MGMT. 416

International Business II

Instructor: Evrim Tören

Chapter 12

International Competitive Strategy

Thinking Strategically about the future in an Uncertain World:

Managers must fully understand why, how and where they intend to do business, now and over time.

There should be a clear understanding of company’s mission, a vision for how they intend to achieve that mission and an understanding of how they plan to compete with other companies.

Managers must understand the strengths and weaknesses and be able to compare them accurately.

What is International Strategy and Why is it important?

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

Internal Consistency: The various functions, products and regional units of the company.

External Consistency: The variety of demands associated with operating in the international competitive environenment.

Competitive Advantage

The ability of a company to have higher rates of profits than its competitors.

This suggests the international company must either perform activities different from the competitors or perform the same activities in different ways.

In order to create the competitive advantage:

The international company should try to develop skills or competencies.

Create value for customers and for which customers are willing to pay,

Rare characteristics should be found out. Create value which is difficult to imitate or

substitute. Capture the value from the competitive

potential.

Strategic Planning

The process by which an organization determines where it is going in the future, how it will get there and how it will assess whether and to what extent it has achieved its goals.

Global Strategic Planning

Strategic plans should ensure that decisions makers have a common understanding of the business, the strategy, the assumptions behind the strategy, the external business environment pressures and their own direction, as well as their promoting consistency of action among the firm’s managers worldwide.

Global Strategic Planning Process

1. Analyze the company’s external environment2. Analyze the company’s internal environment3. Define the companies business and mission4. Set corporate objectives5. Quantify goals6. Formulate strategies7. Make tactical plans

1. Analyze Domestic, International and Foreign Environments.

Environmental Scanning

Recognition of the nature, and implications of the current and future domestic, international, and foreign environments is very important.

2. Analyze Corporate Controllable Variables

Value Chain Analysis:

The examination of the firm’s activities from the time raw materials enter the plant until the end product reaches the final user.

The managers must address three key questions:

1. Who are the company’s target customers?

2. What value does the company want to deliver to these customers?

3. How will this customer value be created?

Knowledge as a Controllable Corporate Resource

Knowledge Management:

The practices that organizations and their managers use for the identification, creations, acquisition, development, dispersion and exploitation of competitively valuable knowledge.

Tacit Knowledge:

Knowledge that an individual has but it is difficult to express clearly in words, pictures or formula and therefore difficult to transmit to others.

Explicit Knowledge:

Knowledge that is easy to communicate to others via words, pictures, formula or other means.

3. Define the Corporate Mission, Vision and Values Statements

Mission Statement:

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

Vision Statement:

A description of the company’s desired future’s position if it can acquire the necessary competencies and successfully its strategy.

Values Statement:

A clear and concise description of the fundamental values, beliefs and priorities of the organization’s members.

4. Set Corporate Objectives

Objectives direct the firm’s course of action, maintain it within the boundaries of the stated mission, and ensure its continuing existence.

For example, McDonald’s has three worldwide objectives.

1. To be the best employer for its people in each community around the world.

2. To deliver operational excellence to its customers in each of its restaurants.

3. To achieve enduring profitable growth by expanding the brand and leveraging the strengths of the company through innovation and technology.

5. Quantify the Objectives

To enhance a company’s ability to develop and implement an effective strategy, one that will enable the company’s objectives to be attained.

It is important that efforts be made to quantify these objectives.

6. Formulate the Competitive Strategies

Participants in the strategic planning process should formulate alternative competitive strategies.

Competitive Strategies:

Actions plans to enable organizations to reach their objectives.

Companies competing in international markets confront two opposing forces: reduction of costs and adaptation to local markets.

5 Different Types of Strategies

Home Replication Multi domestic Regional Global Transnational

The appropriate strategy is determined according to the various activities in the value chain. It depends on the amount of pressure the company faces in terms of adapting to local markets and achieving cost reductions.

Home Replication Strategy

Companies pursuing home replication strategy typically centralize product development functions in their home country.

After developing products in the home market, these innovations are then transferred to foreign markets in order to capture additional value.

A tight control over marketing and product strategy.

Ex: Mcdonald’s and Microsoft

Multidomestic Strategy

It tends to be used when there is strong pressure for the company to adapt its product or services for local markets.

The decisions are more decentralized in order to allow the company to modify its products and to respond quickly to changes in local competition and demand.

To effectively adapt products, the company will have to invest in additional capabilities and knowledge in terms of local culture, language, customer demographics, human resource practices, government regulations, distributions systems and so forth.

Global Strategy

A global strategy tends to be used when a company faces strong pressures for reducing costs and limited pressure to adapt products for local markets.

Strategy and decision making are typically centralized at headquarters, and the company tends to offer standardized products and services.

Transnational Strategy

It tends to be used when a company simultaneously confronts pressures for cost effectiveness and local adaptation and when there is a potential for competitive advantage from simultaneously responding to these two divergent forces.

7. Make Tactical Plan

Standardization and Planning

In making strategic plans, it is essential that international companies look beyond what makes sense under current circumstances and also consider how the situation may change in the future and the implications of these changes.

Thus, they use scenarios in the planning process.

Scenaries

Because of the rapidity of the changes in the uncontrollable variables, many managers have become dissatisfied with planning for a single set of events.

Scenarios: Multiple, plausible stories about the future.

Scenario analysis allows management to assess the implications for the company of various economic conditions and operating strategies.

Contingency Plans

Plans for the best- or worst-case scenarios or for critical events that could have a severe impact on the firm.

Contingency planning is a common strategic activity for domestic and international airlines.

Strategic Plan Features and Implementation Facilitators

Two prominent features of the strategic planSales Forecast: A prediction of future sales performance.Budget: An itemized projection of revenues and expenses for a future time period.

Plan Implementation Facilitators

Once the plan has been prepared, it must be implemented. Two of the most important plan implementation facilitators are:

Policies: Broad guidelines intended to assist lower-level personnel in handling recurring issues or problems.

Procedures: Specified ways of performing a particular task or activity.

Performance Measures

It has been done in order to assess whether the strategy and its implementation are proceeding successfully or whether modifications may need to be made.

There are three types of measures

1. Measures of the effectiveness of the company’s personnel, within and across the firm’s international network of operations, in performing their assigned jobs.

2. Measures of the company’s success in obtaining and applying the required resource, such as financial, technological and human resources.

3. Measures of the company’s progress toward achieving its mission, vision and objectives.

Kinds of Strategic Plan

Time Horizon: All strategic plans may be classified as short, medium or long term. There is a little agreement about the length of these periods. The time horizon varies according to the age of the firm and the stability of its market.

Level in the Organization: Each organizational level of the company have its level of plan. It depends on how the company is organized.

Methods of Planning

Top-Down Planning: Planning process that begins at the highest level in the organization and continues downward.

Bottom-Up Planning: Planning process that 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.

New Directions in Planning

Who does Strategic Planning?– Executives, Senior Executives, Top management

How Strategic Planning is done?– Computer models, Sophisticated forecasting methods

“A good strategic planning process must allow ideas to surface from anywhere and at any time.”

Contents of the Plan– The content should be based on issues, strategies, and

implementation and with incorporating creative, forward-looking ideas that are essential to competitive success.

Analysis of the Competitive Forces

The success of strategic management and the strategic planning process depends in large part upon the quality of information that goes into the process, as well as the interpretation of this information.

If there is a lack of efficient and good competitive information, this will be a problem for the companies.

Is Competitor Assessment new?

Industrial Espionage: Act of spying on a competitor to learn secrets about its strategy and operations.

Competitor Analysis: Process in which principal competitors are identified and their objectives, strengths, weaknesses and product lines are assessed.

Competitor Intelligence System: Procedure for gathering, analyzing and disseminating information about a firm’s competitors.

Sources of Information

There are five primary sources of information about the strengths, weaknesses, threats of a firm’s competitors.

1. Within the firm

2. Published material, including computer databases

3. Suppliers/Customers

4. Competitors’ employees

5. Direct Observation or Analysis of Physical evidence of competitors’ activities.

Using Competitor Assessment to Look Forward, Not Back

Benchmarking:

A technique for measuring a firm’s performance against the performance of others that may be in the same or a completely different industry.

4 Types of Benchmarking:

Internal: Comparing one operation in the firm with another. Productivity increases 10%.

Competitive: Comparing the firm’s operation with that of a direct competitor. Productivity increases 20%.

Functional: Comparing the firm’s functions with similar functions at firms in one’s broadly defined industry. American Airlines vs. FedEx.

Generic: Comparing operations in totally unrelated industries.