Welcome to class of

InternationalStrategy Formulation

byDr. Satyendra Singh

www.uwinnipeg.ca/~ssingh5

The Process• Balancing pressures

– General pressure• Free trade areas, global financial market, advances

in communications technology…– Industry-specific Encourage to globalize– Country-specific – Company-specific

• International strategy formulation– Mapping of Industries– Mutidomestic, Regional, and Global strategies– Recommendations for managing the process

Encourage or discourage

Industry-specific Pressure (+)…• Universal customer needs

– People see it, so want it product or services– Irrespective of country of origin!– Even sports– MNCs do not miss out opportunities

• Ex. Watches, jeans, pizza, cell phone, computers…

• B2B (Industrial) customers– If GM goes international, so do suppliers– Suppliers are expected to respond– Close working relationship– Otherwise suppliers miss out the opportunity

Industry-specific Pressure (+)• High investment intensity

– ↑ investment recoup time, $, R&D standardize develop universal appeal

• Ex. MACH3 razor, Boeing,…– Amortize development cost through rapid

globalization

• Cost reduction need– Minimum vol. needed for certain unit cost– Economies of scale (30% domestic + 70% intl.)

• Ex. Petroleum industry ↑ production for ↓ price• However, newspaper industry, local content and

responsiveness is more important than prod. efficiency

Country-specific Pressure (±)…• Trade barrier (Tariff barrier)

– Because governments want• Investments (FDI) jobs, technology, ↑QOL• MNCs to establish autonomous operations• Preserve culture, sovereignty, foreign exchange• In sum, compete thru FDI rather than trade

– If a country becomes a trading block• Its competitiveness becomes vital loss of tariff• So governments begin subsidizing local industry

– I.e. ,Government resorts to nontariff barrier• Ex. EU, steel; US Sugar…, Production• Ex. Different industry standards: DVD-RAM

(Toshiba, DVD-RW (Sharp), DVD+RW (Sony)

Country-specific Pressure (±)…• Cultural differences

– Nationalism may deter globalization• Preserve culture and sovereignty

– Tradition and religious beliefs run deep• Ex. McDonald in India No beef• Ex. Kelloggs in UAE tested for pork derivatives• Ex. Wrigley’s chewing gum tested and found ok

– Local taste• Ex. KFC vs. tandoori chicken in India

• Income disparity• People cannot afford

– Imitation and Piracy– Microsoft, AutoCAD, SAP software….

Country-specific Pressure (±)• Anti-globalization activities

– It is not globalization; if so, it is very limited– High awareness of issues Mecca Cola– Website and fundraising capabilities– Powerful social networking uprising – So MNCs beef up public relations

• Ex. Coca-Cola in Africa

• Internet – may be no need to go abroad– Strategy shift Intuit income tax software– Competitive advantage vs. core competencies– Cost of maintaining physical structure can be ↑

As per the religion, 10% of profit goes to charity causes

Company-specific Pressure (±)…• Organizational resistance to change

– Justification for globalization (from multidomestic)– CM lose control/autonomy

• HO is overestimating the impact of globalization• Ex. GM, Philips, IBM, Nestle all have CM

– Union can resist too

• Management short supply– Not many cross-culturally competent managers– Personal reason, so no to globalization

• Do not wish to travel• Do not wish to be away from families• Region or religion – do not feel safe

Company-specific Pressure (±)• Transportation difficulty

– ↓ value-to-weight is not suitable globalization• Ex. Dairy, bread product – short shelf-lives• Ex. Seafood, flowers packaging, refrigeration

– Costs may outweigh benefits of globalization

• New production technique– JIT within hours of assemble, ↓ holding cost– Flexible manufacturing system– Low set up time, Multiple LOB in single factory– Customization is efficient

• Ex. Custom Levi jeans at $10 premium

• Integration: Vertical vs. Horizontal

Vertical vs. Horizontal Integration…

Vertical vs. Horizontal Integration

Mapping Industry for Strategy Formulation

Globalization moving up; ie.↑ integration quadrantCement: globalization limited by high weigh to value ratio

Globalization and Localization vary from industry to industry

International Strategies…• Multidomestic

– Technology and skills are intl, and not product requires adaptation

– HO develops product affiliates replicate– Very popular after WWII High tariff– After 80s ↓ Trade barriers Globalization

• Regional– Maximize economies of scale at regional level– Homogenous market demand, trading blocks– Stepping stone to full blown global strategy– Local staffing, ↓ turnover, ↑ morale, regional

decision-making• Ex GM, Safeway

International Strategy• Global

– Maximize intl efficiency, locate activities in low cost countries, standardize product, and manufacture world-class products

– ↑ market share if production facility same place– MNCs have bargaining power

• Bias the financial results transfer pricing• Control location of technology and skill transfer

– Reconfigure value-adding activities between countries– MNCs can move operations elsewhere– Take away jobs, no taxes to governments

– So governments want to retain MNCs• Tax break and infra structure support• ↑ investment, ↑ incentive offered

Recommendation for Managing the Process

• Invest heavily in data collection

– Use multiple data sources, tap external sources and develop internal sources to overcome suspect data

• Determine the potential for critical scale economies

• Weigh the value of other globalization benefits

• Rotate country managers more frequently to help them develop a global vision

• Reassess performance measurement system and reward system

• Take a balanced approach