International Strategic Management

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International Strategic Management

• Strategic Formulation and Implementation

Mark McKenna BUS 162 (6), International and
Comparative Management San Jose State University
Chapters 8, Hodgetts, Luthans and Doh,
International Management Culture, Strategy and
Behavior , 6th edition (New York McGraw-Hill
Irwin, 2006) Adapted from PowerPoint slides by
R. Dennis Middlemist, Professor of Management,
Colorado State University
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Overview

• Strategic Management
• Approaches to Strategic Planning
• Global vs. Regional Strategies
• Elements of Strategic Planning
• Specialized Strategies

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Strategic Management

• Strategic management
• Determining the firms basic mission and
  long-term objectives, and developing and
  implementing an appropriate plan of action
• Where are we going?
• How are we going to get there?
• Strategic management growing in importance
  because of the need to coordinate and integrate
  diverse operations

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Benefits of Strategic Planning

• Perceived benefits
• Coordinate and monitor operations
• Streamline product lines and supply chains
• Manage political, currency, and competitive risks
• Potential costs
• Micromanagement of subsidiary operations
• Misallocation of time and staff resources
• Over-planning and lower profitability

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Approaches to Strategic Planning
Economic Imperative
Administrative Coordination
Political Imperative
Quality Imperative
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Economic Imperative

• Strategy based on cost leadership,
  differentiation, and segmentation
• Product mix
• Value added in the upstream activities of the
  industrys value chain
• generic good (not name brand or support service
  dependent)
• Global sourcing to shorten the production or
  buying cycle

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Political Imperative

• Strategy country- responsive and designed to
  protect local market niches
• Success of the product or service depends heavily
  on marketing, sales or service
• Customer or client-focused
• Approach most often used by MNCs pursuing a
  country-centered or multidomestic strategy.

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Quality Imperative

• Two possible paths
• Change in attitudes to raise expectation for
  service quality
• Implementation of practices to make quality
  improvement an ongoing process
• Total quality management (TQM)
• Cross-training personnel
• Process re-engineering
• Reward systems designed to reinforce quality

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Administrative Coordination

• Decision making based on the merits of the
  individual situation rather than a predetermined
  economic or political strategy
• Coordination of global supply chains
• Localized marketing of products and services
• Least common approach given the pressures on MNCs
  to coordinate strategy both regionally and
  globally

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Global vs. Regional Strategies

• Global Integration
• Products and services homogeneous in terms of
  type and quality
• Customers have common taste preferences
• National Responsiveness
• Segmented regional markets
• Need to respond to differing national standards
  and regulations
• Adaptation of tools and techniques to manage
  local workforces

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Four Strategic Options
Global strategy
Transnational strategy
International strategy
Multi-domestic strategy
Adapted from Figure 81 Global Integration vs.
National Responsiveness
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Choosing an Option

• The right strategy is tailored to particular
  country and industry characteristics
• Reasons to choose each strategy
• Global low-cost strategy, commodification
• Multi-domestic products and services
  differentiated by market
• International core competencies set the MNC
  apart from local competitors
• Transnational
• Require management of contradictory pressures for
  cost reductions and differentiation
• Successful firms engage in glocalization,
  localizing their activities while maintaining a
  global focus

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Elements of Strategic Planning for International
Management
External Environmental Scanning for MNC
Opportunities and Threats
Internal Resource Analysis of MNC Strengths and
Weaknesses
Strategic Planning Goals
IMPLEMENTATION
Adapted from Figure 82 Basic Elements of
Strategic Planning for International Management
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Environmental Scanning

• Provide management with accurate forecasts of
  trends that relate to external changes in
  geographic areas where the firm is currently
  doing business or considering setting up
  operations
• These changes relate to the economy, competition,
  political stability, technology, and demographic
  consumer data

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Internal Resource Analysis

• Evaluate managerial, technical, material, and
  financial strengths and weaknesses
• Determine ability to take advantage of
  international market opportunities
• Match external opportunities (environmental scan)
  with internal capabilities (internal resource
  analysis)
• Key question Do we have the people and resources
  that can help us to develop and sustain the
  necessary KFSs, or can we acquire them?

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Strategic Planning Goals

• Goal formulation often precedes the first two
  steps
• However, more specific goals come out of external
  scanning and internal analysis
• Typically serve as an umbrella for subsidiaries
  and international operations
• Profitability and marketing goals almost always
  dominate
• Once set, the MNC will develop specific
  operational goals and controls for the subsidiary
  or affiliate level

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Implementation

• Selecting a country and location
• Country factors market openness, infrastructure,
  labor market flexibility
• Location incentives, workforce, costs
• Functional areas
• Marketing usually country specific
• Production domestic to foreign, foreign to
  domestic, or foreign to foreign, dispersed or
  coordinated
• Finance local sources, centralized control,
  international markets, or barter trade

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Specialized strategies

• First-Mover Strategies
• Bottom of the Pyramid Strategies
• Born-Global Strategies

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First-Mover Strategies

• Useful in rapidly changing markets
• Market opening in developing economies
• Market reforms in transition economies
• Privatization of state-operated enterprises
• Advantages and risks
• Capture benefits of learning
• Form alliances with attractive local partners
• Uncertain pace of reform
• Opportunity costs of premature entry

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Base of the Pyramid Strategies

• Targeting emerging market
• People making less than 2,000 p/year (4 billion)
• Marketing requires smaller-scale strategies
• Building relationships with local governments,
  small entrepreneurs, and nonprofits
• Less dependence on central governments and large
  local companies

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Born-Global Firms

• Engage in significant international activity a
  short time after being established
• Successful firms leverage a distinctive mix of
  orientations and strategies
• Global technological competence
• Unique-products development
• Quality focus
• Leveraging of foreign distributor competences

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Implications for Managers

• The complexity and interdependence of the global
  economy increases the need for firms to plan
  strategically
• Effective strategies must balance tensions
  between
• Top-down and bottom-up strategies
• Economies of scale and differentiation
• Managers need to anticipate the future evolution
  of the firm and global markets