Chap012#.ppt

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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