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Chapter TwelveChapter Twelve
International Competitive Strategy
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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Subject Content to DateSubject Content to Date Chpt. I : International 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 U.N./ NAFTA/ EU/ MERCOSUR/OTHERS
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Review Continued…..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
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Changing Gears…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 3Exam 3
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Learning ObjectivesLearning 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
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Motivations For Companies Motivations For Companies To Pursue IB OpportunitiesTo Pursue IB Opportunities
Increase profits and sales Access new markets Protect existing markets, profits, and sales Satisfy overall desire for growth
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The Competitive Challenge Facing The Competitive Challenge Facing Managers of International BusinessManagers 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
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What is International Strategy?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
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International StrategyInternational 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
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Competitive AdvantageCompetitive 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
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Why Plan Globally?Why Plan Globally?
Companies face forces that are increasingly complex, global and subject to rapid change Political Economic Social Technological Legal Environmental
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Why is Global Strategic Why is Global Strategic Planning Important?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
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Global Strategic Planning ProcessGlobal Strategic Planning Process
The global strategic planning process provides a formal structure with which managers
1. define company’s business and mission
2. analyze the company’s internal and external environments
3. set corporate objectives
4. quantify goals
5. formulate strategies
6. make a tactical plan LO2LO2
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Analyze Corporate Analyze Corporate Controllable VariablesControllable 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?
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The Value ChainThe Value Chain
Adapted from M. E. Porter, Adapted from M. E. Porter, Competitive Advantage,Competitive Advantage, New York: Free Press, 1985 New York: Free Press, 1985LO2LO2
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Analyze Corporate Analyze Corporate Controllable VariablesControllable 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
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Tacit - Explicit KnowledgeTacit - 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
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Vision and Mission StatementsVision 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
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Define the Corporate Business,Define the Corporate Business, Vision, and Mission Statements 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
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Set Corporate ObjectivesSet 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
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Formulate Competitive StrategiesFormulate 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
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Formulate Competitive Strategies Formulate Competitive Strategies For the International Market PlaceFor 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)
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Cost and Adaptation Pressures and Their Cost and Adaptation Pressures and Their Implications for International Strategies Implications for International Strategies
Adapted from C. Bartlett and S. Ghoshal. Adapted from C. Bartlett and S. Ghoshal. Managing Across Borders: The Transnational SolutionManaging Across Borders: The Transnational Solution, 2002 , 2002 2nd ed., Cambridge: Harvard Business Press 2nd ed., Cambridge: Harvard Business Press LO4LO4
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Home Replication StrategyHome 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
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Multidomestic StrategyMultidomestic 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
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Global StrategyGlobal 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
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Transnational StrategyTransnational 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
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Standardization and PlanningStandardization 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
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ScenariosScenarios
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
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Types of Plans That Can Types of Plans That Can Result From ScenariosResult 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
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Strategic Plan Features: Sales Strategic Plan Features: Sales Forecast and BudgetForecast 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
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Plan Implementation Facilitators: Plan Implementation Facilitators: PoliciesPolicies
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
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Plan Implementation Facilitators: Plan Implementation Facilitators: ProceduresProcedures
Procedures prescribe how certain activities will be carried out
Ensure uniform action on the part of all corporate members
Facilitate comparison among operational units
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Methods of PlanningMethods 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
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Methods of PlanningMethods 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
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New Directions in PlanningNew 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
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New Directions in PlanningNew 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
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Competitor AnalysisCompetitor 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
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Competitor Intelligence SystemsCompetitor 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
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Sources of InformationSources 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
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BenchmarkingBenchmarking 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
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