The challenges of international strategic management
International strategic management: comprehensive and ongoing management planning process aimed
at formulating and implementing strategies that enable a firm to compete effectively internationally.
Strategic planning: process of developing a particular international strategy. It is the responsibility of
top-level executives at corporate headquarters and senior managers in domestic and foreign operating
International strategic management results in the development of various international strategies:
comprehensive framework for achieving a firm’s fundamental goals.
Fundamental questions strategic planners have to answer when they want to develop a strategy for
competing in a single country or multiple countries:
What products and/or services dies the firm intend to sell?
Where and how will it make those products or services?
Where and how will it sell them?
Where and how will it acquire the necessary resource?
How does it expect to outperform its competitors?
International businesses have the ability to exploit three sources of competitive advantage unavailable
to domestic firms
- Global efficiencies: international firms can improve their efficiency through several means not
available to domestic firms, capture location efficiencies by locating their facilities anywhere in
the world that yields them the lowest production or distribution costs or improve the quality of
service they offer their customers. Building factories to serve more than one country lowers
production costs by capturing economies of scale. Broadening their product lines in each of the
countries they enter allows international firms to enjoy economies of scope which means
lowering their production and marketing costs and enhancing their bottom lines
- Multinational flexibility: they are wide variations in the political, economic, legal and cultural
environments of countries. Moreover, these environments are constantly changing which forces
international businesses to face the challenge of responding to these multiple diverse and
- Worldwide leaning: Firms operate differently in one country than another , learn from these
differences and transfer this learning to its operations in other countries.
Strategic Alternatives Multinational corporations typically adopt one of four strategic alternatives in their attempt to balance
the three goals of global efficiencies, multinational flexibility and worldwide learning.
Home replication strategy: in this approach, a firm utilizes the core competency or firm-specific
advantage it developed at home as its main competitive weapon in the foreign markets that it enters.
They take what they do exceptionally well in their home market and attempt to duplicate it in foreign
Multidomestic Strategies: second alternative available to international firms. A Multidomestic
corporation views itself as a collection of relatively independent operating subsidiaries, each of which
focuses on a specific domestic market. In addition they all have their own marketing campaigns,
operations techniques and they customize their own products to best meet the needs of its local
customers. They believe that its customers in every country are fundamentally different.
Global strategy: A global corporation views the world as a single market place and has as its primary goal
the creation of standardized goods and services that will address the needs of customers worldwide.
They believe customers are fundamentally the same regardless to their different nationalities.
Home replication strategy and global strategy share an important similarity: under either approach, a
firm conducts business the same way anywhere in the world.
Important difference between the two approaches: a firm utilizing the home replication strategy takes
its domestic way of doing business and uses that approach in foreign market as well while the concept
of a home market is irrelevant for a global firm because they think of their market as a global one and
not one divided into domestic and foreign segments.
Transnational strategy: they attempt to combine the benefits of global scale efficiencies such as those
pursued by a global corporation, with the benefits and advantages of local responsiveness, which is the
global of a Multidomestic corporation. They don’t automatically centralize and decentralize authority;
they carefully assign responsibility for various organizational tasks to that unit of the organization best
able to achieve the dual goals of efficiency and flexibility.
FIGURE 11.1 PAGE 313
Components of an international strategy
These components are distinctive competence, scope of operations, resource deployment, and synergy.
Distinctive competence: answers the question: “What do we do exceptionally well, especially as
compared to our competitors?” According to Dunning’s eclectic theory, a firm’s possession of a
distinctive competence is thought by many experts to be a necessary condition for a firm to compete
successfully outside its home market.
Scope of operations: Answers the question: “Where are we going to conduct business?”Scope
may be defined in terms of geographical regions, such as countries, regions within a country, and/or clusters of countries. Scope is tied to the firm’s distinctive competence. If the firm possesses a
distinctive competence only in certain regions or in specific product lines, then its scope operations will
focus on those areas where the firm enjoys the distinctive competence.
Resource deployment: Answers the question: “Given that we are going to compete in these
markets, how should we allocate our resources to them?” It might be specified along product lines,
geographical lines, or both. It determines relative priorities for a firm’s limited resources.
Synergy: Answers the question: “How can different elements of our business benefit each
other?” The goal of synergy is to create a situation in which the whole is greater than the sum of the
Developing International Strategies
Developing international strategies is not a one-dimensional process. Firms carry out international
strategic management in two broad stages:
Strategy formulation: firm establishes its goals and the strategic plan that will lead to
achievement of those goals.
Strategy implementation: the firm de