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Part Three: International Strategic

Management

International Management,5th ed.

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International Management,

5th ed.

Hodgetts and Luthans

Chapter Nine

Strategic Planning

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DISCUSS the meaning, needs, benefits, approaches, and predispositions of the strategic planning process for today’s MNCs

IDENTIFY the basic steps in strategic planning, including environmental scanning, internal resource analysis of the MNC’s strengths and weaknesses, and goal formulation

DESCRIBE how an MNC implements the strategic plan, such as how it chooses a site for overseas operations

EXPLAIN how an MNC implements an ownership and/or entry strategy

REVIEW the three major functions of marketing, production, and finance that are used in implementing a strategic plan

Objectives of the Chapter

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International Strategic Planning

Strategic planning Process of determining an organization’s basic mission

and long-term objectives, then implementing a plan of action for attaining these goals

Process takes on added dimensions when companies go international

Growing Need for Strategic Planning MNC must keep track of diversified operations Continually changing international environment FDI has grown faster than both trade and world gross domestic

product Benefits of Strategic Planning

Evidence is mixed

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International Strategic Planning (cont.)

Approaches to Formulating and Implementing Strategy Economic Imperative

Worldwide strategy based on cost leadership, differentiation, and segmentation

Political Imperative Strategic formulation and implementation utilizing strategies

that are country-responsive and designed to protect local market niches

Quality Imperative Strategic formulation and implementation utilizing strategies of

total quality management to meet or exceed customers’ expectations and continuously improve products and/or services

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International Strategic Planning (cont.)

Approaches to Formulating and Implementing Strategy (cont.) Administrative Coordination

Strategic formulation and implementation in which the MNC makes strategic decisions based on the merits of the individual situation rather than using a predetermined economically or politically driven strategy

Large MNCs try to combine the economic, political, quality, and administrative approaches to strategic planning

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International Strategic Planning (cont.)

Strategic Predispositions Ethnocentric predisposition

Nationalistic philosophy of management whereby the values of the parent company guide the strategic decisions

Polycentric predisposition Philosophy of management whereby strategic decisions are

tailored to the cultures of the countries where the MNC operates

Regiocentric predisposition Philosophy of management whereby the firm tries to blend its

own interests with those of its subsidiaries on a regional basis Geocentric predisposition

Philosophy of management whereby the company tries to integrate a global systems approach to decision making

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Figure 9-1Basic Elements of Strategic Planning for

International Management

External Environmental Scanningfor MNC Opportunities and Threats

Internal Resource Analysis ofMNC strengths and weaknesses

Strategic PlanningGOALS

IMPLEMENTATION

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Basic Steps in Formulating Strategy

Environmental Scanning Process of providing management with accurate

forecasts of trends related to external changes in geographic areas where the firm currently is doing business and/or is considering setting up operations

Internal Resource Analysis Helps a firm to evaluate its current managerial,

technical, material, and financial strengths and weaknesses

Key factor for success (KFS) Factor necessary to effectively compete in a market niche Must have people and resources to develop and sustain the

necessary KFSs

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Table 9-2 Areas for Formulation of MNC Goals

Profitability

Level of profits Return on assets, investment, equity, salesYearly profit growth Yearly earnings per share growth

Marketing

Total sales volume Market share - worldwide, region, countryGrowth in sales volume Growth in market shareIntegration of country markets for marketing efficiency and effectiveness

Operations

Ratio of foreign to domestic production volume Quality and cost controlEconomies of scale via international production integrationIntroduction of cost-efficient production methods

Human Resources

Recruitment and selection Development of managers with global orientationCompensation and benefits Management development of host-country nationals

Finance

Taxation - minimizing tax burden globally Optimum capital structureForeign exchange management - minimizing losses from foreign fluctuationsFinancing of foreign affiliates - retained earnings or local borrowing

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Figure 9-2 Preferred Strategies for Global Expansion:

Developed Markets

North America

Western Europe

Japan

Australia/New Zealand

Alliance Joint ventureMergers/acquisitions

Expandfacilities

Newfacilities

0 20 40 60 80 100% of respondents

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Figure 9-2 Preferred Strategies for Global Expansion:

Developed Markets

North America

Western Europe

Japan

Australia/New Zealand

Alliance Joint ventureMergers/acquisitions

Expandfacilities

Newfacilities

0 20 40 60 80 100% of respondents

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0 20 40 60 80 100

Figure 9-2 Preferred Strategies for Global Expansion:

Emerging Markets

China

Southeast Asia

Other East Asia

India/Pakistan

Brazil

Mexico

Other Latin America

Middle East

North Africa

Eastern Europe

Former Soviet Union

Alliance Joint ventureMergers/acquisitions

Expandfacilities

Newfacilities

% of respondents

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Strategy Implementation

Process of providing goods and services in accord with a plan of action

Location Consideration for Implementation The Country

Industrialized countries are the recipients of most investments by MNCs

Offer the largest markets for goods and services May have legal restrictions on imports that encourage a local

presence

Local Issues Access to markets Proximity to competitors Availability of transportation and utilities Nature of of the workforce Cost of doing business

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Strategy Implementation (cont.)

Ownership and Entry Consideration for Implementation Wholly Owned Subsidiary

Overseas operation that is totally owned and controlled by an MNC

Increasingly acquiring subsidiaries through merger or acquisition

Provides MNC with complete control Joint Venture

Agreement in which two or more partners own and control an overseas business

Nonequity venture - one group provides service to another Equity joint venture - involves financial investment

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Advantages of Joint Ventures

JointVentures

Improvementof efficiency

Access toknowledge

Collusion orrestriction ofcompetition

Politicalfactors

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Strategy Implementation (cont.)

Ownership and Entry Consideration for Implementation (cont.) Licensing

Agreement that allows one party to use an industrial property right in exchange for payment to the other party

Used under a number of common conditions Franchising

Business arrangement under which one party (the franchisor) allows another (the franchisee) to operate an enterprise using its trademark, logo, product line, and methods of operation in return for a fee

Export/Import Useful for firms wanting to begin international expansion with

a minimum investment

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Strategy Implementation (cont.)

Role of the Functional Areas in Implementation Marketing

Strategy implementation must be determined on a country-by-country basis

Built around the “four Ps” Product, price, promotion and place

Usually dominates strategy implementation

Production Consideration of worldwide production is important Multidomestic company

Firm that operates production plants in different countries but makes no attempt to integrate overall operations

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Strategy Implementation (cont.)

Role of the Functional Areas in Implementation (cont.) Finance

Strategy implementation developed at the home office and carried out by the overseas affiliates

Transferring funds from one place to another, or borrowing funds in the international money markets, often is less expensive than relying on local sources

Must be concerned about volatile monetary exchange rates