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  • 1. Chapter Twelve International Competitive Strategy McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
  • 2. Subject Content to Date
    • Chpt. I : I nternational Business
      • Why international business understanding/ experience is important to business people….
      • What is Globalization ? Definitions ….
    • Chpt 2 : International Trade
      • small/medium size firms exporting
      • Foreign investment ( portfolio/FDI ) – Direction
    • Chpt 3: Theories of International Trade
      • Mercantilism/ Absolute advantage/Comparative advantage/ factor endowments
    • Chpt. 4 : International Institutions
      • from an international business perspective
  • 3. Review Continued…..
    • Chpt. 5: Socio-cultural Forces
      • understanding is the first step to achieving a Competitive advantage (MNG’s need to get beyond ethnocentricity- study- Act!!)
      • Remember : Society is composed of people& their culture , so business people must study socio-cultural issues/forces to be successful!!
    • Chpt 6: Managing Natural Resources
      • The basic factors around which we build business models and strategies
      • Other basic factors that influence business- Political, Legal, economic, &socio-economic
    • Chpt 7: Economic & Socio-economic Forces
      • Uncontrollable forces are very critical to understand and be aware of….
    • Chpt 8: Political(Ideological) Forces
  • 4. Changing Gears…
    • Until now we have studied the external environment
    • NOW we will start looking at the business aspects
    • First, we turn our attention to Business Strategies in international business
      • Including actions managers can take to improve/enhance/grow “competitive advantage”
    • This is the heart of international business!!!!
    • Our Focus will be on International Competitive Strategy (Organizational Environment)
      • Chpt 12: International Competitive Strategy
      • Chpt 13: Organizational Design & Control
      • Cpt. 14 : Assessing International Markets
      • Chpt 15: International Entry Modes
      • Chpt 17 : Marketing Intentionally
      • Chpt 19 : International Human Resource Management
    Exam 3
  • 5. Learning Objectives
    • Explain international strategy, competencies, and international competitive advantage
    • Describe the steps in the global strategic planning process
    • Explain the purpose of mission statements, vision statements, values statements, objectives, quantified goals, and strategies
    • Explain home replication, multidomestic, regional, global, and transnational strategies and when to use them
    • Describe the methods of and new directions in strategic planning
    • Discuss the importance of industrial espionage
    • Describe the sources of competitive information
  • 6. Motivations For Companies To Pursue IB Opportunities
    • Increase profits and sales
    • Access new markets
    • Protect existing markets, profits, and sales
    • Satisfy overall desire for growth
  • 7. The Competitive Challenge Facing Managers of International Business
    • Managers must
      • quickly identify and exploit opportunities wherever they occur, domestically and internationally
      • fully understand why, how, where, and when to do business in specific world markets
      • know the company’s strategic mission, its strengths and its weaknesses
  • 8. What is International Strategy?
    • International strategy refers to the way firms make choices about acquiring and using scarce resources in order to achieve their international objectives
    • It involves
      • decisions about which markets to enter with which products, when and how
      • all the various functions and activities of the company and how they interact
      • ensuring that strategy is consistent across functions, products, and regional units
      • a variety of unique demands associated with operating internationally
  • 9. International Strategy
    • A company’s goal is to achieve and maintain a unique and valuable position both within a nation and globally
    • Competitive advantage refers to the ability of a company to have higher rates of profits than its competitors
  • 10. Competitive Advantage
    • To create a sustainable competitive advantage, a company tries to develop skills that
      • create value for customers
      • are rare
      • are difficult to imitate or substitute for
      • are organized in a way that the company can fully exploit
  • 11. Why Plan Globally?
    • Companies face forces that are increasingly complex, global and subject to rapid change
      • Political
      • Economic
      • Social
      • Technological
      • Legal
      • Environmental
  • 12. Why is Global Strategic Planning Important?
    • Global strategic planning allows managers to
      • identify opportunities and threats
      • formulate strategies to handle them
      • stipulate how to finance and manage the strategies’ implementation
    • It provides
      • consistency of action
      • a thorough, systematic foundation for making decisions
  • 13. Global Strategic Planning Process
    • The global strategic planning process provides a formal structure with which managers
      • define company’s business and mission
      • analyze the company’s internal and external environments
      • set corporate objectives
      • quantify goals
      • formulate strategies
      • make a tactical plan
  • 14. Analyze Corporate Controllable Variables
    • A controllable forces analysis
      • is a situational analysis
      • involves forecasting
      • involves a value chain analysis of firm’s activities from raw materials to end products to final customer delivery
        • Who are the target customers?
        • What value do we deliver to them?
        • How will we create this value?
  • 15. The Value Chain Adapted from M. E. Porter, Competitive Advantage, New York: Free Press, 1985 LO2
  • 16. Analyze Corporate Controllable Variables
    • Competitive advantage can be gained through leveraging organizational knowledge across national borders
    • Knowledge as a Controllable Corporate Resource
      • Capabilities of employees
      • Structures, systems, organizational routines
    • Build knowledge database and transfer best practices
    • Protect tacit and explicit knowledge from competitors
  • 17. Tacit - Explicit Knowledge
    • Tacit Knowledge
      • Embedded in individuals
      • Difficult to express in words, pictures, formulas
      • Difficult to transmit to others
      • Lost when a valued manager leaves
    • Explicit knowledge
      • Easy to communicate with words, pictures, formulas, etc.
      • Can be documented in company-wide knowledge bases
  • 18. Vision and Mission Statements
    • Broad statements that communicate to the corporation’s stakeholders
      • what the company is
      • where it is going
      • the values that will guide the organization’s members behavior
  • 19. Define the Corporate Business, Vision, and Mission Statements
    • The mission statement refers to a road statement that defines the organization’s purpose and scope
    • The vision statement describes the company’s desired future position if it can acquire the necessary competencies and successfully implement its strategy
    • The values statement is a clear and concise description of the fundamental values, beliefs, and priorities of the organization’s members
  • 20. Set Corporate Objectives
    • Objectives
      • Direct the firm’s course of action
      • Maintain action within the mission’s boundaries
      • Ensure the mission’s continuing existence
    • To implement an effective strategy quantifiable objectives are important
  • 21. Formulate Competitive Strategies
    • Competitive strategies and corresponding action plans enable organizations to reach their objectives
    • The strategic planning process will formulate alternative competitive strategies along with plausible action plans
      • Conscious choice of the course to be followed
  • 22. Formulate Competitive Strategies For the International Market Place
    • Formulation of international strategy must consider two opposing forces
      • Reduction of costs : achieved best through standardization and global integration of operations
      • Adaptation to local markets : achieved best through more local autonomy
    • Basic strategy types address pressures for cost reduction and local adaptation
      • Home Replication (centralized Product Development )
      • Multidomestic ( Strong pressure to Adapt Products to Local Markets- Decentralization )
      • Regional
      • Global (Strong Pressure to Reduce cost, low pressure to adapt locally)
      • Transnational (Strong Pressure to reduce cost and to adapt locally)
  • 23. Cost and Adaptation Pressures and Their Implications for International Strategies Adapted from C. Bartlett and S. Ghoshal. Managing Across Borders: The Transnational Solution , 2002 2nd ed., Cambridge: Harvard Business Press LO4
  • 24. Home Replication Strategy
    • The home replication strategy centralizes product development functions in the home country
        • developed products are then transferred to foreign markets in order to capture additional value
          • microsoft, mcdonald’s
    • The company has to possess a distinctive competence that local companies lack
    • Headquarters maintains control over marketing and product strategy
    • Subsidiaries leverage the home country capabilities
  • 25. Multidomestic Strategy
    • The multidomestic strategy is used when there is strong pressure for adaptation to local market
    • Decision making is decentralized, allowing for quick change
    • Leads to an increased cost structure
    • Excessive adaptation may take away from product’s distinctiveness
    • Cost and complexity of coordination can be substantial
  • 26. Global Strategy
    • The global strategy is used when a company faces strong pressure to reduce costs and limited pressure to adapt products for local markets
    • Strategy and decision making centralized
    • Company offers standardized products and services
    • Value chain activities are in only one or a few areas
    • Limited ability to adjust to meet customer needs
    • Higher transportation costs for physical products
  • 27. Transnational Strategy
    • The transnational strategy is used when pressures for cost effectiveness and local adaptation are equally important
    • Company locates activities where most beneficial for the firm globally
      • Upstream value chain activities will be more centralized
      • Downstream activities will be more localized
    • Achieving an optimal balance is challenging
    • Strategic decisions, structures and systems will be complex
  • 28. Standardization and Planning
    • Not all of a firm’s activities confront the same mix of globalization and localization pressures
    • R&D and manufacturing tend to be more standardized and coordinated world-wide
    • Marketing and HRM activities tend to be more locally adapted
  • 29. Scenarios
    • Scenarios refer to multiple, plausible stories about the future
    • “ What if” questions can reveal weaknesses in present strategies
    • Types of subjects for scenarios include
      • Large and sudden changes in sales (up or down)
      • Sudden increases in price of raw materials
      • Sudden tax increases
      • Change in the political party in power
  • 30. Types of Plans That Can Result From Scenarios
    • Contingency Plans
      • For the best-or-worst-case scenarios
      • For critical events that could have a severe impact on the firm
    • Tactical Plans (Operational)
      • Spell out in detail how objectives will be reached in each case
      • Short-term
  • 31. Strategic Plan Features: Sales Forecast and Budget
    • Sales Forecast
      • Provides management with an estimate of the revenue to be received and the units to be sold
      • Provides assumptions for cost and capital requirements
    • Budget
      • During planning, budgets coordinate the functions within the firm and provide management with a detailed statement of future operating results
  • 32. Plan Implementation Facilitators: Policies
    • Policies are broad guidelines to assist lower-level managers in handling recurring problems
    • Permit discretionary action and interpretation
    • The object is to economize managerial time and promote consistency among the various operating units
  • 33. Plan Implementation Facilitators: Procedures
    • Procedures prescribe how certain activities will be carried out
    • Ensure uniform action on the part of all corporate members
    • Facilitate comparison among operational units
  • 34. Methods of Planning
    • Top-down planning
      • Begins at the highest level in the organization and continues downward
        • definition of the business
        • mission statement
        • company objectives
        • financial assumptions
        • content of the plan
        • special issues
  • 35. Methods of Planning
    • Bottom-Up Planning
      • Begins at the lowest level in the organization and continues upward
    • Iterative Planning
      • Repetition of the bottom-up or top-down planning process until all differences are reconciled
  • 36. New Directions in Planning
    • Who does the strategic planning?
      • Top down? Regional input?
      • Firms have introduced innovation to the planning process
      • Firms consult with customers and suppliers who have firsthand experience with the firm’s markets
  • 37. New Directions in Planning
    • How Planning is Done
      • Many firms have moved toward less structured formats and much shorter documents
    • Contents of the Plan
      • Top managers are much more concerned with issues, strategies, and implementation
  • 38. Competitor Analysis
    • Competitor Analysis
      • Process in which principal competitors are identified and their objectives, strengths, weaknesses, and product lines are assessed
    • Industrial Espionage
      • Act of spying on competitors to learn secrets about strategy and operations
  • 39. Competitor Intelligence Systems
    • Competitor intelligence systems are procedures for gathering, analyzing, and disseminating information about competitors
    • Benefits include ability to
      • improve bidding success
      • identify competitors’ key customers
      • identify plant or other facility expansion plans
      • improve understanding of competitors’ products and processes
  • 40. Sources of Information
    • Source of information within the firm include sales representatives, librarians, and technical and R&D people
    • Information can also be sourced from published material including technical journals, databases, the internet, industry reports, and public documents
    • Suppliers and customers can be information sources
    • The employees of competitors’ can provide information
    • Direct observation or analysis of physical evidence is another way to gain information
      • Technical people
      • Reverse engineering
  • 41. Benchmarking
    • Benchmarking measures a firm’s performance against the performance of others
      • Internal : compares firm’s operations amongst each other
      • Competitive : compares firm with a direct competitor
      • Functional : compares similar functions of firms in industry
      • Generic : compares operations in unrelated industries