Transcript Chapter 8 PowerPoint

chapter eight
Strategy Formulation
and Implementation
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
(8) Strategy Formulation
and Implementation
Chapter Objectives:
1. DISCUSS meaning, needs, benefits, approaches of
strategic planning process for MNCs
2. UNDERSTAND tension between pressures for
global integration and national responsiveness; 4
basic international strategy options
3. IDENTIFY basic steps in strategic planning
4. DESCRIBE how MNCs implement strategic plan
5. REVIEW three major functions of marketing,
production, finance used in strategic plan
implementation
6. EXPLAIN specialized strategies for emerging
markets and international new ventures
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Strategic Management
• Strategic Management: the process of
determining an organization’s basic
mission and long-term objectives, then
implementing a plan of action for
pursuing the mission and attaining
objectives
• Growing need for strategic management
related to increasingly diversified
operations in continuously changing
international environment
8-4
Benefits of Strategic Planning
• 70 percent of 56 U.S. MNC subsidiaries had
comprehensive 5 to 10-year plans according
to one study
• Evidence for effectiveness of planning is
mixed. Strategic planning does not always
result in higher profitability. Profits are affected
by
– The quality of the plan
– The business environment
– How well the plan is implemented
8-5
Approaches to Strategic Planning
1. Economic Imperative: keep costs low
2. Political Imperative: get along with local
governments.
3. Quality Imperative
4. Administrative Coordination: solve
problems as they arise
8-6
Global vs. National Strategies
• Fundamental Tension: Globalization vs.
national responsiveness
• Global integration: Production and
distribution of products and services of a
homogenous type and quality on a worldwide
basis
• National responsiveness: need to
understand different consumer tastes in
segmented regional markets and respond to
different national standards and regulations
imposed by autonomous governments and
agencies
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Pressures for Cost Reductions
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The product is a commodity
Differentiation on non-price factors is difficult.
Price is the main competitive weapon
Competitors are based in low-cost locations
There is persistent excess capacity
Customers have market power, and switching
costs are low.
• Global competition and global trade
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Pressures for National Responsiveness
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Differences in distribution channels
Host government demands
Different product standards
Different customer needs and tastes
Businesses or consumers prefer locally made
products
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Reasons for Global Strategy
• Economies of scale: cost savings that result from
producing a high volume of goods in one location
• Location economies (location advantages): cost
savings that result from low costs for doing a value
chain activity in a particular location
– research and development
– manufacturing
– technical service or customer service
– low-cost financing
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Global Strategy
• Produce standard products efficiently in large facilities,
and use a standard marketing strategy
• Little or no national responsiveness
• This strategy seeks to benefit from economies of scale
in production, distribution, marketing, and purchasing
– Requires close coordination with headquarters
• Production facilities are located where total costs of
production, transportation, and tariffs are low (location
economies)
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Global Strategy (2)
• Used when
– The need for cost reduction is high AND
– The need for national responsiveness is low
• This strategy is used to compete on low prices.
• Some firms that use global strategies: Canon, Fuji,
Texas Instruments
• Firms that make commodity products (industrial
chemicals, paper, etc.) often use global strategies
8-12
International Strategy
• This strategy used by firms with products or core
competencies that international competitors cannot
match.
– The objective is to increase earnings by utilizing core
competencies in foreign markets
– These firms usually compete on differentiation and
use the same differentiation all over the world
• Used when
– The need for cost reduction is low AND
– The need for national responsiveness is low
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International Strategy (2)
• Home office controls product development and
marketing strategy.
• Limited customization of products and marketing
strategy in different countries if necessary
• Production and a marketing department in each
major country  more expensive than global strategy
– This strategy does not take advantage of economies of scale
and location economies
• Firm that uses this strategy: Disney
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Multidomestic Strategy
• A strategy that attempts to maximize national
responsiveness
• Firm usually has product development, production,
and marketing in each country
– This strategy does not take advantage of economies of scale
and location economies
• Often used by companies that serve niche markets
– National responsiveness is more important than cost
pressures.
• Often, distinctive competencies are not transferred
from one market to another.
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Multidomestic Strategy (2)
• Used when
– The need for cost reduction is low AND
– The need for national responsiveness is high
• Problems
– Lack of coordination among subsidiaries in different
countries
– High costs
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Transnational Strategy
• A strategy that seeks to
– Achieve low costs by using economies of scale and
location economies
– Transfer core competencies within the firm
– Achieve a high degree of national responsiveness
• Used when
– The need for cost reduction is high AND
– The need for national responsiveness is high
• Some firms that use this strategy: Toyota, Caterpillar,
John Deere, AT & T, IKEA
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Transnational Strategy (2)
• Requirements for success:
– Transfer of knowledge throughout the company
(global learning)
– Coordination of production, purchasing, and
marketing throughout the company
– A corporate culture that encourages mutual trust,
coordination, and knowledge sharing
• Hardest strategy to implement
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Global Integration vs.
National Responsiveness
8-19
Mission Statement
• Explains what business an organization
is in. May describe what the company
will provide for customers
• Example: Dell listens to customers and
delivers technology they trust and value.
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Strategic Planning
for International Management
Mission Statement
8-21
Elements of Strategic Planning:
Environmental Scanning
8-22
Elements of Strategic Planning:
Environmental Scanning
• Provides management with accurate
forecasts of trends relating to external
changes in geographic areas where firm
is doing business or considering doing
business
• Changes relate to economy, competition,
political stability, technology,
demographic and consumer data
8-23
Elements of Strategic Planning:
Internal Resource Analysis
• Evaluate MNC’s current managerial, technical,
material, and financial strengths and
weaknesses
– Assessment then used to determine ability to take
advantage of international market opportunities
– Match external opportunities (gained in
environmental scan) with internal capabilities
(gained through internal resource analysis)
– Key question for MNC: Do we have the people and
resources that can help us develop and sustain
necessary Key Success Factors, or can we acquire
them?
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Key Success Factors
• Important characteristics of a company or its
product that lead to success in an industry
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Innovative technology or products
Broad product line
Effective distribution channels
Price advantages
Effective promotion of products
Quality of customer service
Superior physical facilities or skilled labor
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Key Success Factors (2)
– Experience of firm in business
– Cost position for raw materials
– Cost position for production
– R&D quality
– Financial assets
– Product quality
– Quality of human resources
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Elements of Strategic Planning:
Strategic Planning Goals
• Goal formulation often precedes first two steps
(environmental scanning, internal analysis)
• More specific goals for strategic plan come
from external scan and internal analysis
– Goals serve as umbrella beneath which
subsidiaries and other international groups operate
– Profitability and marketing goals almost always
dominate strategic plans
– Once strategic goals are set, MNC develops
specific operational goals and controls for
subsidiary or affiliate level
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Elements of Strategic Planning:
Implementation
• Provides goods and services in accord with
plan of action
• Plan often will have overall philosophy or
guidelines to direct process
• Considerations in selecting country:
– Advanced industrialized countries offer largest
markets for goods/services
– Amount of government control
– Restrictions on foreign investment
– Specific benefits offered by host countries
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Elements of Strategic Planning:
Implementation (2)
• Local issues
– Once country has been decided, firm must choose
a specific location
– Important factors influence this choice:
• Access to markets
• Availability of transportation and electric power
• Desirability of location for employees coming in
from other countries
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Implementing Strategy:
Functional Areas of Business
• Marketing
– country-by-country basis vs. standardized approach
to marketing
– build around the 4 P’s of marketing (product, price,
place, promotion)
• Finance
– Transferring funds from one country another, or
borrowing funds in international money markets, is
often less expensive than relying on local sources
– Fluctuations in currency values affect costs,
revenue, and profits
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Implementing Strategy:
Functional Areas of Business (2)
• Production
– Recent trend away from multi-domestic approach
and toward global coordination of operations
– If the product is labor intensive, produce it in lowcost locations
– Firms that use a global or transnational strategy
strive for economies of scale
8-31
Elements of Strategic Planning:
Specialized Implementation Issues
• International new ventures and “born global”
firms
• Strategic issues for emerging markets and the
base of the pyramid (poor people)
8-32
International New Ventures
and “Born Global” Firms
• Increasingly small and medium size enterprises, often
in the form of new ventures, are becoming involved in
international management.
• The earlier in its existence an innovative firm
internationalizes, the faster it is likely to grow both
overall and in foreign markets.
• Truly born global firms tend to survive longer than
other seemingly global companies
• Venture performance (growth and ROE) is improved
by technological learning gained from international
environments.
8-33
International New Ventures and
“Born Global” Firms (2)
• International new ventures and “born-global”
firms
– Firms that engage in significant international activity
a short time after being established
– Successful born-global firms leverage a distinctive
mix of orientations and strategies
• Global technological competence
• Unique product development
• Quality focus
• Leveraging of foreign distributor competencies
8-34
Strategies for Emerging Markets
• The big emerging markets: Mexico, Brazil, Argentina, South
Africa, Poland, Turkey, India, Indonesia, China, South
Korea
• These nations have captured the bulk of investment and
business interest from MNCs and their managers in recent
years.
• Emerging markets present exceptional risks due to political
and economic volatility. These risks show up in corruption,
failure to enforce contracts, red tape and bureaucratic
costs, and general uncertainty in legal and political
environment.
• Some emerging markets are more stable and less corrupt
than others.
8-35
The World Population and
Income Pyramid
8-36
Two Important Strategies for
Emerging Markets
• First Mover Strategies: Get the advantages
associated with early entry and first-mover positioning
– Higher market share and revenue
– Higher market share may lead to economies of
scale in production, distribution, and marketing
– Better market knowledge than competitors
– Opportunity to work with the best local business
partners
– Privatization of government enterprises may create
opportunities
8-37
Two Important Strategies for
Emerging Markets (2)
• Strategies for the Base of the Pyramid (BOP): 4-5
billion potential customers around the globe previously
ignored by global businesses
– BOP forces global business to rethink their
strategies. Must consider relationships with local
governments, small entrepreneurs, and nonprofits,
rather than depending on established partners such
as large companies and the central government.
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Two Important Strategies for
Emerging Markets (3)
• Strategies for the Base of the Pyramid (continued):
• BOP strategies are challenging to implement because
of poor infrastructure, nonexistent distribution
channels, corruption, communication issues
• Must provide affordable products and make them
easily available to people who want them
• New technologies, such as mobile phones, do well if
people want them and can pay for them.
• Successful BOP strategies can travel profitably to
higher income markets. It is easier to add features to a
basic product than to subtract them from a more
advanced product
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