GM - Chapter 8 - Strategy Formulation and Implementation Flashcards
Strategic Management:
the process of determining an organization’s basic mission and long-term objectives, then implementing a plan of action for pursuing the mission and attaining objectives
- Growing need for strategic management related to increasingly diversified operations in continuously changing international environment
Benefits of Strategic Planning
- 70 percent of 56 U.S. MNC subsidiaries had comprehensive 5 to 10-year plans according to one study
- Evidence for effectiveness of planning is mixed. Strategic planning does not always result in higher profitability
4 Approaches to Strategic Planning
- Economic Imperative
- Administrative Coordination
- Political Imperative
- Quality Imperative
Economic imperative
- focused MNCs employ worldwide strategy based on cost leadership, differentiation, and segmentation
- Strategy also used when product is regarded as generic and therefore is not sold on name brand or support service
- Often sell products for which large portion of value is added in upstream activities of industry value chain
- –Research and development
- –Manufacturing
- –Distribution
political imperative
- are country-responsive; approach designed to protect local market niches
- These MNCs often use country-centered or multi-domestic strategy
- Success of product or service depends heavily on Marketing, Sales, and Service
Quality Imperative
has 2 paths:
- Change in attitudes and raising of expectations for service quality
- Implementation of management practices designed to make quality improvement an ongoing process
- –TQM Total Quality Management (see next slide)
Total Quality Management
- Cross-train personnel to do jobs of all members in work group
- Process re-engineering designed to help identify/eliminate redundant tasks
- Reward system designed to reinforce quality performance
- Quality operationalized by meeting or exceeding customer expectations
- Quality strategy formulated at top management level and diffused through organization
- techniques: traditional inspection and statistical quality control; cutting edge Human Resource Management techniques such as self-managing teams and empowerment
Administrative Coordination Imperative
- MNC makes strategic decisions based on merits of individual situation rather than predetermined economic or political strategy
- Least common approach to formulation and implementation of strategy
- Many large MNCs work to combine all 4 of the approaches to strategic planning
Fundamental Tension:
The globalization vs. national responsiveness conflict.
Global integration:
Production and distribution of products and services of a homogenous type and quality on a worldwide basis
National responsiveness:
need to understand different consumer tastes in segmented regional markets and respond to different national standards and regulations imposed by autonomous governments and agencies
Global Integration vs. National Responsiveness
4 box grid: Y-axis - Global responsiveness; X-axis - National Responsiveness
- upper left quadrant: Global strategy (high GI, Low NR)
- upper right quadrant: Transnational (high, high)
- lower left quandrant: International Strategy (low, low)
- lower right quandrant: Multi-domestic (low GI, High NR)
Approaches to Strategic Planning
Appropriateness of each strategy depends on pressures for cost reduction and local responsiveness in each country served:
- -Global strategy is low-cost strategy attempting to benefit from scale economies in production, distribution, marketing
- -Transnational strategy pursued when high cost pressures and high demand for local responsiveness
Basic Elements in Strategic Planning for International Management
- External Environmental Scanning for Opportunities and Threats
- Internal Resource Analysis of Strengths and Weaknesses
- Strategic Planning GOALs
- Implementation
Environmental Scanning
- Regulatory, Social, Political, Ecomomical, Technological, Industry/Market
- Provides management with accurate forecasts of trends relating to external changes in geographic areas where firm is doing business or considering doing business
- Changes relate to economy, competition, political stability, technology, demographic and consumer data
Internal Resource Analysis
Evaluate MNC’s current managerial, technical, material, and financial strengths and weaknesses
- Assessment then used to determine ability to take advantage of international market opportunities
- Match external opportunities (gained in environmental scan) with internal capabilities (gained through internal resource analysis)
- Key question for MNC: Do we have the people and resources that can help us develop and sustain necessary Key Success Factors, or can we acquire them?
Strategic Planning Goals
- Goal formulation often precedes first two steps (environmental scanning, internal analysis)
- More specific goals for strategic plan come from external scan and internal analysis
- – Goals serve as umbrella beneath which subsidiaries and other international groups operate
- – Profitability and marketing goals almost always dominate strategic plans
- –Once set strategic goals, MNC develops specific operational goals and controls for subsidiary or affiliate level
Elements of Strategic Planning: Implementation
- Provides goods and services in accord with plan of action
- Plan often will have overall philosophy or guidelines to direct process
- Considerations in selecting country:
—Advanced industrialized countries offer largest markets for goods/services
—Amount of government control
Restrictions on foreign investment
—Specific benefits offered by host countries
Elements of Strategic Planning:Implementation (continued) - Local issues
Once country has been decided, firm must choose specific locale
- Important factors influence this choice:
- Access to markets
- Proximity to competitors
- Availability of transportation and electric power
- Desirability of location for employees coming in from outside
Elements of Strategic Planning:Implementation (continued) - Production
- –When exporting goods to foreign market, production has usually been handled through domestic operations
- –More recently MNCs have found that whether they export or produce goods locally in host country, consideration of worldwide production is important
- – Recent trend away from multi-domestic approach and toward global coordination of operations
Elements of Strategic Planning:Implementation (continued) - Finance
Transfer funds from once place in world to another, or borrowing funds in international money markets often less expensive than relying on local sources. Issues include:
- Reevaluation of currencies
- Privatization
- Strategic issues for base of pyramid
- International new ventures and “born global” firms
Elements of Strategic Planning:Implementation (continued) - Strategies for “base of pyramid” (BOP)
- Emerging market customers
- People at bottom of economic pyramid
- Marketing at BOP forces consideration of smaller-scale strategies
Elements of Strategic Planning:Implementation (continued) - International new ventures and “born-global” firms
Firms that engage in significant international activity a short time after being established
- Successful firms leverage a distinctive mix of orientations and strategies
- Global technological competence
- Unique product development
- Quality focus
- Leveraging of foreign distributor competencies
The Role of Functional Areas in Implementation
Production
- Traditionally handled through domestic operations
- Increasingly consideration of world wide production is important
- Recent trend away from scattered approach and toward global coordination of operations
- If product labor intensive, farm out product to low-cost sites (e.g., Mexico)
Marketing
- country-by-country basis
- built around well-known 4 P’s (product, price, promotion, place)
Finance
- Normally developed at home office
- Carried out by overseas affiliate or branch
MNCs have learned that transferring funds from one place in world to other, or borrowing funds in international money markets often less expensive than reliance on local sources
- Major headache is reevaluation of currencies
Some circumstances may require specialized strategies:
- Strategies for developing and emerging markets
- Strategies for international entrepreneurship and new ventures
Strategies for Emerging Markets
- big emerging markets: Mexico, Brazil Argentina, South Africa, Poland, Turkey, India, Indonesia, China, South Korea
- These nations have captured the bulk of investment and business interest from MNCs and their managers in recent years.
- Emerging markets present exceptional risks due to political and economic volatility. These risks show up in corruption, failure to enforce contracts, red tape and bureaucratic costs, and general uncertainty in legal and political environment.
Two Unique Strategies for Emerging Markets
First Mover Strategies: significant economies associated with early entry and first-mover positioning
- May be a narrow window of opportunity within which these opportunities can be best exploited.
Strategies for Base of Pyramid (BOP): 4-5 billion potential customers around the globe heretofore ignored by global business
- BOP forces global business to rethink their strategies. Must consider relationships with local governments, small entrepreneurs, and nonprofits rather than depend on established partners such as central government.
- BOP strategies challenging to implement
Represents opportunity to incubate new, leapfrog technologies
- Successful BOP strategies can travel profitably to higher income markets
Entrepreneurship Strategy and New Ventures
- Increasingly small and medium size enterprises, often in the form of new ventures, are becoming involved in international management.
- The earlier in its existence an innovative firm internationalizes, the faster it is likely to grow both overall and in foreign markets.
- Venture performance (growth and ROE) is improved by technological learning gained from international environments.
International Entrepreneurship
Defined as “a combination of innovative proactive, and risk-seeking behavior that crosses national borders and is intended to create value in organizations”
International New Ventures and “Born Global” Firms
- “Born global”: firms that engage in significant international activity a short time after being established.
- Most important business strategies employed by born global firms are global technological competence, unique products development, quality focus, and leveraging of foreign distributor competencies.
- Truly born global firms tend to survive longer than other seemingly global companies.
