BUSINESS STRATEGY

INTERNATIONAL BUSINESS
MANAGEMENT SEMINAR
International Strategic Management

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.
 Strategic Planning

The process of developing a particular

international strategy is often referred to
as strategic planning.
top-level executives at corporate
headquarters
senior managers in domestic and foreign
operating subsidiaries
 What Is Strategy?

Strategy is a plan of action that channels an

organizations resources so that it can
effectively differentiate itself from competitors
and accomplish unique and viable goals.
Managers develop strategies based on the
organizations strengths and weaknesses
relative to the competition and assessing
opportunities.
Managers decide which customers to target,
what product lines to offer, and with which firms
to compete.
Strategy in an International Context

Strategy in an international context is a plan for

the organization to position itself vis-a-vis its
competitors, and resolve how it wants to
configure its value chain activities on a global
scale.
Its purpose is to help managers create an
international vision, allocate resources,
participate in major international markets, be
competitive, and perhaps reconfigure its value
chain activities given the new international
opportunities.
Strategy Should Pinpoint to Actions

Formulate a strong international vision

Allocate scarce resources on a worldwide
basis
Participate in major markets
Implement global partnerships
Engage in global competitive moves
Configure value-adding activities on a
global scale
 Strategic Planning
Developinginternational strategy is more
complex than developing a domestic one
Managers need to consider various factors,
such as:
Culture
Political economy

Governmental interference

Labor relations

Coordination of implementation
 Strategic Planning

International businesses have the ability

to exploit three sources of competitive
advantages not available to domestic
firms:
Global efficiencies
Multinational flexibility

Worldwide learning
Sources of Competitive Advantage

Global
efficiencies

Multinational
flexibility

Worldwide
learning
The Purpose of international Strategy

Bartlett and Ghoshal argue that managers

should look to develop, at one and the same
time, global scale in efficiency, multinational
flexibility, and the ability to develop innovations
and leverage knowledge on a worldwide basis.
These three strategic objectives efficiency,
flexibility, and learning must be sought
simultaneously by the firm that aspires to
become a globally competitive enterprise.
 Three Strategic Objectives

Efficiency lower the cost of operations and

activities
Location efficiencies, economies of scale,
economies of scale

Flexibilitytap local resources and

opportunities to help keep the firm and its
products unique
Learning -- add to its proprietary technology,
brand name and management capabilities by
internalizing knowledge gained from
international ventures.
Trade-Offs among the Three Objectives

International business success is largely

determined by the degree to which the firm
achieves these three goals of efficiency,
flexibility, and learning.
But it is often difficult to excel in all three areas
simultaneously. Rather, one firm may excel at
efficiency, while another may excel at flexibility,
and a third at learning.
Sustainability over time is also a challenge.
Multinational Strategies: Dealing with the
Global-Local Dilemma

Understand how global markets,

products, competition, and risk influence
the choice of a multinational strategy
and the choice of a market-entry
strategy.
 The IR Framework

The discussion about the pressures on

the firm of achieving global integration
and local responsiveness has become
known as the integration-
responsiveness (IR) framework.
Integration-Responsiveness Framework

The Integration-Responsiveness
Framework summarizes two basic
strategic needs: to integrate value
chain activities globally, and to create
products and processes that are
responsive to local market needs.
Multinational Strategies: Dealing with the
Global-Local Dilemma

Global-local dilemma
a fundamental strategic dilemma faced by all multinational
companies when competing internationally

Pressures to respond to the unique needs of the markets in

each country in which a company does business Local
responsiveness option

Efficiency pressures that encourage companies to de-

emphasize local differences and conduct business similarly
throughout the world Global integration option
Integration-Responsiveness Framework

Global integration means coordinating

the firms value chain activities across
many markets to achieve worldwide
efficiency and synergy to take
advantage of similarities across
countries.
 Objectives of Global Integration

Global integration seeks economic efficiency on a

worldwide scale, promoting learning and cross-
fertilization within the global network, and reducing
redundancy.
Headquarters personnel justify global integration by
citing converging demand patterns, spread of global
brands, diffusion of uniform technology, availability of
pan-regional media, and the need to monitor
competitors on a global basis.
Companies in such industries as aircraft
manufacturing, credit cards, and pharmaceuticals are
more likely to emphasize global integration.
 Pressures for Global Integration

Economies of Scale. Concentrating manufacturing in a few select

locations to achieve economies of mass production.
Capitalize on converging consumer trends and universal needs.
Companies such as Nike, Dell, ING, and Coca-Cola offer products
that appeal to customers everywhere.
Uniform service to global customers. Services are easiest to
standardize when firms can centralize their creation and delivery.
Global sourcing of raw materials, components, energy, and
labor. Sourcing of inputs from large-scale, centralized suppliers
provides benefits from economies of scale and consistent
performance.
Global competitors. Global coordination is necessary to monitor
and respond to competitive threats in foreign and domestic markets.
Availability of media that reaches customers in multiple
markets. Firms now take advantage of the Internet and cross-
national television to advertise their offerings in numerous countries
simultaneously.
Pressures for Local Responsiveness

Unique resources and capabilities available to the

firm. Each country has national endowments that the
foreign firm should access.
Diversity of local customer needs. Businesses,
such as clothing and food, require significant
adaptation to local customer needs.
Differences in distribution channels. Small retailers
in Japan understand local customs and needs, so
locally responsive MNEs use them.
 Pressures for Local Responsiveness

Local competition. When competing against

numerous local rivals, centrally-controlled MNEs will
have difficulty gaining market share with global
products that are not adapted to local needs.
Cultural differences. For those products where
cultural differences are important, such as clothing and
furniture, local managers require considerable
freedom from HQ to adapt the product and marketing.
Host government requirements and regulations.
When governments impose trade barriers or complex
business regulations, it can halt or reverse the
competitive threat of foreign firms.
The Four Strategies Emerging
from the IR Framework

1. Home replication/International
strategy
2. Multi-domestic strategy
3. Global strategy
4. Transnational strategy
Pressures for Global Efficiencies
Strategic Alternatives

Global Strategy Transnational Strategy

Firm views the world as Firm combines benefits
High single marketplace. Goal of global scale
is to create standardized efficiencies with benefits
products. of local responsiveness
Multidomestic Strategy
Home Replication
Firm operates as a
Firm uses core
Low competency or firm-
collection of relatively
independent subsidiaries
specific advantage

Low High
Pressures for Local Responsiveness/Flexibility
 Home Replication Strategy
(Export Strategy or International Strategy)

The firm views international business as

separate from, and secondary to, its domestic
business. Such a firm may view international
business as an opportunity to generate
incremental sales for domestic product lines.
Products are designed with domestic customers
in mind, and international business is sought as
a way of extending the product lifecycle and
replicating its home market success.
The firm expects little knowledge flows from
foreign operations.
 Multi-Domestic Strategy
(Multi-Local Strategy)
Headquarters delegates considerable autonomy to each
country manager allowing him/her to operate
independently and pursue local responsiveness.
With this strategy, managers recognize and emphasize
differences among national markets. As a result, the
internationalizing company allows subsidiaries to vary
product and management practices by country.
Country managers tend to be highly independent
entrepreneurs, often nationals of the host country. They
function independently and have little incentive to share
knowledge and experiences with managers elsewhere.
Products and services are carefully adapted to suit the
unique needs of each country.
Advantages of Multi-Domestic Strategies

If the foreign subsidiary includes a factory,

locally produced goods and products can be
better adapted to local markets.
The approach places minimal pressure on
headquarters staff because management of
country operations is delegated to individual
managers in each country.
Firms with limited international experience often
find multi-domestic strategy an easy option as
they can delegate many tasks to their country
managers (or foreign distributors, franchisees,
or licensees, where they are used).
 Disadvantages of Multi-Domestic
Strategy
The firms foreign managers tend to develop strategic vision,
culture, and processes that differ substantially from those of
headquarters.
Managers have little incentive to share knowledge and
experience with those in other countries, leading to duplication
of activities and reduced economies of scale.
Limited information sharing also reduces the possibility of
developing knowledge-based competitive advantage.
Competition may escalate among the subsidiaries for the firms
resources because subsidiary managers do not share a
common corporate vision.
It leads to inefficient manufacturing, redundant operations, a
proliferation of products designed to meet local needs, and
generally higher costs of international operations than other
strategies
Global Strategy

With global strategy, the headquarters seeks

substantial control over its country operations in an
effort to minimize redundancy, and achieve maximum
efficiency, learning, and integration worldwide.
In the extreme case, global strategy asks why not
make the same thing, the same way, everywhere?
It favors greater central coordination and control than
multi-domestic strategy, with various product or
business managers having worldwide responsibility.
Activities such as R&D and manufacturing are
centralized at headquarters, and management tends
to view the world as one large marketplace.
 Advantages of Global Strategy

Global strategy provides management with a greater

capability to respond to worldwide opportunities
Increases opportunities for cross-national learning
and cross-fertilization of the firms knowledge base
among all the subsidiaries
Creates economies of scale, which results in lower
operational costs.
Can also improve the quality of products and
processes -- primarily by simplifying manufacturing
and other processes. High-quality products promote
global brand recognition and give rise to customer
preference and efficient international marketing
programs.
Limitations of Global Strategy

It is challenging for management, particularly in highly

centralized organizations, to closely coordinate the
activities of a large number of widely-dispersed
international operations.
The firm must maintain ongoing communication
between headquarters and the subsidiaries, as well as
among the subsidiaries.
When carried to an extreme, global strategy results in a
loss of responsiveness and flexibility in local markets.
Local managers who are stripped of autonomy over
their country operations may become demoralized, and
lose their entrepreneurial spirit.
 Transnational Strategy: A Tug of War

A coordinated approach to internationalization in

which the firm strives to be more responsive to
local needs while retaining sufficient central
control of operations to ensure efficiency and
learning.
Transnational strategy combines the major
advantages of multi-domestic and global
strategies, while minimizing their disadvantages.
Transnational strategy implies a flexible
approach: standardize where feasible; adapt
where appropriate.
 What Transnational Strategy Implies
Exploiting scale economies by sourcing from a
reduced set of global suppliers; concentrating the
production of offerings in relatively few locations
where competitive advantage can be maximized.
Organizing production, marketing, and other
value-chain activities on a global scale.
Optimizing local responsiveness and flexibility.
Facilitating global learning and knowledge transfer.
Coordinating competitive moves --how the firm
deals with its competitors, on a global, integrated
basis.
How IKEA Strives for Transnational
Strategy
Some 90% of the product line is identical
across more than two dozen countries. IKEA
does modify some of its furniture offerings to
suit tastes in individual countries.
IKEAs overall marketing plan is centrally
developed at company headquarters in
response to convergence of product
expectations; but the plan is implemented with
local adjustments.
IKEA decentralizes some of its decision-
making, such as language to use in advertising,
to local stores.
 Difficulty of Implementing
Transnational Strategy
Most firms find it difficult to implement transnational
strategy.
In the long run, almost all firms find that they need to
include some elements of localized decision-making
because each country has idiosyncratic
characteristics. Few people in Japan want to buy a
computer that includes an English-language keyboard.

While Dell can apply a mostly global strategy to

Japan, it must incorporate some multi-domestic
elements as well. Even Coca-Cola, varies its
ingredients slightly in different markets. While
consumers in the U.S. prefer a sweeter Coca-Cola,
the Chinese want less sugar.
Components of International Strategy

Distinctive Scope of
competence operations

Resource
Synergy
deployment
Distinctive Competence

Answers the question

Whatdo we do exceptionally well,
especially as compared to our competitors?
Represents important resource to the
firm
Scope of Operations

Answers the question

Where are we going to conduct business?
Aspects of scope
Geographical region
Market or product niches within regions

Specialized market niches

Resource Deployment

Answers the question

Giventhat we are going to compete in these
markets, how will we allocate our resources
to them?
Resource specifics
Productlines
Geographical lines
Synergy
Answers the question
How can different elements of our business
benefit each other?
Goal is to create a situation where the whole is
greater than the sum of the parts
Developing International Strategies

Strategy
formulation

Strategy
implementation
 Steps in International
Strategy Formulation

Develop a mission statement

Perform a SWOT analysis

Set strategic goals

Develop tactical goals and plans

Develop a control framework

 Levels of
International Strategy
 Corporate Strategy

Single-Business Strategy
Related Diversification
Unrelated Diversification
Advantages of Related Diversification

Less dependence on single product

Greater economies of scale
Entry into additional markets more
efficient and effective
Business Strategy

Differentiation

Overall cost leadership

Focus
 Functional Strategies

Financial

Human
Marketing
resources

R&D Operations