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BUSINESS STRATEGY FMA3093 INTERNATIONAL BUSINESS MANAGEMENT SEMINAR How IKEA Strives for Transnational Strategy Some 90% of the product line is identical across more ... – PowerPoint PPT presentation

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  • FMA3093

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

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

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
  • 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

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

Strategic Planning
  • Developing international strategy is more complex
    than developing a domestic one
  • Managers need to consider various factors, such
  • 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
  • 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
  • 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

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
  • 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
  • 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

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
  • 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
  • Home replication/International strategy
  • Multi-domestic strategy
  • Global strategy
  • Transnational strategy

Strategic 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
High Low
Home Replication Firm uses core competency or
firm- specific advantage
Multidomestic Strategy Firm operates as a
collection of relatively independent
Low High Pressures for Local
(No Transcript)
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
  • 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.

Advantages of Global Strategy
  • Global strategy provides management with a
    greater capability to respond to worldwide
  • 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
  • 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

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
  • Organizing production, marketing, and other
    value-chain activities on a global scale.
  • Optimizing local responsiveness and flexibility.
  • Facilitating global learning and knowledge
  • 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

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 competence
Scope of operations
Resource deployment
Distinctive Competence
  • Answers the question
  • What do 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
  • Given that we are going to compete in these
    markets, how will we allocate our resources to
  • Resource specifics
  • Product lines
  • Geographical lines

  • 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

Business Strategy
Overall cost leadership
Functional Strategies
Human resources