FA H M I AY U

AV I O L I A P U T R I
INGGRID
M A RC E L L A D E N A D A

CHAPTER 11 - 12

INTERNATIONAL STRATEGIC
MANAGEMENT

THE CHALLENGES OF INTERNATIONAL

STRATEGIC MANAGEMENT
International strategic management
Comprehensive and ongoing management planning
process aimed at formulating and implementing strategies
that enable a firm to compete effectively internationally
Result: International Strategies

Strategic planning

The process of developing a particular international

strategy
Responsibility of:

Top-level executives Corporate HQ

Senior managers Domestic & foreign operating
subsidiaries

THE CHALLENGES OF INTERNATIONAL

STRATEGIC MANAGEMENT
Developing a strategy for competing in a single
country vs. multiple countries

Similarities:
What products and/or services does the firm
intend to sell?
Where and how will it make those products or
services?
Where and how will it sell them
Where and how will it acquire the necessary
resources?
How does it expect to outperform its
competitors?

THE CHALLENGES OF INTERNATIONAL

STRATEGIC MANAGEMENT
Differences:
Domestic Strategy

International Strategy

One national government

Multiple governments

One currency

Multiple currencies

One accounting system

Multiple accounting
systems

One political and legal

system

Multiple political and legal

systems

Single language

Variety languages

Relatively homogenous
culture

Variety cultures

THE CHALLENGES OF INTERNATIONAL

STRATEGIC MANAGEMENT
International strategy must coordinate
their firms strategy among business units,
monitor and control performance of
business units located in different parts of
the world different time zones, different
cultural contexts, different economic
conditions

THE CHALLENGES OF INTERNATIONAL

STRATEGIC MANAGEMENT
Three sources of competitive advantages
available for international business:
Global efficiencies
Improve efficiency by capturing location efficiencies,
economies of scale, and finally obtaining economies of
scope

Multinational flexibility
Respond to a change in one country by implementing a
change in another country

Worldwide learning
Learn from the operating environments in one country and
transfer this learning to its operations in other countries

THE CHALLENGES OF INTERNATIONAL

STRATEGIC MANAGEMENT
It is difficult to exploit these three factors
simultaneously:
Global efficiencies can be more easily obtained when a
single unit of a firm is given worldwide responsibility for
the task at hand. However, if too much power is
centralized in one unit of the firm, it may ignore the
needs of consumers in other markets
Multinational flexibility is enhanced when firms delegate
responsibility to the managers of local subsidiaries.
However, this increased flexibility will reduce the firms
ability to obtain global efficiencies in such areas as
production, marketing, and R&D

THE CHALLENGES OF INTERNATIONAL

STRATEGIC MANAGEMENT
Centralizing power in order to capture global
efficiencies may cause that unit of the firm to
ignore lessons and information acquired by
other units of the firm and may cause that other
unit to have less incentive to acquire such
information. However, decentralized structure
may make it difficult to transfer learning from
one subsidiary to another.

STRATEGIC ALTERNATIVES
Home replication strategy
A firm utilizes the core competency or firm-specific
advantage it developed at home as its main competitive
weapon in the foreign markets that it enters
Takes what firm does exceptionally well in its home market
and duplicate it in foreign markets

Multidomestic strategy
Multidomestic corporation is free to customize its
products, its marketing campaigns, its operations
techniques to best meet the needs of its local customers
Assumption: customers are fundamentally different
Effective if there are:
Clear differences among national markets
Economies of scale are low
Cost of coordination is high

STRATEGIC ALTERNATIVES
Global strategy
Global corporation views the world as a single
marketplace and has as its primary goal the creation of
standardized goods and services that will address the
needs of customers worldwide.
Assumption: customers are fundamentally the same
Aim: capture economies of scale
Power and decision-making responsibility concentrated at
HQ

STRATEGIC ALTERNATIVES
Transnational strategy
Combine the benefits of global efficiencies
with the benefits and advantages of local
responsiveness
Carefully assigns responsibility for various
organizational tasks to achieve the dual goals
of efficiency and flexibility

Pressures for Global

Efficiencies

HIG
H

LOW

GLOBAL
STRATEGY

TRANSNATIONA
L STRATEGY

HOME
REPLICATION
STRATEGY

MULTIDOMESTI
C STRATEGY

LOW

HIG
H

Pressures for Local Responsiveness and

Flexibility

COMPONENTS OF AN INTERNATIONAL
STRATEGY
Distinctive Competence
What do we do exceptionally well, especially as compared
to our competitors?
E.g. : cutting-edge technology, efficient distribution
networks, superior organizational practices, well-respected
brand names

Scope of Operations
Where are we going to conduct business?
Geographical regions, e.g.: countries, regions within a
country, and/or clusters of countries
Market or product niches within one or more regions, e.g.:
premium-quality market niche, low-cost market niche, other
specialized market niches

COMPONENTS OF AN INTERNATIONAL
STRATEGY
Resource Deployment
Given that we are going to compete in these markets,
how should we allocate our resources to them?
Specified along product lines, geographical lines, or both

Synergy
How can different elements of our business benefit each
other?
Goal: create a situation in which the whole is greater than
the sum of the parts

DEVELOPING INTERNATIONAL
STRATEGIES

STRATEGY MANAGEMENT
STRATEGY
FORMULATION

STRATEGY
IMPLEMENTATI
ON

STRATEGIC PLANNING PROCESS

Develop a Mission Statement
Perform a SWOT Analysis
Set Strategic Goals
Develop Tactical Goals and
Plans
Develop a Control
Framework

MISSION STATEMENT
Clarifies the organizations purpose, values, and
directions
Used as a way of communicating with internal
and external parties
Ex: Carpenter Technology satisfy customers
while consistently earning in excess of our cost
and capital and to be the best supplier worlwide
for the specialty material needs of our customers

PERFORM A SWOT ANALYSIS

SWOT Strengths, Weaknesses, Opportunities,
Threats
Environmental Scan a systematic collection of
data about all elements of the firms external and
internal environments

SWOT
Strengths skills, resources, other advantage
Weaknesses reflect deficiencies or
shortcomings in skills, resources, or other factors
that hinder the market
Opportunites and Threats economic, financial,
political, legal, social, and competitive changes
Value chain breakdown of a firm into its
important activities to enable its strategists to
identify its competitive advantages and
disadvantages

Primary
activities

Manufacturin
g

Marketing &
Sales

Services

Support
activities

Company Infrastructure
Information Systems
Human Resources
Research and Development
Sourcing & Logistics

STRATEGIC GOALS
The major objectives the firm wants to
accomplish through pursuing a particular
course of action
Should be measureable, feasible, and
time-limited
Ex: Disneyland Paris projected
attendance

TACTICS
Usually involve middle managers and focus on
the details of implementing the firms strategic
goals
Ex: Grand Metropolitan abd Guinness merged to
create Diageo PLC, one of the worlds largest
consumer products companies

CONTROL FRAMEWORK
The set of managerial and organizational
processes that keep the firm moving
toward its strategic goals
Ex: Disneyland Paris increased its
advertising

LEVELS OF INTERNATIONAL
STRATEGY

LEVELS OF INTERNATIONAL
STRATEGIES
CORPORAT
E
STRATEGY
BUSINESS
STRATEGY
FUNCTION
AL
STRATEGY

CORPORATE STRATEGY
Attempts to define the domain of businesses in
which the firm intends to operate

SingleBusiness
Strategy

Related
Diversification

Unrelated
Diversification

SINGLE-BUSINESS STRATEGY
Calls for a firm to rely on a single business,
product,or service for all its revenue
Advantage firm can concentrate all its
resources and expertise on that one product or
service
Disadvantages increase firms vulnerability to
its competition and to changes in the external
environment

RELATED DIVERSIFICATION
Calls for the firm to operate in several different
but fundamentally related business, industries, or
markets at the same time
Advantages firm depends less on a single
product/service, may produce economies of scale,
may allow a firm to use technology or expertise
developed in one market to enter a second
market more cheaply and easily
Disadvantages the cost of coordinating the
operations, possibility that all the firms business
units may be affected simulateneously

UNRELATED DIVERSIFICATION
A firm operates in several unrelated industries
and markets
Conglomerates the term used for firms
comprising unrelated businesses
Advantages the corporate parent may be able
to raise capital more easily, overall riskiness may
be reduced, firm is less vulnerable to competitive
threats, a firm can more easily shed unprofitable
operations
Disadvantages lack of potential synergy, no
one operation can regularly sustain the others,
difficult for staffs to manage

BUSINESS STRATEGY
Focus on specific businesses, subsidiaries,
or operating units within the firm
Strategic Business Units (SBUs)
Helps the firm to improve its distinctive
competence for that business or unit

3 BASIC FORMS OF BUSINESS STRATEGY

Differentiation

Overall Cost
Leadership
Focus

DIFFERENTIATION
Attempts to establish and maintain the
image that the SBUs products or services
are fundamentally unique from other
products or services in the same market
segment

OVERALL COST LEADERSHIP

Calls for a firm to focus on achieving
highly efficient operating procedures so
that its costs are lower than its
competitors

FOCUS
Calls for a firm to target specific
types of products for certain
customer groups or regions

FUNCTIONAL STRATEGIES

International
International
International
International

financial strategy
marketing strategy
operations strategy
human resource strategy

CHAPTER 12
S T R AT E G I E S F O R A N A LY Z I N G A N D
ENTERING FOREIGN MARKETS

FOREIGN MARKET ANALYSIS

To successfully increase foreign market

share, firms must assess alternative
markets, evaluate the respective
costs, benefits, and risk of entering
each, and select those that hold the
most potential for entry or expansion.

(1) ASSESSING ALTERNATIVE

FOREIGN MARKETS

Market Potential.
Levels of competition
Legal and Political Environment
Sociocultural influences

(2) EVALUATING COSTS, BENEFITS, AND RISKS

o Costs: There two types of relevant costs at this point:
direct and opportunity
o Benefits: Benefits from entering a foreign market include
expected sales and profits, lower acquisition and
manufacturing costs, foreclosing of markets to
competitors, competitive advantage, access to new
technology, and the opportunity to achieve synergy with
other operations.
o Risks: a firm entering a new market incurs the risks of
opportunity costs, additional operating complexity, and
direct financial loss due to misassessment of market
potential.

CHOOSING AN ENTRY MODE

MODES OF ENTRY
Decision Factors
Ownership Advantages: the tangible or intangible
resources owned by a firm that grant it a competitive
advantage over industry rivals.
Location Advantages: those factors that affect the
desirability of host country production.
Internalization Advantages: factors that affect the
desirability of a firm producing a good or service itself
rather than relying on an existing local firm to handle
production.
Other Factors
Need for Control
Availability of Resources
Overall Global Strategy

EXPORTING TO FOREIGN MARKETS

ADVANTAGES OF EXPORTING
Proactive
(Pull)

Reactive
(Push)

motivations

Control
Financial
Exposure

Enter
Markets
Gradually

FORMS OF EXPORTING
Indirect exporting
Direct exporting
Intracorporate transfer

EXPORT INTERMEDIARIES (1)

Export Management Company
Perform Export Department Functions
Act as Commission Agent
Take Title to Goods
Webb-Pomerene Association
Includes firms from same industry
Coordinates export activities
Performs promotional activities
Overseas freight consolidation
Engages in contract negotiations
exports goods for members

EXPORT INTERMEDIARIES (2)

International Trading Company
is a firm directly engaged in trading a wide
variety of goods for its own account. Unlike
an EMC, an international trading company
participates in both exporting and
importing.

Other Intermediaries
Manufactures Agents
Manufactures Export Agents
Export and Import Brokers
Freight Forwarders

INTERNATIONAL LICENSING
Firm (licensor) leases the right to use its
intellectual propertytechnology, work methods,
patents, copyrights, brand names, or trademarks
to another firm (licensee) in return for a fee.

BASIC ISSUES
Setting the
agreements
boundaries

What should and should not be

conveyed in the agreement

Determining
compensation rates

Fixed amount Royalty

Establishing rights,
privileges, and
constraints

Limit licensees distribution of

information, define quality
standards

Specifying the
duration of the
agreement

Enough time to develop products

and knowledge

ADVANTAGES AND DISADVANTAGES

Advantages

Disadvantages

Low financial risks

Limited market
opportunities/profits
Low-cost way to assess
market potential
Dependence on
licensee
Avoid tariffs, NTBs
Provides knowledge of Potential conflicts with
local markets
licensee
Possibility of creating
future competitor

INTERNATIONAL FRANCHISING
Agreement allows an independent entrepreneur or
organization (franchisee) to operate a business under
the name of another (franchisor) in return for a fee.
Provides more control and support than the licensing
strategy

BASIC ISSUES
Does a
differential
advantage exist
in the domestic
market?

Are these
success factors
transferable to
foreign locations?

Has franchising
been a
successful
domestic
strategy?

ADVANTAGES AND DISADVANTAGES

Advantages
Low financial risks
Low-cost way to assess
market potential
Avoid tariffs, NTBs
Maintain more control
than with licensing
Provides knowledge of
local markets

Disadvantages
Limited market
opportunities/profits
Dependence on licensee
Potential conflicts with
licensee
Possibility of creating
future competitor

SPECIALIZED ENTRY MODES

Contract
Manufacturi
ng

Management
Contract

Turnkey
Project

Outsourcing most/all of the manufacturing

needs to other companies. Ex: Nike

Providing managerial assistance or

specialized services to another firm in
return for compensation. Ex: British
Airways
Contract under which the firm agrees to
fully design, construct, and equip a facility
and then turn project over to the
purchaser when it is ready to operate. Ex:
AT&T

FOREIGN DIRECT INVESTMENT

Entering international markets through ownership
and controls
Advantages
High profit potential
Maintain control over
operations
Acquire knowledge of
local market
Avoid tariffs and NTBs

Disadvantages
High financial and
managerial investments
Higher exposure to
political risk
Vulnerability to restrictions
on foreign investment
Greater managerial
complexity

TYPE OF FDI
Greenfiel
d
Strategy

Starting a new operation from scratch.

Ex: Disneyland from Disney

Acquisiti
on
Strategy

Acquisition of an existing firm conducting

business in the host country. Ex: Google
acquiring Youtube

Joint
Ventures

Two or more firms agree to work

together to create a jointly owned
separate firm. Ex: Sony (Japan)-Ericsson
(Sweden)