Multinational Strategy International Business

Authorizer: Professor Jehanzaib Akram

“Achievers”1.H. M. Nouman Riaz2.Muhammad Talha3.Adnan Siddique4.Raja Saim Azad5.Tahmeena Batool6.Anum Zafar7.Mehak Athar

Topics:

Introduction Strategy formulation and external environment assessment

Strategic orientations

Internal environment assessment

H.M. Nouman Riaz

Mehak Athar

Muhammad Talha

Topics:

Goal setting

Strategy implementation

Functional Strategies

Control and evaluation

Adnan Siddique

Tahmeena Batool

Raja Saim Azad

Anum Zafar

Introduction

Why strategy formulation is important for MNE?

MNC has productive operations is several countries Complex environment Environment analysis Strategic planning 3 steps process

1. Formulation

2. Implementation

3. Control

Strategic planning

“process of evaluating the enterprise's environment and it’s internal strengths and then identifying the short term and long term activities”

Strategic planning provides an MNCo General directions and specific guidanceo Ability to make adjustmentso Capacity to face ever-changing challenges in world

market

Strategic orientation

Mehak Athar

Strategic Orientation

MNE’s have strategic predisposition. This predisposition helps to determine the specific decisions the firm will implement. There are four predispositions which as follows

EthnocentricPolycentricRegion centricGeocentric

Ethnocentric

The tendency of Multinational Company to relay on the value and interest of the parent company in formulating and implementing the strategic plan.

Example: Lays (Pepsi & co.)

Polycentric

The tendency of a MNC to tailor its strategic plan to meet the needs of the local culture.

The concept of Glocal ( Global + local)Example: Lays (Halal)

Region centric

The tendency of a MNC to use a strategy that address both local and regional.

Example: Carbonated components %age in

Pepsi drinks.

Geocentric

The tendency of a MNC to construct its strategic plan with a global view of operations.

Example: Pepsi Strategies , Uniliver , McDonald.

Strategy formulation and external environment assessment

Nouman Riaz

Strategy formulation

“process of evaluating the firm’s environment and its internal strengths”Strategy formulation starts with the identification of:External environment and opportunitiesInternal strengths

External environmental assessment

Two activities are involved in external environment assessment Information gathering Information assessment

These activities answer two questions:1. What trends are present in external environment?2. How will these developments affect our company?

Information gathering

Competitive intelligenceFour methods of environmental scan:1. Asking experts for industry trends and forecasting

future2. Using historical industry trends to predict future3. Asking knowledgeable managers4. Using computers to pretend the environment

Informations assessment

After gathering information MNC will analyze the data and draw evaluation.

Five forces that determine industry competitiveness:

1. Bargaining power of buyers

2. Bargaining power of suppliers

3. New entrants

4. Threats of substitutes

5. Rivalry a) Offering new goods b) Increasing productivity and lowering cost c) Differentiate goods and services

d) Increasing overall quality e) specific groups

External environment assessment with the reference of Pepsi and co.

Porters five forces model

Porter five forces model (cont.…)

1- Bargaining Power of Buyers: HIGH number of substitute products Customer in beverage industry is price sensitive Consumer can switch to an other company

2- Bargaining Power of Suppliers: LOW Number of suppliers are available Main ingredients of carbonated water are same so supplier cannot differentiate Supplier wont lose a huge market share i.e. Pepsi Co

Porter five forces model (cont.…)

3- Threats of New Entrants: LOW Already number of different companies are existing Few MNC’s hold a large market share High initial cost

4- Threat of Substitute: HIGH Many substitutes are available Pepsi Co has different product lines so different competitors

5- Rivalry among Existing Competitors: VERY HIGH Some companies have controlled the market High competition from competitors i.e. Coca Cola.

Internal environment assessment

Muhammad Talha

Outline

Internal Environmental Assessment

Physical resources and personnel competencies

Value chain analysis

1. Physical resources and personnel skills

Physical resources

Physical assets used to carry out the strategic plan.

For most synergy and profitable manner.Location and disposition/ settlement of resources Integration among operating units (SBUs)

Which further involves

i. Vertical integration andii. Virtual integration

Location and disposition/ settlement of resources

Location and disposition/ settlement of resources

MNE having Manufacturing plants in more than 1 countries. Competitive advantage. PepsiCo, Countries over 200 Still planning to expand more

Integration among operating units (SBUs)

Integration among operating units (SBUs)

SBUs strategic business units Operating units having their own strategic space and they produce &

sell G&S to a market segment, and have a well defined set of competitors.

PepsiCo SBUs

Lays Quaker Gatorade Pepsi cola

Vertical VS virtual integration

Vertical integration

Vertical integration is the ownership of all the assets involved in producing G&S and delivering to customers by its own

Advantages Good control over supply Cost effective

Disadvantages Difficult to achieve that specialized level

virtual integration

Ownership of the core technologies and manufacturing capabilities needed to produce Outputs while depending on Outsourcers to provide all other needed Inputs.

In short doesn't own all FOP

Personnel competencies (skills)

Skills & talents of the people Reflect the strength and weakness.

2. Value chain analysis

Value chain analysis

The way in which primary and secondary activities are combined in providing G&S and in increasing profit margin.

Value chain analysis

Determine effective strategy1. Cost strategy

A pricing strategy in which a company offers a relatively low price to stimulate demand

2. Differentiation strategy

Approach under which a firm aims to develop and market unique products for different customer segments.

3. Focus strategy

The 'focus' strategy involves focusing on a narrow, defined segment of the market, also called a 'niche' segment.

Goal settings

Adnan Siddique

Goal setting

The external and internal environmental analyses will provide an MNE with the information needed for setting goals. There are two basic ways of examining the goals or

objectives of international business operations.

One is to review them on the basis of operating performance or functional area. Some of the major goals are related to profitability, marketing, production, finance, and human resources.

A second way is to examine these goals by geographic area or on an SBU basis.

Then there are accompanying functional goals for marketing ,production ,and finance. If the MNE has SBUs , each strategic business unit in these geographic locales will have its own list of goals.

Cascading EffectA succession of stages, processes, operations, or units.

Each geographic area or Business unit is then assigned a profitability goal that, if attained, will result in the MNE reaching its overall

desired profitability. The same approach is used in other key areas such as

marketing, production, and finance. Within each unit, these objectives are further subdivided so that every part of the organization understands its objectives and every one is working toward the same overall goals.

Cascading Effect

Strategy Implementation

Tahmeena Batool

Strategy Implementation

The process of attaining goals by using the organizational structure to execute the formulated strategy properly

Main focused areas of strategy Implementation

There are three main focus areas for strategy implementation:LocationOwnership(international joint venture &

Strategic Alliances)Functional strategy Implementation

Location

Location is when MNC expands its international presence.Benefits : Local facilities provide cost advantage to the producer So the raw material and labor needed to produce the

product can be inexpensively obtained Residents prefer locally produced products Imported goods are subjected to tariffs, quotas and other

governmental restrictions making local manufacturers more desirable.

Location

Drawbacks:Unstable political environment

leaves MNE vulnerable to low profit.Possibility of revolution or armed

conflict

Ownership

Ownership decisions are of two types:1. International joint venture2. Strategic AllianceInternational joint venture(IJV) is an agreement between two or more partners to own and control an overseas business (setting up a new business entity).Benefits: Government encouragement and legislation that are designed to

make it attractive for foreign investors to bring in local partners

Ownership

Desire by outside investors to find local collaboration with whom they can team up effectively

Drawbacks :Joint ventures are difficult to manage and are unstableExample: PepsiCo and Unilever Create 'Pepsi Lipton International'

RTD Tea Joint Venture in Selected International Markets IDJ-International Dairy & Juice ( A Joint Venture Of

PepsiCo & Almarai )

Ownership

Strategic Alliance:It is an agreement between two or more competitive MNEs for the purpose of serving a global marketStrategic partnerships are formed by firms in the same line of businesses.Example : PepsiCo's new strategic alliance with leading local drink

makers Tingyi-Ashani Beverages(TAB). PepsiCo's strategic alliance with Starbucks

Functional strategies

Saim Azad

Functional Strategies

Functional strategies are used to coordinate operations and ensure that the plan is carried out properly. The specific functions typically fall into six major areas: 1. Marketing 2. Manufacturing 3. Finance 4. Procurement 5. Technology 6. Human resources.

Marketing

The marketing strategy is designed to identify consumer needs and formulate a plan of action for selling the desired goods and services to these customers. Most marketing strategies are built around what is commonly known as the “four Ps” of marketing:

Product, Price, Promotion, and Place. Marketing Strategy apprises the manufacturing department of any

modifications needed to meet local needs, and it determines the price at which the goods can be sold.

Manufacturing

Designed to fit together with the marketing plan The manufacturing strategy ensures that the right products are built and

delivered in time for sale. Manufacturing also coordinates its strategy with the procurement and

technology people to ensure that the desired materials are available and the products have the necessary state-of-the-art quality.

If the MNE is producing goods in more than one country, it gives attention to coordinating activities where needed.

Finance

Financial strategy often serves to both lead and lag the other functional strategies. In the lead position, finance limits the amounts of money that can be spent on

marketing (new product development, advertising, promotion) and manufacturing (machinery, equipment, quality control) to ensure that the desired return on investment is achieved.

In the lag position, the financial strategy is used to evaluate performance and provide insights into how future strategy should be changed.

Financial strategies used to be formulated and controlled out of the home office. In recent years, however, MNEs have learned that this approach can be cumbersome and, due to fluctuating currency prices, costly as well.

Control and evaluation

Anum Zafar

Control and evaluation

The strategy formulation and implementation processes are a prelude to control and evaluation.

This process involves an examination of the MNE’s performance for the purpose of determining: how well the organization has done; what actions should be taken in the light of this

performance.

Common methods of measurement

Six of the most common methods of measurement used for control and evaluation purposes: return on investment (ROI) sales growth and/or market share costs new product development MNE/host-country relations management performance.