Welcome to class of
International
Strategy Formulation
by
Dr. 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
Encourage or discourage
– Company-specific
• International strategy formulation
– Mapping of Industries
– Mutidomestic, Regional, and Global strategies
– Recommendations for managing the process
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
globalization
cost
through
rapid
• 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 ↑
Ten % of profit goes to Humanity/charity causes
In fact, It was Turkey's Halal Chicken
but led to temporary closure
BBC Nov 2015
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 quadrant
Cement: globalization limited by low value to weight 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