MGCR 382 Chapter Notes - Chapter 11: Value Chain, Capital Structure, Swot Analysis
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MGCR382 Chapter 11 Notes: International Strategic Management
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 usually the responsibility of top-level
executives at corporate headquarters and senior managers in domestic and foreign operating subsidiaries
International strategies – comprehensive frameworks for achieving a firm’s fundamental goals
What products and/or services does 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 resources?
How does it expect to outperform its competitors?
Global efficiencies – international firms can improve their efficiency through several means not available to domestic
Capture location efficiencies by locating their facilities anywhere in the world that yield them the lowest
production or distribution costs or that best improves the quality of service they offer their customers
By building factories to serve more than one country, international firms may also lower their production costs by
capturing economies of scale
By broadening their product lines in each of the countries they enter, international firms may enjoy economies of
scope, lowering their production and marketing costs and enhancing their bottom lines
Multinational flexibility – international businesses may also respond to a chance in one country by implementing a change
in another country
Worldwide learning – differences in operating environments may cause the firm to operate differently in one country than
Global efficiencies can be more easily obtained when a single unit of a firm is given worldwide responsibility for the task
at hand. If too much power is centralized in one unit of the firm, it may ignore the needs of consumers in other markets.
Conversely, multinational flexibility is enhanced when firms delegate responsibility to the managers of local subsidiaries.
Vesting power in local managers allows each subsidiary to tailor its products, personnel policies, marketing techniques
and other business practices to meet the specific needs and wants of potential customers in each market the firm serves.
However, this increased flexibility will reduce the firm’s ability to obtain global efficiencies in such areas as production,
marketing, and R&D.
Centralizing power in a single unit of the firm in order to capture global efficiencies may cause it to ignore lessons and
information acquired by other units of the firm. Moreover, these other units may have little incentive or ability to acquire
such information if they know that the “experts” at headquarters will ignore them.
Decentralizing power in the hands of local subsidiary managers may create similar problems. A decentralized structure
may make it difficult to transfer learning from one subsidiary to another. Local subsidiaries may be disposed to reject any
outside information out of hand as not being germane to the local situation. Firms wishing to promote worldwide learning
must utilize an organizational structure that promotes knowledge transfer among its subsidiaries and corporate
Home replication strategy – 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. That is, it takes what it does exceptionally well in its home
market and attempts to duplicate it in foreign markets adopted by firms when both the pressures for global integration
and the need for local responsiveness are low
Multidomestic strategy – views itself as a collection of relatively independent operating subsidiaries, each of which
focuses on a specific domestic market. In addition, each of these subsidiaries is free to customize its products, its
marketing campaigns, and its operations techniques to best meet the needs of its local customers. The multidomestic
approach is particularly effective when there are clear differences among national markets; when economies of scale for
production, distribution, and marketing are low; and when the cost of coordination between the parent corporation and its
various foreign subsidiaries is high often used when the need to respond to local conditions is high, but the pressures
for global integration are low (many companies selling brand-name food)
Global strategy – a global corporation views the world as a single marketplace and has as its primary goal the creation of
standardized goods and services that will address the needs of customers worldwide. The global strategy is almost the
exact opposite of the multidomestic strategy. Whereas the multidomestic firm believes that its customers in every country
are fundamentally different and must be approached from that perspective, a global corporation assumes that customers
are fundamentally the same regardless of their nationalities. Thus, the global corporation views the world market as a
single entity as it develops, produces, and sells its products. It tries to capture economies of scale in production and
marketing by concentrating its production activities in a handful of highly efficient factories and then creating global
advertising and marketing campaigns to sell those goods most appropriate when pressures for global integration are
high but the need for local responsiveness is low
Home replication and global strategy share an important similarity: under either approach, a firm conducts business the
same way anywhere in the world. A firm utilizing the home replication strategy takes it domestic way of doing business
and uses that approach in foreign markets as well. In essence, a firm using this strategy believes that if its business
practices work in its domestic market, then they should also work in foreign markets. Conversely, the starting point for
market is irrelevant, for the global firm thinks of its market as a global one, not one divided into domestic and foreign
Transnational strategy – the transnational corporation attempts 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 goal of a
multidomestic corporation. To do so, the transnational corporation does not automatically centralize or decentralize
authority. Rather, it carefully assigns responsibility for various organizational tasks to that unit of the organization best
able to achieve the dual goals of efficiency and flexibility most appropriate when pressures for global integration and
local responsiveness are both high
A transnational corporation may choose to centralize certain management functions and decision-making at corporate
headquarters. Other management functions may be decentralized, allowing managers of local subsidiaries to customize
their business activities to better respond to the local culture and business environment. Often transnational corporations
locate responsibility for one product line in one country and responsibility for a second product line in another.
Firms must pay particular attention to local conditions when consumer tastes or preferences vary widely across countries,
when large differences exist in local laws, economic conditions, and infrastructure, or when host-country governments
play a major role in the particular industry. Pressures for global integration arise when the firm is selling a standardized
commodity with little ability to differentiate its products through features or quality. If trade barriers and transportation
costs are low, such firms must strive to produce their goods at the lowest possible cost. Conversely, if the product features
desired by consumers vary by country or if firms are able to differentiate their products through brand names, after-sales
support services, and quality differences, the pressures for global integration are lessened.
Worldwide learning requires the transfer of information and experiences from the parent to each subsidiary, from each
subsidiary to the parent, and among subsidiaries. Neither the home replication, multidomestic, nor global strategy is
explicitly designed to accomplish such learning transfer. The home replication strategy is predicated on the parent
company’s transferring the firm’s core competencies to its foreign subsidiaries. The multidomestic strategy decentralizes
power to the local subsidiaries so that they can respond easily to local conditions. The global strategy centralizes decision
making so that the firm can achieve global integration of its activities.
The transnational strategy would appear to be better able to promote global learning with its mix of centralization of
certain functions and decentralization of others – a primary reason for adopting this strategy in the first place.