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  1. 1. Chapter Twelve International Competitive Strategy McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Subject Content to Date <ul><li>Chpt. I : I nternational Business </li></ul><ul><ul><li>Why international business understanding/ experience is important to business people…. </li></ul></ul><ul><ul><li>What is Globalization ? Definitions …. </li></ul></ul><ul><li>Chpt 2 : International Trade </li></ul><ul><ul><li>small/medium size firms exporting </li></ul></ul><ul><ul><li>Foreign investment ( portfolio/FDI ) – Direction </li></ul></ul><ul><li>Chpt 3: Theories of International Trade </li></ul><ul><ul><li>Mercantilism/ Absolute advantage/Comparative advantage/ factor endowments </li></ul></ul><ul><li>Chpt. 4 : International Institutions </li></ul><ul><ul><li>from an international business perspective </li></ul></ul><ul><ul><li>U.N./ NAFTA/ EU/ MERCOSUR/OTHERS </li></ul></ul>
  3. 3. Review Continued….. <ul><li>Chpt. 5: Socio-cultural Forces </li></ul><ul><ul><li>understanding is the first step to achieving a Competitive advantage (MNG’s need to get beyond ethnocentricity- study- Act!!) </li></ul></ul><ul><ul><li>Remember : Society is composed of people& their culture , so business people must study socio-cultural issues/forces to be successful!! </li></ul></ul><ul><li>Chpt 6: Managing Natural Resources </li></ul><ul><ul><li>The basic factors around which we build business models and strategies </li></ul></ul><ul><ul><li>Other basic factors that influence business- Political, Legal, economic, &socio-economic </li></ul></ul><ul><li>Chpt 7: Economic & Socio-economic Forces </li></ul><ul><ul><li>Uncontrollable forces are very critical to understand and be aware of…. </li></ul></ul><ul><li>Chpt 8: Political(Ideological) Forces </li></ul>
  4. 4. Changing Gears… <ul><li>Until now we have studied the external environment </li></ul><ul><li>NOW we will start looking at the business aspects </li></ul><ul><li>First, we turn our attention to Business Strategies in international business </li></ul><ul><ul><li>Including actions managers can take to improve/enhance/grow “competitive advantage” </li></ul></ul><ul><li>This is the heart of international business!!!! </li></ul><ul><li>Our Focus will be on International Competitive Strategy (Organizational Environment) </li></ul><ul><ul><li>Chpt 12: International Competitive Strategy </li></ul></ul><ul><ul><li>Chpt 13: Organizational Design & Control </li></ul></ul><ul><ul><li>Cpt. 14 : Assessing International Markets </li></ul></ul><ul><ul><li>Chpt 15: International Entry Modes </li></ul></ul><ul><ul><li>Chpt 17 : Marketing Intentionally </li></ul></ul><ul><ul><li>Chpt 19 : International Human Resource Management </li></ul></ul>Exam 3
  5. 5. Learning Objectives <ul><li>Explain international strategy, competencies, and international competitive advantage </li></ul><ul><li>Describe the steps in the global strategic planning process </li></ul><ul><li>Explain the purpose of mission statements, vision statements, values statements, objectives, quantified goals, and strategies </li></ul><ul><li>Explain home replication, multidomestic, regional, global, and transnational strategies and when to use them </li></ul><ul><li>Describe the methods of and new directions in strategic planning </li></ul><ul><li>Discuss the importance of industrial espionage </li></ul><ul><li>Describe the sources of competitive information </li></ul>
  6. 6. Motivations For Companies To Pursue IB Opportunities <ul><li>Increase profits and sales </li></ul><ul><li>Access new markets </li></ul><ul><li>Protect existing markets, profits, and sales </li></ul><ul><li>Satisfy overall desire for growth </li></ul>LO1
  7. 7. The Competitive Challenge Facing Managers of International Business <ul><li>Managers must </li></ul><ul><ul><li>quickly identify and exploit opportunities wherever they occur, domestically and internationally </li></ul></ul><ul><ul><li>fully understand why, how, where, and when to do business in specific world markets </li></ul></ul><ul><ul><li>know the company’s strategic mission, its strengths and its weaknesses </li></ul></ul>LO1
  8. 8. What is International Strategy? <ul><li>International strategy refers to the way firms make choices about acquiring and using scarce resources in order to achieve their international objectives </li></ul><ul><li>It involves </li></ul><ul><ul><li>decisions about which markets to enter with which products, when and how </li></ul></ul><ul><ul><li>all the various functions and activities of the company and how they interact </li></ul></ul><ul><ul><li>ensuring that strategy is consistent across functions, products, and regional units </li></ul></ul><ul><ul><li>a variety of unique demands associated with operating internationally </li></ul></ul>LO1
  9. 9. International Strategy <ul><li>A company’s goal is to achieve and maintain a unique and valuable position both within a nation and globally </li></ul><ul><li>Competitive advantage refers to the ability of a company to have higher rates of profits than its competitors </li></ul>LO1
  10. 10. Competitive Advantage <ul><li>To create a sustainable competitive advantage, a company tries to develop skills that </li></ul><ul><ul><li>create value for customers </li></ul></ul><ul><ul><li>are rare </li></ul></ul><ul><ul><li>are difficult to imitate or substitute for </li></ul></ul><ul><ul><li>are organized in a way that the company can fully exploit </li></ul></ul>LO1
  11. 11. Why Plan Globally? <ul><li>Companies face forces that are increasingly complex, global and subject to rapid change </li></ul><ul><ul><li>Political </li></ul></ul><ul><ul><li>Economic </li></ul></ul><ul><ul><li>Social </li></ul></ul><ul><ul><li>Technological </li></ul></ul><ul><ul><li>Legal </li></ul></ul><ul><ul><li>Environmental </li></ul></ul>LO1
  12. 12. Why is Global Strategic Planning Important? <ul><li>Global strategic planning allows managers to </li></ul><ul><ul><li>identify opportunities and threats </li></ul></ul><ul><ul><li>formulate strategies to handle them </li></ul></ul><ul><ul><li>stipulate how to finance and manage the strategies’ implementation </li></ul></ul><ul><li>It provides </li></ul><ul><ul><li>consistency of action </li></ul></ul><ul><ul><li>a thorough, systematic foundation for making decisions </li></ul></ul>LO1
  13. 13. Global Strategic Planning Process <ul><li>The global strategic planning process provides a formal structure with which managers </li></ul><ul><ul><li>define company’s business and mission </li></ul></ul><ul><ul><li>analyze the company’s internal and external environments </li></ul></ul><ul><ul><li>set corporate objectives </li></ul></ul><ul><ul><li>quantify goals </li></ul></ul><ul><ul><li>formulate strategies </li></ul></ul><ul><ul><li>make a tactical plan </li></ul></ul>LO2
  14. 14. Analyze Corporate Controllable Variables <ul><li>A controllable forces analysis </li></ul><ul><ul><li>is a situational analysis </li></ul></ul><ul><ul><li>involves forecasting </li></ul></ul><ul><ul><li>involves a value chain analysis of firm’s activities from raw materials to end products to final customer delivery </li></ul></ul><ul><ul><ul><li>Who are the target customers? </li></ul></ul></ul><ul><ul><ul><li>What value do we deliver to them? </li></ul></ul></ul><ul><ul><ul><li>How will we create this value? </li></ul></ul></ul>LO2
  15. 15. The Value Chain Adapted from M. E. Porter, Competitive Advantage, New York: Free Press, 1985 LO2
  16. 16. Analyze Corporate Controllable Variables <ul><li>Competitive advantage can be gained through leveraging organizational knowledge across national borders </li></ul><ul><li>Knowledge as a Controllable Corporate Resource </li></ul><ul><ul><li>Capabilities of employees </li></ul></ul><ul><ul><li>Structures, systems, organizational routines </li></ul></ul><ul><li>Build knowledge database and transfer best practices </li></ul><ul><li>Protect tacit and explicit knowledge from competitors </li></ul>LO2
  17. 17. Tacit - Explicit Knowledge <ul><li>Tacit Knowledge </li></ul><ul><ul><li>Embedded in individuals </li></ul></ul><ul><ul><li>Difficult to express in words, pictures, formulas </li></ul></ul><ul><ul><li>Difficult to transmit to others </li></ul></ul><ul><ul><li>Lost when a valued manager leaves </li></ul></ul><ul><li>Explicit knowledge </li></ul><ul><ul><li>Easy to communicate with words, pictures, formulas, etc. </li></ul></ul><ul><ul><li>Can be documented in company-wide knowledge bases </li></ul></ul>LO2
  18. 18. Vision and Mission Statements <ul><li>Broad statements that communicate to the corporation’s stakeholders </li></ul><ul><ul><li>what the company is </li></ul></ul><ul><ul><li>where it is going </li></ul></ul><ul><ul><li>the values that will guide the organization’s members behavior </li></ul></ul>LO3
  19. 19. Define the Corporate Business, Vision, and Mission Statements <ul><li>The mission statement refers to a road statement that defines the organization’s purpose and scope </li></ul><ul><li>The vision statement describes the company’s desired future position if it can acquire the necessary competencies and successfully implement its strategy </li></ul><ul><li>The values statement is a clear and concise description of the fundamental values, beliefs, and priorities of the organization’s members </li></ul>LO3
  20. 20. Set Corporate Objectives <ul><li>Objectives </li></ul><ul><ul><li>Direct the firm’s course of action </li></ul></ul><ul><ul><li>Maintain action within the mission’s boundaries </li></ul></ul><ul><ul><li>Ensure the mission’s continuing existence </li></ul></ul><ul><li>To implement an effective strategy quantifiable objectives are important </li></ul>LO3
  21. 21. Formulate Competitive Strategies <ul><li>Competitive strategies and corresponding action plans enable organizations to reach their objectives </li></ul><ul><li>The strategic planning process will formulate alternative competitive strategies along with plausible action plans </li></ul><ul><ul><li>Conscious choice of the course to be followed </li></ul></ul>LO3
  22. 22. Formulate Competitive Strategies For the International Market Place <ul><li>Formulation of international strategy must consider two opposing forces </li></ul><ul><ul><li>Reduction of costs : achieved best through standardization and global integration of operations </li></ul></ul><ul><ul><li>Adaptation to local markets : achieved best through more local autonomy </li></ul></ul><ul><li>Basic strategy types address pressures for cost reduction and local adaptation </li></ul><ul><ul><li>Home Replication (centralized Product Development ) </li></ul></ul><ul><ul><li>Multidomestic ( Strong pressure to Adapt Products to Local Markets- Decentralization ) </li></ul></ul><ul><ul><li>Regional </li></ul></ul><ul><ul><li>Global (Strong Pressure to Reduce cost, low pressure to adapt locally) </li></ul></ul><ul><ul><li>Transnational (Strong Pressure to reduce cost and to adapt locally) </li></ul></ul>LO4
  23. 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. 24. Home Replication Strategy <ul><li>The home replication strategy centralizes product development functions in the home country </li></ul><ul><ul><ul><li>developed products are then transferred to foreign markets in order to capture additional value </li></ul></ul></ul><ul><ul><ul><ul><li>microsoft, mcdonald’s </li></ul></ul></ul></ul><ul><li>The company has to possess a distinctive competence that local companies lack </li></ul><ul><li>Headquarters maintains control over marketing and product strategy </li></ul><ul><li>Subsidiaries leverage the home country capabilities </li></ul>LO4
  25. 25. Multidomestic Strategy <ul><li>The multidomestic strategy is used when there is strong pressure for adaptation to local market </li></ul><ul><li>Decision making is decentralized, allowing for quick change </li></ul><ul><li>Leads to an increased cost structure </li></ul><ul><li>Excessive adaptation may take away from product’s distinctiveness </li></ul><ul><li>Cost and complexity of coordination can be substantial </li></ul>LO4
  26. 26. Global Strategy <ul><li>The global strategy is used when a company faces strong pressure to reduce costs and limited pressure to adapt products for local markets </li></ul><ul><li>Strategy and decision making centralized </li></ul><ul><li>Company offers standardized products and services </li></ul><ul><li>Value chain activities are in only one or a few areas </li></ul><ul><li>Limited ability to adjust to meet customer needs </li></ul><ul><li>Higher transportation costs for physical products </li></ul>LO4
  27. 27. Transnational Strategy <ul><li>The transnational strategy is used when pressures for cost effectiveness and local adaptation are equally important </li></ul><ul><li>Company locates activities where most beneficial for the firm globally </li></ul><ul><ul><li>Upstream value chain activities will be more centralized </li></ul></ul><ul><ul><li>Downstream activities will be more localized </li></ul></ul><ul><li>Achieving an optimal balance is challenging </li></ul><ul><li>Strategic decisions, structures and systems will be complex </li></ul>LO4
  28. 28. Standardization and Planning <ul><li>Not all of a firm’s activities confront the same mix of globalization and localization pressures </li></ul><ul><li>R&D and manufacturing tend to be more standardized and coordinated world-wide </li></ul><ul><li>Marketing and HRM activities tend to be more locally adapted </li></ul>LO4
  29. 29. Scenarios <ul><li>Scenarios refer to multiple, plausible stories about the future </li></ul><ul><li>“ What if” questions can reveal weaknesses in present strategies </li></ul><ul><li>Types of subjects for scenarios include </li></ul><ul><ul><li>Large and sudden changes in sales (up or down) </li></ul></ul><ul><ul><li>Sudden increases in price of raw materials </li></ul></ul><ul><ul><li>Sudden tax increases </li></ul></ul><ul><ul><li>Change in the political party in power </li></ul></ul>LO4
  30. 30. Types of Plans That Can Result From Scenarios <ul><li>Contingency Plans </li></ul><ul><ul><li>For the best-or-worst-case scenarios </li></ul></ul><ul><ul><li>For critical events that could have a severe impact on the firm </li></ul></ul><ul><li>Tactical Plans (Operational) </li></ul><ul><ul><li>Spell out in detail how objectives will be reached in each case </li></ul></ul><ul><ul><li>Short-term </li></ul></ul>LO4
  31. 31. Strategic Plan Features: Sales Forecast and Budget <ul><li>Sales Forecast </li></ul><ul><ul><li>Provides management with an estimate of the revenue to be received and the units to be sold </li></ul></ul><ul><ul><li>Provides assumptions for cost and capital requirements </li></ul></ul><ul><li>Budget </li></ul><ul><ul><li>During planning, budgets coordinate the functions within the firm and provide management with a detailed statement of future operating results </li></ul></ul>LO4
  32. 32. Plan Implementation Facilitators: Policies <ul><li>Policies are broad guidelines to assist lower-level managers in handling recurring problems </li></ul><ul><li>Permit discretionary action and interpretation </li></ul><ul><li>The object is to economize managerial time and promote consistency among the various operating units </li></ul>LO4
  33. 33. Plan Implementation Facilitators: Procedures <ul><li>Procedures prescribe how certain activities will be carried out </li></ul><ul><li>Ensure uniform action on the part of all corporate members </li></ul><ul><li>Facilitate comparison among operational units </li></ul>LO4
  34. 34. Methods of Planning <ul><li>Top-down planning </li></ul><ul><ul><li>Begins at the highest level in the organization and continues downward </li></ul></ul><ul><ul><ul><li>definition of the business </li></ul></ul></ul><ul><ul><ul><li>mission statement </li></ul></ul></ul><ul><ul><ul><li>company objectives </li></ul></ul></ul><ul><ul><ul><li>financial assumptions </li></ul></ul></ul><ul><ul><ul><li>content of the plan </li></ul></ul></ul><ul><ul><ul><li>special issues </li></ul></ul></ul>LO4
  35. 35. Methods of Planning <ul><li>Bottom-Up Planning </li></ul><ul><ul><li>Begins at the lowest level in the organization and continues upward </li></ul></ul><ul><li>Iterative Planning </li></ul><ul><ul><li>Repetition of the bottom-up or top-down planning process until all differences are reconciled </li></ul></ul>LO4
  36. 36. New Directions in Planning <ul><li>Who does the strategic planning? </li></ul><ul><ul><li>Top down? Regional input? </li></ul></ul><ul><ul><li>Firms have introduced innovation to the planning process </li></ul></ul><ul><ul><li>Firms consult with customers and suppliers who have firsthand experience with the firm’s markets </li></ul></ul>LO5
  37. 37. New Directions in Planning <ul><li>How Planning is Done </li></ul><ul><ul><li>Many firms have moved toward less structured formats and much shorter documents </li></ul></ul><ul><li>Contents of the Plan </li></ul><ul><ul><li>Top managers are much more concerned with issues, strategies, and implementation </li></ul></ul>LO5
  38. 38. Competitor Analysis <ul><li>Competitor Analysis </li></ul><ul><ul><li>Process in which principal competitors are identified and their objectives, strengths, weaknesses, and product lines are assessed </li></ul></ul><ul><li>Industrial Espionage </li></ul><ul><ul><li>Act of spying on competitors to learn secrets about strategy and operations </li></ul></ul>LO6
  39. 39. Competitor Intelligence Systems <ul><li>Competitor intelligence systems are procedures for gathering, analyzing, and disseminating information about competitors </li></ul><ul><li>Benefits include ability to </li></ul><ul><ul><li>improve bidding success </li></ul></ul><ul><ul><li>identify competitors’ key customers </li></ul></ul><ul><ul><li>identify plant or other facility expansion plans </li></ul></ul><ul><ul><li>improve understanding of competitors’ products and processes </li></ul></ul>LO6
  40. 40. Sources of Information <ul><li>Source of information within the firm include sales representatives, librarians, and technical and R&D people </li></ul><ul><li>Information can also be sourced from published material including technical journals, databases, the internet, industry reports, and public documents </li></ul><ul><li>Suppliers and customers can be information sources </li></ul><ul><li>The employees of competitors’ can provide information </li></ul><ul><li>Direct observation or analysis of physical evidence is another way to gain information </li></ul><ul><ul><li>Technical people </li></ul></ul><ul><ul><li>Reverse engineering </li></ul></ul>LO6
  41. 41. Benchmarking <ul><li>Benchmarking measures a firm’s performance against the performance of others </li></ul><ul><ul><li>Internal : compares firm’s operations amongst each other </li></ul></ul><ul><ul><li>Competitive : compares firm with a direct competitor </li></ul></ul><ul><ul><li>Functional : compares similar functions of firms in industry </li></ul></ul><ul><ul><li>Generic : compares operations in unrelated industries </li></ul></ul>LO6