by Ball, McCulloch, Frantz,
Geringer, and Minor

13
This chapter covers:
•International strategy and competitive advantage
•Steps in global strategic planning
•The purpose of mission statements, objectives and goals
•Global, multidomestic and transnational straties
•New directions in strategic planning
•Industrial espionage
International Business by Ball, McCulloch, Frantz,
Geringer, and Minor
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

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Understand international strategy and competencies and international competitive advantage
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Describe the steps in the global strategic planning process
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Understand the purpose of mission statements, objectives, goals, and strategies
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Understand global, multidomestic, and transnational strategies and when to use them
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Describe the new directions in strategic planning
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Describe the sources of competitive information
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Understand the importance of industrial espionage
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The way firms make choices about acquiring and using scarce resources in order to achieve their international objectives
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Involves decisions that deal with all the various functions and activities of a company
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The goal is to achieve and maintain a unique and valuable position both within a nation and globally
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This position has been termed competitive advantage
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Competitive advantage is the ability for a firm to have higher rates of profits than its competitors
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To create a sustainable competitive advantage, a company tries to develop skills that
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Create value for customers
Are rare
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Are difficult to imitate or substitute for
Are organized in a way that the company can fully exploit

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Provides a means to identify opportunities and threats
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Formulate strategies to handle them
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Stipulate how to finance implementation
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Provides consistency of action
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Requires participants to consider ramifications
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Provides a thorough, systematic foundation for making decisions
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The process of strategic planning provides a formal structure in which managers
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Analyze the company’s external environments
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Analyze the company’s internal environment
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Define the company’s business and mission
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Set corporate objectives
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Quantify goals
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Formulate strategies
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Make tactical plans

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Same format as domestic firm
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Variations in values of uncontrollable forces make more complex
Must know present values of forces and where they are headed
Must include domestic, international, and foreign environments

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Situational analysis
Forecast
Value Chain Analysis
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Who are the target customers?
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What value doe we deliver?
How will customer value be created?
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Knowledge as a Controllable
Corporate Resource
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Capabilities of employees
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Structures, systems and routines
Build knowledge database and transfer best practices
Protect knowledge from competitors
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These broad statements communicate to the corporation’s stakeholders what the company is and where it is going
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The vision should be a vibrant and compelling image of the organization’s purpose
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The mission statement typically defines the scope of what the company does
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Objectives
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Direct the firm’s course of action
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Maintain it within the boundaries of the stated mission
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Ensure its continuing existence
Objectives should be quantified as much as possible
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Corporate Strategies
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Action plans to enable organizations to reach their objectives
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Generally, participants in the strategic planning process will formulate alternative corporate strategies, or action plans, that seem plausible
13-11
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In the international market companies confront two opposing forces
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Reduction of costs
Adaptation to local markets
As a consequence, companies have basically three strategies they can use
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Multidomestic
Global
Transnational

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Used when a company faces strong pressure for reducing costs, and limited pressure to adapt products
Strategy and decision making centralized
Company offers standardized products and services
Value chain activities in only one or a few areas
Results in limited ability to adjust and change to meet customer needs and higher transportation costs
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Used when there is strong pressure for adaptation to local market
Decision making decentralized to allow for quick change
Increases cost structure
Too much adaptation may take away from product
Cost and complexity of coordination can be substantial

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Used when a company confronts pressures for both cost effectiveness and local adaptation
Company locations based on where most beneficial for each activity
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Upstream value chain activities will be more centralized
Downstream activities will be more decentralized
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Achieving an optimal balance is challenging
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Strategic decisions, structures and systems will be much more complex
13-14

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Multiple, plausible stories about the future.
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Often, the “what if” questions raised reveal weaknesses in present strategies
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Types of subjects for scenarios include
 large and sudden changes in sales (up or down)
 sudden increases in the price of raw materials
 sudden tax increases
 a change in the political party in power
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Contingency Plans
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Worst and best case scenarios
Critical events
Tactical Plans
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Also called operational
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Spell out in detail how objectives will be reached
Short-term
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Sales Forecasts and Budgets
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Sales Forecasts
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Provides management with an estimate of the revenue to be received and the units to be sold
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Serve as a basis for planning in other areas
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Budgets
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During planning, budgets coordinate the functions within the firm and provide management with a detailed statement of future operating results
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Policies
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Broad guidelines to assist lower-level managers in handling recurring problems
Permit discretionary action and interpretation
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The object is to economize managerial time and promote consistency among the various operating units
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Procedures
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Prescribe how certain activities will be carried out
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Ensure uniform action on the part of all corporate members
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Facilitate comparison among operational units

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Time Horizon
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Strategic plans may be classified as short-, medium-, or long-term
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Actual length varies according to age of firm and stability of market
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Level in the Organization
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Each organizational level will have its level of plan
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Each will be more specific than the level above
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Functional areas will have their own plans
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Top-down planning
 corporate headquarters develops and provides guidelines that include
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 the definition of the business the mission statement company objectives financial assumptions the content of the plan special issues
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Advantage
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The home office should be able to formulate plans that ensure the optimal corporatewide use of the firm’s scarce resources
Disadvantage
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Restricts initiative at the lower levels and shows insensitivity to local conditions

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Bottom-Up Planning
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Lowest operating levels inform top management what they expect to do
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Total becomes firm’s goals
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Advantage
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People responsible for attaining goals are formulating goals
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Disadvantage
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No guarantee affiliates’ goals will coincide with headquarters

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Iterative Planning
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Repetition of bottom-up or top-down planning process until all differences are reconciled
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Iterative planning is becoming more popular
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Especially in global companies that seek to have a single global plan while operating in many diverse foreign environments
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Who Does the Planning
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Many firms have introduced innovation to the planning process
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Bringing in customers and suppliers to have firsthand experience with the firm’s markets
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How Planning is Done
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Many firms have moved toward less structured formats and much shorter documents
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Contents of the Plan
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Top managers much more concerned with issues, strategies, and implementation
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Success in strategic planning depends on
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Quality of information
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Interpretation of information
Common practice to talk to competitors’ customers and distributors
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To test competitors’ products
View competitors exhibits at trade shows
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Industrial Espionage
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Some companies have resorted to spying on a competitor to learn secrets about its strategy and operations
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Today’s
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Increased competition has created a need for more knowledge of competitor
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The firm should have a competitor intelligence system (CIS)
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CIS can result in legal and ethical acquisition of valuable information and allow the company
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Improved bidding success
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Better target marketing and sales efforts
Identification of competitors’ expansion plans or changes in strategy
Improved understanding of competitors’ products and processes
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Within the Firm
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Sales representatives
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Librarians
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Technical and R&D people
Published Material
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Technical journals
Databases
Internet
Industry reports
Public documents
13-27
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Suppliers/Customers
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May know in advance about new products
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Purchasing agents can ask suppliers
Competitors’ employees
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Actual or past
Direct observation or physical evidence
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Plant tours
Reverse engineering
Trash hauler

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Industrial Espionage
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Briefcases, laptops, hotel rooms searched
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Key targets R&D, customer lists, financial data
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Technology makes theft easier
Government has passed laws to attempt to help
Companies try new security systems
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Measuring your company against others
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Four types
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Internal – comparing one operation in the firm with another
Competitive – comparing the firm’s operation with a direct competitor
Functional – comparing similar functions of firms in your industry
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Generic – comparing operations in totally unrelated industries
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