Chapter 6

Formulating Strategy

PowerPoint by
Kristopher Blanchard
North Central University

© 2006 Prentice Hall 6-1

 Strategic Planning and Strategy
The process by which a firm’s 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.

© 2006 Prentice Hall 6-2

 Reasons for Going International
AOL Europe is emerging as an upbeat counterpoint
to AOL’s 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

© 2006 Prentice Hall 6-3

 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

© 2006 Prentice Hall 6-6

 Mission and Objective
Mission of an
organization is its overall
raison d’etre or the
function it performs in
society
Objectives flow from
mission and guide the
formulation of
international strategy
Return

© 2006 Prentice Hall 6-7

 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
Return

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 Internal Analysis
Internal analysis determines which areas of the
firm’s 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 company’s resources and
operations, and global synergies
Strengths and weaknesses of the firm’s financial
and managerial expertise and functional
capabilities are evaluated to determine the key
success factors
© 2006 Prentice Hall 6-9
 Competitive Analysis
Assess the firm’s 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.

© 2006 Prentice Hall 6-12

 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

© 2006 Prentice Hall 6-15

 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?

© 2006 Prentice Hall 6-16

 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

© 2006 Prentice Hall 6-17

 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

© 2006 Prentice Hall 6-20

 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 firm’s
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

© 2006 Prentice Hall 6-23

 Reactive
• Globalization of competitors
• Trade barriers
• Regulations and restrictions
• Customer demands

Return
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 Proactive
• Economies of scale
• Growth opportunities
• Resource access and cost savings
• Incentives
From rain forests to remote Chinese villages, the queen of cosmetics (Avon) is cleaning up
across the globe. China is our single biggest growth opportunity. [Now] we have beauty
boutiques, with 5,000 store representatives in every province including Tibet. A corollary on
the [WTO] bill said that China would reestablish the legitimacy of direct selling in the
marketplace. It could be in the next couple of years.
—Susan Kropf, President,Avon Products,January 12, 2004.
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 Globalization
Increasing competitive clout resulting from
regional trading blocs
Declining tariffs, which encourage trading across
borders and open up new markets
The information technology explosion, which
makes the coordination of far-flung operations
easier and also increases the commonality of
consumer tastes

Return
© 2006 Prentice Hall 6-26
 Regionalization
Unique consumer preferences resulting from
cultural or national differences
Domestic subsidies
New production technologies that facilitate
product variation for less cost than before.

Return

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