International strategic management
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This document provides an overview of a lecture on international strategic management. It discusses: - The objectives of the lecture which are to characterize the challenges of international strategic management, assess strategic alternatives, distinguish components of international strategy, describe the strategic management process, and identify strategy levels. - International strategic management is defined as an ongoing planning process to formulate and implement strategies to compete internationally. - The strategic planning process and fundamental questions of strategy are outlined. - Challenges of international business and sources of competitive advantage are identified. - The main strategic alternatives and components of international strategy are described. - The process of developing international strategies through formulation, implementation, and control is summarized.
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International strategic management
- 1. Plekhanov Russian University of Economic Lecture 2 International strategic management Elena A. Rozhanskaia Department of Foreign Economic Activity Vice-Head of Department, Assistant Professor, Ph.D.
- 2. Lecture Objectives • Characterize the challenges of international strategic management • Assess the basic strategic alternatives available to firms • Distinguish and analyze the components of international strategy • Describe the international strategic management process • Identify and characterize the levels of international strategies
- 3. International Strategic Management International strategic management is a comprehensive and ongoing management planning process aimed at formulating and implementing strategies that enable a firm to compete effectively internationally Strategic Planning The process of developing a particular international strategy is often referred to as strategic planning
- 4. Fundamental Questions • What products and/or services does the firm intend to sell? • Where and how will it make those products or services? • Where and how will it sell them? • Where and how will it acquire the necessary resources? • How does it expect to outperform its competitors? • Language • Culture • Politics • Economy • Governmental interference • Labor • Labor relations • Financing • Market research • Advertising • Money • Transportation/ communication • Control • Contracts International Strategic Management
- 5. Sources of Competitive Advantage Global efficiencies Worldwide learning Multinational flexibility Location efficiencies Economies of scale Economies of scope
- 6. Strategic Alternatives GLOBAL Firm views the world as single marketplace. Goal is to create standardized products HOME REPLICATION Firm uses core competency or firm- specific advantage MULTIDOMESTIC Firm operates as a collection of relatively independent subsidiaries TRANSNATIONAL Firm combines benefits of global scale efficiencies with benefits of local responsiveness Low High Pressures for Local Responsiveness/Flexibility PressuresfoGlobalEfficiencies High Low
- 7. Components of International Strategy Scope of operations •Answers the question – Where are we going to conduct business? •Aspects of scope – Geographical region – Market or product niches within regions – Specialized market niches Synergy •Answers the question – How can different elements of our business benefit each other? •Goal is to create a situation where the whole is greater than the sum of the parts Resource deployment •Answers the question – Given that we are going to compete in these markets, how will we allocate our resources to them? •Resource specifics – Product lines – Geographical lines Distinctive competence •Answers the question – What do we do exceptionally well, especially as compared to our competitors? •Represents important resource to the firm
- 8. Developing International Strategies Strategy formulation Strategy implementation Develop a mission statement Perform a SWOT analysis Set strategic goals Develop tactical goals and plans Develop a control framework Steps in International Strategy Formulation
- 9. Mission Statements • Clarifies the organization’s purpose, values, direction • Communicates firm’s strategic direction • Specifies firm’s target customers and markets, principal products, geographical domain, core technologies, concerns for survival, plans for growth and profitability, basic philosophy, and desired public image SWOT Analysis • Strengths • Weaknesses • Opportunities • Threats Environmental Scanning is a systematic collection of data about all elements of the firm's external and internal environments, including markets, regulatory issues, competitors' actions, production costs, and labor productivity
- 10. Strategic Goals major objectives the firm wants to accomplish through pursuing a particular course of action Tactical Goals and Plans • Middle management issues • Details of implementation • Examples – Hiring – Compensation – Career paths – Distribution and logistics Control Framework set of managerial and organizational processes that keep the firm moving toward its strategic goals
- 12. Thank You for Your Attention!
Editor's Notes
- International businesses have the ability to exploit three sources of competitive advantage unavailable to domestic firms. Global efficiencies. International firms can improve their efficiency with location efficiencies, economies of scale, and economies of scope. International firms may achieve location economies by locating their facilities anywhere in the world that yields them the lowest production or distribution costs or that best improves the quality of service they offer their customers. Similarly, by building factories to serve more than one country, international firms may also lower their production costs by capturing economies of scale. By broadening their product lines in each of the countries they enter, international firms may enjoy economies of scope, lowering their production and marketing costs and enhancing their bottom lines. Multinational flexibility. There are wide variations in the political, economic, legal, and cultural environments of countries, and these environments are constantly changing: new laws are passed, new governments are elected, economic policies are changed, new competitors may enter (or leave) the national market, and so on. International businesses thus face the challenge of responding to these multiple diverse and changing environments. Worldwide learning. The diverse operating environments of MNCs may also contribute to organizational learning. Differences in these operating environments may cause the firm to operate differently in one country than another. An astute firm may learn from these differences and transfer this learning to its operations in other countries.
- The second step in developing a strategy is conducting a SWOT analysis. SWOT is an acronym for "Strengths, Weaknesses, Opportunities, and Threats." A firm typically initiates its SWOT analysis by performing an environmental scan (environmental scanning is defined on the next slide). In conducting a SWOT analysis, a firm's strategic managers must also assess the firm's internal environment, that is, its strengths and weaknesses (the S and W in SWOT). Organizational strengths are skills, resources, and other advantages the firm possesses relative to its competitors. Potential strengths, which form the basis of a firm's distinctive competence, might include an abundance of managerial talent, cutting-edge technology, well-known brand names, surplus cash, a good public image, and strong market shares in key countries. A firm also needs to acknowledge its organizational weaknesses. These weaknesses reflect deficiencies or shortcomings in skills, resources, or other factors that hinder the firm's competitiveness. They may include poor distribution networks outside the home market, poor labor relations, a lack of skilled international managers, or product development efforts that lag behind competitors'. When members of a planning staff scan the external environment, they try to identify both opportunities (the O in SWOT) and threats (the T in SWOT) confronting the firm. They obtain data about economic, financial, political, legal, social, and competitive changes in the various markets the firm serves or might want to serve. External environmental scanning also yields data about environmental threats to the firm, such as shrinking markets, increasing competition, the potential for new government regulation, political instability in key markets, and the development of new technologies that could make the firm's manufacturing facilities or product lines obsolete.
- With the mission statement and SWOT analysis as context, international strategic planning is largely framed by the setting of strategic goals. Strategic goals are the major objectives the firm wants to accomplish through pursuing a particular course of action. By definition, they should be measurable, feasible, and time-limited (answering the questions "how much, how, and by when?"). After a SWOT analysis has been performed and strategic goals set, the next step in strategic planning is to develop specific tactical goals and plans, or tactics. Tactics usually involve middle managers and focus on the details of implementing the firm’s strategic goals.
- Corporate strategy attempts to define the domain of businesses the firm intends to operate. The single-business strategy calls for a firm to rely on a single business, product, or service for all its revenue. The most significant advantage of this strategy is that the firm can concentrate all its resources and expertise on that one product or service. However, this strategy also increases the firm's vulnerability to its competition and to changes in the external environment. Related diversification, the most common corporate strategy, calls for the firm to operate in several different but fundamentally related businesses, industries, or markets at the same time. This strategy allows the firm to leverage a distinctive competence in one market in order to strengthen its competitiveness in others. The goal of related diversification and the basic relationship linking various operations are often defined in the firm's mission statement. A third corporate strategy international businesses may use is unrelated diversification, whereby a firm operates in several unrelated industries and markets. First, the firm depends less on a single product or service, so it is less vulnerable to competitive or economic threats. or example, if Disney faces increased competition in the theme park business, its movie, television, and licensing divisions can offset potential declines in theme park revenues. Second, related diversification may produce economies of scale for a firm. For example, The Limited, Inc., takes advantage of its vast size to buy new clothing lines at favorable prices from Far Eastern manufacturers and then divides the purchases among its Limited, Express, Lerner, and other divisions. Third, related diversification may allow a firm to use technology or expertise developed in one market to enter a second market more cheaply and easily. For example, Pirelli SpA used its expertise in producing rubber products and insulated cables, refined over 100 years ago, to become the world's fifth largest producer of automobile tires. Pirelli has also transferred its knowledge of rubber cables to become a major producer of fiber optic cables. Whereas corporate strategy deals with the overall organization, business strategy focuses on specific businesses, subsidiaries, or operating units within the firm. Business strategy seeks to answer the question "How should we compete in each market we have chosen to enter?" Firms that pursue corporate strategies of related diversification or unrelated diversification tend to bundle sets of businesses together into strategic business units (SBUs). In firms that follow the related diversification strategy, the products and services of each SBU are somewhat similar to each other. A differentiation strategy attempts to establish and maintain the image (either real or perceived) that the SBU's products or services are fundamentally unique from other products or services in the same market segment. The overall cost leadership strategy calls for a firm to focus on achieving highly efficient operating procedures so that its costs are lower than its competitors'. This allows it to sell its goods or services for lower prices. A successful overall cost leadership strategy may result in lower levels of unit profitability due to lower prices but higher total profitability due to increased sales volume. A focus strategy calls for a firm to target specific types of products for certain customer groups or regions. Doing this allows the firm to match the features of specific products to the needs of specific consumer groups. These groups might be characterized by geographical region, ethnicity, purchasing power, tastes in fashion, or any other factor that influences their purchasing patterns. Functional strategies attempt to answer the question "How will we manage the functions of finance, marketing, operations, human resources, and research and development (R&D) in ways consistent with our international corporate and business strategies?" International financial strategy deals with such issues as the firm's desired capital structure, investment policies, foreign-exchange holdings, risk-reduction techniques, debt policies, and working-capital management. Typically, an international business develops a financial strategy for the overall firm as well as for each SBU. International marketing strategy concerns the distribution and selling of the firm's products or services. It addresses questions of product mix, advertising, promotion, pricing, and distribution. International operations strategy deals with the creation of the firm's products or services. It guides decisions on such issues as sourcing, plant location, plant layout and design, technology, and inventory management. International human resource strategy focuses on the people who work for an organization. It guides decisions regarding how the firm will recruit, train, and evaluate employees and what it will pay them, as well as how it will deal with labor relations. International R&D strategy is concerned with the magnitude and direction of the firm's investment in creating new products and developing new technologies.