strategic planners responsible for both domestic and international strategies must answer the same fundamental questions: What products and/or services does the firm intend to sell? Where and how will it make those products or deliver the services? Where and how will it sell them? Where and how will it acquire the necessary resources? How does it expect to outperform its competitors?
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 5

Fundamental Questions for a Firms Strategic Planners

What products and services to sell?
Where and how to make them?

Where and how to sell them?

Where and how to get resources? How to outperform the competition?
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 6

 International strategic planners must also contend with cultural, political, and geographical differences among countries. International companies are in a position to exploit three sources of competitive advantage global efficiencies, multinational flexibility, and worldwide learning that are unavailable to domestic firms. The text provides examples of each type of competitive advantage.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 7

EMERGING OPPORTUNITIES
How Does a Japanese Firm Compete in China? Act More American Toyota has been struggling in the Chinese market, where it ranks ninth with only 183,000 cars sold there in 2005. Toyotas goal is to sell 1,000,000 cars a year in China by 2010. Many of Toyotas problems in China are because they assumed the Chinese market would be like Japan, when the auto market in Japan is actually more like it is in the U.S. Toyota has now recruited American marketing executives to help it build sales in China.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 8

STRATEGIC ALTERNATIVES
MNCs typically follow one of four strategic alternatives. The first, the home replication strategy, utilizes the firms domestically developed core competency or firm-specific advantage as its main weapon in the foreign markets it enters. The second alternative, the multidomestic strategy, requires the firm to view itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 9

The global strategy, in which the firm views the world as a single marketplace and has a primary goal of creating standardized goods and services that will meet the needs of customers worldwide, is the third alternative for international firms. Finally, some firms may choose to follow the transnational strategy, in which an attempt is made to combine the benefits of global scale efficiencies with the benefits of local responsiveness.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 10

BRINGING THE WORLD INTO FOCUS

Master of the Furniture Universe This section describes the Swedish furniture company IKEA, its philosophy, strategy, and global expansion. It currently has 260 stores in 37 countries. The firm has a strong culture committed to affordable stylish furniture for people with thin wallets. IKEA has struggled along the way (for example, trying to sell beds in the U.S. that didnt match standard sheet sizes). IKEA is now venturing into suburban development, designing and building entire communities of apartments that are furnished with IKEA products.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 11

Strategies for Balancing Integration and Responsiveness

Global Integration High

Global

Transnational

Low

Home Replication
Low

Multidomestic
High

Local Responsiveness
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 12

 The home replication strategy may be appropriate for firms when both the pressures for global integration and the need for local responsiveness are low, while the multidomestic approach is often employed when pressures for local responsiveness are high but pressures for global integration are low. The text notes that Toys-R-Us uses the home replication strategy, while Kraft and Cadbury Schweppes follow the multidomestic approach. Sony and Matsushita both follow the global strategy to respond to high pressures for global integration (with the need for local responsiveness low), while Ford Motor employs the transnational strategy as it attempts to meet needs for both global integration and local responsiveness
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 13

COMPONENTS OF AN INTERNATIONAL STRATEGY

The four basic components of an international strategy are distinctive competence, scope of operations, resource deployment, and synergy.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 14

 Distinctive competence answers the question, What do we do exceptionally well, especially as compared to our competitors? A firm then tries to build a sustainable competitive advantage (an advantage over its competitors that can be maintained over time) based on its distinctive competence. A firm may have the same distinctive competence in every market (such as Coca-Cola), or a unique distinctive competence in each market. The scope of operations answers the question, Where are we going to conduct business? The response to the question may be in terms of geographic regions, or in terms of market or product niches within one or more regions.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 15

 Resource deployment answers the question, Given that we are going to compete in these markets, how will we allocate our resources to them? Resources can be allocated along product lines, geographical lines, or both.

Synergy answers the question, How can different elements of our business benefit each other?
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 16

Developing International Strategies

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 17

 International strategic management is usually carried out in two broad stages: strategy formulation and strategy implementation. During the strategy formulation stage, the firm establishes its goals and the strategic plan that will lead to the achievement of those goals. During the strategy implementation stage, the firm develops the processes it will use to achieve the formulated international strategies by means of specific tactics.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 18

Steps in International Strategy Formulation

1. Develop Mission Statement
2. Perform SWOT Analysis

3. Set Strategic Goals

4. Develop Tactical Goals and Plans 5. Develop Control Framework
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 19

Mission Statement
A mission statement attempts to clarify an organizations values, purposes, and directions. It may be used as a starting point in the strategic planning process or it may be developed after the process is finished. Mission statements may specify target customers and markets, principal products or services, geographical domain, core technologies, concerns for survival, plans for growth and profitability, basic philosophy, and desired public image. A firm may have multiple mission statements one for the overall firm and one for each foreign subsidiary.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 20

Environmental Scanning and the SWOT Analysis

The second step in the strategy development process is an assessment of the firms strengths, weaknesses, opportunities, and threats (SWOT analysis). Environmental scanning (the systematic collection of data about all elements of the firms internal and external environments) is used to identify a firms SWOT. Firms using environmental scanning to collect information about opportunities and threats facing the firm obtain data about economic, financial, political, legal, and competitive changes in various markets the firm serves or might want to serve. Some of this information is also used for political risk analysis and country market analysis. The text provides examples of how Boeing and Disney have used environmental scanning to identify external threats and opportunities.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 21

 A firm also assesses its strengths and weaknesses during this stage of the strategy planning process. One technique for assessing a firms strengths and weaknesses is the value chain. The value chain breaks down the firm into its important activities such as production, marketing, human resource management, and so forth to enable its managers to identify competitive strengths and weaknesses. Information derived from the SWOT analysis can be used to develop strategies that exploit environmental opportunities and organizational strengths, neutralize environmental threats, and protect or overcome organizational weaknesses.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 22

Strategic Goals
Strategic goals are the major objectives the firm wants to accomplish through pursuing a particular course of action. They should be measurable, feasible, and time-limited.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 23

Tactics
Tactics (specific tactical goals and plans) involve middle managers and focus on the details of how to implement strategic plans.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 24

Nokia: No Longer King of the Hill

Nokia provides a case study of a firm failing to react to changes in the global market place. During the early 1960s, Nokia started as a manufacturer of pulp and paper, which ultimately led to their investment in the Finnish Telecommunications Company in 1981. By the end of 2007, Nokia became the worlds largest manufacturer of mobile phones. That dominance came crashing when Apple introduced the I Phone in June 2007, and even more with the introduction of the Android based phones. Their inability to identify and react to the changes in the environment has resulted in their losing almost 25% market share.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 25

Control Framework
A control framework is the managerial and organizational process used to keep the firm on target toward its strategic goals. The control framework can prompt revisions in any of the preceding steps in the strategy formulation process.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 26

Levels of International Strategies

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 27

 Most companies develop strategies for three distinct levels within the organization: corporate, business, and functional

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 28

Corporate Strategy
Corporate strategy helps a firm define the domain of business in which it intends to operate. A firm might adopt any of three forms of corporate strategy: single-business, related diversification, or unrelated diversification.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 29

1- The single-business strategy calls for a firm to rely on a single business, product, or service for all its revenue. The main advantage of this strategy is that it allows a firm to concentrate on one product or service. However, firms following this strategy may be more vulnerable to changes in the external environment than firms following a different strategy. The text provides an example of how firms including Singapore Airlines, McDonalds, and Dell pursue single-business strategies.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 30

2- Related Diversification The most common corporate strategy, related diversification, calls for the firm to operate in several different, but related businesses, industries, or markets at the same time. A firm employing this type of strategy can leverage a distinctive competence in one market in order to strengthen its competitiveness in others. The advantages of a related diversification strategy are numerous. First, a firm is less vulnerable to competitive or economic threats since it does not depend on a single product or service. Second, a firm may be able to achieve economies of scale across its related units. Third, a firm may be able to use technology or expertise developed in one market to facilitate entry into a second market. A main disadvantage of related diversification is the cost of coordinating the operations of the related divisions. A firm may also find that all of its business units are affected simultaneously by changes in economic conditions.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 31

3- Unrelated Diversification

A firm following a strategy of unrelated diversification operates in several unrelated industries and markets. During the 1960s, when unrelated diversification was the most popular investment strategy, firms became conglomerates (comprised of unrelated businesses). There are several advantages to an unrelated diversification strategy. First, the corporate parent is often able to raise capital more easily than any of its independent units can separately. Second, overall risk may be reduced because a firm is less vulnerable to business cycle fluctuations. Third, competitive threats may pose a lesser risk since any given threat is only likely to affect a portion of the firms total operations. Finally, a firm can more easily divest unprofitable operations and acquire new operations. The main disadvantage of an unrelated diversification strategy is that there is not synergy across business units. Moreover, managing a conglomerate is complex because it requires that executives be familiar with a much wider array of businesses and markets than if operations are related.

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 32

Business Strategy
Business strategy focuses on each line of business within an organization and answers the question, How should we compete in each market we have chosen to enter? Firms that follow a diversification strategy (either related or unrelated) usually group lines of business into strategic business units (SBUs). A firm may develop a unique strategy for each of its SBUs, or it may follow the same strategy for all of them. The three basic forms of business strategy are differentiation, overall cost leadership, and focus.
Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 11 - 33

1- Differentiation
The most common strategy is differentiation, whereby a firm attempts to establish and maintain the image that the SBUs products or services are fundamentally unique from other products or services in the same market segment. The text provides several examples of firms that have adopted this type of strategy.

2- Overall Cost Leadership A firm following a strategy of overall cost leadership focuses on achieving highly efficient operating procedures so that its costs are lower than its competitors. A firm then attempts to sell products in high volumes at low prices. The text provides examples of firms that follow an overall cost leadership strategy.

3- Focus

A focus strategy calls for a firm to target specific types of products for certain customer groups or regions. Firms match the specific product features to the needs of specific consumer groups. The text provides several examples of companies pursuing this type of strategy.
Chapter 11 - 34

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Functional Strategies

Functional strategy answers the question, How will we manage the functions of finance, marketing, operations, human resources, and research and development in ways consistent with our international corporate and business strategies?

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 11 - 35

Functional Strategies
Core Finances Competency Resources Operations and Supplies

Human New Markets Resources

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Research and Industry Rivals Development

Chapter 11 - 36