Title: BUSINESS STRATEGY
1BUSINESS STRATEGY
- FMA3093
- INTERNATIONAL BUSINESS MANAGEMENT SEMINAR
2International 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.
3Strategic 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
4What 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.
5Strategy 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.
6Strategy 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
7Strategic Planning
- Developing international 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
8Strategic Planning
- International businesses have the ability to
exploit three sources of competitive advantages
not available to domestic firms - Global efficiencies
- Multinational flexibility
- Worldwide learning
9Sources of Competitive Advantage
Global efficiencies
Multinational flexibility
Worldwide learning
10The 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.
11Three Strategic Objectives
- Efficiency lower the cost of operations and
activities - Location efficiencies, economies of scale,
economies of scale - Flexibility tap 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.
12Trade-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.
13Multinational 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.
14The 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.
15Integration-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.
16Multinational 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
17Integration-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.
18Objectives 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.
19Pressures 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.
20Pressures 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.
21Pressures 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.
22The Four Strategies Emerging from the IR
Framework
- Home replication/International strategy
- Multi-domestic strategy
- Global strategy
- Transnational strategy
23Strategic Alternatives
Pressures for Global Efficiencies
Global Strategy Firm views the world as single
marketplace. Goal is to create
standardized products.
Transnational Strategy Firm combines benefits of
global scale efficiencies with benefits of local
responsiveness
High Low
Home Replication Firm uses core competency or
firm- specific advantage
Multidomestic Strategy Firm operates as a
collection of relatively independent
subsidiaries
Low High Pressures for Local
Responsiveness/Flexibility
24(No Transcript)
25Home 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.
26Multi-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.
27Advantages 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).
28Disadvantages 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
29Global 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 RD and manufacturing are
centralized at headquarters, and management tends
to view the world as one large marketplace.
30Advantages 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.
31Limitations 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.
32Transnational 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.
33What 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.
34How 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.
35Difficulty 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.
36Components of International Strategy
Distinctive competence
Scope of operations
Resource deployment
Synergy
37Distinctive Competence
- Answers the question
- What do we do exceptionally well, especially as
compared to our competitors? - Represents important resource to the firm
38Scope 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
39Resource Deployment
- Answers the question
- Given that we are going to compete in these
markets, how will we allocate our resources to
them? - Resource specifics
- Product lines
- Geographical lines
40Synergy
- 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
41Developing International Strategies
Strategy formulation
Strategy implementation
42Steps in International Strategy Formulation
Develop a mission statement
Perform a SWOT analysis
Set strategic goals
Develop tactical goals and plans
Develop a control framework
43Levels of International Strategy
44Corporate Strategy
- Single-Business Strategy
- Related Diversification
- Unrelated Diversification
45Advantages of Related Diversification
- Less dependence on single product
- Greater economies of scale
- Entry into additional markets more efficient and
effective
46Business Strategy
Differentiation
Overall cost leadership
Focus
47Functional Strategies
Financial
Marketing
Human resources
Operations
RD