Unit: V
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International Strategy
•International Strategy is needed to make
decisions regarding what products to
produce, where to produce them and how
to market them.
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Strategy Formulation
•Strategy-formulation permits to step back
from day to day activities and get a fresh
perspective on the current and future
direction of the company.
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Strategy-Formulation Process
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International Organizational Structure
Organizational Structure is the way in which a
company divides its objectives among separate
units and coordinates activities among those
units.
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Alternative forms of Organization
1. Centralization
2.Decentralization
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Types of Organizational Structural
1. International Division Structural
2.International Area Structural
3.Global Product Structural
4.Global Matrix Structural
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International Division Structure
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International Area Structure
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Global Product Structure
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Global Matrix Structure
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Analyzing International Opportunities
Screening Potential Markets and Sites
1. Identify basic appeal
2. Assess the national business environment
3. Measure the market or site potential
4. Select the market or site
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Conducting International Research
Difficulties of Conducting International Research
1. Availability of Data
2. Comparability of data
3. Cultural differences
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Sources of Secondary International Data
• International Organizations
•Government Agencies
•Industry and Trade Associations
•Internet
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Methods of Conducting Primary International Research
 Trade shows and Trade Missions
Interviews and Focus Groups
Surveys
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Selecting and Managing Entry Modes
 Exporting
Importing
Countertrade
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Exporting
Sending goods or services to another country for sale
Why companies Export?
1. Expand Sales
2. Diversify Sales
3. Gain Experience
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Exports to the United States
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Developing an Export Strategy
 Step 1
 Identify a potential market
 Step 2
 Match needs to abilities
 Step 3
 Initiate meetings
 Step 4
 Commit resources
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Degree of Export Involvement
 Direct exporting (sell to buyers)
 Sales representative
 Distributor
 Indirect exporting (sell to intermediary)
 Agent
 Export management company (EMC)
 Export trading company (ETC)
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Avoiding Export Blunders
 Conduct market research
 Obtain export advice
 Hire a freight forwarder
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Import
An import is a good brought into a jurisdiction, especially
across a national border, from an external source. An
import in the receiving country is an export from the
sending country.
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Counter-trade
Practice of selling goods or services that are
paid for, in whole or in part, with other
goods or services.
Types:
1. Barter
2.
3.
4.
5.
Counter-purchase
Offset
Switch Trading
Buyback
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Forms of Countertrade
 Barter
 Direct exchange without money
 Counterpurchase
 Sale to a nation in return for promise of future purchase from that
nation
 Offset agreement
 Offset a hard-currency sale to a nation with future hard-currency
purchase
 Switch trading
 Sale by a company of obligation to purchase from a country
 Buyback
 Export of industrial equipment in return for products that the
equipment produces
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Contractual Entry Modes
 Licensing
Franchising
Management Contracts
Turnkey Projects
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Licensing
 Company owning intangible property (licensor) grants
another firm (licensee) the right to use it for a specific
time
 Advantages




Finance expansion
Reduce risks
Reduce counterfeits
Upgrade technologies
 Disadvantages



Restrict licensor’s activities
Reduce global consistency
Lend strategic property
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Franchising
 Company (franchiser) supplies another
(franchisee) with intangible property over an
extended period
 Advantages
 Low cost and low risk
 Rapid expansion
 Local knowledge
 Disadvantages
 Cumbersome
 Lost flexibility
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Management Contract
 Company supplies another with managerial expertise
for a specific period of time
 Advantages
 Few assets risked
 Nations finance projects
 Develops local workforce
 Disadvantages
 Personnel at risk
 Create competitor
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Turnkey Project
 Company designs, constructs and tests a production
facility for a client
 Advantages


Firms specialize in competency
Nations obtain infrastructure
 Disadvantages


Politicized process
Create competitor
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Investment Entry Modes




Wholly Owned subsidiaries
Joint Ventures
Strategic Alliances
Selecting partners for cooperation
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Wholly Owned Subsidiary
 Facility entirely owned and controlled by a single
parent company
 Advantages


Day-to-day control
Coordinate subsidiaries
 Disadvantages


Expensive
High risk
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Joint Venture
 Company created and jointly owned by
two or more entities to achieve a common
objective
 Advantages
 Reduce risk level
 Penetrate markets
 Access channels
 Disadvantages
 Partner conflict
 Lose control
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Joint Venture Configurations
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Strategic Alliance
• Entities cooperate (but do not form a separate
company) to achieve strategic goals of each
 Advantages
 Share project cost
 Tap competitors’ strengths
 Gain channel access
 Disadvantages
 Partner conflict
 Create competitor
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Selecting Partners
•
•
•
•
Commitment
Trustworthiness
Cultural knowledge
Valuable contribution
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Strategic Factors
•
•
•
•
•
Cultural environment
Political/Legal environments
Market size
Production and shipping costs
International experience
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Strategic Factors in Selecting an Entry Mode
o
o
o
o
o
Cultural Environment
Political and Legal Environment
Market Size
Production and Shipping costs
International Experience
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Developing and Marketing Products
Learning objectives:
 Globalization and Marketing
 Developing Product Strategies
 Creating Promotional Strategies
 Designing Distribution Strategies
 Developing Pricing Strategies
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Globalization and Marketing
 Standardized product and promotion
 Consistent image / message
 Contain costs
 Adapted product and / or marketing
 Respond to local needs
 Exploit unique image
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Developing Product Strategies
 Cultural differences
 Laws and regulations
 National image
 Counterfeit goods
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Creating Promotional Strategies
Push and Pull Strategies
International Advertising
Blending Product and Promotional Strategies
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Designing Distribution Strategies
Designing Distribution Channels
Influence of Product Characteristics
Special Distribution Problems
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Developing Pricing Strategies
Worldwide Pricing
Dual Pricing
Factors that Affect Pricing Decisions
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Managing International Operations
Learning Objectives:
 Product Strategy
 Acquiring Physical Resources
 Key Production Concerns
 Financing Business Operations
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Production Strategy
 Capacity Planning
 Facilities Location Planning
 Process Planning
 Facilities Layout Planning
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Acquiring Physical Resources
o Make or Buy Decision
o Raw Material
o Fixed Assets
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Key Production Concerns
Quality-improvement Efforts
Shipping and Inventory Costs
Reinvestment versus Divestment
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Financing Business Operations
Borrowing
Issuing Equity
Internal Funding
Capital Structure
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Hiring and Managing Employees
Learning Objectives:
 International Staffing Policy
 Recruiting and Selecting Human Resources
 Training and Development
 Employee Compensation
 Labour Management Relations
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International Staffing Policy
 Ethnocentric Staffing
 Polycentric Staffing
 Geocentric Staffing
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Ethnocentric Staffing
 Individuals from home country manage operations
abroad
 Advantages
 Locally qualified people not always available
 Tight control over subsidiaries
 Re-create local operations in home-office image
 Interests of home office may be better protected
 Disadvantages
 Relocations are expensive
 Give the business a “foreign” image
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Polycentric Staffing
 Individuals from host country manage operations
abroad
 Advantages
 Responsibility on those knowing local business
 Avoid expensive relocations from home nation
 Disadvantages
 Resemble a collection of national entities
 Potentially harm performance
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Geocentric Staffing
 Best-qualified individuals, regardless of nationality,
manage operations abroad
 Advantages
 Managers who can adjust anywhere
 Break down nationalistic barriers
 Disadvantage
 These individuals command high salaries
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Recruiting and Selecting Human Resources
 Human Resource Planning
 Recruiting Human Resources
 Selecting Human Resources
 Culture Shock
 Reverse Culture Shock
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Human Resource Planning
 Forecasting human resource needs and supply
 Phase 1
 Take inventory of current human resources
 Phase 2
 Estimate firm’s future human resource needs
 Phase 3
 Develop plan to recruit and select people for vacant and
anticipated new positions
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Recruiting Human Resources
 Process of identifying and attracting a qualified pool
of applicants for vacant positions
 Current employees
 Recent college graduates
 Local managerial talent
 Nonmanagerial workers
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Selecting Human Resources
 Process of screening and hiring the best-qualified
applicants with the greatest performance potential
 Ability to bridge cultural differences is key
 Expatriates must adapt to new ways of life
 Cultural sensitivity raises odds for success
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Culture Shock
Psychological process affecting people living abroad
that is characterized by homesickness, irritability,
confusion, aggravation, and depression
-Stage I: Thrilling experience
-Stage II: Downward slide
-Stage III: Recovery begins
-Stage IV: Embrace local culture
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Reverse Culture Shock
 Readapting to home culture
 Once-natural thoughts and feelings now strange
 Can be more unsettling than culture shock
 Some companies reabsorb expatriates poorly
 Reducing its effects
 Home-culture reorientation programs
 Career-counseling sessions
 Career-development program before posting abroad
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Training and Development
Methods of Cultural Training
Compiling a cultural profile
Non-managerial Worker Training
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Methods of Cultural Training
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Compiling a Cultural Profile
 CultureGrams
 Country Studies Area Handbooks
 Background Notes
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Non-Managerial Worker Training
 Emerging markets
 Basic skills training
 Apprenticeship training
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Compensation of Managers
 Cost-of-living effects
 Bonus and tax incentives
 Cultural and social factors
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Compensation of Workers
 Greater cross-border investment
 Labor mobility in some markets
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Labor-Management Relations
 Positive or negative relations between a company’s
management and its workers
 Rooted in local culture
 Directly influences workers’ lives
 Often affected by political movements
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Labor Unions
 Selection of a location
 Performance in a market
 Emerging markets
 Codetermination in Germany
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International Labor Movements
 International activities of unions are making
progress in improving treatment of workers and
reducing child labor
 But can be difficult:
 Events in distant lands difficult to comprehend
- Workers in different nations often compete
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Home assignment
What are the different sources of Financing
Business Operations. Select any Multinational company of your choice working in
Saudi Arabia.
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