Strategic management

STRATEGIC MANAGEMENTCourse Code: MGT: 512

Lectures delivered by:

Prof. Dr. Ravi Raj Kumar

Strategy refers to the ‘plan or course of action’ framed or formulated to achieve a specified objective or goal.

A comprehensive way to try to pursue certain ends.

STRATEGY: SOME VIEWS !

A combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there.

A strategy is sometimes called a roadmap which is the path chosen to plow towards the end vision. The most important part of implementing the strategy is ensuring the company is going in the right direction which is towards the end vision.

ETYMOLOGY OF ‘STRATEGY’

Derived from the Greek Word “Strategia”

meaning ‘generalship’ , ‘office of command’

Greek Word “Strategos” (compound of ‘Stratos’ which means ‘army’ & ‘ago’ which means ‘to lead’) meaning ‘leader or commander of an army’

EARLY TEXTS ON STRATEGY

The famous Chinese Philosopher Sun Tzu’s “The Art of War” written in the 6th century B.C.

The famous Indian

Guru Chanakya’s

“Arthasastra” written

in the 4th century B.C.

EARLY TEXTS ON STRATEGYcontinued……

The notorious Italian Niccolo Machiavelli’s “The Prince” “The Discourses” &“The Art of War” written in the 16th century A.D.

EARLY TEXTS ON STRATEGYcontinued……

STRATEGIC MANAGEMENT

“It is the set of managerial decisions and actions that determines the long-run performance of an organization”

“It is the process of developing a systematic means of analyzing the environment, assessing the organization’s strengths and weaknesses, and identifying opportunities where the organization could have a competitive advantage”

VISION:Defines the way an organization or enterprise will look in the future.

Vision is a long-term view, sometimes describing how the organization would like the world to be in which it operates.

SOME CORE CONCEPTS OF SM

MISSION/MISSION STATEMENT

In general, an organization’s mission indicates its activities including its production and the satisfaction that it offers to the customer through its products. Mission statement indicates the purpose of the organization’s existence, and specifies the boundaries of an organization’s activities. It answers the question:

“What business are we in ?”

SOME CORE CONCEPTS OF SM

VALUES:

Beliefs that are shared among the stakeholders of an organization.

Values drive an organization's culture and priorities and provide a framework in which decisions are made.

SOME CORE CONCEPTS OF SM

OBJECTIVE/GOAL

It is the desired outcome expected by the firm.

Objectives must be clear, specific and realistic. Effective planning should begin with a set of objectives that are to be accomplished by carrying out certain plans. It should answer the question:

“What do we want to accomplish ?”

SOME CORE CONCEPTS OF SM

SOME CORE CONCEPTS OF SM

STRATEGY:

It is a broad plan of action, by the implementation of which the company achieves its goals.

It answers to: In general terms, how are we going to accomplish our goals ?

TACTIC:

It is a course of action

more specific and detailed than a strategy

and covering a shorter time period than a strategy.

It answers to: “In specific terms,

how are we going to accomplish our goals ?”

SOME CORE CONCEPTS OF SM

OPPORTUNITIES:

Positive external environmental factors which the organization can exploit to its advantage.

THREATS:

Negative external environmental factors that the organization can face, and which need to be removed or avoided.

SOME CORE CONCEPTS OF SM

STRENGTHS:

Internal Resources that are available to the organization. Even the things that an organization does better can be its strengths.

WEAKNESSES:

Resources that an organization lacks or activities in which it is not efficient.

SOME CORE CONCEPTS OF SM

CORE COMPETENCY:

Any of the strengths representing unique skills or resources that can determine the organization’s competitive edge

SOME CORE CONCEPTS OF SM

Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry.

Achieving competitive advantage strengthens and positions a business better within the business environment.

COMPETITIVE ADVANTAGE

STRATEGIC PLANNING

Strategic planning is an organization's process of defining, often in hyperbolic

terms, its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.

Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions:

"What do we do?""For whom do we do it?""How do we excel?"

STRATEGIC PLANNING

In business strategic planning, some authors phrase the third question as

"How can we beat or avoid competition?"

But this approach is more about defeating competitors than about excelling.

In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan."

STRATEGIC PLANNING

While strategic planning may be used to effectively plot a company's longer-term direction, one cannot use it to reliably forecast how the market will evolve and what issues will surface in the immediate future. Therefore, strategic innovation and tinkering with the "strategic plan" have to be a cornerstone strategy for an organization to survive the turbulent business climate.

STRATEGIC PLANNING

THE STRATEGY HIERARCHY

CORPORATE

STRATEGY

BUSINESS

STRATEGYFUNCTIONAL

STRATEGY

OPERATIONAL

STRATEGY

Framed & Formulated by:

Corporate Managers

Business Managers

Functional Managers

Operational Managers

THE STRATEGY HIERARCHY

Corporate Strategy It refers to the overarching strategy of the diversified firm. A corporate strategy answers the questions: "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?"

Business Strategy It refers to the aggregated strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. A business strategy incorporates either cost leadership, differentiation, or focus to achieve a sustainable competitive advantage and long-term success.

Functional strategyIt is an attempt of each department to do its part in meeting the overall corporate objectives. The emphasis is on short and medium term plans and is limited to the domain of each department’s functional responsibility. Marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, and supply-chain strategies are some of the functional strategies.

Operational strategy Encouraged by Peter Drucker in his theory of management by objectives (MBO), it is a very narrow focused strategy that deals with day-to-day operational activities such as scheduling criteria.

Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies.

THE STRATEGY HIERARCHY cont..

Identification of the

Organization’s Current mission,

objectives and strategies

Reassessment of

Organization’s Mission and Objectives

Formulation & Implementation

of the Strategies

Evaluation of

the Results

SWOT ANALYSIS

SWOT ANALYSISAnalysis of the

Environment

Identification of Opportunities &

Threats

Identification of Organization’s

Strengths & Weaknesses

Analysis of the Organization’s

resources

STRATEGIESDEVELOPMENT, IMPLEMENTATIO

N & ASSESSMENT

PROCESS

STRATEGIC MANAGEMENT (redefined…)

“Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy regularly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment, or a new social, financial, or political environment.”

DEVELOPMENT

OF STRATEG

IC VISION

& MISSION STATEME

NTS

SETTING OF

OBJECTIVES

(LONG TERM)

GENERATION

OF STRATE

GIES

IMPLEMENTATION OF STRATEGIE

S(MANAGER

IAL, MARKETIN

G, PRODUCTI

ON, FINANCIAL

, HR,)

EVALUATION OF

OUTCOME

INTERNAL

FACTOR

EVALUATION(IFE)

THE STRATEGIC MANAGEMENT MODEL

EXECUTION OF REMEDIAL MEASURES

EXTERNAL

FACTOR EVALUA

TION (EFE)

SWOT

PLANNED STRATEGY

REALIZED STRATEGY

UNREALIZED STRATEGY

EMERGENT STRATEGY

DELIBERATE STRATEGY

UNPREDICTED CHANGE

UNPLANNED SHIFT BY TOP LEVEL MANAGER

S

AUTONOMOUS

ACTION BY LOWER LEVEL

MANAGERS

SERENDIPITY

WASTE

BASKET

Henry Mintzberg’s

Model of Strategy

Development

Forecasting techniques used in strategic planning:

SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats )

PEST analysis (Political, Economic, Social, and Technological)

PESTEL analysis (Political, Economic, Social, and Technological , Ethics, and Legal)

STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors)

EPISTEL analysis (Environment, Political, Informatic, Social, Technological, Economic and Legal)

STEEPLED analysis (Social, Technological, Ethics, Environmental, Political, Legal, Economic, and Demographics

SCENARIO PLANNINGIdentif

y differe

nt possibl

e futures

Formulate Plans to deal

with those

futures

Invest in one plan

but……Hedge your

bets by preparing for other

scenarios

Switch Strategy if tracking of signposts

shows alternative scenarios becoming

more likelyThe process of formulating Strategies based on what-if scenarios about the

future.

DECENTRALIZED PLANNING

Strategic Planning often fails because executives do not plan for uncertainty and ivory tower planners lose touch with operating realities.

Successful Strategic Planning should encompass managers at all levels of the corporation.

Much of the best planning can and should be undertaken by business level managers and/or functional level managers who are closest to real life scenario.

SEVEN CHARACTERISTICS OF EFFECTIVE STRATEGIC LEADERSHIP

* VISION, ELOQUENCE, & CONSISTENCY* ARTICULATION OF BUSINESS MODEL

* COMMITMENT* BEING WELL INFORMED

* WILLINGNESS TO DELEGATE & EMPOWER* ASTUTE USE OF POWER* EMOTIONAL INTELLIGENCE

SWOT LANDSCAPE ANALYSIS

The SWOT LANDSCAPE deploys the relationships between overall objective and underlying SWOT-factors and provides an interactive, query-able 3D landscape.The SWOT-landscape grabs different managerial situations by visualizing and foreseeing the dynamic performance of comparable objects. Changes in relative performance are continually identified. Projects that could be potential risk or opportunity objects are highlighted.SWOT-landscape also indicates which underlying strength/weakness factors that have had or likely will have highest influence in the context of value in use.

OTHER USEFUL MODELS

Porter's Four Corners Model

It is a predictive tool designed by Michael Porter that helps in determining a competitor’s course of action. Unlike other predictive models, this calls for an understanding of what motivates the competitor. This added dimension of understanding a competitor's internal culture, value system, mindset and assumptions help in determining a much more accurate and realistic reading of a competitor’s possible reactions in a given situation.

COMPETITOR’S

MOTIVATION: DRIVERS

MOTIVATION: MANAGEMENT ASSUMPTIONS

ACTIONS: STRATEGY

ACTIONS: CAPABILITIES

Porter's Four Corners Model

The Four Corners Model

Motivation – driversThis helps in determining the competitor's action by understanding their goals (both strategic and tactical) and their current position vis-à-vis their goals.

Motivation – Management AssumptionsThe perceptions and assumptions the competitor has about itself and its industry would shape strategy. This corner includes determining the competitor's perception of its strengths and weaknesses, organization culture and their beliefs about competitor's goals.

The Four Corners Model

Actions – StrategyA competitor's strategy determines how it competes in the market. However, there could be a difference between the company's intended strategy and its realized strategy (as is evident in its acquisitions, new product development, etc.).

Actions – CapabilitiesThis looks at a competitor's inherent ability to initiate or respond to external forces. Though it might have the motivation and the drive to initiate a strategic action, its effectiveness is dependent on its capabilities.

PORTER’S FIVE FORCES ANALYSIS

Michael Porter's Five Forces is a framework for industry analysis and business strategy development. It draws upon Industrial Organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, threat of established rivals, and threat of new entrants; and two forces from 'vertical' competition: bargaining power of suppliers and bargaining power of customers.

PORTER’S FIVE FORCES MODEL

SIX FORCES MODELAn extension to Porter's Five Forces Model, it is a market opportunities analysis model more robust than a standard SWOT analysis, and comprises of the following forces: * Competition * New entrants* End users/Buyers * Suppliers* Substitutes* Complementary products/ government/public (extended by Brandenburger & Nalebuff in 90s)

DELTA MODEL

Delta Model is a customer-based approach to Strategic management. Compared to a philosophical focus on the characteristics of a product (product economics), the model is based on customer economics. The customer-centric model was developed by Dean Wilde and Arnoldo Hax.

Haxioms are a set of principles, proposed by Arnoldo Hax, which serve as a framework for the conceptualization of the Delta Model, and somehow challenges the conventional wisdom regarding strategic thinking.

Haxioms of Delta Model

1. The center of the strategy is the customer

He is the driving force for all actions . 2. You don't win by beating the competition. You

win by achieving Customer Bonding 3. Strategy is not war; it is Love

The extreme way of non-conflict is LOVE. 4. A product-centric mentality is constraining; open your mindset to include all constituencies 5. Try to understand your customer deeply. Strategy is done one customer at a time.

THE NATIONAL DIAMOND

It is a tool for analyzing the organizations task environment & states that strategic choices should not only be a function of industry structure and a firms resources, it should also be a function of the constraints of the institutional framework.

It recognizes four pillars of research:* factor conditions* demand conditions* related and supporting

industries* firm structure, strategy and

rivalry

that must be undertaken in analyzing the viability of a firm.

THE NATIONAL DIAMOND

VRIO FRAMEWORKIt is an internal tool of analysis in the context of business management. VRIO is an acronym for the four question about a resource/capability to determine its competitive potential:• The Question of Value: "Is the firm able to exploit an opportunity or neutralize an external threat ?"

• The Question of Rarity: "Is control of resource/capability in the hands of a relative few?"

• The Question of Imitability: "Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain or duplicate resource/capability?"

• The Question of Organization: "Is the firm organized, ready, and able to exploit the resource/capability?”

VALUE CHAIN ANALYSIS

VALUE CHAIN ANALYSIS

First described & popularized by Michael Porter in 1985, a value chain is a chain of activities for a firm. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives products more added value than the sum of independent activity's value.

A value system includes the value chains of a firm's supplier (and their suppliers ), the firm itself, the firm distribution channels, and the firm's buyers (extended to the buyers of their products).

As per Ellen-Earle Chaffee’s assumptions the seven main elements of strategic management theory are:• Strategic management involves adapting the organization to its business environment.

• Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses.

• Strategic management affects the entire organization by providing direction.

Continuation of Chaffee’s Assumptions:• Strategic management involves both strategy formation (referred to as content) and also strategy implementation (referred to as process).

• Strategic management is partially planned and partially unplanned.

• Strategic management is done at several levels: overall corporate strategy, and individual business strategies.

• Strategic management involves both conceptual and analytical thought processes.

COMPETITIVE

ADVANTAGE

* LOW COST * DIFFERENTIATION

SUPERIOR

QUALITY

SUPERIOR CUSTOMER RESPONSIV

ENESS

SUPERIOR

INNOVATION

SUPERIOR EFFICIENC

Y

BUILDING BLOCKS OF COMPETITIVE ADVANTAGE

COMPETITIVE ADVANTAGE & SUPERIOR PROFITABILITY

Company’s Business Model that utilizes its

Distinctive Competencies to differentiate its products and/or lower its cost

structure

A Firm implements a set of Strategies to configure its Value

Chain to Create Distinctive

Competencies that give it a

Competitive Advantage

Distinctive Competencies are

Firm’s specific strengths

allowing it to achieve superior efficiency, quality innovation, and

effective customer

responsiveness

BUSINESS MODEL

DISTINCTIVE COMPETENCIES

STRATEGIES

COMPETITIVE ADVANTAGE & VALUE CREATION CYCLE

INTEGRATION STRATEGIES

* FORWARD INTEGRATIONControl over Retailers,

Distributors, Wholesalers

* BACKWARD INTEGRATION

Control over Suppliers

* HORIZONTAL INTEGRATION

Control over Competitors (Mergers, Acquisitions)

INTENSIVE STRATEGIES

MARKET PENETRATION

PRODUCT DEVELOPMENT

MARKET DEVELOPMENT

DIVERSIFICATION

Present New Products Products

PresentMarkets

New Markets

DIVERSIFICATION STRATEGIES

CONCENTRIC

DIVERSIFICATION

HORIZONTAL

DIVERSIFICATION

X CONGLOMERATE

DIVERSIFICATION

Related UnrelatedProducts ProductsExistin

g Customers

New Customers

DEFENSIVE STRATEGIES

* RETRENCHMENTReduction in Cost and Asset

* DIVESTITUREDisposing of a firm’s division

or part

* LIQUIDATIONDisposing of a firm’s asset for

its tangible worth

RED OCEAN & BLUE OCEAN STRATEGIES

Red Oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody. Hence, the term red ocean strategies.

RED OCEAN & BLUE OCEAN STRATEGIES

Blue oceans denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over.

There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.

The corner-stone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company.

The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market.

HOW TO ACHIEVE THE STRATEGIES

* First Mover Advantage* Out Sourcing* Joint Venture/Partnership* Merger* Acquisition* Takeover (Hostile)

THE INPUT STAGE

THE MATCH

ING STAGE

THE DECISI

ON STAGE

STRATEGY FORMULATION ANALYTICAL FRAMEWORK

PORTER’S FIVE GENERIC STRATEGIES

COST LEADERSHIP

DIFFERENTIATION

FOCUS

LOW COST – Type I

BEST VALUE – Type II

PRODUCT/SERVICE/COST

DIFFERENTIATION – Type III

-

- PRODUCT/SERVICE/COST

DIFFERENTIATION – Type III

LOW COST – Type IV

BEST VALUE – Type V

GENERIC STRATEGIES

LARGE

SMALL

SIZ

E

OF

M

AR

KE

T

STRENGTHS - S WEAKNESSES - W

OPPORTUNITIES- O

STRENGTH-OPPORTUNITIES (SO)STRATEGIES

WEAKNESS-OPPORTUNITIES (WO) STRATEGIES

THREATS - T

STRENGTH-THREATS (ST)STRATEGIES

WEAKNESS-THREATS (WT)STRATEGIES

THE SWOT MATRIX

CONSERVATIVE STRATEGY

AGGRESSIVE STRATEGY

DEFENSIVE STRATEGY COMPETITIVE STRATEGY

STRATEGIC POSITION & ACTION EVALUATION (SPACE) MATRIX

CO

MP

ET

ITIV

E

AD

VA

NTA

GE

(C

A)

FINANCIAL STRENGTHS (FS)

ENVIRONMENTAL STABILITY (ES)

IND

US

TR

Y

ST

RE

NG

TH

S (IS

)

-6 -5 -4 -3 -2 -1 0

+1 +2 +3 +4 +5 +6

+

6

+

5

+

4

+

3

+

2

+

1

-1

-2

-3

-4

-5

-6

THE EXTERNAL FACTOR EVALUATION (EFE) MATRIX

A significant Strategic Tool/Instrument utilized to identify

and assess an organization’s external forces, and the

opportunities & threats faced by it, viz:

* Social *Political* Economic * Legal* Technological *Governmental* Environmental *Competition* Product Life Cycle Stage *

Demographic* Customers’ Awareness *Natural

THE INTERNAL FACTOR EVALUATION (IFE) MATRIX

A significant Strategic Tool/Instrument utilized to identify

and assess the strengths/weaknesses of an

organization:* Market Share * Product Quality* Human Resources *Financial Resources* Location *Technology* Raw Materials *Management Policy* Distribution Network *R&D (Innovation) * Marketing Budget/Policy *Customer Loyalty

THE COMPETITIVE PROFILE MATRIX (CPM)

A significant Strategic Tool utilized to identify an organization’s major competitors and their strengths &

weaknesses, viz:* Market Share *Technology* Product Quality * Human Resources* Financial Resources* Price* Management Policy *Customer Loyalty* Marketing Budget/Policy *

R&D

Johnson, Scholes and Whittington

present a model in which

strategic options are evaluated

against three key success

criteria:

• Suitability (would it

work?)

• Feasibility (can it be

made to work?)

• Acceptability (will they

work it?)

EVALUATION OF STRATEGIES

SUITABILITY

Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organzation's strategic position.

•Does it make economic sense?•Would the organization obtain

economies of scale or economies of scope?•Would it be suitable in terms of environment and capabilities?

FEASIBILITY

Feasibility is concerned with whether the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information.

Technical Feasibility, Financial Feasibility, Commercial Feasibility, & Socio-Cultural Feasibility are some of the concerns that need to be addressed.

ACCEPTABILITY

Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions.•Return deals with the benefits expected by the stakeholders (financial and non-financial). •Risk deals with the probability and consequences of failure of a strategy (financial and non-financial).•Stakeholder reactions deals with anticipating the likely reaction of stakeholders.

•The Industrial Organizational Approach based on economic theory — deals with issues like competitive rivalry, resource allocation, economies of scaleassumptions — rationality, self discipline behaviour, profit maximization

•The Sociological Approach deals primarily with human interactionsassumptions — bounded rationality, satisfying behaviour, profit sub-optimality.

APPROACHES TO STRATEGIC MANAGEMENT

Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes.

In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organization.

The top-down approach is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take.

Some organizations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions.

REASONS WHY STRATEGIC PLANS

FAIL

•Failure to execute by

overcoming the four key

organizational hurdles

Cognitive hurdle

Motivational hurdle

Resource hurdle

Political hurdle

REASONS WHY STRATEGIC PLANS FAIL

•Failure to understand the customer Why do they buy Is there a real need for the product

Inadequate or incorrect marketing research

• Inability to predict environmental reaction What will competitors do oFighting brandsoPrice wars

Will government intervene

REASONS WHY STRATEGIC PLANS FAIL

• Over-estimation of resource competence Can the staff, equipment, and processes handle the new strategy

Failure to develop new employee & management skills

• Failure to coordinate Reporting and control relationships not adequate

Organizational structure not flexible enough

• Failure to obtain senior management commitment Failure to get management involved right from the start

Failure to obtain sufficient company resources to accomplish task

REASONS WHY STRATEGIC PLANS FAIL

•Failure to obtain employee commitment New strategy not well explained to employees

No incentives given to workers to embrace the new strategy

•Under-estimation of time requirements No critical path analysis done

•Failure to follow the plan No follow through after initial planning

No tracking of progress against plan

No consequences for above

REASONS WHY STRATEGIC PLANS FAIL

•Failure to manage change Inadequate understanding of internal resistance to change

Lack of vision on the relationships between processes, technology and organization

•Poor communications Insufficient information sharing among stakeholders

Exclusion of stakeholders and delegates

INTERNATIONAL STRATEGIC MANAGEMENT

An ongoing management planning process aimed at developing strategies to allow an organization to expand abroad and compete internationally.

Strategic planning is used in the process of developing a particular international strategy: * determine what products or services to sell* where and how to make these products or services* where to sell them* how to acquire necessary resources for these tasks* how to outperform its competitors

INTERNATIONAL STRATEGIC MANAGEMENT

When an organization moves from being a domestic entity to an international organization it must consider the possible broad complexities that accompany such a decision.

In a domestic country, an organization needs only consider one national government, a single currency and accounting system, one political and legal system, and usually a similar culture.

Entering into one or more foreign countries can involve multiple governments, currencies, accounting systems, legal systems, and a large variety of languages and cultures. These create numerous barriers to entry for organization looking to expand internationally.

INTERNATIONAL STRATEGIC MANAGEMENT

Factors that can influence international strategies:• local languages required in many situations

• very diverse cultures, both between countries and sometimes even within countries

• often volatile politics• varied economic systems• scarcity of skilled labor, with possible costs in training labor or redesigning procedures

• poorly-developed financial markets and government- controlled capital flows, in some of the countries

INTERNATIONAL STRATEGIC MANAGEMENT

Factors that can influence international strategies (cont..):• problems & exorbitant costs in obtaining market research data

• limited advertising, subjected to lots of restrictions

• possible low literacy rates, not to mention the possibility of making mistakes in the language when advertising

• currency exchange fluctuations• inadequate or limited communication• mandatory worker participation in management in some countries

• legal restrictions on laying off of workers

To operate outside national borders, firms must be ready to incorporate international considerations into their thinking and planning, making decisions related to questions such as:

* How will our idea, good, or service fit into the international market?* Should we enter the market through trade or through investment?* Should I obtain my supplies domestically or from abroad?* What product adjustments are necessary to be responsive to local conditions?* What threats from global competition should be expected and how can these threats be counteracted?

PROBLEMS OF GLOBAL BUSINESS

* Deals might have to be transacted in foreign languages and under foreign laws, customs and regulations

* Information on foreign countries needed by a particular firm may be difficult or even impossible to obtain

* Numerous cultural differences may have to be taken into account when trading in other nations

* Control and communication systems are normally more complex for foreign than for domestic operations

PROBLEMS OF GLOBAL BUSINESS cont…

• Risk levels are higher in foreign markets. The risk include political risks, commercial risk and financial risks

• Global managers require a broader range of management skills than do managers concerned with domestic markets

• Large amounts of important work might have to be left to intermediaries, consultants and advisors

• More difficult to observe/monitor trends activities(including competitor’s activities) in foreign countries

MODES OF GLOBAL BUSINESS

•Import/export of commodities & manufactured goods•investment of capital in manufacturing, extractive, agricultural, transportation& communication assets•supervision of employees in different countries•investment in international services like banking, advertising, tourism, retailing and construction•transactions involving copyrights, patents, trademarks and process technology

DIMENSIONS OF GLOBAL BUSINESS

* Technological

Impacts:

* Functional impact

* Competitive

Impacts

* Environmental

Impacts

* Political/Legal

Impacts

* Economic Impacts

Technological Impacts: Better/Innovative Products, Better Techniques, Shorter Life Cycles

Economic Impacts: Economic Structure of the Host Nation, GDP, Inflation Rate, LabourCost, Level of Unemployment, Consumer Expenditures

Functional Impact: Variations in Accounting, Marketing, Operational, HR & Financial Functions

Competitive Impacts: Competitive Advantages/Disadvantages over other Domestic/International Firms

Environmental Impacts: Cultural/Social Differences, Transfer of company’s resources, Technology, Bodies like WTO, EC, ASEAN, IMF, ILO, UNCTAD

Political/Legal Impacts: Entry Restrictions, Tariff Levels, Laws & Codes, Regulations concerning foreign owner-ships, advertisements, production

REASONS WHY CORPORATIONS GLOBALIZE

•They can reduce their sourcing and distribution costs compared to national businesses

•They can avoid tariffs, quotas and other trade barriers faced by exporters

•They are able periodically to shift operations from high-cost to low-cost countries

•They can penetrate markets throughout the world from supply points in several different countries, supplemented perhaps by exports from the parent firm plus ad hoc licensing and contract manufacture agreements

•Their management plan, organize and control company operations on a worldwide scale, with national markets being regarded as little more than segments of a broader regional customer base

FACTORS WHICH COMPEL GLOBALIZATION

Organizations decide to globalize on account of the following two sets of organizational/industry’s internal and external factors:

Internal factors: Market Imperfections

Product Life Cycle

External factors: Macro forces of Globalization

Competitive Advantage of Nations

TYPES OF GLOBAL STRATEGIES

• Wholly owned foreign

subsidiary

• Joint Ventures

• Fade-Out Agreements

• Portfolio Investments

• Licensing

• Franchising

• Exporting

THE END !