Chapter 6 Formulating Strategy

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Chapter 6Formulating Strategy

• PowerPoint by
• Kristopher Blanchard
• North Central University

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Strategic Planning and Strategy

• The process by which a firms managers evaluate
  the future prospects of the firm and decide on
  appropriate strategies to achieve long-term
  objectives is called strategic planning.
• The basic means by which the company competes
  its choice of business or businesses in which to
  operate and the ways in which it differentiates
  itself from its competitors is its strategy.

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Reasons for Going International

• AOL Europe is emerging as an upbeat counterpoint
  to AOLs sagging business in the United States.
  Partly a matter of timing, as Europe follows the
  United States online but also reflecting
  differences in strategy and execution. AOL Europe
  lobbied hard to establish rules guaranteeing
  AOL Europe equal access to telecommunications
  networks.
• - www.nytimes.com, September 8, 2003

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Reasons for Going International

• Reactive or defensive
• Proactive or aggressive
• The threat of decreased competitiveness is the
  overriding reason many large companies adopt a
  strategy of aggressive globalization

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Strategic Formulation Process
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Strategic Formulation Process

• First phase is the planning phase company
  establishes (or clarifies) its mission and
  overall objective
• Second part is the implementation phase
  requires the establishment of the structure,
  systems, processes suitable to make the strategy
  work

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Mission and Objective

• Mission of an organization is its overall raison
  detre or the function it performs in society
• Objectives flow from mission and guide the
  formulation of international strategy

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Environmental Assessment

• Gathering information and forecasting relevant
  trends, competitive actions and circumstances
  that will affect operations in a geographic area
  should include
• Political instability
• Currency instability
• Nationalism
• International competition
• Environmental scanning

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Internal Analysis

• Internal analysis determines which areas of the
  firms operations represent strengths or
  weaknesses (currently or potentially) compared to
  competitors, so that the firm may use that
  information to its strategic advantage
• It focuses on the companys resources and
  operations, and global synergies
• Strengths and weaknesses of the firms financial
  and managerial expertise and functional
  capabilities are evaluated to determine the key
  success factors

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Competitive Analysis

• Assess the firms capabilities and key success
  factors compared to those of its competitors
• Enables strategic planners to determine where the
  firm has distinctive competencies that will give
  it an advantage
• Most companies develop strategies around key
  strengths or core competencies
• This stage is often called a SWOT (Strengths,
  Weaknesses, Opportunities, and Threats) analysis

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Global/International Strategic Alternatives

• Global Strategic Alternatives determines the
  overall approach to the global marketplace
• Entry Strategy Alternatives determine what
  specific entry strategy is appropriate for each
  country the firm plans to operate in

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Approaches to World Markets

• Globalization is a term that refers to the
  establishment of worldwide operations and the
  development of standardized products and
  marketing.
• Regionalization (or multi-local) is where local
  markets are linked together within a region,
  allowing more local responsiveness and
  specialization.

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Integrative Strategies

• Multinational Corporations will develop their
  operations to the point of being fully integrated
• Both vertical and horizontal
• Includes suppliers, productive facilities,
  marketing and distribution outlets, and
  contractors
• Some move quickly to the stage of integration
  through acquisition
• Other companies use a variety of strategies and
  enter the country in stages

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Entry Strategies
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Using E-business for expansion

• The real story is the profound impact this medium
  will have on corporate strategy, organization and
  business models. Our research reveals that the
  Internet is driving global marketplace
  transformation and paradigm shift in how
  companies get things done, how they compete and
  how they serve their customers.
• - www.IBM.com

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Global B2B/B2C Strategy

• To assess the potential competitive position of
  the company, managers must ask themselves the
  following questions with respect to B2B/B2C
• Does the exchange provide a technology solution
  that helps industry-trading partners to do
  business more efficiently?
• Is the exchange known to be among the top 3-5
  within its vertical industry?
• Does the exchange offer industry-specific
  technology and expertise that gives it an
  advantage over generic exchange-builders?

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Conditions Favoring E-Global

• The global beachhead strategy makes sense when
  trade is global in scope when the business does
  not involve delivering orders and when the
  business model can be hijacked relatively easily
  by local competitors.
• M. Sawhney and S. Mandal

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Conditions Favoring E-Local

• The e-local/regional approach is preferable
  under three conditions when production and
  consumption are regional rather than global in
  scope when customer behavior and market
  structures differ across regions but are
  relatively similar within a region and when
  supply-chain management is very important to
  success.
• Sawhney and Mandal

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Entry Strategy Alternatives
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Comparative Management in Focus Planning for the
EU Market

• As of May 2004 the European Union is
• A 25-nation unified market
• A market of more than 400 million people
• With the addition of Central and Eastern European
  countries companies have access to
• The EU
• Cheaper wages, lower corporate taxes, and
  educated workforces
• Eliminated currency risk for Europe

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Comparative Management in Focus Planning for the
EU Market

• The EU has developed a protectionist wall
• Tariffs, quotas, local content laws and
  competitive tactics
• Designed to keep the US and Japan out
• The EU has created opportunities for nonmembers
  as well

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Strategic Choice

• The strategic choice of one or more of the entry
  strategies will depend on
• a critical evaluation of the advantages (and
  disadvantages of each in relation to the firms
  capabilities,
• the critical environmental factors
• the contribution that each choice would make to
  the overall mission and objectives of the company.

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Looking Ahead

• Chapter 7 Global Alliances and Strategy
  Implementation
• Strategic Alliances
• Strategic Implementation