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Prentice Chapter 6 1
Formulating Strategy
Chapter 6
Prentice Chapter 6 2
Chapter 6 - Overview
 Reasons for going international
 Strategic formulation process
 Steps in dev...
Prentice Chapter 6 3
Strategic Planning and Strategy
 The process by which a firm’s managers evaluate
the future prospect...
Prentice Chapter 6 4
Reasons for Going International
 Reactive Reasons
• Globalization of competitors
• Trade barriers
• ...
Prentice Chapter 6 5
Reasons for Going International
(contd.)
 Proactive Reasons
• Economies of scale
• Growth opportunit...
Prentice Chapter 6 6
The Strategic Management Process
(Exhibit 6-1)
Define/clarify mission
and objectives
Assess environme...
Prentice Chapter 6 7
The Strategic Management Process
(contd.)
Implement strategy through
complementary structure, systems...
Prentice Chapter 6 8
Steps in Developing International and
Global Strategies
 Mission and objectives
 Environmental asse...
Prentice Chapter 6 9
Environmental Scanning
 It is the process of gathering information and
forecasting relevant trends, ...
Prentice Chapter 6 10
Major Variables Covered in Environmental
Scanning
 Political instability
 Currency instability
 N...
Prentice Chapter 6 11
Internal Analysis
 Internal analysis determines which areas of the
firm’s operations represent stre...
Prentice Chapter 6 12
Approaches to World Markets
 Globalization is a term that refers to the
establishment of worldwide ...
Prentice Chapter 6 13
Pressures to Globalize
 Increasing competitive clout resulting from
regional trading blocs
 Declin...
Prentice Chapter 6 14
Pressures to Regionalize
 Unique consumer preferences resulting from
cultural or national differenc...
Prentice Chapter 6 15
Using E-Business for Global Expansion
 “The real story is the profound impact this
medium will have...
Prentice Chapter 6 16
Benefits of B2B
(Exhibit 6-6)
0 10 20 30 40 50 60 70
Better relationships with distributors/channels...
Prentice Chapter 6 17
Global B2B/B2C Strategy
To assess the potential competitive position of the
company, managers must a...
Prentice Chapter 6 18
Conditions Favoring Going E-Global
“The global beachhead strategy makes sense
when trade is global i...
Prentice Chapter 6 19
Conditions Favoring Going E-Local
“[The e-local/regional approach] is preferable
under three conditi...
Prentice Chapter 6 20
Entry Strategy Alternatives
(In order of ascending risk)
 Exporting
 Licensing
 Franchising
 Con...
Prentice Chapter 6 21
International Entry Strategies: Advantages
and Critical Success Factors
(Exhibit 6-7)
Strategy Advan...
Prentice Chapter 6 22
International Entry Strategies: Advantages
and Critical Success Factors
(contd.)
Strategy Advantages...
Prentice Chapter 6 23
International Entry Strategies: Advantages
and Critical Success Factors
(contd.)
Strategy Advantages...
Prentice Chapter 6 24
Factors Affecting Choice of International
Entry Mode
(Exhibit 6-8)
Factor Category
Firm Factors
Exam...
Prentice Chapter 6 25
Factors Affecting Choice of International
Entry Mode
(contd.)
 Industry Factors
 Location Factors
...
Prentice Chapter 6 26
Factors Affecting Choice of International
Entry Mode
(contd.)
 Venture-specific Factors  Value of ...
Prentice Chapter 6 27
Strategic Choice
The strategic choice of one or more of the entry
strategies will depend on
1) a cri...
Prentice Chapter 6 28
Alliance-based Entry Modes
Alliance-based entry modes are more suitable
under the following conditio...
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Formulation

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Transcript of "Formulation"

  1. 1. Prentice Chapter 6 1 Formulating Strategy Chapter 6
  2. 2. Prentice Chapter 6 2 Chapter 6 - Overview  Reasons for going international  Strategic formulation process  Steps in developing international and global strategies
  3. 3. Prentice Chapter 6 3 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.
  4. 4. Prentice Chapter 6 4 Reasons for Going International  Reactive Reasons • Globalization of competitors • Trade barriers • Regulations and restrictions • Customer demands
  5. 5. Prentice Chapter 6 5 Reasons for Going International (contd.)  Proactive Reasons • Economies of scale • Growth opportunities • Resource access and cost savings • Incentives
  6. 6. Prentice Chapter 6 6 The Strategic Management Process (Exhibit 6-1) Define/clarify mission and objectives Assess environment for threats, opportunities Assess internal strengths and weaknesses Consider alternative strategies using competitive analysis Choose strategy StrategicPlanningProcess
  7. 7. Prentice Chapter 6 7 The Strategic Management Process (contd.) Implement strategy through complementary structure, systems, and operational processes Set up control and evaluation systems to ensure success, feedback to planning ImplementationProcess
  8. 8. Prentice Chapter 6 8 Steps in Developing International and Global Strategies  Mission and objectives  Environmental assessment  Internal analysis  Competitive analysis  Global and international strategic alternatives  Approaches to world markets  Global Integrative strategies  Using e-business for global expansion  E-global or e-local  Entry strategy alternatives  Strategic choice
  9. 9. Prentice Chapter 6 9 Environmental Scanning  It is the process of gathering information and forecasting relevant trends, competitive actions, and circumstances that will affect operations in geographic areas of potential interest.
  10. 10. Prentice Chapter 6 10 Major Variables Covered in Environmental Scanning  Political instability  Currency instability  Nationalism  International competition
  11. 11. Prentice Chapter 6 11 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
  12. 12. Prentice Chapter 6 12 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 multilocal) is where local markets are linked together within a region, allowing more local responsiveness and specialization.
  13. 13. Prentice Chapter 6 13 Pressures to Globalize  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.
  14. 14. Prentice Chapter 6 14 Pressures to Regionalize  Unique consumer preferences resulting from cultural or national differences  Domestic subsidies  New production technologies that facilitate product variation for less cost than before.
  15. 15. Prentice Chapter 6 15 Using E-Business for Global 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
  16. 16. Prentice Chapter 6 16 Benefits of B2B (Exhibit 6-6) 0 10 20 30 40 50 60 70 Better relationships with distributors/channels Improved customer loyalty Rapid entrance into new geographical markets Better customer service Lower operational costs Expanded sales channel
  17. 17. Prentice Chapter 6 17 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?
  18. 18. Prentice Chapter 6 18 Conditions Favoring Going 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
  19. 19. Prentice Chapter 6 19 Conditions Favoring Going 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
  20. 20. Prentice Chapter 6 20 Entry Strategy Alternatives (In order of ascending risk)  Exporting  Licensing  Franchising  Contract manufacturing  Turnkey operations  Management contracts  International joint ventures (IJVs)  Fully owned subsidiaries
  21. 21. Prentice Chapter 6 21 International Entry Strategies: Advantages and Critical Success Factors (Exhibit 6-7) Strategy Advantages Critical Success Factors Exporting Low risk Choice of distributor No long-term assets Transportation costs Easy market access and exit Tariffs and quotas Licensing No asset ownership risk Quality and trustworthiness of licensee Fast market access Appropriability of intellectual property Avoids regulations and tariffs Host-country royalty limits Franchising Little investment or risk Quality control of franchisee and franchise operations Fast market access Small business expansion
  22. 22. Prentice Chapter 6 22 International Entry Strategies: Advantages and Critical Success Factors (contd.) Strategy Advantages Critical Success Factors Contract Limited cost and risk Reliability and quality of manufacturing local contractor Short-term commitment Operational control and human rights issues Turnkey operations Revenue from skills and Reliable infrastructure technology where FDI Sufficient local supplies and labor restricted Repatriable profits Reliability of any govt. partner Management Low-risk access to further Opportunity gain longer-term contracts strategies position
  23. 23. Prentice Chapter 6 23 International Entry Strategies: Advantages and Critical Success Factors (contd.) Strategy Advantages Critical Success Factors Joint ventures Insider access to markets Strategic fit and complementarity Share costs and risk of partner, markets, products Leverage partner’s skill base, Ability to protect technology technology, local contacts Competitive advantage Ability to share control Cultural adaptability of partners Wholly owned Realize all revenues and Ability to access and control subsidiaries control economic, political and currency Global economies of scale risk Strategic coordination Ability to get local acceptance Protect technology and Repatriability of profits skill base Acquisition provides rapid entry into established market
  24. 24. Prentice Chapter 6 24 Factors Affecting Choice of International Entry Mode (Exhibit 6-8) Factor Category Firm Factors Examples  International experience  Core competencies  Core capabilities  National culture of home country  Corporate culture  Firm strategy, goals, and motivation
  25. 25. Prentice Chapter 6 25 Factors Affecting Choice of International Entry Mode (contd.)  Industry Factors  Location Factors  Industry globalization  Industry growth rate  Technical intensity of industry  Extent of scale and location economies  Country risk  Cultural distance  Knowledge of local market  Potential of local market  Competition in local market
  26. 26. Prentice Chapter 6 26 Factors Affecting Choice of International Entry Mode (contd.)  Venture-specific Factors  Value of firm – assets risked in foreign location  Extent to which know-how involved in venture is informal (tacit)  Costs of making or enforcing contracts with local partners  Size of planned foreign venture  Intent to conduct research and development with local partners
  27. 27. Prentice Chapter 6 27 Strategic Choice The strategic choice of one or more of the entry strategies will depend on 1) a critical evaluation of the advantages (and disadvantages of each in relation to the firm’s capabilities, 2) the critical environmental factors, and 3) the contribution that each choice would make to the overall mission and objectives of the company.
  28. 28. Prentice Chapter 6 28 Alliance-based Entry Modes Alliance-based entry modes are more suitable under the following conditions: • Physical, linguistic, and cultural distance between the home and host countries is high • The subsidiary would have low operational integration with the rest of the multinational operations • The risk of asymmetric learning by the partner is low • The company is short of capital • Government regulations require local equity participation

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