International Competitive Strategy

McGraw-Hill/IrwinInternational Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

chapter thirteen

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Learning Objectives

Explain international strategy and competencies and international competitive advantage

Describe the steps in the global strategic planning process

Explain the purpose of mission statements, objectives, goals, and strategies

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Learning Objectives

Describe the methods of and new directions in strategic planning

Explain home replication, multidomestic, regional, global, and transnational strategies and when to use them

Describe the sources of competitive information

Understand the importance of industrial espionage

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International Strategy

• The way firms make choices about acquiring and using scarce resources in order to achieve their international objectives

• Involves decisions that deal with all the various functions, products and regional unit activities of a company

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International Strategy

• The goal is to achieve and maintain a unique and valuable position both within a nation and globally: competitive advantage

• Competitive advantage is the ability of a company to have higher rates of profits than its competitors

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Competitive Advantage

• To create a sustainable competitive advantage, a company tries to develop skills that– Create value for customers

– Are rare

– Are difficult to imitate or substitute for

– Are organized in a way that the company can fully exploit

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Global Strategic Planning

• Provides a means for top management to– Identify opportunities and threats– Formulate strategies to handle them– Stipulate how to finance and manage the

strategies’ implementation• Provides consistency of action• Provides a thorough, systematic foundation

for making decisions

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Global Strategic Planning Process

• Analyze the company’s external environments

• Analyze the company’s internal environment

• Quantify goals

• Define the company’s business and mission

• Set corporate objectives

• Formulate strategies• Make tactical plans

The process of strategic planning provides a formal structure in which managers

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Global Planning Process

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Analyze Corporate Controllable Variables

• Situational analysis– Forecast– Value Chain Analysis

• Who are the target customers?• What value do we deliver?• How will customer value be created?

– Figure 13.2

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Figure 13.2 – The Value Chain

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Analyze Corporate Controllable Variables

• Knowledge as a Controllable Corporate Resource– Capabilities of employees– Structures, systems, organizational routines

• Build knowledge database and transfer best practices

• Protect knowledge from competitors

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Define the Corporate Business, Vision, and Mission Statements

• These broad statements communicate to the corporation’s stakeholders what the company is and where it is going and the values that will guide the behavior of the organization’s members– Mission statement

• A broad statement that defines the organization’s purpose and scope

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Define the Corporate Business, Vision, and Mission Statements

– Vision Statement • Description of the company’s desired

future position if it can acquire the necessary competencies and successfully implement its strategy

– Values Statement• Clear and concise description of the

fundamental values, beliefs, and priorities of the organization’s members

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Set Corporate Objectives

• Objectives – Direct the firm’s course of action

– Maintain it within the boundaries of the mission

– Ensure its continuing existence

• In order to implement an effective strategy, it is important to quantify objectives

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Formulate Competitive Strategies

• Competitive Strategies

– Action plans to enable organizations to

reach their objectives

– Generally, participants in the strategic

planning process will formulate alternative

competitive strategies along with action

plans that seem plausible

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Formulate Competitive Strategies

• In the international market companies confront two opposing forces– Reduction of costs– Adaptation to local markets

• Basic strategies address these pressures– Home Replication– Multidomestic– Regional– Global– Transnational

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Cost and Adaptation Pressures and Their Implications for International Strategies

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Home Replication Strategy

• Used when companies typically centralize product development functions in their home country– Then transferred to foreign markets in order

to capture additional value– Microsoft, McDonald’s

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Multidomestic Strategy

• Used when there is strong pressure for adaptation to local market– Decision making decentralized to allow for

quick change– Increases cost structure– Too much adaptation may take away from

product– Cost and complexity of coordination can be

substantial– Schneider Electric

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Global Strategy

• Used when a company faces strong pressure to reduce costs and limited pressure to adapt products for local markets– Strategy and decision making centralized– Company offers standardized products and

services– Value chain activities in only one or a few areas– Results in limited ability to adjust to meet customer

needs and higher transportation costs– Intel, Boeing

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Transnational Strategy

• Used when a company confronts pressures for both cost effectiveness and local adaptation– Company locations based on where most beneficial

for each activity• Upstream value chain activities will be more

centralized• Downstream activities will be more decentralized

– Achieving an optimal balance is challenging– Strategic decisions, structures and systems will be

complex

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Scenarios

• Multiple, plausible stories about the future– Often the “what if” questions reveal

weaknesses in present strategies– Types of subjects for scenarios include

• large and sudden changes in sales (up or down)

• sudden increases in price of raw materials• sudden tax increases• a change in the political party in power

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Types of Plans

• Contingency Plans– Plans for the best-or-worst-case scenarios

or for critical events that could have a severe impact on the firm

• Tactical Plans (Operational)– Spell out in detail how objectives will be

reached– Short-term

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Strategic Plan Features

• Sales Forecast and Budget

– Sales Forecast

• Provides management with an estimate of the revenue to be received and the units to be sold

– Budget

• During planning, budgets coordinate the functions within the firm and provide management with a detailed statement of future operating results

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Plan Implementation Facilitators

• Policies and Procedures

• Policies– Broad guidelines to assist lower-level managers in

handling recurring problems

– Permit discretionary action and interpretation

– The object is to economize managerial time and promote consistency among the various operating units

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Plan Implementation Facilitators

• Procedures– Prescribe how certain activities will be carried

out

– Ensure uniform action on the part of all

corporate members

– Facilitate comparison among operational units

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Performance Measures

• Assess if the strategy and its implementation are proceeding successfully and what modifications may be needed– Measures of the company’s success

• Financial, technological, and human resources

– Measures of the effectiveness– Measures of the company’s progress

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Kinds of Strategic Plans

• Time Horizon– Strategic plans may be classified as short,

medium, or long term

• Level in the Organization– Each organizational level will have its level

of plan

• Functional area

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Methods of Planning

• Top-down planning– Begins at the highest level in the

organization and continues downward• definition of the business• mission statement• company objectives• financial assumptions• content of the plan• special issues

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Methods of Planning

• Bottom-Up Planning– Begins at the lowest level in the

organization and continues upward

• Iterative Planning– Repetition of the bottom-up or top-down

planning process until all differences are reconciled

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New Directions in Planning

• Who Does the Planning?– Many firms have introduced innovation to

the planning process

• Bring in customers and suppliers who have firsthand experience with the firm’s markets

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New Directions in Planning

• How Planning is Done – Many firms have moved toward less

structured formats and much shorter documents

• Contents of the Plan– Top managers much more concerned with

issues, strategies, and implementation

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Summary Changes in the International Planning Process

• Top management must assume more explicit strategic decision-making role, decide how things ought to be, not listen to analyses of how they are

• The nature of planning must change from forecasting to creativity

• Planning processes and tools that assume a future much like the past must be replaced by a mind-set obsessed with recognizing change and using it to build competitive advantage

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Summary of Changes in International Planning Process

• The planner must change from purveyor of incrementalism to crusader for action

• Strategic planning must be restored to core of line management responsibilities

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Competitor Analysis

• Competitor Analysis– Process in which principal competitors are

identified and their objectives, strengths, weaknesses, and product lines are assessed

• Industrial Espionage– Act of spying on a competitors to learn

secrets about strategy and operations

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Competitor Intelligence Systems

• Procedure for gathering, analyzing, and disseminating information about competitors

• Benefits include ability to:– Improve bidding success– Identify competitor’s key customers – Identify plant or other facility expansion plans– Improve understanding of competitors’ products

and processes

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Sources of Information

• Within the Firm– Sales representatives– Librarians– Technical and R&D

people

• Published Material– Technical journals– Databases– Internet– Industry reports– Public documents

• Suppliers/Customers

• Competitors’ Employees

• Direct Observation or Analysis of Physical Evidence– Technical people– Reverse engineering

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Benchmarking

• A technique for measuring a firm’s performance against the performance of others

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Benchmarking

• Four types– Internal: comparing one operation in the firm with

another– Competitive: comparing the firm’s operation with a

direct competitor– Functional: comparing similar functions of firms in

your industry– Generic: comparing operations in totally unrelated

industries