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Chapter 11

MGCR382 Chapter 11 Notes - International Strategic Management.docx

5 Pages

Management Core
Course Code
MGCR 382
Nicholas Matziorinis

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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 firms  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 another 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 headquarters Strategic Alternatives 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 segments 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. Transnational corporations utilize such techniques as matrix organizational designs, project teams, informal management networks, and corporate cultures to help promote transfer of knowledge among their subsidiaries Components of an International Strategy Distinctive competence – “what do we do exceptionally well, especially as compared to our competitors?”  May be cutting-edge technology, efficient distribution networks, superior organizational practices, or well- respected brand names  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. Without a distinctive competence, a foreign firm will have difficulty competing with local firms that are presumed to know the local market better  Represents an important resource to the firm. A firm often wishes to exploit this advantage by expanding its operations into as many markets as its resources allow. To a large degree, the internationalization strategy adopted by a company reflects the interplay between its distinctive competence and the business opportunities available in different countries Scope of operations – “where are we going to conduct business?”  Scope may be defined in terms of geographical regions, or it may focus on market or product niches within one or more regions. Because all firms have finite resources and because markets differ in their relative attractiveness for various products, managers must decide which markets are most attractive to their firm. 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 of operations will focus on those areas where the firm enjoys the distinctive competence Resource deployment – “given that we are going to compete in these markets, how should we allocate our resources to them?”  Might be specified along product lines, geographical lines, or both  This part of strategic planning determines relative priorities for a firm’s limited resources Synergy – “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 parts Developing International Strategies Strategy formulation – the firm establishes its goals and the strategic plan that will lead to the achievement of those goals. In international strategy formulation, managers develop, refine, and agree on which markets to enter (or exit) and how best to compete in each Strategy implementation – the firm develops the tactics for achieving the formulated international strategies. Usually achieved via the organization’s design, the work of its employees, and its control systems and processes Steps in International Strategy Formulation  Develop a mission statement – clarifies the organization’s purpose, values,
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