Chapter Twelve

International
Competitive Strategy

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives

 Explain international strategy, competencies, and

international competitive advantage
 Describe the steps in the global strategic planning
process
 Explain the purpose of mission statements, vision
statements, values statements, objectives, quantified
goals, and strategies

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 Learning Objectives

 Explain home replication, multidomestic, regional,

global, and transnational strategies and when to use
them
 Describe the methods of and new directions in
strategic planning
 Discuss the importance of industrial espionage
 Describe the sources of competitive information

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 Motivations For Companies
To Pursue IB Opportunities

 Increase profits and sales

 Access new markets
 Protect existing markets, profits, and sales
 Satisfy overall desire for growth

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The Competitive Challenge Facing
Managers of International Business

 Managers must
 quickly identify and exploit opportunities wherever
they occur, domestically and internationally
 fully understand why, how, where, and when to do
business in specific world markets
 know the company’s strategic mission, its
strengths and its weaknesses

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 What is International Strategy?

 International strategy refers to the way firms make

choices about acquiring and using scarce resources in
order to achieve their international objectives
 It involves
 decisions about which markets to enter with which
products, when and how
 all the various functions and activities of the
company and how they interact
 ensuring that strategy is consistent across
functions, products, and regional units
 a variety of unique demands associated with
operating internationally
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 International Strategy

 A company’s goal is to achieve and maintain a

unique and valuable position both within a nation and
globally
 Competitive advantage refers to 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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 Why Plan Globally?

 Companies face forces that are increasingly

complex, global and subject to rapid change
 Political
 Economic
 Social
 Technological
 Legal
 Environmental

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 Why is Global Strategic
Planning Important?

 Global strategic planning allows managers to

 identify opportunities and threats
 formulate strategies to handle them
 stipulate how to finance and manage the
strategies’ implementation
 It provides
 consistency of action
 a thorough, systematic foundation for making
decisions
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Global Strategic Planning Process

 The global strategic planning process provides a

formal structure with which managers
define company’s business and mission
analyze the company’s internal and external
environments
set corporate objectives
quantify goals
formulate strategies
make a tactical plan LO2
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Global Strategic Planning Process

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Uncontrollable Forces Assessment

 The uncontrollable forces assessment involves an

 analysis of domestic, international and foreign
environments
 recognition of current and future implications
 strategy design to navigate major global trends

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 Analyze Corporate
Controllable Variables
 A controllable forces analysis
 is a situational analysis
 involves forecasting
 involves a value chain analysis of firm’s activities
from raw materials to end products to final
customer delivery
 Who are the target customers?
 What value do we deliver to them?
 How will we create this value?

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 The Value Chain

Adapted from M. E. Porter, Competitive Advantage, New York: Free Press, 1985
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 Analyze Corporate
Controllable Variables
 Competitive advantage can be gained through
leveraging organizational knowledge across national
borders
 Knowledge as a Controllable Corporate Resource
 Capabilities of employees
 Structures, systems, organizational routines
 Build knowledge database and transfer best
practices
 Protect tacit and explicit knowledge from competitors

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 Tacit - Explicit Knowledge

 Tacit Knowledge
 Embedded in individuals
 Difficult to express in words, pictures, formulas
 Difficult to transmit to others
 Lost when a valued manager leaves
 Explicit knowledge
 Easy to communicate with words, pictures,
formulas, etc.
 Can be documented in company-wide knowledge
bases
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 Vision and Mission Statements

 Broad statements that communicate to the

corporation’s stakeholders
 what the company is
 where it is going
 the values that will guide the organization’s
members behavior

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 Define the Corporate Business,
Vision, and Mission Statements

 The mission statement refers to a road statement

that defines the organization’s purpose and scope
 The vision statement describes the company’s
desired future position if it can acquire the
necessary competencies and successfully
implement its strategy
 The values statement is a 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 action within the mission’s boundaries
 Ensure the mission’s continuing existence
 To implement an effective strategy quantifiable
objectives are important

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Formulate Competitive Strategies

 Competitive strategies and corresponding action

plans enable organizations to reach their objectives
 The strategic planning process will formulate
alternative competitive strategies along with plausible
action plans
 Conscious choice of the course to be followed

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 Formulate Competitive Strategies
For the International Market Place
 Formulation of international strategy must consider two
opposing forces
 Reduction of costs: achieved best through standardization
and global integration of operations
 Adaptation to local markets: achieved best through more
local autonomy
 Basic strategy types address pressures for cost reduction and
local adaptation
 Home Replication
 Multidomestic
 Regional
 Global
 Transnational

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 Cost and Adaptation Pressures and Their
Implications for International Strategies

Adapted from C. Bartlett and S. Ghoshal. Managing Across Borders: The Transnational Solution, 2002
2nd ed., Cambridge: Harvard Business Press LO4
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 Home Replication Strategy
 The home replication strategy centralizes product
development functions in the home country
 developed products are then transferred to
foreign markets in order to capture additional
value
 microsoft, mcdonald’s
 The company has to possess a distinctive
competence that local companies lack
 Headquarters maintains control over marketing and
product strategy
 Subsidiaries leverage the home country capabilities
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 Multidomestic Strategy

 The multidomestic strategy is used when there is

strong pressure for adaptation to local market
 Decision making is decentralized, allowing for quick
change
 Leads to an increased cost structure
 Excessive adaptation may take away from product’s
distinctiveness
 Cost and complexity of coordination can be
substantial

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 Global Strategy

 The global strategy is 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 are in only one or a few areas
 Limited ability to adjust to meet customer needs
 Higher transportation costs for physical products

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 Transnational Strategy
 The transnational strategy is used when pressures for
cost effectiveness and local adaptation are equally
important
 Company locates activities where most beneficial for
the firm globally
 Upstream value chain activities will be more
centralized
 Downstream activities will be more localized
 Achieving an optimal balance is challenging
 Strategic decisions, structures and systems will be
complex

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 Standardization and Planning

 Not all of a firm’s activities confront the same mix of

globalization and localization pressures
 R&D and manufacturing tend to be more
standardized and coordinated world-wide
 Marketing and HRM activities tend to be more locally
adapted

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 Scenarios

 Scenarios refer to multiple, plausible stories about

the future
 “What if” questions can 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
 Change in the political party in power

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 Types of Plans That Can
Result From Scenarios

 Contingency Plans
 For the best-or-worst-case scenarios
 For critical events that could have a severe impact
on the firm
 Tactical Plans (Operational)
 Spell out in detail how objectives will be reached in
each case
 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
 Provides assumptions for cost and capital
requirements
 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

 Policies are 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

 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

 Performance measures are used to assess strategy

and its implementation
 Successfully on track?
 What modifications may be needed?
 Measures of the company’s success
 Financial, technological, and human resources
 Measures of 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 strategic planning?

 Top down? Regional input?
 Firms have introduced innovation to the planning
process
 Firms consult with 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 are much more concerned with
issues, strategies, and implementation

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 Summary: New International
Planning Process
 Top management assumes explicit strategic
decision-making role, decides how things ought to
be, does not focus on analyses of how things are
 Planning changes from forecasting to creativity
 Processes and tools that assume a future much like
the past must be replaced by a mind-set focused on
change as a source of competitive advantage
 Planners change from purveyors of incrementalism
to crusaders for action
 Strategic planning 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 competitors to learn secrets about
strategy and operations

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 Competitor Intelligence Systems

 Competitor intelligence systems are procedures for

gathering, analyzing, and disseminating
information about competitors
 Benefits include ability to
 improve bidding success
 identify competitors’ key customers
 identify plant or other facility expansion plans
 improve understanding of competitors’ products
and processes

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 Sources of Information
 Source of information within the firm include sales
representatives, librarians, and technical and R&D
people
 Information can also be sourced from published
material including technical journals, databases, the
internet, industry reports, and public documents
 Suppliers and customers can be information sources
 The employees of competitors’ can provide
information
 Direct observation or analysis of physical evidence is
another way to gain information
 Technical people
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 Benchmarking
 Benchmarking measures a firm’s performance
against the performance of others
 Internal: compares firm’s operations amongst
each other
 Competitive: compares firm with a direct
competitor
 Functional: compares similar functions of firms
in industry
 Generic: compares operations in unrelated
industries

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