ISM

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
A plan of action that channels an organization’s
resources so that it can effectively differentiate
itself from competitors, accomplish distinctive
goals, and achieve superior performance.
FOUR STRATEGIC OBJECTIVES

 Efficiency – minimize the cost of operations and

activities
 Effectiveness – maximize revenues

 Flexibility – tap local resources and opportunities

to maximize options for the firm
 Learning – add to proprietary technology, brand
name and management capabilities by
internalizing knowledge gained from international
ventures.

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MULTIDOMESTIC AND GLOBAL INDUSTRIES

 Multidomestic industries. Firms apply a country-by-country

approach to product development and marketing, as
dictated by specific needs, tastes, laws, and economic
situation. Competition is on a country-by-country basis. E.g.,
food and beverage, consumer products, clothing and fashion
industries.
 Global industries. Firms devise products and marketing
appropriate for an entire region or for the world. Competition
takes place on a regional or worldwide scale. E.g.,
aerospace, automobiles, telecommunications, computers,
chemicals, and industrial equipment industries.

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GLOBAL INTEGRATION
 A characteristic of global industries in which
firms coordinate their value-chain activities
across many countries in order to maximize
efficiency, effectiveness, flexibility, and learning.
 Global integration promotes learning and cross-
fertilization, as well as reduction of wasteful
duplication (‘redundancy’), across the firm’s
operations worldwide.

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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 easier to
standardize when their creation and delivery are centralized
 Global sourcing of raw materials, components, energy, and labor.
Sourcing from large-scale, centralized suppliers provides economies
of scale and consistent performance.
 Global competitors. Global coordination is necessary to monitor and
respond to global competitive threats.
 Availability of media that reaches customers in multiple markets.
Firms now take advantage of the Internet and cross-national
television to promote offerings in many countries simultaneously.

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LOCAL RESPONSIVENESS
 A characteristic of multidomestic industries in which
firms attempt to meet the specific needs of buyers in
individual countries, as well as adapt to the local
competitive environment and distribution structure.
 Although most firms prefer a global integration
approach, some degree of local responsiveness is
necessary due to differences in individual markets.
 For example, given distinctive local conditions, Wal-Mart
store managers in Mexico had to adjust store hours, the
merchandise mix, marketing approaches, and employee
training.

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PRESSURES FOR LOCAL RESPONSIVENESS
 Diversity of local customer needs. E.g., products in the food
and furniture industries require much adaptation.
 Differences in distribution channels. E.g., systems in Japan,
China, India, and Eastern Europe vary greatly.
 Local competition. Where many local rivals are present, it is
best to offer carefully adapted products and have a local
presence to maximize knowledge of competitors.
 Cultural differences. For products where cultural differences
are important, such as books and kitchen appliances,
products and marketing need to be substantially adapted.
 Host government requirements and regulations. The firm
must follow local laws and regulations.

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GLOBAL INTEGRATION VS.
NATIONAL RESPONSIVENESS
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IKEA APPLIES A TRANSNATIONAL STRATEGY

 Some 90% of the product line is identical across

more than two dozen countries. IKEA modifies
some of its furniture to suit individual countries.

 IKEA’s marketing is centrally developed at

company headquarters, but implemented with
local adjustments (e.g., to suit language
differences in catalogs).

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BASIC ELEMENTS IN STRATEGIC PLANNING
FOR INTERNATIONAL BUSINESS
ELEMENTS OF STRATEGIC PLANNING:
ENVIRONMENTAL SCANNING
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
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?
ELEMENTS OF STRATEGIC PLANNING:
IMPLEMENTATION (CONTINUED)
 Local issues
 Once country has been decided, firm must
choose specific locale
 Important factors influence this choice:
 Access to markets
 Proximity to competitors
 Availability of transportation and electric power
 Desirability of location for employees coming in from
outside
ELEMENTS OF STRATEGIC PLANNING:
IMPLEMENTATION (CONTINUED)
 Production
 When exporting goods to foreign market, production has
usually been handled through domestic operations
 More recently MNCs have found that whether they
export or produce goods locally in host country,
consideration of worldwide production is important
 Recent trend away from multi-domestic approach and
toward global coordination of operations
ELEMENTS OF STRATEGIC PLANNING:
IMPLEMENTATION (CONTINUED)
 Finance
 Transfer funds from once place in world to another, or
borrowing funds in international money markets often
less expensive than relying on local sources
 Issues include
 Reevaluation of currencies

 Privatization

 Strategic issues for base of pyramid

 International new ventures and “born global” firms
ELEMENTS OF STRATEGIC PLANNING:
IMPLEMENTATION (CONTINUED)
 Strategies for “base of pyramid” (BOP)
 Emerging market customers
 People at bottom of economic pyramid

 Marketing at BOP forces consideration of

smaller-scale strategies
ELEMENTS OF STRATEGIC PLANNING:
IMPLEMENTATION (CONTINUED)
 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

EXAMPLES OF VISIONARY LEADERS

 Ratan N. Tata, the chairman of the Tata Group,

transformed this Indian conglomerate into a
transnational organization. Tata oversees a $22 billion
family conglomerate whose companies market a
range of products from automobiles to watches.
 Carlos Ghosn, the CEO of Nissan and Renault, has
transformed a Japanese automotive firm from
bankruptcy to profitable operations.
 Toyota CEO Fujio Cho has led his firm to record sales
in the intensely competitive global automobile
industry.

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 AN MNE NETWORK

Subsidiary Level Network

S: Suppliers R: Regulatory institutions BE SE
B: Buyers C: Customers

RD CE RE
SA BA
RA E
CA
SD
D RB
BD
A SB
B
CD
RC BB
SF BF H
CF F SC CB
RF
BC A : Home plant
C
H: Headquarters
CC B … F: Subsidiaries
ALTERNATIVE ORGANIZATIONAL ARRANGEMENTS

 The export department, with the international

division as a variant.
 The decentralized structure involves geographic
area division
 The centralized structure involve either product or
functional division
 A global matrix structure blends the geographic,
product and functional structures although this is
complex and difficult to achieve.

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WALMART intl.division
ONGC – Fuctional structure