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BBK3363 | International Management Prepared by Dr Khairul Anuar

L4: Formulating Strategy

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Chapter Learning Goals

Understand why companies engage in international business.

Learn the steps in global strategic planning and the models available

to direct the analysis and decision making involved.

Appreciate the techniques of environmental assessment, internal and

competitive analysis, and how those results can be used to judge the

relative opportunities and threats to be considered in international

strategic plans.

Profile the types of strategies available to international managers—

both on a global level and on the level of specific entry strategies for

different markets.

Gain insight into the issues managers face when strategic planning

for the emerging market.

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Strategic Planning and Strategy in International

Business

Strategic Planning

More complex than domestic strategic planning because of more complex variables

Strategy

The basic means by which the firm competes

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Reasons for Going International

Reactive/Defensive Proactive/Aggressive

Globalization of

competitors

Trade barriers

Regulations and

restrictions

Customer demands

Economies of scale

Growth opportunities

Resource access and

cost savings

Incentives

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Management in Action: Mexico’s Cemex

Until 2009, aggressively grew through acquisitions; Rinker Group in Australia, RMC in Britain

From expansion cost-cutting and retrenchment

Selling assets, negotiating with creditors, cutting workforce

As of August 2011, Cemex had secured a $15 billion restructuring deal and cut 11% of its workforce worldwide

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Strategic Management Process

EXHIBIT 6-1 The Strategic Management Process

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Steps in Developing International

and Global Strategies

Mission and Objectives

Environmental Assessment and Scanning

Internal and Competitive Analysis

Global Integrative and Entry

Strategy Alternatives

Strategic Choice, Implementation, Feedback, and Control

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Step 1: Establish Mission and Objectives

Marketing

Worldwide, regional, national market share

Production

Production volume Economies of scale

Finance

Tax burden Capital structure

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Step 1: Establish Mission and Objectives

Profitability

• ROA

• ROE

• ROI

R & D

• Global patents

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Step 2: Assess External Environment

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Environmental Scanning Variables

Political and Economic Risk

Technological, Legal, Physical

Restraints

Nationalism International Competition

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Institutional Effects on

International Competition

• The extent to which countries have institutions to promote the rule of law to outside investors

Attractiveness of Overseas

Markets

• Creating barriers to entry in certain industries and making those industries more attractive (profitable) for incumbent firms

Entry Barriers and Industry

Attractiveness

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Institutional Effects on

International Competition

• The current U.S. antidumping laws place a foreign entrant at a disadvantage if accused of “dumping”.

Antidumping as an Entry

Barrier

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Step 3: Analyze Internal Factors

Internal Analysis Competitive Analysis

Key Success Factors: Technological capability:

Apple

Distribution channels: Wal-Mart

Promotion capabilities: Disney

Distinctive competencies

SWOT analysis

Comparative advantage

E-Business

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Strategic Decision-Making Models

EXHIBIT 6-6 A Hierarchical Model of Strategic Decision Making

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Step 4: Evaluate Global and International

Strategic Alternatives

Alternative Strategies

Global

Regionalization/Localization

Global Integrative

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Pressures to Globalize

Increasing competitive clout resulting from

regional trading blocs

Declining tariffs

Information Technology explosion

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Regionalization/Localization

Local markets are linked together within a region,

allowing local responsiveness.

The impetus:

Unique consumer preferences

Domestic subsidies

New production technologies

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Cage Distances Between Countries

Cultural Distance

Administrative Distance

Geographical Distance

Economic Distance

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Global Integrative Strategies

Full vertical and horizontal integration

Example: Dell

Factories in Ireland, Brazil, China, and so on

Assembly and delivery system from 47 locations around the world

Little inventory, ability to change operations quickly

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Step 5: Evaluate Entry Strategy Alternatives

Exporting

Licensing

Franchising

Contract Manufacturing

Offshoring Service Sector Outsourcing

Turnkey Operations

Management Contracts International Joint Ventures

Fully Owned Subsidiaries

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Comparative Management in Focus:

Strategic Planning for Emerging Markets

Increasing business opportunities for companies wanting to set up operations in or export to emerging markets

Different countries are at different levels of development and have different risk/return profiles

Usually entails higher risk

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Emerging Market Attractiveness for Retail

Strategies

Brazil 1 5 Uruguay 2 8 Chile 3 6 India 4 3 Kuwait 5 2 China 6 1 Saudi Arabia 7 4 Peru 8 9 U.A.E. 9 7 Turkey 10 18 Russia 14 10

Country 2011 Rank 2010 Rank

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Comparative Management in Focus:

Strategic Planning for Emerging Markets

One size does not fit all: different infrastructure,

socio-economic and regulatory challenges,

different environmental and geographic

constraints

Potential for innovation, not just new customers

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Top Three Strategic Objectives

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Number of Functions

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• New Strategies for Emerging Markets

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Operating Model for Emerging Markets

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Disconnected Governance Model

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The Influence of Culture on

Strategic Choice and Timing Entry

China and Japan have longer-term time horizons

than the United States.

High uncertainty avoidance cultures (e.g., Latin

American, African countries) prefer non-equity

modes of entry.

High power distance cultures (e.g., Arab countries

and Japan) tend to use more equity modes of

entry abroad.

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Conclusion

Proactive and reactive reasons for going

international

Rational planning; mission and objectives; threats

and opportunities; internal strengths and

weaknesses; entry strategies

Competitive analysis

Globalization vs. regionalization

E-business

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