Chapter 6
Formulating Strategy
PowerPoint by
Kristopher Blanchard
North Central University
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Strategic Planning and Strategy
The process by which a firm’s managers evaluate
the future prospects of the firm and decide on
appropriate strategies to achieve long-term
objectives is called strategic planning.
The basic means by which the company competes
– its choice of business or businesses in which to
operate and the ways in which it differentiates
itself from its competitors – is its strategy.
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Strategic planning
– Process of determining an organization’s basic mission
and long-term objectives, then implementing a plan of
action for attaining these goals
– Process takes on added dimensions when companies go
international
– Growing Need for Strategic Planning
• MNC must keep track of diversified operations
• Continually changing international environment
• FDI has grown faster than both trade and world
gross domestic product
– Benefits of Strategic Planning
• Evidence is mixed
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Approaches to Formulating and
Implementing Strategy
– Economic Imperative
• Worldwide strategy based on cost leadership,
differentiation, and segmentation
– Political Imperative
• Strategic formulation and implementation utilizing
strategies that are country-responsive and designed
to protect local market niches
– Quality Imperative
• Strategic formulation and implementation utilizing
strategies of total quality management to meet or
exceed customers’ expectations and continuously
improve products and/or services
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Approaches to Formulating and
Implementing Strategy (cont.)
– Administrative Coordination
• Strategic formulation and implementation in
which the MNC makes strategic decisions
based on the merits of the individual situation
rather than using a predetermined
economically or politically driven strategy
– Large MNCs try to combine the economic,
political, quality, and administrative approaches
to strategic planning
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Strategic Predispositions
– Ethnocentric predisposition
• Nationalistic philosophy of management whereby the values of
the parent company guide the strategic decisions
– Polycentric predisposition
• Philosophy of management whereby strategic decisions are
tailored to the cultures of the countries where the MNC
operates
– Regiocentric predisposition
• Philosophy of management whereby the firm tries to blend its
own interests with those of its subsidiaries on a regional basis
– Geocentric predisposition
• Philosophy of management whereby the company tries to
integrate a global systems approach to decision making
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Reasons for Going International
AOL Europe is emerging as an upbeat counterpoint
to AOL’s sagging business in the United States.
Partly a matter of timing, as Europe follows the
United States online … but also reflecting
differences in strategy and execution. AOL Europe
lobbied hard … to establish rules guaranteeing
AOL Europe equal access to telecommunications
networks.
- www.nytimes.com, September 8, 2003
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Reasons for Going International
Reactive or defensive
Proactive or aggressive
The threat of decreased competitiveness is
the overriding reason many large companies
adopt a strategy of aggressive globalization
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Basic Elements of Strategic Planning for
International Management
External Environmental Scanning
for MNC Opportunities and Threats
Internal Resource Analysis of
MNC strengths and weaknesses
Strategic Planning
GOALS
IMPLEMENTATION
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Strategic Formulation Process
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Strategic Formulation Process
First phase is the planning phase – company
establishes (or clarifies) its mission and
overall objective
Second part is the implementation phase –
requires the establishment of the structure,
systems, processes suitable to make the
strategy work
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Mission and Objective
Mission of an
organization is its overall
raison d’etre or the
function it performs in
society
Objectives flow from
mission and guide the
formulation of
international strategy
Return
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Environmental Assessment
Gathering information and forecasting relevant
trends, competitive actions and circumstances that
will affect operations in a geographic area; should
include:
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Political instability
Currency instability
Nationalism
International competition
Environmental scanning
Return
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Basic Steps in Formulating Strategy
Environmental Scanning
– Process of providing management with accurate
forecasts of trends related to external changes in
geographic areas where the firm currently is doing
business and/or is considering setting up operations
Internal Resource Analysis
– Helps a firm to evaluate its current managerial,
technical, material, and financial strengths and
weaknesses
– Key factor for success (KFS)
• Factor necessary to effectively compete in a market niche
• Must have people and resources to develop and sustain the
necessary KFSs
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Internal Analysis
Internal analysis determines which areas of the
firm’s operations represent strengths or
weaknesses (currently or potentially) compared to
competitors, so that the firm may use that
information to its strategic advantage
It focuses on the company’s resources and
operations, and global synergies
Strengths and weaknesses of the firm’s financial
and managerial expertise and functional
capabilities are evaluated to determine the key
success factors
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Competitive Analysis
Assess the firm’s capabilities and key success
factors compared to those of its competitors
Enables strategic planners to determine where the
firm has distinctive competencies that will give it
an advantage
Most companies develop strategies around key
strengths or core competencies
This stage is often called a SWOT (Strengths,
Weaknesses, Opportunities, and Threats) analysis
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Global/International Strategic
Alternatives
Global Strategic Alternatives determines the
overall approach to the global marketplace
Entry Strategy Alternatives determine what
specific entry strategy is appropriate for
each country the firm plans to operate in
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Strategy Implementation
Process of providing goods and services in accord
with a plan of action
Location Consideration for Implementation
– The Country
• Industrialized countries are the recipients of most investments
by MNCs
– Offer the largest markets for goods and services
– May have legal restrictions on imports that encourage a local
presence
– Local Issues
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Access to markets
Proximity to competitors
Availability of transportation and utilities
Nature of of the workforce
Cost of doing business
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Strategy Implementation-cont..
Ownership and Entry Consideration for
Implementation
– Wholly Owned Subsidiary
• Overseas operation that is totally owned and controlled by an
MNC
• Increasingly acquiring subsidiaries through merger or
acquisition
• Provides MNC with complete control
– Joint Venture
• Agreement in which two or more partners own and control an
overseas business
• Nonequity venture - one group provides service to another
• Equity joint venture - involves financial investment
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Approaches to World Markets
Globalization is a term that refers to the
establishment of worldwide operations and the
development of standardized products and
marketing.
Regionalization (or multi-local) is where local
markets are linked together within a region,
allowing more local responsiveness and
specialization.
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Integrative Strategies
Multinational Corporations will develop their
operations to the point of being fully integrated
– Both vertical and horizontal
– Includes suppliers, productive facilities, marketing and
distribution outlets, and contractors
Some move quickly to the stage of integration
through acquisition
Other companies use a variety of strategies and
enter the country in stages
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Entry Strategies
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Ownership and Entry Consideration for
Implementation (cont.)
– Licensing
• Agreement that allows one party to use an industrial property
right in exchange for payment to the other party
• Used under a number of common conditions
– Franchising
• Business arrangement under which one party (the franchisor)
allows another (the franchisee) to operate an enterprise using its
trademark, logo, product line, and methods of operation in return
for a fee
– Export/Import
• Useful for firms wanting to begin international expansion with a
minimum investment
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Advantages of Joint Ventures
Improvement
of efficiency
Access to
knowledge
Joint
Ventures
Political
factors
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Collusion or
restriction of
competition
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Role of the Functional Areas in Implementation
– Marketing
• Strategy implementation must be determined on a
country-by-country basis
• Built around the “four Ps”
– Product, price, promotion and place
• Usually dominates strategy implementation
– Production
• Consideration of worldwide production is important
• Multidomestic company
– Firm that operates production plants in different countries
but makes no attempt to integrate overall operations
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Role of the Functional Areas in
Implementation (cont.)
– Finance
• Strategy implementation developed at the
home office and carried out by the overseas
affiliates
• Transferring funds from one place to
another, or borrowing funds in the
international money markets, often is less
expensive than relying on local sources
• Must be concerned about volatile monetary
exchange rates
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Using E-business for expansion
The real story is the profound impact this medium
will have on corporate strategy, organization and
business models. Our research reveals that the
Internet is driving global marketplace
transformation and paradigm shift in how
companies get things done, how they compete and
how they serve their customers.”
- www.IBM.com
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Global B2B/B2C Strategy
To assess the potential competitive position of the company,
managers must ask themselves the following questions with
respect to B2B/B2C:
• Does the exchange provide a technology solution that
helps industry-trading partners to do business more
efficiently?
• Is the exchange known to be among the top 3-5 within its
vertical industry?
• Does the exchange offer industry-specific technology and
expertise that gives it an advantage over generic exchangebuilders?
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Conditions Favoring E-Global
“The global beachhead strategy makes sense when
trade is global in scope; when the business does
not involve delivering orders; and when the
business model can be hijacked relatively easily by
local competitors.”
M. Sawhney and S. Mandal
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Conditions Favoring E-Local
“[The e-local/regional approach] is preferable under
three conditions: when production and
consumption are regional rather than global in
scope; when customer behavior and market
structures differ across regions but are relatively
similar within a region; and when supply-chain
management is very important to success.”
Sawhney and Mandal
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Entry Strategy Alternatives
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Comparative Management in Focus:
Planning for the EU Market
As of May 2004 the European Union is:
– A 25-nation unified market
– A market of more than 400 million people
With the addition of Central and Eastern European
countries companies have access to:
– The EU
– Cheaper wages, lower corporate taxes, and educated
workforces
– Eliminated currency risk for Europe
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Comparative Management in Focus:
Planning for the EU Market
The EU has developed a protectionist wall
– Tariffs, quotas, local content laws and
competitive tactics
– Designed to keep the US and Japan out
The EU has created opportunities for
nonmembers as well
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Strategic Choice
The strategic choice of one or more of the entry
strategies will depend on
– a critical evaluation of the advantages (and
disadvantages of each in relation to the firm’s
capabilities,
– the critical environmental factors
– the contribution that each choice would make
to the overall mission and objectives of the
company.
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Looking Ahead
Chapter 7 – Global Alliances and Strategy
Implementation
– Strategic Alliances
– Strategic Implementation
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Reactive
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Globalization of competitors
Trade barriers
Regulations and restrictions
Customer demands
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Proactive
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Economies of scale
Growth opportunities
Resource access and cost savings
Incentives
From rain forests to remote Chinese villages, the queen of cosmetics
(Avon) is cleaning up across the globe. China is our single biggest
growth opportunity. [Now] we have beauty boutiques, with 5,000 store
representatives in every province including Tibet. A corollary on the
[WTO] bill said that China would reestablish the legitimacy of direct
selling in the marketplace. It could be in the next couple of years.
—Susan Kropf, President,Avon Products,January 12, 2004.
Return
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Globalization
Increasing competitive clout resulting from
regional trading blocs
Declining tariffs, which encourage trading across
borders and open up new markets
The information technology explosion, which
makes the coordination of far-flung operations
easier and also increases the commonality of
consumer tastes
Return
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Regionalization
Unique consumer preferences resulting
from cultural or national differences:
whitening cream as make ups for Asian
women
Domestic subsidies: tax exemptions
New production technologies that facilitate
product variation for less cost than before.
Return
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